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You are an expert at summarizing long articles. Proceed to summarize the following text: Species of plants, animals, and microscopic organisms are transported from their native environments around the world to new locations in many different ways, both intentionally and unintentionally. When they arrive in a new location, most of these species do not survive because environmental conditions are not favorable. However, some of the newly arrived species do survive and, unfortunately, a portion of these flourish to the point that they begin to dominate native species and are thus labeled as “invasive.” These invasive, nonnative species can seriously damage ecosystems, businesses, and recreation. Ballast water is one of many pathways by which nonnative and invasive species have arrived in the United States. Ships are designed to sail safely with their hulls submerged to a certain depth in the water. If a ship is not filled to capacity with cargo, it needs to fill its ballast tanks with water to maintain proper depth and balance during its travels. As a ship takes on cargo at ports of call, it must then discharge some of its ballast water to compensate for the weight of the cargo. When ships are fully loaded with cargo, their ballast tanks may be pumped down to the point where only residual water (also referred to as non-pumpable ballast water) is left. Ship masters may also manipulate the amount of water in their ballast tanks to account for different sea conditions. Different classes of ships have different ballast capacities, ranging from tens of thousands to millions of gallons of water. Ships generally fill and discharge their ballast tanks when they are in port, and the water and associated sediment they take in is likely to contain living organisms or their eggs. Because the ballast water may be fresh, brackish, or salty depending on where it is obtained, the organisms in the water will also vary accordingly. Worldwide, ships discharge an estimated 3 billion to 5 billion metric tons of ballast water each year, and it is estimated that several thousand different species may be transported globally in ballast tanks on any given day. Well-known examples of invasive species brought to the United States in ballast tanks include the zebra mussel, round goby, Japanese shore crab, Asian clam, and Black Sea jellyfish. Collectively, these and other aquatic species transported in ballast water have caused billions of dollars in damage to our economy and unmeasured damage to the environment. For example, we reported in 2002 that the Great Lakes commercial and recreational fishing industry— which is worth about $4.5 billion annually—was being damaged or threatened by the sea lamprey, round goby, Eurasian ruffe, and two invertebrates from eastern Europe, just to name a few. While the Great Lakes feature prominently in today’s hearing, many other waters around the United States have also been invaded by harmful species. Notably, invasive species are found in virtually all of our coastal bays and estuaries—resources that are typically enormously productive and support multibillion dollar commercial fisheries and recreation industries. Given the pace and expansion of global trade, the movement of additional invasive species to these and other ecosystems can only be expected to continue. The federal government has been taking steps to address the introduction of potentially invasive species via the ballast water in ships for well over a decade. Congress recognized ballast water as a serious problem in 1990 with the passage of the Nonindigenous Aquatic Nuisance Prevention and Control Act, legislation intended to help reduce the number of species introduced into U.S. waters, focusing on the Great Lakes. Congress reauthorized appropriations for and amended that law in 1996, making it more national in scope. In 1999, the President issued an executive order to better address invasive species in general, including those transported in ballast water. In addition to these domestic developments, members of the United Nation’s International Maritime Organization have adopted a convention on ballast water management that, if ratified by a sufficient number of countries, could affect the global fleet. Ballast water as a conduit for invasive species was first legislatively recognized in 1990 with the passage of the Nonindigenous Aquatic Nuisance Prevention and Control Act (NANPCA). This law was a response to the introduction of the zebra mussel in the Great Lakes and findings that the discharge of ballast water results in unintentional introductions of nonindigenous species. The zebra mussel reproduces rapidly, and soon after its introduction clogged municipal and industrial water pipes, out-competed native mussels for food and habitat, and cost millions of dollars in economic losses and remedial actions. Specifically, NANPCA called for regulations to prevent the introduction and spread of aquatic invasive species into the Great Lakes through the ballast water of ships. Among other things, it specifically called for the regulations to require ships carrying ballast water and entering a Great Lakes port after operating beyond the Exclusive Economic Zone (EEZ)—a zone generally extending 200 nautical miles from a country’s shores—to take one of the following actions: Carry out what is known as ballast water exchange beyond the EEZ before entering a Great Lakes port; Exchange ballast water in other waters where the exchange does not threaten introduction of aquatic invasive species to the Great Lakes or other U.S. waters; or Use an environmentally sound alternative method of removing potentially invasive organisms if the Secretary determines that such method is as effective as ballast water exchange in preventing and controlling aquatic invasive species infestations. Exchanging ballast water in the ocean serves two purposes—to physically flush aquatic organisms from ships’ tanks and to kill remaining organisms that require fresh or brackish water with highly saline ocean water. After first issuing guidelines that became effective in March 1991, the Coast Guard replaced them with ballast water management regulations in April 1993 for ships carrying ballast water and entering the Great Lakes from outside of the EEZ. In 1992, Congress amended NANPCA and called for the promulgation of regulations for ships entering the Hudson River north of the George Washington Bridge; in December 1994, the Coast Guard extended its regulations to these ships. The regulations required ships with pumpable ballast water to: exchange ballast water beyond the EEZ at a minimum depth of 2,000 meters before entering the Great Lakes or Hudson River; utilize another environmentally sound ballast water management method approved by the Coast Guard; or retain the ballast water on board. The Coast Guard did not approve any alternative method and, therefore, ships that did not exchange their ballast water beyond the EEZ were required to retain it on board. The Coast Guard also required these ships to submit reports attesting to, among other things, their ballast water management actions. NANPCA also established the Aquatic Nuisance Species Task Force (ANSTF), consisting of representatives from the U.S. Fish and Wildlife Service, the National Oceanic and Atmospheric Administration (NOAA), the Environmental Protection Agency (EPA), the Coast Guard, the Army Corps of Engineers, and other agencies deemed appropriate, as well as ex- officio members from the Great Lakes Commission and other nonfederal groups or agencies. NANPCA required the task force and the Secretary to cooperate in conducting a number of studies within 18 months of enactment of the act on such issues as: The environmental effects of ballast water exchange on native species in Alternate areas, if any, where ballast water exchange does not pose a threat of infestation or spread of aquatic invasive species in the Great Lakes and other U.S. waters; The need for controls on ships entering U.S. waters other than the Great Lakes to minimize the risk of unintentional introduction and dispersal of aquatic invasive species in those waters; and, Whether aquatic invasive species threaten the ecological characteristics and economic uses of U.S. waters other than the Great Lakes. Recognizing that many water bodies around the country in addition to the Great Lakes had been invaded by harmful, nonindigenous aquatic species, Congress reauthorized appropriations for and amended NANPCA with the passage of the National Invasive Species Act of 1996 (NISA). NISA expanded upon NANCPA and called for voluntary national guidelines for ships equipped with ballast water tanks that operate in waters of the United States. NISA required the voluntary guidelines to direct ships to manage ballast water in a manner similar to the mandatory requirements for ships sailing to the Great Lakes by conducting ballast water exchange beyond the EEZ, exchanging their ballast water in an alternative discharge zone recommended by the ANSTF, or using an alternative treatment method approved by the Secretary. The law also required that the guidelines direct ships to carry out other management practices that were deemed necessary to reduce the probability of transferring species from ship operations other than ballast discharge and from ballasting practices of ships that enter U.S. waters with no ballast water on board. In addition, the law required that the guidelines provide that ships keep records and submit them to the Secretary to enable the Secretary to determine compliance with the guidelines. The Coast Guard issued an interim rule in May 1999 and promulgated a final rule in November 2001 setting forth national voluntary guidelines under NISA. The guidelines encouraged ships carrying ballast water taken on in areas less than 200 nautical miles from any shore or in waters less than 2,000 meters deep to employ at least one of the following ballast water management practices: exchange their ballast water outside of the EEZ in waters at least 2,000 meters deep before entering U.S. waters, retain it on board, use an approved alternative ballast water management method, discharge the ballast water to an approved reception facility, or under extraordinary conditions conduct an exchange in an area agreed to by the Captain of the Port. The voluntary guidelines also encouraged all ships equipped with ballast water tanks and operating in U.S. waters to take various precautions to minimize the uptake and release of harmful aquatic organisms, pathogens and sediments. Such precautions may include regularly cleaning ballast tanks to remove sediment and minimizing or avoiding the uptake of ballast water in areas known to have infestations of harmful organisms and pathogens such as toxic algal blooms. In issuing the voluntary guidelines, the Coast Guard said that it was considering the results of a study on alternate discharge exchange zones but had not decided whether to allow ballast water exchanges in any of the possible locations the task force identified. NISA also required a report to Congress on, among other things, compliance with the voluntary ballast water exchange and reporting guidelines no later than 3 years after their issuance. In addition, NISA required that the guidelines be revised, or additional regulations promulgated, no later than 3 years after the issuance of the guidelines and at least every 3 years thereafter, as necessary. Importantly, NISA required the promulgation of regulations making the guidelines mandatory if the Secretary determined that reporting or the rate of ship compliance was not adequate. As required by NISA, the Coast Guard issued its report to Congress in June 2002, but was not able to evaluate compliance with the voluntary guidelines because the rate of reporting was so poor. (From July 1, 1999, to June 30, 2001, less than one-third of all vessels required to report ballast water management information met the requirement.) Accordingly, as authorized by NISA, the Coast Guard published a proposed rule for a national mandatory program for ballast water management for all ships operating in U.S. waters in July 2003 and a final rule in July 2004. In addition, the Coast Guard promulgated another rule, effective August 13, 2004, establishing penalties for, among other things, ship owners who do not file the required reports on their ballast water operations. Finally, a key provision in NISA recognized the need to stimulate development of ballast water treatment technologies. Specifically, NISA called for the establishment of a grant program to provide funds to nonfederal entities to develop, test, and demonstrate ballast water treatment technologies. The Secretary of the Interior was authorized to enter into cooperative agreements with other federal agencies and nonfederal entities to conduct the program. NOAA and the U.S. Fish and Wildlife Service created the Ballast Water Technology Demonstration Program that provides grants to entities pursuing technologies that could be used to treat ballast water. Addressing concerns with the introduction of potentially harmful organisms via ballast water also falls under the purview of the National Invasive Species Council. The council was created in 1999 under Executive Order 13112, which broadly addressed all types of invasive species. The council consists of the heads of the principal departments and agencies with invasive species responsibilities. The order directed the council to develop a plan for managing invasive species across agencies and to do so through a public process in consultation with federal agencies and stakeholders. The council issued a national invasive species management plan in January 2001 containing 57 primary action items calling for about 168 separate actions to be taken by a variety of federal agencies. Two actions in the plan relate to ballast water. First, because ballast water exchange was recognized as only an interim measure to address nonnative species introductions via ballast water, the plan called for NOAA, the Coast Guard, Interior, and EPA to sponsor research to develop new technologies for ballast water management by July 2001. Second, the plan called for the Coast Guard to issue standards for approving the use of ballast water management technologies as alternative ballast water management methods by January 2002. NANPCA and NISA require that, in order for an alternative ballast water management method to be used, the Secretary must first approve the method as being “at least as effective as ballast water exchange in preventing and controlling infestations of aquatic nuisance species,” however, standards for approving alternative measures had yet to be developed. The effect of the National Invasive Species Council and the national management plan on efforts to address species introductions via ballast water appears to be minimal. While research on technologies has been supported by the Ballast Water Technology Demonstration Program, which is managed by NOAA and the Fish and Wildlife Service, this program began in 1998 in response to NISA—before the management plan was written or before the council was even created. Little action has been taken on developing standards for approving ballast water treatment technologies even though its completion date was January 2002. The council has focused on ballast water in its “cross-cut budget” for invasive species that it began in 2002 (for the fiscal year 2004 budget), although its influence on ballast water management also appears limited. The cross-cut budget effort is intended to encourage agencies to, among other things, develop shared goals and strategies, and to promote cooperation and coordination on invasive species issues. As a part of the cross-cut budget, agencies have developed three performance measures for ballast water management. For fiscal year 2005, agencies were to (1) sponsor eight ballast water technology projects, (2) develop and implement a standardized program to test and certify the performance capabilities of ballast water treatment systems, and (3) conduct a pilot scale verification trial of a full-scale treatment system to validate the standardized program. However, these measures call for agencies to take certain actions as opposed to achieving some desired outcome. This is similar to what we observed in our 2002 report about the actions in the national management plan. In addition, we note that the Coast Guard is not included in the cross-cut budget for ballast water despite being the primary regulatory agency for managing this issue. While Congress, the Coast Guard, and other federal agencies have sought to reduce the threats posed by ballast water through domestic regulation, the United Nation’s International Maritime Organization (IMO) has worked for over 10 years toward a global solution to the problem. In February 2004, IMO member countries adopted the International Convention for the Control and Management of Ships’ Ballast Water and Sediments. The convention calls for ballast water exchange as an interim measure. This would be followed by the imposition of a treatment standard that would place limits on the number of organisms that ships could discharge in their ballast. To enter into force, the convention must be ratified by at least 30 countries constituting at least 35 percent of the gross tonnage of the world’s merchant shipping. As of August 2005, eight countries had signed the convention but only one—the Maldives—had ratified it. The convention’s ballast water performance standard would require ships conducting ballast water management to discharge less than 10 viable organisms greater than or equal to 50 microns in size per cubic meter of water and less than 10 viable organisms less than 50 but greater than 10 microns in size per milliliter of water. In addition, the ballast water performance standard would set limits on the discharge of several disease causing pathogens including cholera and E. coli. The dates by which ships would need to meet the ballast water performance standard, if the convention enters into force, would depend upon when the ship was built and what its ballast water capacity is. For example, the ships first required to meet the standard would be those built in 2009 or later with a ballast capacity of less than 5,000 cubic meters. Ships built before 2009 with a ballast capacity between 1,500 cubic meters and 5,000 cubic meters would have to meet the standard by 2014. Regardless of age or size, all ships subject to the convention would need to meet the standard by 2016. The federal government has continued to take steps to strengthen controls over ballast water as a conduit for potentially harmful organisms. Since 1998, Coast Guard data show that compliance with conducting ballast water exchange, when required, has generally been high. However, key agencies and stakeholders recognize that the recently adopted mandatory national program for ballast water exchange is not a viable long-term approach to minimizing the risks posed by ballast water discharges. Major limitations with this approach include the fact that despite relatively high compliance rates with the regulations, U.S. waters remain vulnerable to species invasions because many ships are still not required to conduct ballast water exchange. In addition, the ANSTF has not recommended alternate areas for ballast water exchange and thus, the Coast Guard has not established alternate discharge zones that could be used by ships. And lastly, ballast water exchange is not always effective at removing or killing potentially harmful species. With the Coast Guard’s mandatory ballast water management regulation for ships traveling into U.S. waters after operating beyond the EEZ and carrying ballast water taken on less than 200 nautical miles from shore— effective September 2004—more ships are generally required to conduct ballast water exchange or retain their ballast water than before. We noted in 2002 that compliance with ballast water exchange requirements for ships entering the Great Lakes was high, and the Coast Guard maintains that it remains high. According to the Coast Guard, from 1998 through 2004, 93 percent of the ships entering the Great Lakes with pumpable ballast water were in compliance with the exchange requirement. More recently, data show that about 70 percent of those arriving from outside the EEZ to ports other than the Great Lakes conducted an exchange. Most notably, reporting on ballast water management activities has increased dramatically. According to the Coast Guard, reporting increased from approximately 800 reports per month in January 2004 to over 8,000 per month since September 2004; this reflects reporting from about 75 percent of ships arriving from outside the EEZ. The Coast Guard attributes the increase in reporting to an effort beginning in 2004 to encourage ship masters to file reports electronically and to the new regulations that allow the Coast Guard to levy penalties for non-reporting. According to data provided by the Coast Guard, nearly five percent of ships arriving at U.S. ports between January 2005 and July 2005 were inspected for compliance with ballast water regulations. On the basis of its inspections, the Coast Guard reports a 96.5 percent compliance rate with the mandatory ballast water management regulations. During the first two quarters of 2005, inspections revealed 124 deficiencies that range from problems with ballast water management reporting to illegal discharge of ballast water in U.S. waters. As a result of these findings, Coast Guard took nine enforcement actions. Although the Coast Guard believes that compliance with ballast water management regulations is high, U.S. waters may still not be adequately protected because many ships are not required to conduct ballast water exchange even though they may discharge ballast water in U.S. waters. NOBOBs. Ships with no ballast water in their tanks (referred to as “no ballast on board” ships or NOBOBs) are not required to conduct ballast water exchange or retain their ballast water. While the term “NOBOB” indicates that a ship has no ballast on board, these ships may, in fact, still be carrying thousands of gallons of residual ballast water and tons of sediment that cannot be easily pumped out because of the design of their tanks and pumps. This water and sediment could harbor potentially invasive organisms from previous ports of call that could be discharged to U.S. waters during subsequent ballast discharges. NOBOBs are a particular concern in the Great Lakes, where greater than 80 percent of ships entering from outside the EEZ fall into this category. While still a concern for other U.S. ports, it appears that a significantly smaller portion (about 20 percent) of ships arriving at U.S. ports other than the Great Lakes from beyond the EEZ claimed NOBOB status. Officials responsible for gathering and managing data on ship arrivals estimate that about 5 percent of those NOBOB ships take on ballast water and discharge it in U.S. waters. When the Coast Guard conducted an environmental assessment of its new national mandatory ballast water exchange regulations in 2003, it did not review the potential threat that NOBOB ships pose to future species invasions, although it received comments raising concerns about this omission. In response to comments on its 2004 rule, the agency noted that NOBOBs were required to submit ballast water reporting forms, that it would continue to explore the issue of NOBOBs, and that these vessels may be included in a future rulemaking. In May 2005, the Coast Guard convened a public workshop in Cleveland to discuss and obtain comments on NOBOBs, particularly as they affect the Great Lakes. Following the public meeting, the Coast Guard held a closed meeting for an invited group of government officials and technology experts. The overall purpose of the closed meeting was to discuss technological approaches that are now available or soon to be available to address the potentially invasive organisms in NOBOB ships. The agency has not published any record of the closed meeting. The Coast Guard just issued a notice, published in the Federal Register on August 31, 2005, containing a voluntary management practice for NOBOBs that enter the Great Lakes and have not conducted ballast water exchange. This practice indicates that such ships should conduct salt water flushing of their empty ballast tanks in an area 200 nautical miles from any shore, whenever possible. Salt water flushing is defined as “the addition of mid-ocean water to empty ballast water tanks; the mixing of the flush water with residual water and sediment through the motion of the vessel; and the discharge of the mixed water, such that the resultant residual water remaining in the tank has as high a salinity as possible, and preferably is greater than 30 parts per thousand.” Scientists believe that this process will either flush out residual organisms from the ballast tanks or kill remaining organisms with highly saline ocean water. The effectiveness of this process, however, has not been demonstrated. A Coast Guard official in the ballast water program explained that issuance of voluntary best management practices were favored over regulations because of the relative speed with which they can be issued. Coastal Traffic. Ships traveling along U.S. coasts that do not travel farther than 200 nautical miles from any shore are also not required to conduct ballast water exchange or to retain their ballast water. One such group of ships includes those that travel within the EEZ from one U.S. port to another, such as from the Gulf of Mexico to the Chesapeake Bay. However, these ships may act as a vector for unwanted organisms between ports. The second group of ships falling in this category includes those that come from foreign ports but do not travel more than 200 nautical miles from any shore. These can include ships arriving from the Caribbean, Central America, South America, Panama Canal, and Canada. The Coast Guard regulations explicitly exempt ships traveling within 200 nautical miles of any shore from conducting ballast water exchange. However, these ships also represent a possible conduit for invasive species. Approximately 65 percent of ships arriving at U.S. ports from outside the EEZ—over 28,000 in 2003—do not travel more than 200 nautical miles from shore. Key stakeholders have raised concerns about this gap in regulatory coverage over coastal traffic. For example, in commenting on the Coast Guard’s proposed regulations for national mandatory ballast water exchange, NOAA, the Fish and Wildlife Service, the states of Washington and Pennsylvania, the Northeast Aquatic Nuisance Species Task Force, a state port association, and environmental advocacy organizations expressed concern that coastal traffic was not addressed by the rulemaking. The Coast Guard has also acknowledged this gap. Specifically, the agency noted in its July 2003 assessment of the potential impacts of its new regulations on mandatory ballast water exchange and in its environmental assessment of the final regulations, that discharges from coastal shipping could result in the introduction or spread of invasive species within regions of the United States. However, the agency did not quantify the additional risks posed by coastal traffic nor did it discuss what should be done to mitigate those risks. Several of the issues described above revolve around the requirement that ballast water exchange be done at least 200 nautical miles from shore. However, Congress recognized that there might be areas within the 200- nautical mile limit of the EEZ in which ballast water exchange might not be harmful. Congress required the Aquatic Nuisance Species Task Force to conduct a study to identify any possible areas within the waters of the United States and the EEZ where ballast water exchange would not pose a threat of infestation or spread of aquatic invasive species. NANPCA, as amended by NISA, called upon the Coast Guard regulations and guidelines to allow or encourage ships to exchange ballast water in alternate locations, based on the Task Force’s recommendations. The required study on alternate exchange areas was delivered to NOAA and EPA— members of the task force—in November 1998. According to the study, it was impossible to guarantee that organisms in ballast water would not be transported by winds or currents toward suitable shoreside habitats when discharged within 200 nautical miles of shore. The study also noted that suitable discharge areas varied depending upon winds and currents at a particular time. However, in looking at conditions around the United States, the study identified many locations where it appeared that ballast water exchange could safely occur less than 200 nautical miles from shore. Ultimately, the Task Force did not recommend alternate discharge areas and the Coast Guard has not authorized ballast water exchange in any such areas under its regulations. In its 2004 final rule for the mandatory national ballast management program, the Coast Guard stated that it was examining the possibility of establishing alternate ballast water exchange zones and that information obtained at an October 2003 workshop, and future workshops, could provide a sound, scientific basis for establishing ballast water exchange zones within the EEZ. In 2004, the Massachusetts Institute of Technology published the proceedings from the October 2003 workshop. The workshop attendees—which included stakeholders from the marine industry, scientific community, policy makers, regulators, and nongovernmental organizations—developed a consensus statement regarding proposed alternate exchange zones along the northeastern coastline of the United States and Canada. The group proposed that alternate ballast water exchange areas, where there is consensus, be adopted as a working policy statement by both the United States and Canada for coastal vessel traffic until other treatment methods are available. In their statement, the attendees focused more on the depth of waters than on the distance from shore, noting that the continental shelf marks a location that helps determine whether organisms are likely to float toward shore or away from shore. However, the Coast Guard reports that it has no plans to consider the use of alternate discharge zones. The ballast water program manager told us that designating alternate zones would take a significant amount of environmental analysis and a lengthy rulemaking process. She also said that alternate discharge zones will not be needed once other treatment technologies are installed on ships. While the United States has not identified alternate locations for conducting ballast water exchange, the IMO and other countries have proposed allowing, or already allow, ballast exchange to occur in locations closer than 200 nautical miles from shore. The IMO convention, should it take effect as adopted, states that all ships conducting ballast water exchange should, whenever possible, do so at least 200 nautical miles from the nearest land and in water at least 200 meters deep. However, the convention recognizes that exchange at that distance may not be possible; if not, exchange should be conducted as far from the nearest land as possible, and in all cases at least 50 nautical miles from the nearest land and in water at least 200 meters deep. Australia requires that exchange be done outside 12 nautical miles in water exceeding 200 meters in depth. The Canadian government proposed regulations in June 2005 that would allow transoceanic ships, unable to exchange ballast water more than 200 nautical miles from shore where the water is at least 2,000 meters deep because it would compromise the stability of the ship or the safety of the ship or of persons on board, to make the exchange in one of five alternate discharge zones that Canada’s Department of Fisheries and Oceans determined could receive ballast water with little risk. For non- transoceanic ships that do not travel at least 200 nautical miles from shore and in waters at least 2,000 meters deep (for example, ships arriving from U.S. ports that travel near the coast), the proposed regulations would require ships to exchange ballast water at least 50 nautical miles from shore where the water is at least 500 meters deep. If that were not practical or possible, the ships would be allowed to use an alternate discharge zone. The minimum allowable depth in the alternative areas would be from 300 to 1,000 meters. In 2002, we reported on numerous concerns about the effectiveness of ballast water exchange in removing potentially harmful organisms. There are two presumptions behind ballast water exchange as a method for ballast water treatment. First, it is presumed that the exchange will physically remove the water and organisms from ballast tanks. Second, ballast water exchange presumes that there are significant differences in the salinity of the original ballast water, mid-ocean water, and the ecosystem into which the water is ultimately discharged, such as the Great Lakes. If the original ballast water were fresh, organisms in that water would, in theory, not survive in the salt water taken on in mid-ocean. Similarly, any mid-ocean organisms taken on during the exchange would not survive in the fresh water of a destination port. Evidence has shown, however, that these presumptions are not always borne out. For one thing, ballast pumps are not always able to remove all of the original water, sediment, and associated organisms. In addition, elevated levels of salinity do not necessarily kill all forms of potentially invasive organisms. Therefore, scientists believe that viable organisms can survive ballast water exchange and possibly become invasive when discharged to a new environment. The National Research Council highlighted the need for alternatives to ballast water exchange by stating in its 1996 report on ballast water management, “while changing ballast may be an acceptable and effective control method under certain circumstances, it is neither universally applicable nor totally effective, and alternative strategies are needed.” We noted in our 2002 report that despite the high compliance rate with mandatory ballast water exchange in the Great Lakes, invasive organisms, such as the fish-hook water flea discovered in 1998, were still entering the ecosystem. Developers are pursuing technologies for use in treating ballast water, some of which show promise that a technical solution can be used to provide more reliable removal of potentially invasive species. However, the development of such technologies and their eventual use to meet regulatory requirements face many challenges, including the daunting technological challenges posed by the need for shipboard treatment systems and the lack of a discharge standard that would provide a target for developers to aim for in terms of treatment efficiency. Researchers and technology companies have been investigating the potential capabilities of many different ballast water treatment options, such as subjecting the water to filtration, cyclonic separation, ultraviolet radiation, chlorine, heat, ozone, or some combination of these methods. NOAA’s Ballast Water Technology Demonstration Program has assisted in this regard by providing over $12 million in grants to 54 research projects since 1998. Related to this issue, the International Maritime Organization convention on ballast water required an assessment of the state of treatment technology to determine whether appropriate technologies are available to achieve the standard proposed in the convention. Toward this end, the United States and five other member countries submitted assessments of the state of treatment technology development. The United States’ assessment was based on a study conducted by the Department of Transportation’s Volpe National Transportation Systems Center. The center assessed about a dozen potential ballast water technologies and identified four basic approaches that it believed are sufficiently well developed to indicate that effective and practicable systems will be available to treat ballast water to some measurable performance standard. These technologies are (1) heat, (2) chlorine dioxide, (3) separation followed by ultraviolet radiation, and (4) separation followed by advanced oxidation treatment. On the basis of this assessment, the United States took the position that developers of treatment technologies have made enough progress to suggest that the first proposed deadline in the convention could be met; namely, that ships built on or after 2009 and with a ballast water capacity of under 5,000 cubic meters could have treatment systems that could meet the discharge standards. However, the United States also stated that it was too early to tell whether treatment systems would be available for other categories of ships that will need them at a later date. After reviewing and discussing the evidence on the status of technology development provided by the United States and other member countries, the IMO’s Marine Environment Protection Committee’s technology review group recommended that there was no need to consider amending the schedule for implementing the convention due to a lack of progress on technology, although it recommended that the committee reexamine the status of technology in October 2006. Several challenges hamper development and use of ballast water treatment technologies. First, development of such technologies is a daunting task given the many operational constraints under which the technologies must operate. Beyond this hurdle, there is no discharge standard for how clean ballast water must be to help developers determine how effective their technologies need to be. Related to this, there is also no process for testing and approving technologies to determine how effective they are in removing potentially harmful organisms from ballast water. Coast Guard and other agencies have some actions underway on these issues, but they have not committed to firm schedules for completion. The challenges of developing technologies to “treat” or remove potentially invasive species from ballast water are numerous. On the one hand, treating ballast water is not unlike treating household and industrial wastewater—now a rather routine treatment process. Like wastewater treatment facilities, ballast water treatment technology will need to be safe for the environment and crew, and achieve a specific level of pollutant removal (in the case of ballast water—removal of potentially invasive species). On the other hand, shipboard ballast water treatment systems will have to meet additional challenges that land-based wastewater treatment facilities do not, such as: (1) treating large volumes of water at very high flow rates and (2) removing or killing a much broader range of biological organisms—including unknown organisms. Importantly, the treatment systems must be able to operate in a manner that does not compromise ship safety. In addition, to make any treatment option palatable to the shipping industry, the systems must not displace an unacceptable amount of valuable cargo space. Consequently, the technologies must be dramatically smaller in scale than those currently used in the wastewater industry while still achieving a high level of removal or “kill” rates. Further complicating matters, because ships differ in their structural designs, it is unlikely that one type of treatment technology will be appropriate for all types of ships. And, depending on how regulations are written, ships may need to be retrofitted to incorporate treatment technology—a potentially complex and expensive proposition. When we reported in 2002, a key part of the Coast Guard’s effort to move forward on dealing more effectively with the ballast water problem was its work to develop a discharge standard for ballast water—that is, a standard for determining how “clean” ballast water should be before it could be discharged into U.S. waters. According to many stakeholders we have spoken with, one reason for the apparent slow progress on developing treatment technology is the lack of a discharge standard. Identifying a standard is necessary to provide a target for companies that develop treatment technologies. The lack of a discharge standard makes it uncertain what level of “cleanliness” treatment technologies will have to achieve. Companies may be hesitant to pursue research and development of a potential treatment technology not knowing what the standard may ultimately be—they stand to lose significant amounts of money if a standard turns in an unanticipated direction that they are unable to accommodate with their technology. In addition, until the shipping industry is required to meet some discharge standard, there is no incentive for ship owners to purchase ballast water treatment technology. In 2002, the Secretary of Transportation reported to Congress that he expected to have a final rule on a ballast water management standard in the fall of 2004. The Coast Guard has been working with the EPA and other agencies to prepare a proposed regulation that will contain a discharge standard as well as an assessment of the environmental impacts of five possible discharge standards. The five alternatives being analyzed are: (1) taking “no action,” which would mean continuing with ballast water exchange, (2) requiring that ballast water be sterilized before discharge, (3) matching the proposed IMO discharge standard, (4) allowing one-tenth the number of organisms allowed by the proposed IMO standard, and (5) allowing one-hundredth the number of organisms in the proposed IMO standard. In December 2004, the Coast Guard announced that it expected to propose a discharge standard by December 2005, however, the agency has since retracted that plan and was not able to give us a new date. Complicating the development of technology is the lack of a process to approve ballast water treatment systems for use on ships. In August 2004, the Coast Guard published a Federal Register notice requesting comments by December 3, 2004, on how to establish a program to approve alternative ballast water management methods. The agency stated in the notice its intention to promulgate the new program in the near future, but it has yet to do so. In the meantime, the Coast Guard, EPA, and the Navy have collaborated on preparing laboratory facilities in Key West, Florida that will be used to verify the performance of ballast water treatment technologies. According to the Coast Guard, the agencies will begin to test the new facilities in a few weeks. On a parallel track, NOAA’s Ballast Water Technology Demonstration Program hopes to help address this gap as well by establishing a Research, Development, Test and Evaluation facility. This facility would be directed to establish standardization and quality control in experiments on ballast water technology. Current plans are to devote nearly $1 million to this facility over a 4-year period beginning in fiscal year 2006; depending on funding availability, operation of the facility could be continued. In addition, EPA’s Environmental Technology Verification program is working to develop testing protocols in order to verify treatment technologies for eventual approval. In 2004, the Coast Guard implemented a new program intended to encourage ship owners to test potential treatment technologies on their ships. With the Shipboard Technology Evaluation Program (STEP), the agency hopes to encourage ship owners to install experimental treatment technologies by agreeing that vessels accepted into the program may be granted an exemption from future ballast water discharge standards for up to the life of the vessel of the system. Notably, the program approves the use of a system on a single ship; it does not approve the use of that system for other ships. To be accepted into the program, the experimental technology needs to be capable of removing or killing at least 98 percent of organisms larger than 50 microns. To date, only two ship owners have applied to this program, but the Coast Guard has not yet accepted their applications. The Coast Guard has recognized that the application process is complex and plans to clarify it in hope of attracting more applicants. Representatives of technology developers, shipping interests, and other stakeholders have offered several reasons for the low participation in the program. According to the stakeholders we spoke with, the primary reason is the lack of a defined discharge standard, rather than any particular aspect of the STEP program itself. The lack of a discharge standard, as well as the fact that use of ballast water treatment technology is not currently required, has made it difficult for technology developers to gather the venture capital needed to proceed aggressively on technology development since use of such technology is not required. Consequently, few technologies are ready to be installed and tested on board ships. One representative of a technology firm believes the Coast Guard should expand the size of the STEP program to provide more incentive to shipping companies and technology developers that want to test variations of technologies or test their technology on different types of ships. Currently, the agency is limiting the number of applicants to about 5 or 6 per year and expects each application to cover just one ship. Another stakeholder echoed this point, saying that the program requires ship owners to go to great lengths for the benefit of getting one ship approved. One representative of a shipping association speculated that, although the STEP program is open to foreign companies, another possible reason for low participation is that foreign ships may spend little time in the United States. Stakeholders to the technology development issue told us that technology development has also been hampered by a lack of resources. I have already noted that without a discharge standard or requirements for use of treatment technologies, it is difficult for companies to expend significant resources on development. In addition, as technology development progresses, the scale of testing required will increase and move beyond what can be done in a laboratory. At this point, developers will need to conduct “operational” testing on-board ships. However, estimates for shipboard studies exceed $1 million. Given the disincentives to pursuing technology development in this time of uncertainty, technology development will likely remain a problem. As we reported in 2002, some states have expressed frustration with the federal government’s progress on establishing a more protective federal program for managing the risks associated with ballast water discharges. Since then, several coastal and Great Lakes states have enacted legislation that is more stringent than current federal regulations. As you know, in June 2005, the governor of Michigan signed a bill into law that will require all oceangoing vessels to obtain a state permit before discharging ballast water into state waters. The state will issue the permit only if the applicant can demonstrate that the vessel will not discharge aquatic nuisance species or, if it will, that the operator of the vessel will use environmentally sound technology and methods as determined by the state department that can be used to prevent the discharge of aquatic invasive species. This requirement takes effect January 1, 2007. Similarly, owing to concerns with possible species introductions via currently unregulated coastal shipping, California, Oregon, and Washington have enacted laws to regulate coastal traffic. The states’ laws provide for additional measures that ships must currently take or will have to take in the future before entering state waters. All three states provide for safety exemptions. California. California law required the State Lands Commission to adopt new regulations governing ballast water management practices for ships of 300 gross tons or more arriving at a California port or place from outside of the Pacific Coast Region by January 1, 2005. The California State Lands Commission has proposed, but not yet finalized, these regulations. Upon implementation of the regulations, California law will require the ships to employ at least one of the following ballast water management practices: (1) exchange its ballast water more than 200 miles from land and at least 2,000 meters deep before entering the state’s coastal waters; (2) retain its ballast water; (3) discharge water at the same location where the ballast water originated; (4) use an alternative, environmentally sound method; (5) discharge the ballast water to a reception facility approved by the commission; or (6) under extraordinary circumstances, exchange ballast water within an area agreed upon by the commission and the Coast Guard. The proposed California regulation would require ships carrying ballast water from within the Pacific Coast Region to conduct any ballast water exchange in waters that are more than 50 miles from land and at least 200 meters deep. Oregon. Oregon law prohibits certain ships from discharging ballast water in Oregon waters unless the ship has conducted a ballast water exchange more than 200 miles from any shore, or at least 50 miles from land and at a depth of at least 200 meters if its ballast water was taken onboard at a North American coastal port. Oregon exempts ships that: (1) discharge ballast water only at the location where the ballast water originated; (2) retain their ballast water; (3) traverse only internal state waters; (4) traverse only the territorial sea of the U.S. and do not enter or depart an Oregon port or navigate state waters; (5) discharge ballast water that has been treated to remove organisms in a manner that is approved by the Coast Guard; or (6) discharge ballast water that originated solely from waters located between 40 degrees latitude north and 50 degrees latitude north on the west coast. Washington. Washington’s ballast water law applies to self-propelled ships in commerce of 300 gross tons or more and prohibits discharging ballast water into state waters unless a ship has conducted an exchange of ballast water 50 miles or more offshore, or further offshore if required by the Coast Guard. Some ships are exempt from this requirement, including ships that retain their ballast water or that discharge ballast water or sediments only at the location where ballast water was taken on. The coordinator of Washington’s aquatic nuisance species program told us that during the legislative process, shipping industry representatives and oceanographic experts concurred that the 50-mile boundary for exchange was both feasible for the ships and protective against invasive species. After July 1, 2007, discharge of ballast water in state waters will be authorized only if there has been an exchange at least 50 miles offshore or if the vessel has treated its ballast water to meet standards set by the Washington Department of Fish and Wildlife. Madam Chairman, this concludes my prepared statement. I would be happy to respond to any questions you or other Members of the Subcommittee may have. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Numerous invasive species have been introduced into U.S. waters via ballast water discharged from ships and have caused serious economic and ecologic damage. GAO reported in 2002 that at least 160 nonnative aquatic species had become established in the Great Lakes since the 1800s--one-third of which were introduced in the past 30 years by ballast water and other sources. The effects of such species are not trivial; the zebra mussel alone is estimated to have caused $750 million to $1 billion in costs between 1989 and 2000. Species introductions via ballast water are not confined to the Great Lakes, however. The environment and economy of the Chesapeake Bay, San Francisco Bay, Puget Sound, and other U.S. waters have also been adversely affected. The federal government has been taking steps since 1990 to implement programs to prevent the introduction of invasive species from ships' ballast water discharges. However, species introductions are continuing. This testimony discusses the legislative and regulatory history of ballast water management and identifies some of the issues that pose challenges for the federal government's program for preventing the introduction of invasive species via ships' ballast water. Congress recognized ballast water as a serious problem in 1990 with passage of the Nonindigenous Aquatic Nuisance Prevention and Control Act, legislation intended to help reduce the number of species introductions in the Great Lakes. A reauthorization of this law in 1996, the National Invasive Species Act, elevated ballast water management to a national level. As directed by the legislation, the federal government has promulgated several regulations requiring certain ships to take steps, such as exchanging their ballast water in the open ocean to flush it of potentially harmful organisms, to reduce the likelihood of species invasions via ballast water. Initially these regulations applied only to certain ships entering the Great Lakes; now they apply to certain ships entering all U.S. ports. In addition to these domestic developments, the United Nation's International Maritime Organization has recently adopted a convention on ballast water management that could affect the global fleet. Since 1998, Coast Guard data show that compliance with existing ballast water exchange requirements has generally been high. However, key agencies and stakeholders recognize that the current ballast water exchange program is not a viable long-term approach to minimizing the risks posed by ballast water discharges. The primary reasons for this are that: (1) many ships are exempt from current ballast water exchange requirements, (2) the Coast Guard has not established alternate discharge zones that could be used by ships unable to conduct ballast water exchange for various reasons, and (3) ballast water exchange is not always effective at removing or killing potentially invasive species. Developers are pursuing technologies to provide more reliable alternatives to ballast water exchange, some of which show promise. However, development of such technologies and their eventual use to meet ballast water regulatory requirements face many challenges including the daunting technological task of developing large scale water treatment systems that ships can accommodate, and the lack of a federal discharge standard that would provide a target for developers to aim for in terms of treatment efficiency. As a result, ballast water exchange is still the only approved method for treating ballast water despite the concerns with this method's effectiveness. Consequently, U.S. waters remain vulnerable to the introduction of invasive species via ships' ballast water. State governments and others have expressed frustration over the seemingly slow progress the federal government has made on more effectively protecting U.S. waters from future species invasions via ballast water. As a result, several states have passed legislation that authorizes procedures for managing ballast water that are stricter than federal regulations.

You are an expert at summarizing long articles. Proceed to summarize the following text: At the end of July 2010, over 10,000 military medical personnel were deployed to Iraq and Afghanistan, 70 percent of whom were Army servicemembers. Of that number, about 4,000 medical personnel were in Iraq and about 6,000 were in Afghanistan. The United States’ military presence in Iraq is scheduled to end no later than December 31, 2011, and, according to administration estimates, as of September 2010, about 104,000 U.S. military personnel were deployed in Afghanistan. Figure 1 shows the breakdown of all military medical personnel in Iraq and Afghanistan by service at the end of July 2010. DOD has established five levels of medical care to treat injured or sick military personnel, extending from the forward edge of the battle area to the continental United States, with each level providing progressively more intensive treatment. Over the course of operations in Iraq and Afghanistan, the military has integrated more advanced medical care into the first three levels of care, which are typically provided in theater, in order to provide the most comprehensive care possible closest to the point of injury. Figure 2 illustrates the different levels of medical care that may be provided to U.S. servicemembers who become ill or injured while in theater. Level 1 – First responder care. This level provides immediate medical care and stabilization in preparation for evacuation to the next level, and treatment of common acute minor illnesses. Care can be provided by the wounded soldiers, medics or corpsmen, or battalion aid stations. Level 2 – Forward resuscitative care. This level provides advanced emergency medical treatment as close to the point of injury as possible to attain stabilization of the patient. In addition, it can provide postsurgical inpatient services, such as critical care nursing and temporary holding. Examples of level 2 units include forward surgical teams, shock trauma platoons, area support medical companies, and combat stress control units. Level 3 – Theater hospital care. This level provides the most advanced medical care available in Iraq and Afghanistan. Level 3 facilities provide significant preventative and curative health care. Examples include Army combat support hospitals, Air Force theater hospitals, and Navy expeditionary medical facilities. Level 4 – Overseas definitive care. This level provides the full range of preventative, curative, acute, convalescent, restorative and rehabilitative care, most typically outside of the operational area. An example of a level 4 facility is Landstuhl Regional Medical Center in Germany. Level 5 – U.S. definitive care. This level provides the same level of care as a level 4 facility, but most typically is located in the continental United States. Examples include Walter Reed Army Medical Center in Washington, D.C.; National Naval Medical Center in Bethesda, Maryland; and Brooke Army Medical Center at Fort Sam Houston, Texas. Not all patients progress through all five levels of care, and patients being evacuated may skip one or more levels of care as appropriate. In addition, joint and service definitions for each level of care vary marginally due to service-specific support requirements, but they essentially align with one another. For purposes of this report, we focused primarily on level 2 and level 3 facilities and their personnel, which provide the most comprehensive and advanced medical care in Iraq and Afghanistan. The U.S. command structure in Iraq and Afghanistan has evolved over time. In 2009, the designation of U.S. troops in Afghanistan became United States Forces-Afghanistan. In 2010, the designation of U.S. troops in Iraq became United States Forces-Iraq. The commanding generals of United States Forces-Iraq and United States Forces-Afghanistan both are advised by a lead surgeon on medical policy and procedures, according to theater medical officials. Each theater also has a medical task force—the Task Force 1st Medical Brigade and its successor, the Task Force 807th Medical Brigade in Iraq and the Task Force 30th Medical Command and its successor, Task Force 62nd Medical Command in Afghanistan—that, according to theater medical officials, consist of professional staff members who coordinate care in theater and directly command medical- only units in theater, such as forward surgical teams and combat support hospitals. The theater surgeon and medical task forces command mostly Army medical facilities. According to a DOD official, the other services maintain and operate additional medical facilities in theater that may be outside the direct command of the medical task force but under the direction of United States Forces-Iraq and United States Forces- Afghanistan. For example, the Air Force operates a theater hospital in Balad, Iraq but coordinates closely with the task force medical brigade in Iraq. The United States Forces-Iraq Surgeon and staff collaborate closely with the task force medical brigade commander and staff in Iraq to coordinate medical policy and care. The positions of United States Forces-Afghanistan Surgeon and the commander of the task force medical command in Afghanistan are filled by the same individual. According to DOD officials, DOD meets theater medical personnel requirements through its Global Force Management process. DOD designed the Global Force Management process to provide insight into the availability of U.S. military forces to deploy, including medical personnel. Figure 3 depicts the process and the key participants in Global Force Management. Once the Secretary of Defense designates a service to meet a medical requirement, that service identifies and selects units and personnel to fill the requirement. While the procedures and systems used by each service to select medical personnel vary, the services’ processes for filling requirements all result in units and personnel deploying to an operational theater to carry out a mission. Identifying and selecting medical personnel and units to fill requirements can often be challenging due to shortages of medical personnel, but DOD officials told us they have been able to fill almost all medical personnel requirements since the Global Force Management process was established in 2005. More information on the Global Force Management process and the services’ personnel filling processes can be found in appendix II. Medical officials in theater continually assess the number and the types of military medical personnel they need to support ongoing contingency operations in Iraq and Afghanistan. Theater officials also analyze gaps in medical care and the associated risks given different potential scenarios. However, it is unclear what level of care deployed DOD civilian employees can expect in theater because a DOD directive governing medical care for DOD deployed civilians is inconsistent with in-theater guidance with regard to eligibility for routine medical care for deployed DOD civilian employees. In response to congressional interest about deployed civilians, the Secretary of Defense reported to Congress in April 2010 that with each new mission, the need for new civilian skills have resulted in an increase in the number of deployed civilians and that these civilians are not immune to the dangers associated with contingency operations. Although we did not learn of any DOD deployed civilians turned away for care in theater during the period of our review, officials in theater did say this could be a concern if the number of civilians increased, and at that time they would assess the impact of a civilian increase on the need for more medical personnel. At the conclusion of our audit, an Army official agreed that if there is an inconsistency between departmental guidance and theater guidance, it should be clarified. Thus, by examining inconsistencies in departmental guidance compared to theater guidance on the level of routine medical care, DOD could reduce the uncertainty about the level of routine care these deployed civilians can expect in theater. In response to a draft of this report, DOD mentioned to us that its operating units have sufficient organic medical support and the medical needs of deployed civilians are being met. DOD also agreed that the Commander of U.S. Central Command should revise its guidance to clarify the level of care that deployed civilians should receive. Theater operational and medical officials determine how many and the types of medical personnel needed to support operations in Iraq and Afghanistan through an ongoing assessment, which includes an evaluation of the operational mission and other planning factors, such as historical injury statistics and medical workload data. In their assessment, theater officials also analyze gaps in medical care given different potential scenarios and the associated risks. This ongoing assessment takes place in theater and allows theater officials to identify new medical personnel requirements and regularly reevaluate existing medical personnel requirements. Further, theater operational and medical officials also consider operational limitations when developing their medical personnel requirements, including the limit on the total number of forces in theater and shortages of and high demand for certain medical personnel. In determining the number of military medical personnel and the medical specialties needed, theater operational and medical officials told us that they begin by evaluating various mission planning factors, such as the number and dispersion of U.S. forces, the expected intensity of combat, capabilities of the adversary to inflict harm, geography, and climate. Officials said that this information allows them to determine the level and structure of medical care they expect to need to support missions throughout the theater of operations. For example, in planning for the increase of U.S. forces in Afghanistan beginning in early 2010, officials with the U.S. Central Command requested additional medical personnel to provide medical care to the increased number of U.S. military personnel in theater, including a theater hospital and a preventative medicine unit. In addition, during the offensive in Bastion, Afghanistan, officials with the Task Force 30th Medical Command told us that they relocated some mental health providers in Afghanistan to Bastion for the duration of the heightened operational tempo so this type of care could be better provided in the area experiencing hostilities. To further assess the need for specific types of medical specialists in a given unit and across the theater, medical officials analyze data from the Joint Theater Trauma Registry, the Joint Medical Work Station, and service and joint data on disease and non-battle injuries to determine trends in medical workload. Officials use this information to increase or decrease the number of medical personnel in line with demand for medical services. For example, DOD medical officials conducted an analysis to determine the need for cardiovascular specialists in Iraq and Afghanistan based on, among other variables, the volume of cardiovascular-related medical evacuations in theater. Officials also analyze gaps and risks in the medical care structure under different possible scenarios. For example, the Task Force 1st Medical Brigade in Iraq conducted an analysis that identified possible requirements for additional medical personnel with certain specialties, such as general surgeons, at locations in northern Iraq given the possibility of adverse weather conditions that would prohibit medical evacuation of patients to more advanced medical care facilities. Further, when confronted with a need for additional medical personnel, the theater commanding general can submit a request for forces through DOD’s Global Force Management process. For example, we learned of two Army sustainment brigades—the 82nd and the 43rd Regional Support Commands—that deployed to Afghanistan with their authorized medical personnel but did not have enough medical personnel to provide full support to their convoys and forward locations. In response, Task Force 62nd Medical Command in Afghanistan requested additional forces for these two brigades. Officials told us that DOD met this requirement by deploying 22 Air Force medics to Afghanistan. Additionally, medical officials in Iraq and Afghanistan told us that they must consider two operational limitations which affect how many medical personnel they formally request. First, the cap on the total number of U.S. forces allowed in Iraq and Afghanistan requires theater commanders to balance the number of medical personnel they request with many other types of forces needed to conduct and support ongoing operations. For instance, officials in Afghanistan told us that when they initiate requests for additional personnel, the requesting unit is asked to offset the increase in forces on a one-to-one basis within the unit. If they are unable to do so, operational and medical officials determine if the request for additional medical forces takes precedence over the need for other types of personnel already in theater, and if so they decide which personnel will redeploy out of theater to stay within the authorized force cap. Second, shortages of and high demand for medical personnel in certain specialties also plays a role in decisions about whether to request medical forces. For example, officials in Iraq determined that 16 additional veterinary food inspectors were needed for food safety inspections, but they did not formally initiate that request due to the current shortage of these specialists. Although DOD primarily provides both emergency life-saving medical care as well as routine medical care to U.S. military personnel in Iraq and Afghanistan, it is unclear what level of routine medical care deployed DOD civilian employees can expect in theater. DOD relies on its own deployed civilians to carry out or support a range of essential missions, including logistics support, maintenance, intelligence collection, criminal investigations, and weapon systems acquisition. About 2,600 DOD civilian employees were deployed to Iraq, and about 2,000 DOD civilian employees were deployed to Afghanistan according to DOD’s April 2010 report to Congress on medical care for injured or wounded deployed U.S. federal civilians. In response to congressional interest, DOD reviewed the department’s existing policies for medical care for DOD deployed civilians and federal civilian employees that might be injured or wounded in support of contingency operations and reported to Congress on the results in April 2010. DOD noted in its report that with each new mission, the need for new civilian skills has resulted in an increase in the number of deployed civilians and that these civilians are not immune to the dangers associated with contingency operations, since they too incur injuries or wounds in their efforts to support the missions in Iraq and Afghanistan. Although DOD guidance clearly provides that deployed DOD civilians will receive life-saving emergency care, it is unclear to what extent DOD civilians can expect routine medical care in theater because a DOD directive and theater guidance differ with regard to their eligibility for routine medical care. Specifically, DOD Directive 1404.10 states that the department’s civilian employees who become ill, are injured, or are wounded while deployed in support of U.S. military forces engaged in hostilities are eligible to receive health care treatment and services at the same level and scope provided to military personnel. However, theater guidance for Iraq and Afghanistan, which provides detailed information on medical care to deployed civilians, among others, states that DOD civilians are eligible for emergency care but most routine care for them is subject to availability. This differs from the DOD directive that states care should be at the same level and scope provided to military personnel. In addition, we found that the theater guidance document for care in Afghanistan provided additional guidance that is inconsistent with both the DOD directive and with guidance provided elsewhere in the document as to the level of care to be provided to DOD deployed civilians. Specifically, one section of the guidance stated routine care for all civilians was to be provided subject to availability while another section of the same guidance stated routine care was to be provided for deployed DOD civilians in accordance with a previous issuance of DOD Directive 1404.10. The previous version of DOD Directive 1404.10 indicated that civilians designated as emergency essential employees would be eligible for care at the same scope provided to military personnel, while the current January 2009 DOD directive extends the provision of routine medical care to a much wider group of DOD deployed civilians. Medical officials in Afghanistan told us that they provide routine medical care to U.S. federal civilians on a space-available basis, and that they would not turn away any person with injuries that presented a danger to life, limb, or eyesight, regardless of the employment status of an individual. This issue has received continuing congressional interest. For example, in April 2008 the House Armed Services Committee Subcommittee on Oversight and Investigations issued a report on deploying federal civilians and addressed the medical care provided to them when they are wounded, ill, or injured while in a war zone. Furthermore, DOD’s report to Congress on deployed DOD civilians stated that the department believes it is imperative that each federal civilian understands where, when, and how they can receive medical treatment in theater. Although we did not learn of any deployed DOD civilians being turned away from receiving routine care in theater during the time of our review, officials in theater said it could be a concern if the number of DOD civilians that deploy increases, and that theater medical officials would assess the impact of any increase on the planning process for determining medical personnel requirements. However, if theater officials concluded that they needed more medical personnel due to increases in numbers of DOD deployed civilians, we recognize that an increase in medical resources would have to be balanced against other high-priority needed resources due to the force cap limiting the overall numbers of military personnel that can be in theater. For example, the former commander who oversaw military medical units in Afghanistan noted to us that while there is no medical-specific force cap, including a limit on the number of medical personnel within the larger force cap, any additional military personnel needed in theater must be balanced by the loss of other military personnel in other areas, such as a transportation unit, and that the force cap has played a role in their decisions in determining medical personnel requirements. Additionally, the current commander who oversees military medical units in Afghanistan stated that local base commanders can request additional medical personnel if they believe that the number of U.S. soldiers or civilians merits an increase. The official stated that an increase of about 800 to 1500 civilians would have to occur before they would consider revising military medical personnel requirements. At the conclusion of our audit, an Army official agreed that if there is an inconsistency between departmental guidance and theater guidance, it should be examined. As long as theater guidance differs from the requirements of departmental directives, uncertainty about deployed civilians’ eligibility for routine care in theater will remain and the military medical personnel requirements planning process may not be fully informed by department-level expectations. Theater commanders in Iraq and Afghanistan are providing quicker access to advanced emergency medical care by placing more medical units in more geographical areas to save lives. However, Army doctrine, which is the starting point for defining and planning a unit’s capabilities, has not been updated fully to reflect these changes in theater. Also, the organizational design of these medical units used in theater, which indicates the number and mix of skilled medical personnel these units should have, has not been updated to reflect current practice in theater. Specifically, commanders in Iraq and Afghanistan have been splitting or reconfiguring medical units typically designed to operate in one location into multiple smaller units to cover a wider geographical area. For example, as of December 2009 the Task Force 28th Combat Support Hospital in Iraq—a field hospital typically designed to be in one location—was split to be at three separate sites in Iraq—Baghdad, Tallil, and Al Kut—to better cover this large operational area. Theater medical commanders split these units because they found that the field hospital’s standard design configuration was no longer suitable for the model of care that has evolved in Iraq, which requires access to more advanced medical care—particularly surgical care—over large geographical distances to better save lives. Splitting medical units, such as level 3 combat support hospitals and level 2 forward surgical teams, in order to locate them in more areas increases the opportunities to provide advanced emergency care quicker and could save more lives. According to documents from the 28th Combat Support Hospital, the number of surgical sites has increased due to the emphasis on providing troops access to surgical care within 60 minutes of being injured. DOD has stated that by providing advanced life-saving emergency medical care quicker, generally within 60 minutes of injury, survival rates increase significantly. In fact, studies show that for those severely injured or wounded, 90 percent do not survive if advanced medical care is not provided within 60 minutes of injury, thus creating urgency for rapid access to the wounded. Medical officials in Iraq acknowledged that Army doctrine and the organizational design of medical units were top issues that needed to be updated to better reflect the current practice of splitting medical units such as combat support hospitals. For example, in a December 2009 Mid-Tour Report, the Task Force 1st Medical Brigade—the medical unit that provided oversight over medical units in Iraq before being replaced by Task Force 807th Medical Brigade—noted that the organization for combat support hospitals, including the list of needed medical specialties, should be redesigned to reflect the actual use of combat support hospitals across multiple locations and that certain lessons learned could be considered in the redesign. Specifically, Task Force 1st Medical Brigade reported that splitting full-sized combat support hospitals into smaller parts can create medical personnel gaps in certain specialties, including those related to the operation of pharmacies, laboratories, and patient administration. The medical brigade’s report also went on to note that personnel with these smaller combat support hospitals are spread so thinly that when personnel take leave or are evacuated out of theater due to injury, the medical brigade has to make difficult decisions on where to find needed personnel to mitigate coverage gaps. Given these lessons learned, officials with the Task Force 1st Medical Brigade told us that they were concerned about outdated policies, guidance, doctrine, and field manuals related to the determination of medical personnel requirements in theater and stated specifically that the current design of combat support hospitals is not flexible enough to accomplish what they are now being asked to do. As such, they now have to continuously use what is referred to as specialized personnel documents to manage staffing rather than staff as indicated in established doctrine and the organization design of these units. Specifically, officials with the Task Force 1st Medical Brigade noted to us that staffing of medical units is now done in a “very non-doctrinal fashion” and that they had similar concerns about splitting area support medical companies and using them in theater in a non-doctrinal fashion, given these area support medical companies now function as two separate level 2 troop medical clinics when they are staffed to function as one. Finally, the Task Force 1st Medial Brigade report went on to recommend that the organizational composition of combat support hospitals be redesigned to include redundant capability to accommodate expected attrition in staff. Additionally, officials with the U.S. Forces-Iraq Surgeon Office told us in a separate interview that medical doctrine, specifically the organizational design for both personnel and equipment, should be assessed and updated given the current experience in Iraq. These officials said that the splitting of combat support hospitals and forward surgical teams has gained acceptance over time but should be examined given how counterinsurgency doctrine is implemented in Iraq. These officials with the Surgeon Office in Iraq also said that flexibility in the doctrine is critical, but that doctrine needs to reflect the realities of operations on the ground and the degree to which current practice of splitting medical units has filtered into medical doctrine has been limited. Recognizing these lessons learned in an environment that is continuing to evolve to provide advanced medical care to save more lives, officials with the Army Medical Department Center and School who are responsible for updating medical doctrine and the organizational design of medical units recently updated the forward surgical team field manual, noting that changes in the number and mix of specialists that make up a forward surgical team might be necessary if such teams are to operate as smaller stand-alone units. However, the updated manual did not specifically suggest what those changes in the number and mix of medical specialists that make up a forward surgical team should be if the team is providing advanced emergency care as a stand-alone unit. We were told that Army planners have adjusted medical personnel requirements for forward surgical teams to account for changes in these smaller nonstandard medical unit reconfigurations by increasing the number of personnel assigned to those units, but the updated field manual still does not specify what the number and mix of medical specialists should be. Furthermore, by splitting or dividing the standard traditional design for combat support hospitals, DOD has also had to adjust the number and mix of medical personnel in those units as well. Instead of relying on the standard traditional doctrine design for medical units in theater, Army medical officials have been developing specialized personnel documents to staff these medical units to identify the medical skill sets now needed to operate split medical units across multiple locations for counterinsurgency operations. Specifically, officials with the Task Force 1st Medical Brigade told us these specialized personnel documents allow for more up-to-date establishment of personnel requirements to address gaps caused by splitting medical units. However, the process is difficult and it came about because current doctrine and organizational design were not sufficient to address the capabilities needed for splitting medical units such as combat support hospitals and area support medical companies. Although the Army medical officials we spoke with said that they believe splitting and reconfiguring units in theater is necessary and helps to increase survival rates by providing advanced life-saving emergency medical care generally within 60 minutes of injury, the Army has not fully incorporated these current practices into Army doctrine and organizational documents, which ordinarily determine the size, composition, and use of these units. In response to a draft of this report, DOD explained to us that Army leadership has recognized that split hybrid operations and the dispersed environment in the theater of operations have generated a requirement for additional medical structure. According to an Army regulation, the Army maintains a lessons learned program to, among other things, systematically update Army doctrine to enhance the Army’s preparedness to conduct current and future operations. By updating Army doctrine and organizational documents for the design of medical units that could be used in other theaters, the Army could benefit from incorporating its lessons learned, where appropriate, and be better assured the current practice of splitting medical units to quickly provide advanced life-saving emergency medical care to those severely injured or wounded does not lead to unnecessary staffing challenges. When medical personnel gaps unexpectedly arise in Iraq or Afghanistan, Army commanders have used two approaches to fill those gaps, according to medical officials in theater. Gaps in medical capabilities can occur when medical providers do not deploy as expected for reasons such as resignation, or a medical provider is determined to be medically nondeployable. Medical personnel gaps can also occur when individual medical personnel need to leave the unit for reasons such as an emergency situation at home or if they become seriously sick or injured in theater. According to medical officials in theater, when these gaps occur, Army commanders have used two approaches to fill these gaps: backfilling and cross-leveling. Backfilling involves the identification and deployment of medical personnel into theater from the United States or elsewhere who were not originally scheduled to deploy overseas at that time, according to medical officials in theater. For example, a dentist assigned to a brigade combat team in southern Iraq was evacuated out of theater for medical reasons. Given the backlog of needed dental work, commanders expressed concern about losing a dentist. In response, Army Forces Command initiated an effort to identify another dentist not in Iraq who was eligible to deploy to fill this need. DOD officials told us that selecting and deploying an active component medical provider to backfill a position typically takes about 45 days. Cross-leveling involves the temporary relocation of personnel from one unit in theater to another, according to DOD officials. Medical officials in theater told us that cross-leveling is often used as an interim measure to minimize risk when a gap in medical personnel coverage occurs. For example, an operating room nurse assigned to a forward surgical team in Iraq had an unexpected medical situation and was evacuated out of theater. It was critical that this personnel requirement be filled in a timely manner, given that the forward surgical team was staffed with only one operating room nurse. Theater officials requested a replacement from U.S. Army Forces Command and U.S. Army Reserve Command, but the individual identified as a replacement could not deploy for at least 30 days. Recognizing the high priority need for a forward surgical team to have an operating room nurse, Task Force 1st Medical Brigade identified an operating room nurse that it could borrow from another unit in theater until the replacement arrived. After the replacement nurse arrived in theater, the operating room nurse on loan returned to the unit the individual came from. Personnel gaps that occur in theater cannot always be prevented and when gaps do occur, theater commanders assess the risk associated with the gap and decide on an appropriate course of action, according to officials with Task Force 1st Medical Brigade. Cross-leveling in particular requires the assessment of risk associated with the personnel gap and the gap that would be created by the relocation of a medical provider from another unit. According to theater commanders we spoke with, cross-leveling, while temporary, is not an ideal solution and can present risk to medical operations in theater, especially when conducted on a recurring basis. We recognize that risk cannot be eliminated; it can only be managed. Army officials told us that they are willing to accept some risks in order to mitigate other risks they believe are higher. According to medical officials, when medical personnel gaps in an Army reserve component medical unit occur, it can be challenging to fill the gap before the start of the next 90-day rotation, given it can take around 120 to 180 days to identify, notify, and then mobilize an Army reservist to fill an unfilled requirement by which time the next expected 90-day medical provider has already arrived. The Army’s 90-day rotation policy— while intended to ease the financial burden of deploying reserve medical personnel and help retain them—has presented some challenges for the Army in quickly filling these gaps when a medical provider is not able to deploy. For example, the 9l5th Forward Surgical Team—an Army reserve medical unit—was authorized to deploy to Iraq in September 2009 with three general surgeons, according to theater medical officials. Instead, it deployed with only one surgeon for the first 90-day rotation, despite efforts to identify two other deployable general surgeons. The Army Reserve identified a doctor to fill one of the two vacancies; however this individual could not deploy due to an inability to be credentialed as a general surgeon. The Army Reserve then identified another surgeon for deployment, but this individual had educational requirements issues, and yet a third identified surgeon resigned. By the time the Army Reserve was able to identify a surgeon who could deploy, the 9l5th Forward Surgical Team had been in Iraq for a month out of its first 90-day rotation. Further, the Army was unable to identify the third authorized surgeon for the 9l5th Forward Surgical Team before the end of that 90-day rotation given another identified surgeon scheduled for deployment resigned, and the replacement surgeon turned out to be nondeployable for medical reasons. In fact, the 9l5th Forward Surgical Team did not have one out of its authorized three general surgeons for the first three 90-day rotations— approximately 270 days. Moreover, the 915th Forward Surgical Team was expected to operate as two smaller units at two separate locations in southern Iraq, but it was unable to provide surgical capabilities in both locations as expected without three authorized general surgeons. As a result of the personnel gaps, Task Force 1st Medical Brigade temporarily relocated medical personnel already in theater from other medical units to the 9l5th Forward Surgical Team so it could meet its mission. Although we found examples of the 915th Forward Surgical Team not having all of its medical personnel before the end of each 90-day rotation, Army data show the magnitude of these unfilled gaps or late arrivals for the reserve components ranged from about 3 percent to 7 percent from January 2008 to July 2010. Specifically, Army data showed that about 4 percent of mobilized Army reserve component 90-day medical rotators (21 medical providers out of 594) did not deploy to theater or arrive in theater on time for 2008. In 2009, that figure reached 7 percent (38 medical providers out of 519) and through the first 6 months of 2010, this figure was over 3 percent (8 medical providers out of 236). Unfilled reserve component personnel requirements can have serious consequences depending on the needed medical specialty. Therefore, medical commanders in theater typically cross-level to fill short-term temporary personnel gaps, although medical officials in Iraq we spoke with said cross-leveling is a less than ideal approach to fill these medical personnel gaps. DOD has continued to assess its need for medical personnel in theater based on the requirements of the mission and a variety of medical data and has made adjustments to meet specific theater needs to achieve the goal of providing advanced life-saving care quickly. DOD has noted that, increasingly, deployed civilians also face dangerous circumstances in ongoing contingency operations. While DOD has stated that deployed civilians will receive emergency care whenever needed, the extent of routine medical care available to DOD deployed civilians is unclear due to inconsistent guidance. Inconsistent guidance could potentially impact the medical personnel requirements planning process if medical officials in theater are uncertain about deployed DOD civilian employees’ access to routine medical care. While we did not learn of any deployed DOD civilians being turned away for medical care in theater during the time of our audit, DOD could still benefit by assessing the implications the inconsistencies in guidance could have if there were a sizeable increase in the number of DOD deployed civilians in theater. Conducting counterinsurgency operations in often uncertain, dangerous environments such as Iraq and Afghanistan, Army theater commanders have reconfigured the composition of field hospitals and forward surgical teams by breaking them down into smaller stand-alone units to better position them to give the severely wounded or injured, such as the casualties of blast-type injuries, the advanced emergency medical care needed to save lives. By being in more geographical areas, these critical life-saving medical units are better able to achieve their goal of providing advanced emergency medical care within 60 minutes of injury to increase survival rates. Acknowledging the current practice of splitting medical units, the medical brigade that provided oversight over medical units in Iraq reported that one of its top issues was advocating for updates to the doctrine and organizational redesign of these split units that govern its use and personnel allocation. By leveraging lessons learned collected from this practice, especially the needed number and mix of medical personnel, the Army could benefit from integrating these lessons systematically into Army doctrine and the design of these medical units. Updating doctrine and organizational design of these split medical units used in theater could help to assure that these units will be resourced with the needed number and mix of medical personnel to continue providing critical life-saving capabilities for counterinsurgency operations in other theaters and in the future. To better understand the extent to which deployed DOD civilian employees have access to needed medical care, as appropriate, we recommend that the Secretary of Defense direct the Combatant Commander of U.S. Central Command to clarify the level of care that deployed DOD civilian employees can expect in theater, including their eligibility for routine care. To enhance medical units’ preparedness to conduct current and future operations given the changing use of combat support hospitals and forward surgical teams in Iraq and Afghanistan, we recommend that the Secretary of the Army direct the Army Medical Department to update its doctrine and the organization of medical units concerning their size, composition, and use. In written comments provided in response to a draft of this report, DOD generally concurred with our findings and recommendations. DOD fully concurred with our first recommendation that the department clarify the level of care that deployed DOD civilian employees can expect in theater. DOD partially agreed with our second recommendation that the Army Medical Department update its doctrine and the organization of medical units concerning their size, composition, and use. DOD noted that there is an unquestionable need to formally update doctrinal publications. DOD also noted that the Army is constantly reviewing and assessing medical capability, the use of those capabilities and the organization of medical units, and updating doctrine to evolving staffing requirements. As an example, DOD mentioned in its official response that a recent review of medical capability indicated the need for additional medical personnel, and the Army responded with guidance to increase the number of enlisted health care specialists assigned to Army Brigade Combat Teams. The department also noted that the Army continues to capture lessons learned and input from commanders to ensure use of medical personnel meets requirements. We recognize that the Army continues to capture lessons learned and input from the commanders, and we noted in our report that the Army Medical Department Center and School has updated its forward surgical team field manual although updates to this field manual did not specifically note changes in the number and mix of medical specialists that make up a forward surgical team if the team is providing advanced emergency care as a stand-alone unit. Thus, we still believe the Army would benefit by fully updating the organization of medical units concerning their size, composition and use, as applicable, to incorporate current practices of splitting and reconfiguring deployed medical units in theater. DOD also provided technical comments that we incorporated as appropriate. We are sending copies of this report to the Secretary of Defense, the Secretary of the Army, and appropriate DOD organizations. In addition, this report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-3604 or by e-mail at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to the report are listed in appendix IV. We examined the Department of Defense’s (DOD) efforts to identify and fill its military medical personnel requirements in support of operations in Iraq and Afghanistan. Specifically, we evaluated the extent to which (1) DOD has assessed its need for military medical personnel in Iraq and Afghanistan, (2) the Army has adapted the composition and use of its medical units to provide advanced medical care, and (3) the Army fills medical personnel gaps that arise in theater. During our evaluation, we contacted DOD and service officials, including officials from United States Forces-Iraq and United States Forces-Afghanistan; U.S. Central Command; U.S. Joint Forces Command; Joint Staff; Office of Secretary of Defense for Health Affairs; Offices of the Surgeons General for the Army, the Navy, and the Air Force; and U.S. Marine Corps Headquarters. For the first objective—to evaluate the extent to which DOD has assessed its need for military medical personnel in Iraq and Afghanistan to support ongoing operations—we analyzed DOD and service policies and processes that govern the determination of medical personnel requirements, including service doctrine, DOD guidance, and current theater-level guidance regarding medical care in Iraq and Afghanistan. Specifically, we compared a current DOD directive regarding medical care for DOD civilian employees and theater-level guidance regarding medical care for U.S. federal civilians, including DOD civilian employees, and noted how they differed. To augment our analysis, we interviewed officials, including representatives from the theater medical task forces and Surgeons’ offices in Iraq and Afghanistan about how they assess their military medical personnel needs in Iraq and Afghanistan and possible effects of differences in guidance that govern medical care in theater. For the second objective—to evaluate the extent to which the Army has adapted the composition and use of its medical units to provide advanced medical care in Iraq and Afghanistan—we reviewed reports from the medical task forces in theater, Army documentation of the composition of medical units in Iraq and Afghanistan, theater-level publications regarding medical care in Iraq and Afghanistan, Army medical doctrine, and Army field manuals for medical units. We interviewed officials, including officials with the medical task forces and Surgeons’ offices in Iraq and Afghanistan about the current use and composition of medical units in theater, and the extent to which they are captured within official Army documentation of doctrine and the organization of medical units. In addition, we interviewed representatives from the Army Medical Department Center and School, Directorate of Combat and Doctrine Development about the relevance of doctrine and the organization of medical units and the role lessons learned in Iraq and Afghanistan might play in any plans to update doctrine and the organization of medical units in the future. For the third objective—evaluate the extent to which the Army fills medical personnel gaps that arise in Iraq and Afghanistan—we reviewed the approaches used by Army theater medical commanders to meet medical personnel requirements when gaps in needed personnel coverage occurred and interviewed officials with the theater-level medical task forces and Surgeons’ offices in Iraq and Afghanistan regarding reasons why unexpected medical personnel needs arose and the approaches used to address those needs in theater. When possible, we obtained and reviewed supporting documentation, and interviewed other officials involved in these efforts, including officials with the U.S. Army Forces Command, to fill unexpected medical personnel needs in theater. We also reviewed policies and guidance for meeting medical personnel needs that arise in theater for both the active and reserve components, specifically the Army’s 90-day deployment policy for reservists applicable to physicians, dentists, and nurse anesthetists. To determine the extent to which the Army’s reserve component medical units deployed their authorized medical personnel in 2008, 2009, and through the first 6 months of 2010 to Iraq and Afghanistan, we reviewed Army’s deployment data on late deployments of medical providers from the reserve components. We assessed the reliability of the data by interviewing the agency official responsible for manually collecting and summarizing the data. We determined that the data were sufficiently reliable for the purposes of this report. Additionally, to better understand how military medical personnel requirements are met, we obtained information on DOD’s Global Force Management process and how the services identify medical units and personnel to fill these requirements. We interviewed officials with the Joint Staff, U.S. Joint Forces Command, and the military services’ force providers to include U.S. Army Forces Command, U.S. Fleet Forces Command, U.S. Air Combat Command, and U.S. Marine Forces Command, as well as officials with the Army Medical Command, the Navy Bureau of Medicine and Surgery, and the Air Force Personnel Center about their processes for filling in-theater military medical personnel requirements. For a more comprehensive listing of the organizations and offices we contacted, see table 1. We conducted this performance audit from August 2009 through January 2011 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The Department of Defense (DOD) uses its Global Force Management process to meet its requirements, including those for medical personnel and units. For ongoing operations, this process periodically examines requirements for rotational forces as well as emerging requirements as they arise. In addition, the services each use unique yet similar processes to identify and select medical units and personnel to fill requirements for Iraq and Afghanistan. DOD designed the Global Force Management process to provide insight into the global availability of U.S. military forces. For the rotational force management process, requirements are identified 2 years in advance. The rotational force management process is facilitated through Global Force Management Boards, which are typically held on a quarterly basis. The Global Force Management Board brings together general officers from interested parties—Office of the Secretary of Defense, the Joint Staff, the combatant commanders, the services, and the joint force providers—to specifically lay out known requirements, review and endorse sourcing recommendations and associated risk and risk mitigation options, and then to prioritize and meet the requirements as appropriate. The product of these Global Force Management Boards is the Global Force Management Allocation Plan, a document that is approved by the Secretary of Defense, which authorizes force allocations and deployment of forces in support of combatant commander rotational requirements. In both Iraq and Afghanistan, medical personnel and unit requirements are included in the Global Force Management Allocation Plan, which provides an approach for U.S. Central Command, the services, and the services’ force providers to manage the sourcing of rotational requirements, including requirements for medical personnel and units, such as the Balad Theater Hospital in Iraq or a combat support hospital in Afghanistan. For requirements, including medical personnel and units, that are not known in advance, DOD used the emergent force management process extensively to meet requirements through requests for forces. Generally, the parties involved in this process have separate, sequential roles in the process. Requests for forces are generated by combatant commanders and submitted to the Joint Staff for validation, and then to the joint and service force providers to identify potential sourcing solutions to fill requirements before being transmitted to the Secretary of Defense for approval. In sourcing requests through the emergent process, requirements are prioritized according to a force allocation decision model. While emergent requirements are considered within the model’s general framework, each request for forces is individually evaluated as it is received, meaning that officials focus on whether or not forces are ready and available to fill the request rather than trying to determine the relative priority of the request, as is done at the Global Force Management Boards for rotational requirements. As part of providing and evaluating potential solutions for the request for forces, the services’ force providers often conduct risk assessments to provide information on the availability and readiness of both active and reserve forces. These risk assessments include violations of the services’ rotation policies regarding the required time at home for servicemembers and the impact to current missions and operations, such as the staffing of U.S. military treatment facilities in the case of medical personnel, if a service is selected to meet the requirement. In addition, each of the services maintains a list of specialties that are in high demand relative to available personnel. All of the services identified critical care nurse, physician assistant, psychiatry, and clinical psychology as high-demand specialties. The services use unique yet similar processes to identify and select medical units and personnel to fill requirements for Iraq and Afghanistan. Once the Secretary of Defense designates a service to meet an emergent or rotational requirement, the service’s force provider then begins the process of filling the requirement with personnel. While the procedures and systems used by each service to select the appropriate medical personnel vary, the services’ processes for filling requirements all result in a unit and its personnel deploying to an operational theater to carry out a mission. The identification of individual medical personnel to fill the requirements is important because medical personnel across the services typically are assigned to fixed military treatment facilities caring for active duty personnel, their dependents, and retirees. However, in wartime, each service’s medical personnel processes allow for the deployment of medical personnel from fixed military treatment facilities to support contingency operations, such as Iraq and Afghanistan, while considering potential impacts on the medical mission of the fixed military treatment facilities. In addition, the processes attempt to distribute the burden of deployments within and across medical specialties (e.g., orthopedic surgeons, critical care nurses, and psychiatrists), to comply with service guidelines, such as required time at home for servicemembers, to maintain a healthy inventory of medical specialists. In addition to the contact above, Laura Talbott, Assistant Director; John Bumgarner; Susan Ditto; K. Nicole Harms; Stephanie Santoso; Adam Smith; Angela Watson; Erik Wilkins-McKee; Michael Willems; and Elizabeth Wood made major contributions to this report.

For ongoing operations in Afghanistan and Iraq, military medical personnel are among the first to arrive and the last to leave. Sustained U.S. involvement in these operations has placed stresses on the Department of Defense's (DOD) medical personnel. As the U.S. military role in Iraq and Afghanistan changes, the Army must adapt the number and mix of medical personnel it deploys. In response to Congress' continued interest in the services' medical personnel requirements in Iraq and Afghanistan, GAO evaluated the extent to which (1) DOD has assessed its need for medical personnel in theater to support ongoing operations, (2) the Army has adapted the composition and use of medical units to provide advanced medical care, and (3) the Army fills medical personnel gaps that arise in theater. To do so, GAO analyzed DOD policies and procedures on identifying personnel requirements, deploying medical personnel, and filling medical personnel gaps in Iraq and Afghanistan, and interviewed officials. Medical officials in theater continually assess the number and the types of military medical personnel they need to support contingency operations in Iraq and Afghanistan and analyze the risks if gaps occur. Given congressional interest about deployed civilians, DOD reported to Congress in April 2010 that with each new mission, the need for new civilian skills has resulted in an increase in deployed civilians and that these civilians are not immune to the dangers associated with contingency operations. Although GAO did not learn of any DOD deployed civilians turned away for care in theater during this review, it is unclear the extent they can expect routine medical care in theater given that a DOD directive and theater guidance differ with regard to their eligibility for routine care. By clarifying these documents, DOD could reduce uncertainty about the level of routine care deployed DOD civilians can expect in theater and provide more informed insights into the military medical personnel requirements planning process. Army theater commanders have been reconfiguring or splitting medical units to cover more geographical areas in theater to better provide advanced emergency life-saving care quicker, but Army doctrine and the organizational design of these units, including needed staff, have not been fully updated to reflect these changes. Studies show that for those severely injured or wounded, 90 percent do not survive if advanced medical care is not provided within 60 minutes of injury. Officials in theater told GAO they are using specialized personnel documents to staff these medical units with more up-to- date personnel requirements to address gaps caused by splitting medical units, and that current doctrine and organizational design were not sufficient to address the capability needed for splitting medical units. According to an Army regulation, it maintains its lessons learned program to systematically update Army doctrine and enhance the Army's preparedness to conduct current and future operations. By updating Army doctrine and organizational documents for the design of medical units that could be used in other theaters, the Army could benefit from incorporating its lessons learned, where appropriate, and be better assured the current practice of splitting medical units to quickly provide advanced life-saving emergency medical care to those severely injured or wounded does not lead to unnecessary staffing challenges. Army commanders have used two approaches--cross-leveling and backfilling--to fill medical personnel gaps that arise in theater due to reasons such as illnesses, emergency leave, and resignations of medical personnel. When these gaps in needed medical personnel occur, the Army's 90-day rotation policy--while intended to ease the financial burden of deploying reserve medical personnel and help retain them--has presented some challenges in quickly filling these gaps in theater with reserve medical personnel when a medical provider is not able to deploy. However, Army data show the magnitude of these unfilled gaps or late arrivals for the reserve component medical providers ranged from about 3 percent to 7 percent from January 2008 to July 2010. GAO recommends that (1) DOD clarify the level of routine medical care that deployed DOD civilian employees can expect in theater and (2) the Army update its doctrine and the organizational design of split medical units. In response to a draft of this report, DOD generally concurred with the recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Corporation is part of the USA Freedom Corps, a White House initiative to foster a culture of citizenship, service, and responsibility, and help all Americans answer the President’s Call to Service. The Corporation maintains administrative field offices in almost every state. AmeriCorps was created in 1993 and is one of three national service programs the Corporation oversees: the Senior Corps, AmeriCorps, and Learn and Serve America. AmeriCorps consists of three programs: AmeriCorps State and National (state and national), AmeriCorps VISTA (Volunteers in Service to America), and AmeriCorps NCCC (National Civilian Community Corps). AmeriCorps programs for tribes and territories are included in state and national programs. The Corporation makes grants from its program appropriations to help grant recipients carry out national service programs. These include programs that tutor and mentor youth, build affordable housing, teach computer skills, clean parks and streams, run after-school activities, help communities respond to disasters, and those that are related to homeland security. About 60 percent of the Corporation’s fiscal year 2003 grant funds for AmeriCorps programs went to state service commissions, tribes, and national direct grantees for AmeriCorps State and National programs, which award subgrants to nonprofit groups, which then enroll the AmeriCorps participants. The remaining grant and administrative funding paid for VISTA and NCCC participants—about 32 percent and 8 percent respectively, in 2003. AmeriCorps is open to U.S. citizens and nationals or lawful permanent resident aliens age 17 and older. Participants in the AmeriCorps program can receive stipends as well as health benefits and child care coverage. For example, about one-half of AmeriCorps participants received a $9,300 living allowance and health benefits in program year 2002. Those participants who successfully complete a required term of service earn a national service education award that can be used to pay tuition, fees, and expenses for undergraduate school, graduate school, or an approved school-to-work program, or to pay back qualified student loans. In exchange for a term of service, full-time AmeriCorps participants earned an education award of $4,725 in program year 2002. VISTA participants can elect to receive a cash stipend instead of an education award. About one-third of VISTA participants chose to take the stipend rather than the education award in 2002. Figure 1 illustrates the flow of the funds and information for the AmeriCorps program. According to the Corporation’s Trust database, AmeriCorps enrollments more than doubled between 1994 and 2000. Overall AmeriCorps enrollments increased from about 25,000 in 1994 to about 42,000 in 1999, to over 59,000 in 2001. Enrollments fell in 2002 because of the suspension of enrollments and were legislatively limited to 50,000 in 2003. The Corporation requested Trust funding to support 75,000 new enrollments for 2004. AmeriCorps enrolls participants on a full-time and a part-time basis. Part- time participants who serve 900 hours or less annually earn education awards proportional to the hours served. During the first three years when AmeriCorps programs enrolled participants, 60 percent or more of the participants served in full-time positions. By 2000 less than 50 percent of the participants were full-time, and Corporation officials stated that they are planning for about a 50/50 full-time/part-time mix in 2004. Trends in total enrollment from 1994 to 2002, and projected enrollment for 2003, and the full-time and part-time mix of participants for each year are shown in figure 2. Additionally, AmeriCorps enrolls “education award only” participants. AmeriCorps does not pay these participants a living allowance or other benefits, but it provides funding to grantees for administrative purposes only, about $400 annually per participant. However, each education award participant receives an education award equivalent to that earned by a paid AmeriCorps member. More than half of the AmeriCorps enrollment growth has come from grants that provide participants no benefits other than the education award. The Corporation reports there has been high interest in these grants in recent years. Enrollments for these positions increased from fewer than 6,500 in 1999 to almost 16,000 in 2001. All participants—full-time, part-time, and education award—have up to 7 years after they successfully complete their service to use their education awards. AmeriCorps also distributes funds to high school students through Presidential Freedom Scholarships. These scholarships are valued at $500 for each participant. For 2003 and 2004, the Corporation planned to award about 7,000 Presidential Freedom Scholarships. The Government Corporation Control Act requires the Corporation to have an annual audit of its financial statements. The Corporation prepares its financial statements using generally accepted accounting principles that are used by private sector corporations and federal corporations. The Corporation plans to include a statement of net cost and a statement of budgetary resources as supplemental information in its annual Performance and Accountability Report by fiscal year 2005. The Corporation’s financial statement auditor reported that in fiscal year 2002 the Corporation approved AmeriCorps national service positions in excess of the number of positions that the Trust could support. In November 2002 the Corporation suspended enrollments in AmeriCorps. Several factors contributed to the need to suspend enrollments, including a lack of communication among staff responsible for program and Trust operations. The Office of the Inspector General (OIG) reported in April 2003 that the AmeriCorps program approved grants for thousands of positions more than were used in the Corporation’s model to estimate the funding needs of the National Service Trust. On July 24, 2003, the OIG reported the Corporation had enrolled more AmeriCorps participants than the Corporation’s National Service Trust could support, and as a result, beginning in 2000, the Trust’s liabilities exceeded the funds it had available from appropriations and interest earnings. In that report, the OIG concluded that the Corporation had violated the Antideficiency Act. The Antideficiency Act prohibits an employee or officer of the United States government from making or authorizing an expenditure or obligation exceeding an amount available in an appropriation. The Corporation submitted an Antideficiency Act report to OMB, but as of December 2003, the report, including the amount of the deficiency, had not been submitted to the President and the Congress. For more information see appendix II. Discrepancies between the information in the Trust database and participant documentation indicate that not all AmeriCorps enrollment and exit information has been accurately recorded in the Trust database. Some of these discrepancies could affect the estimated probable expenditures of the Trust because these data are used to estimate the amount of education awards the Corporation will ultimately pay. Furthermore, the Corporation does not have complete or current user documentation for the Trust database. Without clear documentation explaining the components of the database, the Corporation may be at risk of not being able to properly interpret and analyze its participant data. Out of about 172,000 enrollments in program years 2000 to 2002, we obtained sufficient documentation to estimate the extent of discrepancies for about 158,000 enrollments. We estimate that about 5 percent (8,300 enrollments) have a discrepancy between the Trust database and participant documentation. Of these, about 3 percent (4,400 enrollments) could affect estimates of future probable expenditures of the Trust. Figure 3 illustrates these results. Several of the discrepancies that could affect what is owed by the Trust were similar in nature. One of the most frequently occurring discrepancies pertained to cases in which the Trust database showed participants were still serving while their documentation showed they had exited the program without earning an award. For several other cases, the Trust data showed VISTA participants were still serving while the documentation showed they had elected to receive a cash stipend instead of an education award. According to an AmeriCorps official, cash stipends are not paid from funds in the Trust. In several other cases, the Trust data showed participants were still serving while their documentation showed they had signed up for a shorter term of service and should have exited the program. The Corporation acknowledged it would need to take further action to determine the actual status of these cases. The specific discrepancies we found that could affect the amount owed by the Trust are described in appendix III. Nearly all the discrepancies that will not affect the amount owed by the Trust were for cases without an enrollment date on the form, although an enrollment date was in the database. These cases do not affect the estimate of what the Trust owes because other information in the documentation was consistent with the database, such as whether or not the participant earned an award. Corporation officials told us an enrollment date should be recorded on the forms and that they would issue clarifying instructions to grantees. According to Corporation officials, there are numerous processes designed to help ensure the accuracy and validity of its data. However, the results of our analysis raise questions about the effectiveness of some of these processes. The Corporation has controls over who may enter or change participant information in the Web-Based Reporting System (WBRS), and several edit and data checks are in place to ensure data is entered properly and completely. For example, only a grantee’s program director can certify that participants have completed their service and qualified for an award, and WBRS will not allow grantees to enroll more participants than the number of slots they were awarded. Corporation officials also stated that a number of data checks are performed when WBRS data are transferred to the Trust database. For example, after each weekly upload, an error report is generated showing such things as participants who had not been officially enrolled in the Trust and duplicate enrollments. Furthermore, the Corporation’s fiscal year 2001 Performance and Accountability Report noted that the Corporation had instituted a procedure to randomly sample and verify enrollment and exit data on an annual basis. However, Corporation officials could not provide any reports documenting the results of these reviews. Our analysis of the Trust data also found that out of 186,000 participants enrolled during program years 1999 to 2002, 313 participants had Social Security numbers (SSNs) that were invalid or that the Social Security Administration (SSA) had not issued, and 169 had SSNs for persons listed in SSA’s death master file. In about 75 percent of these last cases, the name and birthday of the individual in the SSA death file differed from the information in the Trust database. In the remaining 25 percent of cases, the name and birthday matched, but either the SSA records show the individual had died more than 30 days before the service completion date shown in the Trust database or no completion date was in the Trust database, indicating these participants may be listed as still serving. Corporation officials told us that some of these cases could be the result of data entry errors. They also said that, on occasion, grantee officials create records for nonexistent individuals, including mock SSNs, to test how the data entry system works. However, these erroneous data are not routinely cleared from the database, according to Corporation officials. Since these cases are in the database, they are considered as enrolled participants. Such records for nonexistent individuals will cause the Corporation to overstate the estimated amount owed by the Trust for education awards. In November, 2001, the Corporation entered into an agreement with SSA to test the validity of the SSNs of newly enrolled participants. Corporation officials provided information showing that they completed a SSN match under this agreement in May 2002 and found that 2,910 participants out of about 58,000 that did not match SSAs records. Corporation officials stated that they were undertaking an internal review to resolve these discrepancies. The Corporation has not done any subsequent matches, but officials told us that because of our findings, they would reconsider this. Corporation officials also said that while the database could be improved, there are safeguards to prevent an unauthorized person from claiming an award. For example, the postsecondary institution the participant is attending must verify that he or she is a student there, and the award funds are sent directly to the institution. Nonetheless, since there are tens of thousands of different individuals joining AmeriCorps every year and given the concerns about how SSNs are used and protected, particularly in light of the rise in identify theft, it may be in the Corporation’s best interest to regularly verify the accuracy of the SSNs. Without valid SSNs in the Trust database on its participants, the Corporation cannot be certain that it has accurate information on its participants and that all participants meet the eligibility criteria. We found the system documentation for the Trust database was difficult to use and, in some instances, out of date. As a result, we had to rely on oral testimony and e-mails provided by Corporation officials and the WBRS support contractor for information about the system. The users’ manual for the database was prepared in 1995. However, Trust database managers told us that this manual does not reflect all system changes since that time. The Corporation has a data definition dictionary for the Trust database intended to describe the data fields used in the database and what information they represent. However, the document we obtained does not provide definitions or labels for the data fields. Without this information, we were not able to identify what the data fields represented, nor would any new users of the system be able to identify the data fields. In commenting on a draft of this report, Corporation officials stated that the system documentation, including the data definition dictionary, was formatted to facilitate use by system developers rather than laypersons. We were also only able to obtain a partial written inventory of edit and data checks used for the database. We had to rely on two Corporation employees knowledgeable about the system's components to explain the type of information in each of the data fields, identify the data fields used in determining education awards, and determine what related data and edit checks were used. Documenting how data systems are to be used is a common, and required, management practice. Without clear or up-to-date system documentation explaining the data elements in the Trust database, and procedures for validating the data, the Corporation may be at risk of using incorrect data for its estimates of future probable expenditures. Also, the Corporation would be dependent upon a few employees who are familiar with the system to produce reports or prepare analyses of the data. Documenting systems is an important internal control that helps organizations ensure that data are reliably collected and properly used and helps ensure organizations are positioned to continue operations in the event of a disaster or an emergency. In 2003, the Corporation began using a new model to estimate the funding needed to provide future education awards through the Trust. This new model used conservative values that increased the Trust’s funding estimates as compared with the previous model. Corporation officials believe the historical data they possess provide a sound basis for Trust funding estimates. However, they chose to use more conservative values because the AmeriCorps program does not have a long history and they wanted to regain credibility after having had to suspend enrollments in 2002. In addition, the Trust fund now includes a reserve account required by the Strengthen AmeriCorps Program Act. The Corporation’s model also does not include a way to consider the possible effects that external factors could have on its estimates. If the Corporation does not ensure its funding estimates for future education awards are as reasonable and complete as possible, millions of federal dollars may accumulate in the Trust and not be available to help support this or other programs. The Corporation used one model, the SAL model, to estimate both the probable expenditures of the Trust for past and current participants and the funding needed to provide education awards for future participants. According to Corporation officials, the SAL model was used from 1996 to 2003. In 2003, the Corporation developed a new model and revised its method for developing the Trust’s future funding estimates. The SAL model is still used to estimate probable education award expenditures for past and current participants. The reliability and supportability of the estimates produced by earlier versions of the SAL model have been examined by outside auditors on two separate occasions. The auditors asked to review and assess the Trust model determined that the model produced reliable estimates for the period examined. However, they suggested functional enhancements and provided model documentation to the Corporation. Other auditors also reviewed the model as part of the annual audits of the Corporation’s financial statements. These auditors advised the Corporation that controls and checks on the model’s data should be strengthened. They also recommended that automated techniques be periodically used to systematically review the model’s database and that the Corporation should consider several minor changes to the model to enhance the reasonableness of its estimates. We also reviewed the SAL model and found that the key factors and assumptions used to develop the accounting estimates were generally reasonable. Furthermore, neither the Corporation’s IG nor our assessment found that the SAL model was a key factor that contributed to the suspension of enrollments in 2002. For information on the structure and content of the SAL model, see Appendix IV. In the new model, the Corporation used more conservative values for the rates at which education awards are earned and used. The Strengthen AmeriCorps Program Act states that the Corporation shall use a formula for estimating Trust obligations that takes into consideration historical rates of relevant participant behavior. In considering historical rates, the Corporation officials commented that they believe the historical data they possess provides a sound basis for Trust funding estimates and having extra funds available in the Trust—as compared with those estimated by the SAL model—might be prudent, particularly since the AmeriCorps program does not have a long history from which to extrapolate trends in participant behavior—only one cycle has been completed. The officials also noted that the new model’s assumptions do not differ significantly from the historical averages. For example, the rate at which participants earn awards in the former model is about 75 percent, while the new model uses a rate of 80 percent. Further, the officials said they chose to use more conservative values because they wanted to regain credibility after having had to suspend enrollments in 2002. These officials said that they wanted to ensure that the Corporation would have adequate funds in the Trust and avoid any possible need to suspend enrollments again. It may be appropriate to gain some experience with the new model and current participant behavior before adjusting the assumptions used. The Strengthen AmeriCorps Program Act also required the Corporation to consult with the Congressional Budget Office (CBO) on its model formula. CBO focused its analysis on the Corporation’s discount rate and reported that the Corporation used a discount rate that is more conservative than the one it uses when calculating the costs related to proposed legislation. When the new model’s assumptions are used, the Corporation’s Trust funding estimates were greater for the same number of participants than if the values in the SAL model were used. We calculated that the cost to provide education awards for up to 75,000 AmeriCorps participants and 7,000 Presidential Freedom scholarship recipients using SAL model assumptions was about $116 million. Using the assumptions in the new model, the Corporation’s funding estimate was about $133 million for the same number of participants and scholarship recipients. The total amount in the Trust also may be higher because the act required the Corporation to include a reserve account. Corporation officials told us the reserve account value of 10 percent of the funding estimate was a value reached through discussions with congressional staff, and this value could change in subsequent years. Our analysis indicates that by using the assumptions in the new model, the Trust may accumulate more funds than have been needed to pay estimated education awards in the past. For instance, the Corporation’s data show the Trust funding estimates are $13 million and $17 million more, respectively, when 50,000 and 75,000 participants are assumed, and the new award levels and the award earning and usage rates are used than those used in the SAL model. Not only are the assumptions in the new model greater than those used in the SAL model, but the SAL model assumptions are higher than the actual rates in most years. For example, the percentage of AmeriCorps participants who earned education awards has fluctuated since the beginning of the program. The rate decreased from a high of about 75 percent in 1994 to 68 percent in 1998, and then increased to 73 percent in 2001. The rate used in the SAL model for earned awards was about 75 percent—the highest average percentage rate achieved in the history of the program. Figure 4 compares the actual rates at which education awards were earned with the rate used in the SAL model and the rate used in the new model. If future participant behavior reflects the behavior of most past participants, the Trust fund balance may increase more using the new model assumptions than it would using the estimates produced by the SAL model. It may be appropriate for the Corporation to gain some experience with the new model and current participant behavior before adjusting the assumptions used. The Corporation acknowledges that the new model may create Trust balances that are greater than if historical rates were used if future participant behavior mirrors historical behavior. The Corporation chief financial officer said that there are opportunities to periodically deobligate funds during the program cycle. Funds could be deobligated from the Trust if (1) the positions created in the grant awards are less than the full- time-equivalent number of the positions approved, (2) all positions are not filled, (3) participants drop out before earning an education award, and (4) participants who earn awards do not use them. Figure 5 illustrates the points when the Corporation can deobligate funds. Corporation officials said any deobligated funds would become available for other enrollments. They also said these funds would be used to fund other awards in current and future program years, and would be considered as reductions in subsequent budget requests. Furthermore, Corporation officials stated that the annual financial audit will address whether the size of the reserve account and the assumptions used are prudent. As of December 2003, the Corporation had two studies under way examining AmeriCorps participants’ attrition rates and their utilization of earned awards. These studies focus on the frequency with which awards are earned and used. Corporation officials said that these studies have provided information that aids them in understanding AmeriCorps attrition and award usage, but they have not resulted in recommendations for policy changes that could affect the assumptions used in the model. Although Corporation reports indicate that external factors have affected program participation levels, these factors are not included in either model, nor have the Corporation officials taken them into account when they submit their funding request for the Trust. Estimating models should account for factors external to the business or entity that can affect the reasonableness of the estimates. Several factors can affect the assumptions used by the Corporation to estimate its budget needs. These factors include the state of the economy, the cost of postsecondary education and the availability of financial aid, and the levels of interest in volunteerism. Neither of the Corporation’s models takes into account any external factors that could change future trends when it creates its assumptions or calculates its final budget estimates. Corporation officials stated that the models are not sophisticated enough to account for all of these factors. However, the Corporation has formed a Management Improvement Team to examine the potential costs and benefits of upgrading the model to account for some external factors. External factors could affect the number of AmeriCorps participants, as well as the attrition rate and use of awards once enrolled. For example, if unemployment rates are high, more participants may be willing to enroll, since they could receive a stipend as well as future education awards. Additionally, if postsecondary education costs increase, more participants may be likely to ensure they earn, and afterward use, their education awards. The Corporation has acknowledged that external factors have prevented it from achieving program goals. In its fiscal year 1999 and 2000 Performance Reports, the Corporation said it believed the strong economy was partly to blame for the Corporation’s not achieving its program year 1998 and 1999 enrollment goals. In its fiscal year 2002 Performance and Accountability Report, the Corporation said the high level of interest in volunteerism following September 11, 2001, and the President’s Call to Service contributed to higher levels of AmeriCorps enrollments than were anticipated. The Corporation has implemented and planned substantive changes that should minimize the risk of an enrollment suspension in the future, and it has met or plans to meet the requirements established by the Strengthen AmeriCorps Program Act. Our previous statement and testimony from the Corporation’s Inspector General identified several factors that contributed to the conditions surrounding the November 2002 suspension in enrollments. The Corporation has made changes to address these factors. However, grantees raised concerns about two new policies because they may limit enrollments and hinder service delivery. If these policies reduce enrollments, balances in the Trust may be further increased. The Corporation has made changes to address the three conditions that we reported contributed to the need to suspend enrollments in AmeriCorps. The Corporation had not recognized its obligation to fund participant education awards. There was a lack of communication among program, grants management, and Trust officials with regard to the number of AmeriCorps positions the Trust could support. Finally, because they did not require grantees to provide timely enrollment information, Corporation and AmeriCorps managers could not be certain about the number of AmeriCorps participants and their effect on the Trust. The Corporation’s obligation practices comply with the Strengthen AmeriCorps Program Act. In accordance with this act, the Corporation began obligating Trust funds when it approved positions in AmeriCorps grants beginning in June 2003. As of September 2003, the Corporation had obligated fiscal year 2003 appropriated Trust funds for about 46,000 of the 50,000 AmeriCorps positions. Greater emphasis has been placed on monitoring the availability of funds in the Trust, and the communication and coordination between officials responsible for managing the Trust and officials responsible for creating positions have greatly improved. Since March of 2003, the Corporation has been tracking AmeriCorps enrollments on a biweekly basis, investigating discrepancies in counts between its enrollment system and the Trust database, and monitoring the enrollments against the capacity of the Trust. These results are made available to high-ranking program and financial management officials of the Corporation, who meet monthly to discuss the results of these exercises. The Corporation has also tightened the controls and eliminated much of the flexibility it previously gave grantees. Grantees are now prohibited from enrolling more participants than specified in their grant awards, and the Corporation modified WBRS to prevent grantees from enrolling more participants than the number of positions contained in the grant award. To better monitor progress toward its enrollment goals and their effect on the Trust, the Corporation now requires grantees to report certain data about potential participants to the Corporation prior to their actual enrollment. If a potential participant does not enroll within 45 days of the expected start date, the file on the potential participant is deleted. If the individual enrolls as scheduled, the grantee must complete the enrollment process within 30 days of the participant beginning work. The Corporation added a tool to WBRS that allows managers to monitor the average number of days between a participant’s start date and enrollment. According to the Corporation, 60 percent of program year 2002-2003 grantees have improved the average time between participants’ start dates and the reporting of their enrollment compared to their performance in program year 2001-2002. However, less than 50 percent of the program year 2002- 2003 grantees reported an average time from start date to enrollment of 30 days, or less. In addition, the Corporation provided training and technical support to assist grantees with the system changes and new enrollment requirements. Most of the AmeriCorps grantees who responded to our survey said the training was adequate to meet the new requirements. Of the AmeriCorps grantees who responded, 80 percent said that the Corporation provided enough training and technical support to help them meet these new requirements. However, in written responses some grantees said they would like to receive training more frequently and believed it would be beneficial if the Corporation could provide training directly to subgrantees, rather than just to grantees. Additionally, about 7 percent of the responding grantees said that as a result of the new requirements, they or their subgrantees would have to perform additional tasks in their enrollment procedures. One of the responding grantees said that because it had over 150 part-time positions, and only limited staff, the requirement to enter data on participants twice imposed a significant burden. Corporation officials stated that they are planning to improve oversight of grantees’ performance. The Corporation plans to create consolidated reports in WBRS to facilitate oversight of the performance of its grantees, such as the state commissions and national direct grantees. This will allow them to identify programs having enrollment reporting problems more quickly and allow them to focus their oversight on those most in need of attention. Additionally, the Corporation plans to strengthen grantee oversight requirements to ensure that grantees are overseeing their subgrantees’ compliance with enrollment procedures and time frames. The Corporation updated the administrative standards for the state commissions’ process for monitoring their subgrantees’ compliance with the enrollment procedures. These standards also include the expectation that state commissions will consider a subgrantee’s compliance with the enrollment procedures and time frames in their funding decisions. The Corporation issued this guidance to the commissions in November 2003. In commenting on the draft report, Corporation officials said that the revised standards will be piloted in spring 2004 and then submitted to OMB for review in early fiscal year 2005. The Corporation also plans to establish a schedule for its staff to review grantees’ enrollment cycle times and provide additional training and technical assistance to grantees. There are two provisions in the Strengthen AmeriCorps Program Act that increase the oversight of Trust operations. The first provision requires that the Corporation’s chief executive officer (CEO) certify annually in a report to Congress that the Corporation is in compliance with other sections of the act. The second provision requires an annual audit of the accounts and records supporting the national service positions, and the National Service Trust estimate to fund those positions—referred to in the act as the Corporation’s trust obligations. The act requires the CEO to include this annual audit with the CEO certification report forwarded to Congress. Although the audit has been completed, the Corporation has not yet provided its report to Congress. The auditor found, after accounting for the model’s assumptions and reserve account, the Trust still had about $10 million of its fiscal year 2003 appropriation available for awards as of September 30, 2003. The acting CEO certified the Corporation’s compliance with the act in the management representation letter provided to the Corporation's Inspector General on November 13, 2003. Corporation officials said they also plan to include the CEO certification and the audit of the estimated obligations in its 2003 Performance and Accountability report to Congress. Prior to the suspension in enrollments, the Corporation allowed grantees to replace a participant who left AmeriCorps before earning a full award and to convert an unfilled position to a different number of positions with an equivalent value of education awards. For example, if a grantee had a difficult time recruiting full-time participants, it could convert the full-time position into two half-time positions. In an effort to help ensure the Trust would not incur education award expenditures greater than its funds, the Corporation established policies that prohibit grantees from replacing participants and converting full-time positions. With these policies, if a participant enrolls in a program but then leaves after 1 week, the grantee cannot replace that person, and if a grantee has one full-time position but can only find people willing to work part-time, the grantee cannot convert that position to two half-time positions but instead can only fill it with one part-time person. The Corporation established these policies because it estimated that the Trust could only support a finite number of 2002 positions. Subsequently, Congress placed a 50,000 limit on the number of total AmeriCorps enrollments that could be filled with the 2003 Trust appropriations. However, as of November 2003, Congress has not included an enrollment limit in the proposed 2004 Trust appropriations. The policies prohibiting grantees from refilling vacated positions and converting unfilled positions helped the Corporation officials to control enrollments and helped them to comply with the legislatively imposed limit, which in turn helped ensure the solvency of the Trust. However, grantees who responded to our survey said that these policies may hinder their ability to provide services. Additionally, these policies may lead to fewer enrollments and coupled with the Corporation’s obligation practices and the model assumptions may contribute to a higher balance of funds in the Trust. Our subgrantees must now rethink their member enrollment and termination policies. In the past, programs could “take a chance” on enrolling a potential member who showed promise but who may have also had potential risk factors. They were able to do this because they could refill the slot if the member did not work out. In relation to terminating members, subgrantees will now be somewhat hesitant to release a member who is not performing as expected, because they will not be able to refill the slot. Similarly, most of the respondents reported that the policy on converting unfilled positions will affect program operations and service delivery. About 75 percent of respondents reported that this restriction will negatively affect their operations and require them to change their operations. Seventy-five percent reported that it will hinder service delivery, and 60 percent reported that it will cause changes in services provided. Respondents commented that the authority to convert positions allowed them to respond positively to changing circumstances and better address community needs. One respondent noted that without being able to convert positions, applicants will not be accommodated if their availability does not conform to the slots provided in the grant. Positions, therefore, could go unfilled. Furthermore, if these policies result in fewer enrollments, the balance in the Trust may grow. As previously mentioned, since the passage of the Strengthen AmeriCorps Program Act, the Corporation obligates funds for all AmeriCorps positions when the grants are approved and prior to participants actually enrolling. Also, the new model the Corporation uses for developing funding estimates assumes 100 percent enrollment for all positions created. If enrollments do not reach the approved levels, and if Corporation officials do not regularly and diligently monitor enrollments and periodically deobligate funds, the funds in the Trust may accumulate. Financial statement auditors have reported several internal control weaknesses or conditions at the Corporation and whether the Corporation has improved those previously identified. For example, the auditors reported that the grant approval policies and procedures were a serious weakness in fiscal years 1999 and 2000. The reports for 2001 and 2002 show that the Corporation improved in this area and the auditors did not list this as a concern in the 2003 report. However, the Corporation continues to have some internal control problems. The fiscal year 2003 audit reported a continuing internal control problem regarding the Corporation’s monitoring of grantee activities. This problem was also cited in the audit reports for fiscal years 2001 and 2002. Additionally, as previously stated, we found that the Corporation has not fully implemented its efforts to improve oversight of grantees’ performance, its procedures do not ensure accurate data in the Trust database, and the Corporation’s ability to fully use the data on its participants may be limited because the users’ manual for the database has not been kept current. In light of these internal control weaknesses and the concerns related to the problems that lead to the suspension in enrollments, having an auditor review internal control would provide a measure of assurance over the Corporation’s accountability and internal control. Auditor opinions on internal control are a critical component of monitoring the effectiveness of an entity’s risk management and accountability systems. When an auditor renders an opinion on internal control, the auditor is providing reasonable assurance that the entity has maintained effective internal control over financial reporting (including safeguarding of assests) and compliance such that material misstatements, losses, or noncompliance that are material to the financial statements would be detected in a timely fashion. The auditor also reports on any significant deficiencies or material weaknesses in the internal control over financial reporting. An opinion on internal control is appropriate and necessary for major government entities and in other cases where an opinion on internal control would add value and mitigate risk. The suspension of AmeriCorps enrollments had a serious impact on the Corporation’s operations, resulting in both internal and external scrutiny. This scrutiny revealed many shortcomings with the Corporation’s management of the AmeriCorps program and the Trust. Since the suspension in enrollments, the Corporation has made significant changes to some of its operating procedures and internal controls. Most notably, the Corporation began obligating Trust funds when AmeriCorps positions were created, and key Corporation officials have been much more focused on ensuring adequate funds are in the Trust. However, weaknesses still existing in the Corporation’s procedures and internal control could negatively affect the Trust or hinder the Corporation’s ability to fulfill its management responsibilities. For instance, discrepancies between the Trust database and the participant data indicate that the Corporation does not have adequate internal control procedures to ensure the accuracy of its data. Accurate and complete participant information in the Trust database is critical. This information plays a significant role in estimating the education awards owed by the Corporation and ensuring they are awarded properly. Inadequate system documentation is an internal control weakness that could limit the Corporation’s ability to maximize its use and understanding of the data it possesses. Without valid SSNs in the Trust database on its participants, the Corporation cannot be certain that it has accurate information on its participants and could indicate that not everyone participating in the program meets the eligibility criteria. In addition, other changes are needed to enhance the Corporation’s efforts to be good stewards of public funds while fulfilling its mission. Given the Corporation’s relatively short history, and fluctuation in its program data, it may be prudent for the Corporation to use factors and value in its model that provide some additional funds in the Trust. Nonetheless, future funding estimates for the Trust should be as reasonable and complete as possible to minimize the accumulation of large balances in the Trust. The Corporation needs to balance its efforts to ensure the Trust does not assume future probable expenditures in excess of its funds with the mission and goals of the grantees and subgrantees that enroll AmeriCorps participants to help meet community needs. Policies that do not balance these goals may also contribute to the accumulation of balances in the Trust. If the Corporation does not ensure its funding estimates are as reasonable and complete as possible and does not regularly and diligently monitor enrollments and periodically deobligate funds, millions of federal dollars may accumulate in the Trust and not be available to help support other federal programs. Finally, obtaining an auditor’s opinion on internal control over financial reporting as part of its annual financial statement audits would provide additional accountability and assurance. To improve the management of AmeriCorps and the National Service Trust, we recommend that the chief executive officer of the Corporation take the following nine actions: To ensure the Trust receives accurate data for use in its model estimates and Trust database, implement a strategy to correct discrepancies between the Trust database and the enrollment and exit forms, review and document the effectiveness of its data assurance processes, regularly verify the accuracy of the SSNs of its participants. To better ensure that the Corporation has data that are readily available and is positioned to continue operations in the event of a disaster, emergency, or employee turnover, and update the users’ manual for the Trust database and develop an inventory of edit and data checks used for the database. To provide additional assurance over internal control and to minimize the related risks, obtain an auditor’s opinion on the adequacy of the internal control over financial reporting as part of the annual financial statement audit. To enhance the accuracy of Trust budget estimates and ensure the Trust does not accumulate large balances, create a means to take into account the possible impact that external factors may have on participant behavior in its funding estimates and budget requests, establish and execute a periodic deobligation schedule for unused Trust review the assumptions being used in the new funding model after the Corporation gains more experience with the new model and current participant behavior. To ensure its policies support its mission and grantees’ efforts to deliver services while also providing adequate management controls, evaluate the enrollment policies regarding refilling and converting positions. We received written comments from the chief executive officer for the Corporation for National and Community Service. These comments are reprinted in appendix V. The chief executive officer agreed with eight of the nine recommendations and identified the actions planned to address them. As for the other recommendation—to obtain an auditor’s opinion on the adequacy of the Corporation’s internal control over financial reporting as part of the annual financial statement audit—the chief executive officer stated that he would refer it to the Corporation’s Office of Inspector General, since that office contracts for the annual financial audit. Additionally, the chief executive officer identified several areas that needed further clarification. He pointed out that the system documentation for the Trust module of eSPAN was not outdated, as we said in our draft, and informed us that the documentation is up to date but neither it nor the data dictionary is maintained in a laypersons’ format. We modified the report to better reflect this information. The chief executive officer stated that the Corporation believes that the historical data currently used to estimate Trust funding provides a sound basis for the estimates. We modified the language in the report to reflect the Corporation’s views. Further responding to the chief executive officer’s comments, we (1) deleted the statement that the Corporation planned to begin using Generally Accepted Accounting Principles for federal government entities, (2) added program year information to better describe the comparison of the average time between participants’ start dates and reporting of their enrollment, (3) made it clear that the Corporation’s oversight efforts will focus on its grantees—the state commissions and national direct grantees, (4) updated the status of the Corporation’s revised administrative standards, and (5) changed the date when the CEO certification was provided. Further, the chief executive officer expressed the view that our discussion of the Antideficiency Act violation focused on the amount of the deficiency at a specific time in the past and does not calculate the amounts deobligated over time. He also states that it is the Corporation’s view that the deficiency is the amount needed at this time to liquidate obligations. We disagree and we revised this section of the report to explain that the Antideficiency Act requires an agency to report the amount of the violation at the time the violation occurred. The chief executive officer also stated that the $64 million deficiency appropriation should be sufficient. The report does not reflect nor did we calculate the amount the Corporation needs to liquidate its obligations. As we agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the issuance date. We will then send copies to the Chief Executive Officer of the Corporation for National and Community Service and make copies available to others who request them. At that time, the report will also be made available at no charge on GAO’s Web site at http://www.gao.gov. If you have any questions about this report, please call me on (202) 512-8403 or Carolyn Taylor on (202) 512-2974. Other contacts and staff acknowledgments are listed in appendix VI. To determine if the activities of AmeriCorps participants were accurately recorded in the Trust database, we performed a data reliability test comparing information in the Trust database with information from original enrollment and exit forms completed by the participants and their AmeriCorps program managers. We obtained data files from the Web- Based Reporting System (WBRS) and the System for Programs, Agreements, and National Service Participants (SPAN). SPAN is the database used by the Trust. We performed general checks on these files to look for invalid data such as Social Security numbers that are invalid or have not been assigned. Because of a lack of documentation describing the data fields in detail, particularly for SPAN, we held several discussions with Corporation officials and contractor staff to resolve technical issues associated with the data files and to identify data fields to use in our reliability test. Based on these discussions, we developed a list of WBRS data fields that would document participants’ enrollment, exit, and award eligibility. At our request, Corporation staff provided a list of corresponding SPAN data fields. The population we performed the reliability test for consisted of 172,434 state and national direct grant program and VISTA individual enrollments that were in the SPAN database as of July 25, 2003, and enrolled during the 2000, 2001, and 2002 program years. Each individual enrollment consisted of a discrete period of time a specific individual was an AmeriCorps participant at a single grantee. We did not sample National Civilian Conservation Corps (NCCC) participants because they constitute a small percentage of AmeriCorps enrollments (less than 3 percent). We drew a stratified random sample of 400 enrollments from this SPAN database. The population was stratified into four groups on the basis of program enrollment (i.e., state and national direct grant program or VISTA) and exit status (i.e., had exited from the program or not). With this statistically valid probability sample, each enrollment in the study population had a nonzero probability of being included, and that probability could be computed for any enrollment. Each sample element was subsequently weighted in the analysis to reflect the sample design. The weighting factors were computed as the ratio of the population to the sample within each stratum. We express confidence in the precision of our estimates as a 95 percent confidence interval. Corporation regulations require that participant documentation be kept on file for 3 years from the date a participant finishes his or her term of service. Documentation for VISTA participants is maintained at the Corporation’s state field offices and for state and national participants the documentation is maintained at the grantee’s or subgrantee’s office. The Corporation sent requests for the participant documentation to the appropriate grantees for each enrollment in our sample. The grantees sent the documents to the GAO headquarters in Washington, DC. We reviewed the documentation to make sure all applicable forms were submitted. Because of a larger than expected number of nonresponses and incomplete document submissions, we made a second request to the grantees that had not provided complete documentation. In total we allowed program officials 6 weeks to provide the documents. Not all grantees provided us with complete participant documentation for the cases we randomly selected. We did not receive any of the documentation needed to assess whether enrollment information was accurately recorded for an estimated 14,055 of the 172,434 enrollments in the 2000 to 2002 program years. Although we received incomplete documents for an estimated 30,176 enrollments, we were able to compare key information with the SPAN data. Corporation officials expressed surprise that we did not receive all of the documents requested. Table 1 shows estimates of documentation availability for all enrollments during program years 2000-2002. Grantee officials are responsible for entering and updating all information about participants. Participants complete enrollment and exit forms at the start and completion, respectively, of their terms of service. Grantee officials complete and sign other portions of these forms certifying the participant’s enrollment and exit dates and whether or not the participant earned an education award. The grantee officials enter the participant’s information into WBRS. It is then transferred to the Trust database on a weekly basis. Since participant data from the Trust database were used to calculate the Corporation’s future probable expenditures of the Trust for past and current participants as well as develop its funding estimates for future participants that it uses in its annual budget requests, we focused our comparison on key fields that would affect the estimates. According to Corporation officials, these include the enrollment date, the number of hours the participant committed to serve, the number of hours actually served, and the participant’s termination status—whether or not the participant completed the term of service and earned an award. We recorded as a discrepancy any case where the information for these fields in the documentation did not match the information recorded in SPAN or the information appeared to be inconsistent with enrollment period rules such as participants still serving when other information indicates they should have finished their term. We assessed whether the discrepancies would affect what the Trust owed. We provided a list of the discrepancies to Corporation officials for further investigation. In several cases, they were able to explain why we found a discrepancy and document that the case was accurately recorded in the Trust database. We did not include these cases in our discrepancy count. To answer the question of how the Corporation develops its funding estimates for the Trust, we reviewed the models used by the Trust to develop its funding estimates. We obtained electronic versions of the models and input data to assess whether the models worked as described by Corporation officials. We gained an understanding of the controls over the preparation of the estimates and supporting data. We also learned about the controls over the sources of data and external factors that could affect the estimates. We verified the consistency of assumptions with historical data and the reliability of historical data. We considered whether changes in business or industry would cause other factors to become significant, and questioned Corporation officials regarding the possible impact of changes in Corporation operations on the factors. We also performed a test of calculations in the model. We obtained and reviewed revisions to the model recommended by auditors and contractors, and the changes planned for future budget submissions. We discussed all these issues with knowledgeable staff in the chief financial officer’s office and conducted several hands-on sessions during which the Corporation staff demonstrated how the model worked and was used. Additionally, we obtained and reviewed financial statement reports from the Corporation’s IG and assessed the sections of those reports that discussed the models and the supporting data. To determine if the management and operational changes to controls put in place following the suspension in enrollments in November 2002 would be effective, we reviewed Corporation memos and related data to check the progress of and compliance with these reforms and we interviewed knowledgeable staff. We also surveyed 148 AmeriCorps grantees—state commissions, national direct parent organizations, education award programs, tribes and territories—and asked their views on the new enrollment and oversight policies as well as the adequacy of the training and technical assistance provided by the Corporation. In developing the questionnaire, we reviewed memos implementing the new policies and met with Corporation officials to gain a better understanding of the new policies. We also obtained comments from Corporation officials on a draft of the questionnaire. We pretested the questionnaire in person or by telephone with the four grantee groups—state commissions, national direct grantees, education award programs, tribes and territories. Guided by the pretest results and comments from the Corporation, we revised the questionnaire to ensure that all questions were fair, relevant, and easy to understand and answer. In addition, we tested the questionnaire to ensure that completing it would not place too great a time burden on grantees. Overall, we received responses from about 71 percent of the grantees (105 of the 148 surveyed). Response rates for each type of grantee were: state commissions (81 percent), national direct (73 percent), education award programs (60 percent), tribes and territories (54 percent). To establish whether the Corporation obligated funds in excess of the amount available in the Trust, we reviewed applicable statutes concerning how federal funds should be obligated and the 1993 Corporation legislation. We also reviewed reports related to the violation issued by the Corporation’s OIG and its financial statement auditor. We clarified legal issues through correspondence with legal counsel from the Corporation and the Office of Management and Budget (OMB). We reviewed the internal control processes related to various Corporation activities using the Standards for Internal Control in the Federal Government. We conducted our work between March and December 2003 in accordance with generally accepted government auditing standards. In July 2003, the Corporation’s Office of the Inspector General (OIG) reported that the Corporation had obligated funds in excess of the amount available to it in the National Service Trust. In that report the OIG noted that the Corporation had suspended participant enrollment on November 15, 2002, because it was concerned that the Trust would not have sufficient funds to cover education awards. At the time, in November 2002, Corporation did not record education award obligations in the Trust Fund until it paid education awards to eligible participants, so it had no assurance that adequate funds were available. The Corporation amended AmeriCorps grants to suspend enrollments and did not permit any additional enrollments until Congress appropriated additional funds to the Trust in March 2003. However, the suspension came too late. In February 2003, the Corporation’s financial statement auditor reported that, in fiscal year 2002, the Corporation had approved AmeriCorps national service positions in excess of the number of positions that the Trust could support. The July 2003 OIG report stated that the Corporation had enrolled more AmeriCorps participants than the Trust could support, and as a result, the “rusts’ liabilities, based on appropriations and interest forbearance expected to be paid, exceeded the Trust’s appropriations and interest earnings beginning in 2000.” The report also stated that the Corporation had violated the Antideficiency Act. Additionally, the OIG report stated that the Corporation estimated that the violations resulted in a Trust deficiency of approximately $64 million. This $64 million was derived from a reconstruction of the Trust’s financial status that the Corporation prepared at the Office of Management and Budget’s (OMB) request. In its July 25, 2003, response to the OIG’s report, the Corporation conceded that it had violated the Antideficiency Act but disagreed with the amount of the violation reported by its OIG and stated that the financial reconstruction was a draft that was prepared “while the legal landscape was still unfolding.” We suspect that the $64 million amount of the violation may be understated. In two legal opinions, in April and June 2003, we explained that the Corporation incurred, and was required to record, an obligation at the time it awarded a grant approving a new participant slot. We concluded that the Corporation, by waiting to record an obligation until it paid an education award, was under recording its obligations. In addition, we explained that the Corporation could not, without specific statutory authority, record an obligation on the basis of estimates of what it would have to pay when education awards are earned (its probable accounting liability). We stated that the Corporation should record its maximum potential liability. As our legal opinions established, the Corporation under recorded its obligations by recording (1) obligations at the time of drawdown rather than at grant award and (2) estimates of what it would have to pay rather than the full potential costs of the education awards. In 2002, OMB advised the Corporation that it should record obligations as the grantees enrolled new participants. OMB also advised the Corporation that it should record the amount of the obligation based on estimates of what enrolled participants will draw down in the future, using historical information, such as attrition rates and actual usage by participants who complete a term of service and earn an education award. The Corporation had already been developing these estimates for its budget request to the Congress. At the time of the enrollment suspension, while the Corporation had not yet instituted the practice of recording obligations as the grantees enrolled participants, it took into consideration the consequences of recording obligations at the time of enrollment in its financial reconstruction for OMB and concluded that if the Corporation had been recording obligations at the time of enrollment, the deficiency would be $279 million. We suspect that $279 million might also understate the amount of the violation at the time the violation occurred because the Corporation still would have recorded estimates, as opposed to the maximum potential liability, and still would have failed to record obligations when incurred—- at time of grant award. The Corporation submitted an Antideficiency Act report to OMB, but as of December 2003, the report, including the amount of the deficiency, had not been submitted to the President and the Congress. In our June 6, 2003, legal opinion we noted that the Corporation could seek legislation that would permit it to use an estimation model for recording its obligations, and that this model could be similar to the process that would be used to determine the Corporation’s probable accounting liability. On July 3, 2003, the Congress passed the Strengthen AmeriCorps Program Act, permitting the Corporation to record obligations based on estimates, as it had been doing without statutory authority prior to the passage of the act. The act redefined what an obligation is for purposes of the AmeriCorps program by authorizing the Corporation to “record as an obligation an estimate of the net present value of the national service educational award associated with the position, based on a formula that takes into consideration historical rates of enrollment in such a program, and of earning and using national service educational awards for such a program.” With regard to when the Corporation incurs a liability, the act requires the Corporation to change its obligation practices by specifying that the Corporation obligate funds from the Trust at the time it awards a grant approving a new participant slot, rather than at time of enrollment. Nevertheless, the Corporation must report the amount of its Antideficiency Act violation based on the legal requirement in place at the time the violation occurred. According to the report by the Corporation’s OIG, and conceded by the Corporation, the Corporation’s violation occurred beginning in fiscal year 2000, before the Corporation obtained legal authority to alter its obligation practices. Had the Corporation reported its violation at the time it occurred, the Antideficiency Act would have required it to report a violation calculated in consideration of the cost of new participant slots approved at the time the Corporation awarded new grants, and not based on an estimate of what these participants would cost the Corporation in the future. The Corporation should calculate its Antideficiency Act violation for purposes of its report to the President and Congress based on the requirement in place at the time the Corporation incurred the overobligations. The Antideficiency Act requires an agency to report all relevant facts and a statement of actions taken. Accordingly, an agency, among other things, must inform the President and Congress if a violation occurred and in what amount, and request from the Congress, if needed, a deficiency appropriation. Even though an agency may cure a violation, it is still required to report the violation to the President and Congress. Because the Corporation’s legal requirement for recording obligations differs today from the requirement that was in place when this violation occurred, the Corporation, in fact, may not need additional appropriations to cure the violation. Regardless, the Corporation should report the actual amount of the violation, but advise Congress of the changed circumstances. We have not assessed and do not address whether the Corporation will need additional funds to meet its current potential liabilities. To the extent that the Corporation identifies a need for additional appropriations as a result of its Antideficiency Act violation, the Corporation should include that request in its Antideficiency Act report. Description of discrepancy (Trust data as of July 25, 2003) Trust data show participant still serving. WBRS report provided in lieu of exit form indicates member was to complete service on 4-6-03. Trust data show participant completed term and earned full award. Award eligibility status was left blank on exit form. Trust data show participant still serving. Documentation provided shows participant completed service and earned award. Trust data show participant still serving. Enrollment form shows participant signed up for summer term on 8-15-02 with expected completion date of 8-14-03. Trust data show participant still serving. Enrollment form shows participant signed up for summer term on 8-15-01 with expected completion date of 8-14-02. Trust data show participant still serving. Enrollment form shows participant signed up for summer term on 8-15-02 with expected completion date of 8-14-03. The Service Award Liability (SAL) model used SPAN data on the actual behavior of past and current AmeriCorps participants as the basis for assumptions of future participant behavior. These data included the proportion of participants who earned awards, the percentage of earned awards used, the period when awards were used, and the size of the average award. Also included in the calculations were past and anticipated appropriations, net of rescissions, as well as the actual and expected interest earnings of the Trust balance in order to arrive at the estimates of the funding needed for future participants. The model used the portfolio of the Trust’s investments—the proportion held as short- and medium- term treasury securities—to calculate a discount rate, which in turn is used to convert future funding needs into a net present value. Corporation officials would then adjust the resulting estimate to account for any accumulated funds in the Trust. Figure 5 shows how the SAL model works. In addition to those named above, the following individuals made important contributions to this report: Joel Marus, Susan Higgins, Elizabeth Lessmann, Patrick diBattista, Hannah Laufe, Thomas Armstrong, James Rebbe, Julie Phillips, LuAnne Moy, Bob Deroy, Jennifer Popovic, and Avrum Ashery.

The Corporation for National and Community Service (the Corporation) was created to help meet community needs and expand educational opportunity by providing education awards to participants. The Corporation oversees and funds the AmeriCorps program as well as the National Service Trust (the Trust), which pays the education awards. From November 2002 to March 2003 the Corporation suspended AmeriCorps enrollments because there would not have been sufficient funds in the Trust to pay education awards. GAO was asked to determine (1) if all AmeriCorps enrollments were accurately recorded, (2) how the Corporation estimated its funding needs, and (3) if the Corporation made changes to prevent another enrollment suspension and to address requirements established in the Strengthen AmeriCorps Program Act. GAO analyzed laws, reviewed documents, interviewed officials, assessed the reliability of the Trust database, examined the model used to estimate funding needs, and surveyed Americorps grantees. Discrepancies between information in the Trust database and participant documentation indicate that not all AmeriCorps participant information was accurately reflected in the Trust database. An estimated 5 percent (8,300) of about 158,000 enrollments from program years 2000 to 2002 have discrepancies, and about 3 percent (4,400) have discrepancies that could affect estimates of future probable expenditures of the Trust. Further, the users' manual for the Trust database system had not been updated. In 2003 the Corporation began using a new model with conservative assumptions of participant behavior to develop its funding estimates. Corporation officials explained that they used conservative assumptions because the AmeriCorps program does not have a long history from which to extrapolate participant behavior, and the Corporation wanted to regain credibility after the enrollment suspension in 2002. Using the new model may be prudent until the Corporation gains more experience. However, because the new model increased the Trust's funding estimates, the Corporation will need to monitor actual experience compared with the model's assumptions and may need to deobligate unused Trust funds. Further, the new model does not incorporate external factors, such as downturns in the economy, which may affect funding estimates or the Trust's balances. The Corporation recently formed a team to assess the costs and benefits of adding external factors in its model. The Corporation has made some changes to its operations that minimize the likelihood it will need to suspend enrollments in the future. Corporation officials have been obligating Trust funds when positions are approved since June 2003, and the communication and coordination among officials have greatly improved. Changes have also been implemented and planned to address the Strengthen AmeriCorps Program Act requirements. However, changes to improve oversight of grantees have not been fully implemented, and policies related to refilling vacated positions and converting unfilled positions may limit enrollments, hinder service delivery, and contribute to the accumulation of a larger Trust balance.

You are an expert at summarizing long articles. Proceed to summarize the following text: Pursuant to a series of laws passed since 1989, DOD is authorized to undertake actions intended to enhance the effectiveness of domestic law enforcement agencies through direct or material support. DLA Disposition Services administers the LESO program, managing the transfer of DOD’s excess controlled and non-controlled property to federal, state, local, and tribal law enforcement agencies. According to DLA policy, to participate in the program, a law enforcement agency must be a federal, state, or local government agency whose primary function is the enforcement of applicable federal, state, and local laws and whose sworn compensated law enforcement officers have powers of arrest and apprehension. According to LESO program data, as of August 2016, there were over 8,600 federal, state, and local law enforcement agencies participating in the program. Of these, approximately 96 percent were state and local law enforcement agencies and approximately 4 percent were federal law enforcement agencies. LESO program data also shows that during calendar years 2013 through 2015, approximately two-thirds of DOD excess controlled property items had been transferred to state and local agencies, and one-third had been transferred to federal agencies, as shown in Table 1. The data also showed that as of August 2016 the majority of the law enforcement agencies (76 percent) participating in the program have 50 or fewer full-time sworn officers, as shown in figure 1, and that approximately 30 percent of state and local law enforcement agencies active in the program had 10 or fewer sworn officers. State and local law enforcement agencies work first through their Governor-appointed state coordinator to obtain excess property through the LESO program from DLA. As specified by DLA policy, state coordinators must sign a memorandum of agreement (MOA) with DLA, which outlines, for example, general terms and conditions for state coordinators and state and local law enforcement agencies to provide accountability and oversight of the LESO program. Further, LESO program guidance requires state coordinators to develop a State Plan of Operation outlining how the program will be managed in their state, and each participating state or local law enforcement agency must sign the plan, attesting to the terms and conditions of the program. According to LESO officials, unlike state and local agencies, federal law enforcement agencies work directly with the LESO program office. As of December 2016, the LESO program office finalized a memorandum of understanding (MOU) that it plans to sign with participating federal agencies. According to the MOU, it will establish DLA’s authority as the owner of the program and, among other things, establish general terms and conditions. Figure 2 provides additional details on LESO program stages and processes for federal and state and local law enforcement agencies. Law enforcement agencies submit property requests electronically—after viewing available items online or in person while at a Disposition Services’ site. According to LESO officials, they manually review all property requests forwarded from state coordinators for state and local law enforcement agencies, as well as requests submitted directly from federal agencies, for final approval or denial. LESO officials told us they look for detailed justifications, including who will use the property and how, when reviewing requests for approval. For certain items, such as aircraft, vehicles, and weapons, law enforcement agencies are required to answer additional questions and provide additional documentation, such as their training plan(s) and how the items will be secured. According to LESO officials, they follow statutory direction in U.S. Code title 10 which authorizes preference be given to property requests indicating that the use of the property will be for counterdrug, counterterrorism, and border- security activities. LESO officials also stated that a request for excess property may be denied for a variety of reasons, including if the request was not detailed enough or if the law enforcement agency has met its allowed allocation for certain property. For example, according to program documentation, for small arms, only one type is allocated for each qualified full-time or part-time officer; for HMMWVs, only one vehicle is allocated for every three officers; and for MRAPs, only one vehicle is allocated per law enforcement agency. However, according to LESO officials, most denials are because a requested item has already been awarded. When DOD declares items as excess to its needs, the property is turned into a DLA Disposition Services site and can be made available for transfer to DOD components and other eligible recipients, including approved LESO participants. According to program documentation, when an application to participate in the LESO program is approved, an Authorization Letter for Property Screening is generated and forwarded to the state coordinator or federal agency. If the approved participant is a state law enforcement agency, the state coordinator will provide the participant with the letter of authorization. The letter of authorization that includes, for example, the full name of the law enforcement agency, DOD activity address code, telephone number, address, and digital signatures, must be on the centralized file maintained by DLA prior to the arrival of the person picking up the property and be dated less than one year from the current date. The screening authorization lists individuals eligible to search, view and request property on behalf of their participating law enforcement agency, including physical on-site screening. The DLA Disposition Services’ site uses the information on this letter to contact an agency, if needed, to coordinate the direct pickup of property. Direct pickup for allocated property may be made by an individual with a valid identification and the appropriate DOD authorization form that is signed by the authorized individual listed in the screener letter. The President issued Executive Order 13688, Federal Support for Local Law Enforcement Equipment Acquisition, January 16, 2015, to better coordinate federal support for the acquisition of certain federal equipment by state, local and tribal law enforcement agencies. The Executive Order also established a Federal Interagency Law Enforcement Equipment Working Group (hereafter the Working Group). In May 2015, the Working Group issued a report that included a list of prohibited equipment not eligible for acquisition by law enforcement agencies and a list of controlled equipment identified by category of equipment that may be acquired by law enforcement agencies after submitting additional information such as a detailed justification for each requested item of controlled equipment. Further, the Working Group developed 13 programmatic and policy recommendations to improve federal equipment acquisition programs, including that the members of the Working Group form a permanent Federal Interagency Law Enforcement Equipment Working Group, calling for this permanent working group to meet regularly to support oversight and policy development functions for controlled equipment programs. DLA has taken some actions and plans additional actions to address identified weaknesses in its excess controlled property program. DLA has revised its policy and procedures, is developing additional training, and is establishing MOUs for the LESO program with participating federal law enforcement agencies. However, DLA confirmed, and our independent testing of the LESO program’s internal controls identified, deficiencies in the processes for the verification and approval of federal law enforcement applications and the transfer of controlled property. DLA has taken some steps to address identified weaknesses in its processes for transferring and monitoring its excess controlled property through revisions to its policy and procedures on the management, oversight, and accountability of the LESO program. Such revisions were made, in part, because of recommendations made by the DOD and DLA Offices of Inspector General. The DOD and DLA Offices of Inspector General conducted four audits of the LESO program between 2003 and 2013 that identified more than a dozen recommendations, such as to: develop and implement written standard operating procedures that include, for example, criteria for approval and disapproval of law enforcement agency property requests; strengthen policy and procedures on disbarring law enforcement agencies and state coordinators that do not comply with LESO program conditions; improve oversight and accountability of property; use the automated processing system for requisitioning, approving, and issuing items; and further develop procedures for the issuance, transfer, turn-in and disposal of LESO property. We found the department had taken the following actions to enhance its transfer process through revisions to policy and procedures: transitioned full management responsibility of the LESO Program to DLA Disposition Services in 2009; developed LESO Program Standard Operating Procedures in 2012 and updated them in 2013; transitioned to a new data system, Federal Excess Property Management Information System in 2013 after identifying that the old system was not capable of post-issue tracking; revised the DLA instruction that provides policy, responsibility, and procedures for DLA’s management responsibilities of the LESO program in 2014 and 2016; and revised LESO program processes in 2016 to incorporate recommendations made by the Federal Interagency Law Enforcement Equipment Working Group, such as defining executive order- controlled property or prohibiting schools K-12 from participating in the program. Additionally, according to LESO officials, they conduct Program Compliance Reviews every two years for all states and territories with state and local law enforcement agencies enrolled in the LESO program. LESO officials, in consultation with the state coordinator, select a sample of state and local law enforcement agencies for site visits to physically verify all controlled property in their possession, by serial number. We observed the LESO Program Compliance Review at numerous locations in one state. Moreover, in 2017, LESO program officials revised their program application to create two applications—one for federal law enforcement agencies and the other for state and local law enforcement agencies. The application for federal agencies requires additional information from prospective federal applicants, such as certification that their agency meets the LESO definition of a government law enforcement agency and attesting that the agency that they represent is a legitimate law enforcement agency. Likewise, the application for state and local agencies was also revised to include a similar certification of eligibility and attestation. During our review, officials at participating law enforcement agencies— federal, state, and local—reported the need for more training on LESO program policies and procedures, and DLA is in the process of developing this additional training through an online training tool. Our analysis of the responses to our surveys and case study interviews with federal, state, and local law enforcement agencies showed that (1) not all participating agency officials had received training on all aspects of the LESO program, including its policies and procedures; and that (2) officials wanted more training to better understand, for example, LESO program processes, such as the turn-in or transfer of controlled property. Our analysis of the responses to our survey of select federal law enforcement agencies showed that training had not been regularly provided. For example, 10 of the 13 respondents to the federal survey stated that either they did not receive training from LESO or they did not know if their agency had received any training from LESO regarding the LESO program. LESO officials told us that they have not regularly provided training to federal law enforcement agencies in the past, with training mainly provided to the state coordinators participating in the LESO program. Survey results of federal law enforcement agencies also showed that officials generally stated that training on the LESO program would be beneficial. For example, 9 of the 13 respondents to the federal survey stated that refresher training provided by LESO would be beneficial to their agency. Table 2 shows the types of refresher training that most federal law enforcement agencies in our survey stated would be beneficial to their agency. Furthermore, officials we interviewed from state and local law enforcement agencies reported different experiences about the availability and accessibility of training on policies and procedures of the LESO program from their state coordinators and stated that they would benefit from additional training on policies and procedures, such as on returning property to DLA. For example, an official from one law enforcement agency we interviewed told us that it took 8 months to receive training from his state coordinator upon joining the program. Our analysis of the results from our survey of state coordinators showed that nearly three-fourths of the state coordinators reported that they do not provide mandatory training on LESO program policies and procedures to state and local law enforcement agencies within their state. We also found that state coordinators varied in the types of training they provided on LESO program policies and procedures. For example, our analysis found that 40 percent (18 of 45) of responding state coordinators reported that they do not provide in-person refresher or annual training and 15 percent (7 of 46 responding to the question) reported that they do not provide training aids or reference aids (i.e., PowerPoint format). The majority of state coordinators (94 percent) reported they would find additional LESO training modules helpful. Table 3 shows our analysis of the survey responses on the topics state coordinators indicated that additional training would be useful. See Appendix IV for additional details on the results regarding training from our survey. LESO provides some training aids on program policies and procedures on their program website for federal, state and local agencies. LESO also provides training to state coordinators at an annual training seminar, and then, according to program guidance, state coordinators are to train state and local law enforcement agencies in their states. However, over the course of our review, DLA officials stated that they recognize the need to enhance aspects of training and are in the process of developing an online training tool, which is expected to be established in late 2017. Specifically, LESO program officials stated that they are enhancing training by working to establish an online training tool that will assist in providing specific information and training modules on LESO program policies and procedures to federal law enforcement agencies and that state coordinators can provide to state and local law enforcement agencies in their states. Some training modules have been completed and published on LESO’s website, such as a quick-start guide. Other training modules that are planned include, for example, a guide for returning controlled property for proper disposal, among other program policies and procedures. We acknowledge that DLA to date has taken action on the issue by recognizing the need for additional training, assigning a lead, and developing a quick start tool. However, it is too early to evaluate whether the actions taken and the developed and planned training will address the issues our survey and case studies identified. DLA is establishing MOUs with federal law enforcement agencies. Until 2016, DLA lacked a mechanism to establish the general terms and conditions of the participating federal law enforcement agencies, such as restrictions on further transfer or sale of controlled property. According to DLA and LESO officials, LESO officials had discussed taking steps to develop a MOU in past years for federal law enforcement agencies, similar to those of state and local agencies. DLA expedited and completed the development of a MOU in December 2016, in part, because federal law enforcement agencies began contacting the LESO program office regarding gaining visibility over items transferred to their respective agencies including subordinate agencies and their field offices and had questions regarding who was authorized to screen and request property for their agency. These inquiries were in part a result of our effort to confirm which federal agencies, including their subordinate agencies, had received excess controlled property, and some of them did not know that their subordinate agencies had obtained excess controlled property through the LESO program. In our survey of 15 federal law enforcement agencies, completed in October 2016, we found federal law enforcement officials were unaware of the extent to which their agency requests and receives DOD-controlled property through the program. For example, 5 of the 13 federal survey respondents reported they either did not internally track or did not know if their agency internally tracked DOD- controlled property obtained by their field offices through the LESO program. As of April 2017, DLA and LESO officials had sent the MOU to all participating federal law enforcement agencies and 7 had been signed. LESO program officials told us they have assigned a LESO official to lead the federal agency aspect of the LESO program, including assisting DLA Disposition Services in finalizing the MOUs and establishing designated points of contact at all participating federal agencies’ headquarters. For example, according to LESO officials, LESO is working with designated points of contact at the federal agencies to establish a more centralized approval process to increase federal agencies’ visibility over property requests submitted by federal agency field offices, prior to the requests being approved by LESO officials. DLA officials estimated that MOUs will be established with all participating federal agencies by mid-2017. Given that the MOUs have either been recently established or are in the process of being finalized with some federal agencies, it is too early to evaluate the effect of the MOUs in improving the management of the LESO Program. See Appendix V for additional details on the results of the survey of federal law enforcement agencies. Our independent testing of the LESO program’s internal controls identified deficiencies in the processes for verification and approval of federal law enforcement agency applications. Specifically, our investigators, posed as authorized federal law enforcement agency officials of a fictitious agency, applied and were granted access to the LESO program in early 2017. In late 2016, we emailed our completed application to the LESO program office. Our application contained fictitious information including agency name, number of employees, point of contact, and physical location. We also created mail and e-mail addresses, and a website for our fictitious law enforcement agency using publicly available resources. All correspondence, including follow-up questions regarding our application, was conducted by email with LESO officials. For example, after reviewing our initial application, LESO officials informed us that we needed to revise specific information on the application and resubmit it, indicating that when we did so we would be approved to participate in the program. In early 2017, we resubmitted our application and soon thereafter we were notified that our fictitious law enforcement agency was approved to participate in the LESO program. LESO officials also emailed us to request confirmation of our agency’s authorizing statute; in response, our investigators provided fictitious authorizing provisions presented as a provision in the U.S. Code. At no point during the application process did LESO officials verbally contact officials at the agency we created—either the main point of contact listed on the application or the designated point of contact at a headquarters’ level—to verify the legitimacy of our application or to discuss establishing a MOU with our agency. According to DLA policy, DLA is responsible for ensuring the successful implementation of the LESO program and for issuing program policy, procedures, and guidance in agency instructions and manuals. However, DLA’s internal controls for verifying and approving federal agency applications and enrollment in the LESO program were not adequate to prevent the approval of a fraudulent application to obtain excess controlled property. LESO’s reliance on electronic communications without actual verification does not allow it to properly vet for potentially fraudulent activity. For example, DLA did not require supervisory approval for all federal agency applications, or require confirmation of the application with designated points of contact at the headquarters of participating federal agencies. Additionally, at the time we submitted our application, DLA officials did not visit the location of the applying federal law enforcement agency to help verify the legitimacy of the application. However, after our briefing of DLA officials in March 2017 on the results of our investigative work, DLA officials stated they took immediate action, and in April 2017 have visited 13 participating federal law enforcement agencies. Further, DLA has not reviewed and revised the policy or procedures for verifying and approving federal agency applications and enrollment in the LESO program. Without reviewing and revising the internal controls in policy or procedures for verifying and approving federal agency applications and enrollment in the LESO program, DLA and LESO management will lack reasonable assurance of the legitimacy of applicants before transferring valuable, and in some cases potentially lethal, controlled property. Our independent testing of DLA’s internal controls also identified deficiencies in the transfer of controlled property, such as DLA personnel not routinely requesting and verifying identification of individuals picking up controlled property or verifying the quantity of approved items prior to transfer. Our investigators, after being approved to participate in the LESO program, obtained access to the department’s online systems to view and request controlled property. We subsequently submitted requests to obtain controlled property, including non-lethal items and potentially-lethal items if modified with commercially available items. In less than a week after submitting the requests, our fictitious agency was approved for the transfer of over 100 controlled property items with a total estimated value of about $1.2 million. The estimated value of each item ranged from $277 to over $600,000, including items such as night-vision goggles, reflex (also known as reflector) sights, infrared illuminators, simulated pipe bombs, and simulated rifles. Our investigator scheduled appointments, visited three Disposition Service sites, and obtained the controlled property items, as shown in Figure 3. Using fictitious identification and law enforcement credentials, along with the LESO-approved documentation, our investigator was able to pass security checks and enter the Disposition Service warehouse sites. Personnel at two of the three sites did not request or check for valid identification of our investigator picking up the property. According to DLA guidance, direct pickup of allocated property may be made by an individual with a valid identification and the appropriate DOD authorization form that is signed by the authorized individual listed in the letter. DLA has not ensured compliance that on-site officials routinely request and verify valid identification of the individual(s) authorized to pick up allocated property from the LESO program, as required by the guidance. However, DLA officials acknowledged they could take additional steps to ensure compliance with the requirements in the handbook. If DLA does not ensure that Disposition Services on-site officials routinely request and verify valid identification, then DLA will lack reasonable assurance that controlled property is transferred to authorized individuals. Furthermore, although we were approved to receive over 100 items and the transfer documentation reflects this amount, we were provided more items than we were approved for. The discrepancy involved one type of item—infrared illuminators. We requested 48 infrared illuminators but on- site officials at one Disposition Services site provided us with 51 infrared illuminators in 52 pouches, of which one pouch was empty. Additionally, we found that one Disposition Services site had a checklist as a part of their transfer documentation for their personnel to complete. The checklist required manual completion of a number of items, including quantity, date, and who fulfilled the order. The other two Disposition Services sites, including the site that transferred the wrong quantity, did not include this checklist with the transfer documentation we received. DLA guidance states that accountability records be maintained in auditable condition to allow property to be traced from receipt to final disposition. Also, the Standards for Internal Control in the Federal Government state that management may design a variety of transaction control activities for operational processes, which may include verifications, reconciliations, authorizations and approvals, physical control activities, and supervisory control activities. Additionally, DLA has guidance that describes procedures for managing and handling, among other things, sensitive, and pilferable controlled inventory items but does not specifically address all items that are transferred to law enforcement agencies. Without guidance that specifically requires DLA Disposition Services’ on- site officials to verify the type and quantity of approved items against the actual items being transferred prior to removal from the sites, then DLA will lack reasonable assurance that the approved items transferred are appropriately reflected in their inventory records. While DLA has taken some steps, mostly in early 2017, to address identified deficiencies in the LESO program, DLA lacks a comprehensive framework for instituting fraud prevention and mitigation measures. During the course of our review, DLA revised the LESO program applications by requiring applicants to sign an attestation that the agency that they represent is a legitimate law enforcement agency. Further, DLA officials stated they are more carefully reviewing the legitimacy of some information on the application such as email addresses and physically visiting federal agencies that enter into MOUs with the LESO program. However, as previously discussed, we identified internal controls weakness in the policy or procedures for verifying and approving federal agency applications and enrollment as well as weakness throughout the process from approval to the actual transfer of the items to the agencies, which indicates that DLA has not examined potential risks for all stages of the process. Standards for Internal Control in the Federal Government note that management should remediate identified internal control deficiencies on a timely basis, assess fraud risk by considering the potential for fraud when identifying, analyzing, and responding to risks, and analyze and respond to identified fraud risks so that they are effectively mitigated. Additionally, according to GAO’s Fraud Risk Framework, effective fraud risk managers collect and analyze data on identified fraud schemes, use these lessons learned to improve fraud risk management activities, and plan and conduct fraud risk assessments that are tailored to their programs. The framework states there is no universally accepted approach for conducting fraud risk assessments since circumstances among programs vary. However, per leading practices, assessing fraud risks generally involves five actions: (1) identifying inherent fraud risks affecting the program, (2) assessing the likelihood and effect of those fraud risks, (3) determining fraud risk tolerance, (4) examining the suitability of existing fraud controls and prioritizing residual fraud risks, and (5) documenting the program’s fraud risk profile. In conducting the fraud risk assessment, the framework identifies that managers should develop and document an antifraud strategy which describes, among other things, existing fraud control activities as well as any new control activities a program may adopt to address residual fraud risks. The DLA Office of Inspector General has an investigation ongoing, but DLA Office of Inspector General officials told us that a number of internal control weaknesses were identified and several recommendations were made to DLA that if implemented could help to mitigate future potential fraud risks. As such, DLA has begun to examine some risk associated with the LESO program. During our March 2017 meeting with DLA officials, they acknowledged that they have not conducted a fraud risk assessment on the LESO program, to include the application process, and as such, has not designed or implemented a strategy with specific control activities to mitigate risks to the program. Conducting such an assessment could have program-wide improvements, including strengthening the controls to verify the legitimacy of state and local law enforcement agencies. If DLA conducted a fraud risk assessment on the LESO program, to include the application process, and designed and implemented a strategy with specific internal control activities to mitigate assessed fraud risks, DLA would be more effective in preventing, detecting, and responding to potential fraud and security risks. The National Defense Authorization Act for Fiscal Year 2016 included a provision for DOD to create and maintain a publicly available Internet site that provides information on the controlled property transferred and the recipients of such property. DOD was required to include all publicly accessible unclassified information pertaining to the request, transfer, denial, and repossession of controlled property, among other items, on the website. DLA maintains information on the controlled and non-controlled items on the LESO program homepage and has links to Excel documents about its property transfers. The property transfer lists, which date back to 1991, are updated quarterly according to LESO officials, and include information about the transfer of all excess property transferred to federal, state, and local law enforcement agencies. In September 2016, in response to the statutory requirement, LESO officials added the following information to their LESO program homepage, and plan to include this information on the LESO program homepage for future property transfers: Pending transfer requests for property reclassified as controlled property by the Law Enforcement Equipment Working Group, pursuant to Executive Order 13688; Shipments (transfers), including non-controlled and controlled property, including justification language submitted by the law enforcement agencies; and Cancellations, including reasons for denial, broken out by three categories: state coordinator, LESO headquarters, or system denial. During the course of our audit work, we determined that the information on DLA’s Internet site did not distinguish between controlled versus non- controlled items. Specifically, DLA’s information on its Internet site did not distinguish for the general public which items were considered controlled versus non-controlled property because the information was not displayed in a transparent format that is clearly understandable by the general public. DLA provided the demilitarization codes, which are used to identify controlled and non-controlled items, but the general public would need to have an understanding of demilitarization codes to identify which items were controlled based on those codes. Furthermore, as of March 2017, DLA’s Internet site did not provide a definition to explain that property with demilitarization code B, for example, is considered controlled whereas property with demilitarization code A is considered non-controlled. However, after we briefed DLA officials in April 2017 on the results of our audit, DLA officials took immediate action and added a definition of controlled property to their Internet site to distinguish for the general public what items are considered controlled. DLA transfers excess controlled property to thousands of federal, state, and local law enforcement agencies that request approval to participate in the LESO program. DLA has taken some actions and plans additional actions to address identified weaknesses in its excess controlled property program, including changes in program policy and providing training. However, our investigators tested the LESO program’s internal controls by creating a fictitious agency allowing us to gain access to the program and to obtain over 100 controlled property items valued at about $1.2 million. DLA’s internal controls were not adequate to prevent the approval of a fraudulent application and DLA has not reviewed and revised the policy or procedures for verifying and approving federal agency applications and enrollment in the LESO program. Without reviewing and revising the internal controls in policy or procedures for verifying and approving federal agency applications and enrollment in the LESO program, DLA and LESO management will lack reasonable assurance of the legitimacy of applicants before transferring valuable, and in some cases potentially lethal, controlled property. Moreover, our investigative work found DLA has not ensured compliance that officials at DLA Disposition Services’ sites routinely request and verify valid identification of the individual(s) authorized to pick up allocated property from the LESO program. Without improving internal controls, DLA will lack reasonable assurance that its Disposition Services on-site officials are transferring controlled property to authorized individuals. Controlled items in the wrong hands—items such as simulated rifles and pipe bomb trainers—could result in criminal activities, including terrorism or illegal sale or transfer of items. Additionally, we found that on-site officials did not verify the quantity of approved items prior to transfer. If DLA does not issue guidance that requires DLA Disposition Services on-site officials to verify the type and quantity of approved items against the actual items being transferred prior to removal from the sites, then DLA will lack reasonable assurance that the approved items transferred are appropriately reflected in their inventory records. Correct accounting, according to DLA guidance, for all excess property by DLA Disposition Services’ sites is critical as non-compliance can result in property being misappropriated with potentially severe consequences. Finally, we found that DLA lacks a comprehensive framework for instituting fraud prevention and mitigation measures that would allow it to examine potential risks for all stages of the process from application to transfer of excess controlled property to legitimate law enforcement agencies. If DLA conducted a fraud risk assessment for all stages of the process, DLA would be more effective in preventing, detecting, and responding to potential fraud and security risks. We are making four recommendations to enhance the department’s transfer of its excess controlled property. To strengthen LESO program internal controls for the application and enrollment of federal agencies, we recommend the Under Secretary of Defense for Acquisition, Technology and Logistics direct the Director of DLA to review and revise policy or procedures for verifying and approving federal agency applications and enrollment. For example, such steps could include LESO supervisory approval for all federal agency applications; confirmation of the application with designated points of contact at the headquarters of participating federal agencies; or visiting the location of the applying federal law enforcement agency. To help ensure controlled property is picked up by authorized individuals, we recommend that the Under Secretary of Defense for Acquisition, Technology and Logistics direct the Director of DLA to ensure compliance that on-site officials responsible for the transfer of items at Disposition Services’ sites request and verify valid identification of the individual(s) authorized to pick up allocated property from the LESO program. To help ensure the accurate quantity of approved items is transferred, we recommend that the Under Secretary of Defense for Acquisition, Technology and Logistics direct the Director of DLA to issue guidance that requires DLA Disposition Services on-site officials to verify the type and quantity of approved items against the actual items being transferred prior to removal from the sites. To strengthen LESO program internal controls, we recommend that the Undersecretary of Defense for Acquisition, Technology, and Logistics direct the Director of DLA to conduct a fraud risk assessment to design and implement a strategy with specific internal control activities to mitigate assessed fraud risks for all stages relating to LESO’s transfer of excess controlled property to law enforcement agencies, consistent with leading practices provided in GAO’s Fraud Risk Framework. We provided a draft of this report to the Department of Defense (DOD) for review and comment, and written comments are reproduced in Appendix IX. DOD concurred with all four recommendations and highlighted the actions it was taking to address each recommendation. Regarding the first recommendation, DOD stated DLA had reviewed and revised the procedures for verifying and approving federal agency applications and now requires federal agency headquarters to assign a point of contact and sign a memorandum of understanding (MOU). In addition, DOD noted DLA is updating policy to reflect the revised procedural changes. In regards to the second and third recommendations, while DLA has policies requiring on-site officials to request and verify identification from all customers and to verify the type and quantity of approved items being transferred prior to removal from sites, DOD stated DLA will conduct additional training on the processes to all DLA Disposition Services Field sites by October 1, 2017. Regarding our fourth recommendation, DOD noted DLA will conduct a fraud risk assessment and implement a strategy to mitigate assessed fraud risks by April 1, 2018. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense; the Director, Defense Logistics Agency; the Secretaries of the Army, the Navy, and the Air Force; and the Commandant of the Marine Corps. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Zina Merritt at (202) 512-5257 or [email protected] or Wayne McElrath at (202) 512-2905 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made key contributions to this report are listed in appendix X. Federal, state, and local law enforcement agencies reported various uses and benefits from the receipt of DOD’s excess controlled property through the Law Enforcement Support Office (LESO) program. Federal law enforcement agencies and state coordinators in our survey— as well as officials we interviewed from federal, state, and local law enforcement agencies—reported various uses of DOD excess controlled property for law enforcement activities. The reported uses included enhancing counterdrug, counterterrorism, and border-security activities. Also, law enforcement agencies reported using DOD’s excess controlled property for other law enforcement activities, such as search and rescue, natural disaster response, surveillance, reaching barricaded suspects, police training, and the serving of warrants. For example, the Bureau of Indian Affairs reported they have used vehicles to support its Office of Justice Services’ drug unit during marijuana eradication and border operations by providing transport to agents over inhospitable terrain in mountainous and desert environments. Also, Texas law enforcement officials reported that the San Marcos and Hays County police departments used their issued Mine Resistant Ambush Protected (MRAP) vehicles to rescue more than 600 stranded people from floodwaters in October 2015. In another example, the Los Angeles County Sheriff’s Department reported that it used a robot to remove a rifle from an attempted murder suspect who had barricaded himself. Table 4 includes additional examples reported to us on the use of excess controlled property. Federal, state, and local law enforcement agencies and state coordinators also reported various benefits from receiving DOD excess controlled property through the LESO program. The benefits were reported in survey results and identified through our case studies. Table 5 provides examples of the reported benefits. This report addresses the extent to which the Defense Logistics Agency (DLA) has: (1) taken actions to enhance processes, including internal controls, relating to its transfers of excess controlled property; and (2) addressed the statutory requirement to maintain a public Internet site that provides transparency about controlled property transfers and about the recipients of such property. We also include survey and case study information collected between April 2016 and October 2016 on how federal, state, and local law enforcement agencies reported using and benefiting from excess controlled property transferred to them through DLA’s Law Enforcement Support Office (LESO) program in accordance with the purposes of the program, including enhancement of counterdrug, counterterrorism, and border-security activities in appendix I. For the report, we relied on the Department of Defense (DOD) definition of controlled property as outlined in DLA and LESO program policy and guidance. We also confirmed the definition with LESO program officials. For objective one, we reviewed DLA and LESO program policy and guidance on LESO program processes for transferring controlled property, including DLA instructions, LESO program standard operating procedures, and memorandums of agreement between LESO and participating states, which set forth the terms and conditions of transfer, monitoring, training, accountability, and disposal of controlled property obtained through the LESO program. In addition, we reviewed Executive Order 13688, Federal Support for Local Law Enforcement Equipment Acquisition (Jan. 16, 2015) and interviewed members from the permanent Federal Interagency Law Enforcement Equipment Working Group regarding additional federal requirements for participating law enforcement agencies to obtain specific types of controlled property. We compared the additional federal requirements in the Executive Order to DLA policy, guidance, and processes to gain an understanding of how DLA has incorporated and implemented such requirements. We also reviewed DOD policy, including DLA Instruction 4140.11, Department of Defense 1033 Program (December 22, 2016), and prior issuances, to gain an understanding of policy, responsibility, and procedures regarding the administration, management, oversight and implementation of the department’s LESO program. We reviewed the LESO program standard operating procedures, which outline legislative, policy, and procedural guidance; program eligibility criteria; requisitioning procedures; property accountability; property transfers and the return process; program compliance reviews; annual inventories; and training; as well as guidance specific to aircraft, watercraft, tactical vehicles, and weapons. Further, we reviewed the memorandums of agreement, between LESO and participating LESO state coordinators, which outlines the general terms and conditions that each participating state agree to regarding the management, oversight, and implementation of the LESO program to participating law enforcement agencies within the state. We analyzed DLA Electronic Freedom of Information Act Library data from calendar years 2013, 2014, and 2015 to gain an understanding of the controlled property that was transferred to federal, state, and local law enforcement agencies. Additionally, we requested and analyzed data from DLA’s automated information system on controlled property transferred to federal, state, and local law enforcement agencies. To assess the data, we interviewed relevant DLA and other agency officials who have direct knowledge of the LESO program about the steps taken to ensure the quality and accuracy of data. We determined that the data were sufficiently reliable for the purposes of our methodology as well as for background and context purposes. We tested the department’s internal controls and control activities related to LESO program enrollment and application after identifying a case of an unauthorized or ineligible agency gaining access to the LESO program and being awarded controlled property early in our review. Our investigators posed as a federal law enforcement agency and, using publicly available resources, created a fictitious website describing that agency’s activities. We completed the application paperwork, submitted it to LESO officials, and corresponded by email to answer follow-up questions. We provided a fictitious statute as a means to legitimize our agency, were approved to participate in the program, and given access to the LESO program systems. We reviewed available controlled property and submitted requests for a variety of items located at four Disposition Service sites. After our requests for controlled property were approved, we corresponded with officials at the Disposition Service sites to arrange for pickup of the property. Our investigators visited three eastern U.S. Disposition Service sites, presented the appropriate paperwork, and obtained possession of the controlled property items. We also compared DLA and LESO practices to those identified in GAO’s A Framework for Managing Fraud Risks in Federal Programs (hereafter cited as the Fraud Risk Framework). The Fraud Risk Framework has the following components: commit to combating fraud, assess fraud risk, design and implement a strategy for mitigating risk, and evaluate outcomes. We selected leading practices from the component of assess fraud risk because the use of these practices could be objectively verified. Issued in July 2015, GAO’s Fraud Risk Framework is a comprehensive set of leading practices that serves as a guide for program managers to use when developing efforts to combat fraud in a strategic, risk-based manner. The framework describes leading practices for (1) establishing an organizational structure and culture that are conducive to fraud risk management; (2) assessing the likelihood and effect of fraud risks; (3) developing, documenting, and communicating an antifraud strategy, focusing on preventive control activities; and (4) collecting and analyzing data from reporting mechanisms and instances of detected fraud for real- time monitoring of fraud trends, and use the results of monitoring, evaluations, and investigations to improve fraud prevention, detection, and response. Additionally, we conducted two surveys—one with federal law enforcement agencies that were major recipients of LESO controlled property and the other with state coordinators. First, for federal law enforcement agencies, we selected the top four federal departments whose law enforcement agencies had received controlled property from the LESO program during calendar years 2013, 2014, and 2015. These departments were the U.S. Department of Justice, U.S. Department of Homeland Security, U.S. Department of the Interior, and the United States Department of Agriculture. This accounted for approximately 99 percent of both the total initial acquisition value and the quantity of controlled property distributed to federal law enforcement agencies from calendar years 2013 through 2015. To gain an understanding of how federal law enforcement agency headquarters manage and oversee the LESO program, we developed and distributed a survey to the responsible officials at the headquarter level of all 15 law enforcement agencies within the four selected departments that received DOD-controlled property from calendar years 2013 through 2015. The selected agencies were: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Drug Enforcement Administration, U.S. Department of Justice; Federal Bureau of Investigation, U.S. Department of Justice; Federal Bureau of Prisons, U.S. Department of Justice; Federal Protective Service, U.S. Department of Homeland Security; Transportation Security Administration, U.S. Department of Homeland Bureau of Indian Affairs, U.S. Department of the Interior Bureau of Land Management, U.S. Department of the Interior U.S. Customs and Border Protection, U.S. Department of Homeland U.S. Fish and Wildlife Service, U.S. Department of the Interior U.S. Forest Service, United States Department of Agriculture U.S. Immigration and Customs Enforcement, U.S. Department of U.S. Marshals Service, U.S. Department of Justice; U.S. National Park Service, U.S. Department of the Interior; and U.S. Secret Service, U.S. Department of Homeland Security. The survey asked about the excess control property program’s accountability, policy and guidance, and the requests and justifications made for excess property. We worked with a survey specialist, a communications analyst, and subject matter experts from LESO to develop this survey. To ensure that the questions were clear, comprehensible and technically correct, we conducted one expert review of our draft survey with LESO officials, and one pre-test of our draft survey with federal headquarters staff from the Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice. During the pre-test, which was conducted in person, we read the instructions and each survey question aloud and asked the Bureau of Alcohol, Tobacco, Firearms and Explosives officials to tell us how they interpreted the question. We then discussed the instructions and questions with officials to identify any problems and potential solutions by determining whether (1) the instructions and questions were clear and unambiguous, (2) the terms we used were accurate, (3) the survey was unbiased, (4) the survey did not place an undue burden on the officials completing it. We noted any potential problems and modified the survey based on feedback from the expert reviewers and pre-tests, as appropriate. We sent an email to selected federal agency headquarters beginning on September 1, 2016, notifying them about the topics of our survey and when we expected to send the survey. We sent the self- administered Microsoft Word form and a cover email to 15 federal agency headquarters on September 6, 2016, and asked them to complete the survey and email it back to us within 2 weeks. We closed the survey on October 31, 2016. We received 13 completed responses for an overall response rate of 87 percent. To gain an understanding of how state coordinators manage the LESO program within their state, we developed and distributed a survey to the 53 state coordinators participating in the program, including the 49 states and the territories of Guam, Northern Marianas Islands, Puerto Rico, and the U.S. Virgin Islands that participate in the program. For example, our survey questions were focused on basic background information, LESO policies and training, process and accountability of the property received, and ways in which controlled property was used by law enforcement agencies. We worked with a survey specialist and a communications analyst to develop the survey. To ensure that the questions were clear, comprehensible and technically correct, we conducted four pre-tests of our draft survey with state coordinators and state points-of-contacts from four states. During the pre-tests conducted by teleconference, we read the instructions and each survey question aloud and asked the state coordinators and state points of contact to tell us how they interpreted the question. We then discussed the instructions and questions with officials to identify any problems and potential solutions by determining whether (1) the instructions and questions were clear and unambiguous, (2) the terms we used were accurate, (3) the survey was unbiased, (4) the survey did not place an undue burden on the officials completing it. We noted any potential problems and modified the survey as appropriate. We sent the self-administered Microsoft Word form and a cover email to the state coordinators on September 20, 2016, and asked them or their designated state points of contact to complete the survey and email it back to us within 2 weeks. We closed the survey on October 31, 2016. We received 50 completed responses for an overall response rate of 94 percent. The practical difficulties of conducting any survey may introduce errors, commonly referred to as non-sampling errors. For example, differences in how a particular question is interpreted, the sources of information available to respondents, how the responses were processed and analyzed, or the types of people who do not respond can influence the accuracy of the survey results. We took steps in the development of the survey, the data collection, and the data analysis to minimize these non- sampling errors and help ensure the accuracy of the answers that were obtained. For example, a survey specialist designed the survey, in collaboration with our staff who have subject matter expertise. Then, as noted earlier, the draft surveys were pre-tested to ensure that questions were relevant, clearly stated, and easy to comprehend, and in the case of the federal agency survey we conducted an expert review. Data were manually extracted from the Microsoft Word form into an Excel spreadsheet and that data entry accuracy was verified. We examined the survey results and performed analyses to identify inconsistencies and other indications of error, and addressed such issues as necessary. Quantitative data analyses and a review of open-ended responses were conducted by our staff who have subject matter expertise. Results of select survey questions can be found in Appendix I, IV and V. Further, we conducted non-generalizable case studies of five states: Arizona, Georgia, Maryland, Michigan, and Texas. We selected these states based on quantity, type, and initial acquisition value of controlled property received during calendar years 2013, 2014, and 2015 as well as geographic dispersion. We selected these calendar years because they were the last three complete years prior to our audit work. First, for each state, we met and interviewed the state coordinator and when applicable, each state’s point of contact(s), to discuss roles and responsibilities in managing and overseeing the LESO program within each state. Second, we selected at least one federal, state, local, and university law enforcement agency within each case study state. To help ensure that we obtained the input of a broad range of law enforcement agencies, we selected specific agencies for our case study based on the size, type, and location of the agency, how much controlled property was received by quantity and initial acquisition value, as well as specific types of controlled property during calendar years 2013, 2014, and 2015. Selected law enforcement agencies accounted for large and small percentages as well as different types of controlled property received within each state. For example, we selected law enforcement agencies that received weapons, tactical vehicles, and aircraft, as well as night-vision equipment and other miscellaneous items. We met with law enforcement officials from the selected federal, state, local, and university law enforcement agencies to discuss the LESO program and to gain an understanding of the transfer process, including how they screen for, obtain, and dispose of DOD excess controlled property. Further, we reviewed LESO’s program policy to gain an understanding of how LESO ensures accountability of controlled property through an annual inventory and certification process and to gain an understanding of the program compliance review process in which LESO officials visit select law enforcement agencies within each state to verify all controlled property. We accompanied a LESO performance compliance review team as its members conducted their review in the annual program compliance review in Georgia. We attended the LESO-led in-brief and out-brief with the Georgia state coordinator and his team, as well as accompanied them to seven law enforcement agencies in Georgia to physically verify the serial numbers of controlled property. Additionally, we also analyzed survey responses, as previously discussed, from federal law enforcement agencies and state coordinators regarding DLA’s processes for transferring controlled property and training on LESO program policies and processes. We interviewed officials from DLA Disposition Services, who have authority over the LESO program, as well as officials from LESO headquarters who manage the program, to gain an understanding of LESO program policies and processes for transferring its excess controlled property to law enforcement agencies, including past and planned program enhancements. We also interviewed these officials to gain an understanding of how law enforcement agencies are trained on LESO program policies and procedures. We also met with officials from select law enforcement agencies, as previously discussed, to gain an understanding of LESO program processes, including how they screen for, obtain, and dispose of DLA excess controlled property, enhancements made to the program, and how they are trained on LESO program policies and processes. We selected these law enforcement agencies based on a number of factors, including range of quantity of items, total acquisition value, and item type. We reviewed training materials provided by LESO and attended the 15th annual training seminar provided to state coordinators. Finally, we visited two Disposition Service sites in the United States to observe their processes for disposing of excess property received from the military services. We selected the two Disposition Service sites based on geographic location and personnel availability. For objective two, we reviewed the statute requiring DOD to develop and maintain an Internet site that provides information on the controlled property transferred to gain an understanding of the statutory requirements regarding the contents of the website, such as to include all publicly accessible unclassified information pertaining to the request, transfer, denial, and repossession of controlled property, among other items. Additionally, we analyzed the capabilities of the DLA website, including the fields it contained and the searches that can be performed using it. We compared the information in and capabilities of the website with the statutory requirements to provide publicly available information on controlled property transferred and the recipients of such property in a transparent manner. We also interviewed officials from LESO headquarters to obtain updates on the status of DOD’s implementation of the Internet site. Also, appendix I of this report includes survey and case study information collected between April 2016 and October 2016 on how federal, state, and local law enforcement agencies reported using and benefiting from excess controlled property transferred to them through DLA’s LESO program in accordance with the purposes of the program, including enhancement of counterdrug, counterterrorism, and border-security activities. Additionally, we analyzed survey responses pertaining to the reported use of controlled property. For each case study, we interviewed law enforcement officials from federal, state, and local law enforcement agencies to discuss the transfer process and how controlled property transferred to them through the LESO program is used by their law enforcement agencies, including whether it had enhanced their counterdrug, counterterrorism, and/or border-security operations. The manner in which law enforcement agencies used controlled property items was self-reported, and we have made no assessment of the agencies’ reported use. Table 6 lists the offices that we visited or contacted during our review. We conducted this performance audit from January 2016 to July 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We conducted our related investigative work in accordance with investigative standards prescribed by the Council of the Inspectors General on Integrity and Efficiency. Since 1989, the Department of Defense (DOD) has been authorized to undertake actions intended to enhance the effectiveness of domestic law enforcement agencies through direct or material support. Table 7 includes legislative actions and key dates in the history of the LESO program. Survey results from select federal law enforcement agencies and LESO program state coordinators as well as interviews with law enforcement agencies in our case studies, between April 2016 and October 2016, identified that not all participating agency personnel have received training on all aspects of the LESO program, including its policies. In our survey of select federal law enforcement agencies, training had not been regularly provided to participating federal law enforcement agencies. For example, 3 of the 13 respondents to the federal survey reported that their agency had received training from LESO; the remaining 10 respondents to the federal survey stated that either they did not receive training from LESO or they did not know if their agency had received any training from LESO regarding the LESO program. LESO officials told us that they have not regularly provided training to federal law enforcement agencies in the past, with training mainly provided to the state coordinators participating in the LESO program. Survey results of federal law enforcement agencies also showed that officials generally stated that training on the LESO program would be beneficial. For example, 9 of the 13 respondents to the federal survey stated that refresher training provided by LESO would be beneficial to their agency. In addition, officials from federal agencies’ field offices in our case studies generally stated that training provided by LESO would be beneficial to them in participating in the LESO program and that they wanted more training to better understand, for example, LESO program processes, such as the turn-in or transfer of controlled property. Officials from federal field offices in our case studies also generally stated that they were mostly self-taught on the LESO program. According to LESO officials, LESO funds and provides an annual training seminar that includes training on LESO policies and procedures for state coordinators. LESO officials stated that as a part of this annual training they direct state coordinators to train participating law enforcement agencies, and state coordinators have discretion to establish their own training. However, our survey results showed that nearly three-fourths of the state coordinators reported that they do not provide mandatory training on LESO program policies and procedures to law enforcement agencies. Also, we found that state coordinators varied in the types of training they provided on LESO program policies and procedures to law enforcement agencies in their state, as shown in table 8. For example, our survey found that 40 percent (18 of 45) of responding state coordinators reported that they do not provide in-person refresher or annual training and 15 percent (7 of 46 responding to the question) reported that they do not provide training aids or reference aids (i.e., PowerPoint format). The majority of state coordinators reported they found LESO training “helpful”, as shown in table 9. However, the majority of state coordinators also reported they would find LESO training modules helpful, as shown in table 10. Moreover, officials from state and local law enforcement agencies in our case studies reported different experiences about the availability and accessibility of training on policies and procedures of the LESO program from their state coordinators and stated that they would benefit from additional training on policies and procedures, such as on returning property to DLA. For example, an official from one law enforcement agency in our case study told us that it took 8 months to receive training from his state coordinator upon joining the program. In another example, an official stated that he received little formal training from his state coordinator or from LESO officials; rather, he was trained by his predecessor when he was assigned to manage the LESO program for his law enforcement agency. In contrast, for example, an official from another law enforcement agency stated that he attended mandatory training with his state coordinator upon joining the LESO program to learn how to set up an account and screen for items and that his state coordinator is responsive when questions arise. As noted in this report, DOD is enhancing its processes for the transfer of excess property by developing additional training for participating law enforcement agencies on LESO program policies and procedures by establishing an online training tool. According to DLA officials, the online training tool will assist in providing specific information and training modules on LESO program policies and procedures to federal law enforcement agencies, and state coordinators can provide the training to law enforcement agencies in their states. DLA officials estimated the training tool would be completed in mid-2017. In our survey of 15 federal law enforcement agencies, completed in October 2016, we found that the majority (11 of 13) stated that their agency either had no memorandum of understanding (MOU) or did not know if their agency had a MOU with the Department of Defense (DOD) regarding the LESO program. Also, the majority (11 of 13) reported that the LESO program office had not provided, or they did not know if the LESO program office had provided, any policy or guidance to their agency on program roles and responsibilities regarding the LESO program, as shown in Table 11. Moreover, the majority (7 of 13) reported that their agency did not have any standard operating procedures, or standard practices outlined in policy or guidance that apply to DOD LESO-controlled property, as shown in Table 11. The majority of the federal survey respondents stated that their agency had not provided any policy or guidance, or training, on topics related to the LESO program to their field locations that use the program. Table 12 shows the federal survey respondents and whether or not their agency provided policy or guidance, or training was provided on the listed topics. Additionally, tables 13, 14, and 15 provide survey results regarding federal law enforcement agency interactions with LESO, whether their agency had a process for requesting and obtaining controlled property, and their familiarity with the LESO program’s processes for transferring controlled items. Figure 4 shows the application form on LESO’s website for federal law enforcement agencies. Figure 5 shows the application on LESO’s website for state and local law enforcement agencies. Figure 6 shows the 2016 version of the application on LESO’s website for law enforcement agencies. In addition to the contacts named above, Marilyn Wasleski, Gary Bianchi, and Helena Wong (Assistant Directors), Laura Czohara (Analyst-in- Charge), Martin de Alteriis, Robert Graves, Pamela Harris, Jason Kelly, Amie Lesser, Barbara Lewis, Felicia Lopez, Maria McMullen, George Ogilvie, Richard Powelson, Ray Rodriguez, Martin Wilson, and Samuel Woo made key contributions to this report. GAO, Excess Personal Property: DOD Should Reassess the Priorities of Its Disposal Process. GAO-16-44. Washington, D.C.: January 29, 2016. DOD Excess Property: Control Breakdowns Present Significant Security Risk and Continuing Waste and Inefficiency. GAO-06-943. Washington, D.C.: July 25, 2006. DOD Excess Property: Control Breakdowns Present Significant Security Risk and Continuing Waste and Inefficiency. GAO-06-981T. Washington, D.C.: July 25, 2006. DOD Excess Property: Management Control Breakdowns Result in Substantial Waste and Inefficiency. GAO-05-729T. Washington, D.C.: June 7, 2005. DOD Excess Property: Management Control Breakdowns Result in Substantial Waste and Inefficiency. GAO-05-277. Washington, D.C.: May 13, 2005. Defense Inventory: Control Weaknesses Leave Restricted and Hazardous Excess Property Vulnerable to Improper Use, Loss, and Theft. GAO-02-75. Washington, D.C.: January 25, 2002.

Since 1991, DOD has reported transferring more than $6 billion worth of its excess controlled and non-controlled personal property to more than 8,600 federal, state, and local law enforcement agencies through the LESO program, which is managed by DLA. According to DOD, about 4 to 7 percent of the total excess property transferred is controlled property, which typically involves sensitive equipment and items that cannot be released to the public. The National Defense Authorization Act of 2016 included a provision that GAO conduct an assessment of DOD's excess property program. This report addresses the extent to which (1) DLA has taken actions to enhance processes, including internal controls, related to its transfers of excess controlled property; and (2) DLA has addressed the statutory requirement to maintain a public Internet site that provides transparency about controlled property transfers and about the recipients of such property. GAO reviewed DOD policies and procedures, interviewed cognizant officials, and conducted independent testing of LESO's application and DLA's transfer process. The Defense Logistics Agency (DLA) has taken some actions and is planning additional actions to address identified weaknesses in its excess controlled property program. However, internal control deficiencies exist for, among other things, ensuring that only eligible applicants are approved to participate in the Law Enforcement Support Office (LESO) program and receive transfers of excess controlled property. DLA is establishing memorandums of understanding with participating federal agencies intended to, among other things, establish general terms and conditions for participation, revise its program application to require additional prospective participant information, and plans to provide additional online training for participating agencies that is expected to begin in late 2017. However, GAO created a fictitious federal agency to conduct independent testing of the LESO program's internal controls and DLA's transfer of controlled property to law enforcement agencies. Through the testing, GAO gained access to the LESO program and obtained over 100 controlled items with an estimated value of $1.2 million, including night-vision goggles, simulated rifles, and simulated pipe bombs, which could be potentially lethal items if modified with commercially available items (see photos). GAO's testing identified that DLA has deficiencies in the processes for verification and approval of federal law enforcement agency applications and in the transfer of controlled property, such as DLA personnel not routinely requesting and verifying identification of individuals picking up controlled property or verifying the quantity of approved items prior to transfer. Further, GAO found that DLA has not conducted a fraud risk assessment on the LESO program, including the application process. Without strengthening DLA and LESO program internal controls over the approval and transfer of controlled property to law enforcement agencies, such as reviewing and revising policy or procedures for verifying and approving federal agency applications and enrollment, DLA lacks reasonable assurance that it has the ability to prevent, detect, and respond to potential fraud and minimize associated security risks. Examples of Controlled Property Items Obtained DLA maintains a public Internet site to address statutory requirements to provide information on all property transfers to law enforcement agencies. DLA's public Internet site shows all transferred property, and, as of April 2017, in response to GAO's findings, has included a definition of controlled property to distinguish for the general public what items are considered controlled. GAO is making four recommendations to DLA, including strengthening internal controls over the approval and transfer of DOD excess controlled property to law enforcement agencies, and conducting a fraud risk assessment to institute comprehensive fraud prevention and mitigation measures. DOD concurred with all four recommendations and highlighted actions to address each one.

You are an expert at summarizing long articles. Proceed to summarize the following text: Fiscal year 2002 was a year of challenges, not just for GAO but also for the Congress and the nation. The nation’s vulnerabilities were exposed in a series of events—America’s vulnerability to sophisticated terrorist networks, bioterrorism waged through mechanisms as mundane as the daily mail, and corporate misconduct capable of wiping out jobs, pensions, and investments virtually overnight. As the Congress’s priorities changed to meet these crises, GAO’s challenge was to respond quickly and effectively to our congressional clients’ changing needs. With work already underway across a spectrum of critical policy and performance issues, we had a head start toward meeting the Congress’ needs in a year of unexpected and often tumultuous events. For example, in fiscal year 2002 GAO’s work informed the debate over national preparedness strategy, helping the Congress determine how best to organize and manage major new departments, assess key vulnerabilities to homeland defense, and respond to the events of September 11 in areas such as terrorism insurance and airline security. GAO’s input also was a major factor in shaping the Sarbanes-Oxley Act, which created the Public Company Accounting Oversight Board, as well as new rules to strengthen corporate governance and ensure auditor independence. Further, GAO’s work helped the Congress develop and enact election reform legislation in the form of the Help America Vote Act of 2002 to help restore voter confidence. In fiscal year 2002, GAO also served the Congress and the American people by helping to: Contribute to a national preparedness strategy at the federal, state, and local levels that will make Americans safer from terrorism Protect investors through better oversight of the securities industry and Ensure a safer national food supply Expose the inadequacy of nursing home care Make income tax collection fair, effective, and less painful to taxpayers Strengthen public schools’ accountability for educating children Keep sensitive American technologies out of the wrong hands Protect American armed forces confronting chemical or biological weapons Identify the risks to employees in private pension programs Identify factors causing the shortage of children’s vaccines Assist the postal system in addressing anthrax and various management challenges Identify security risks at ports, airports, and transit systems Save billions by bringing sound business practices to the Department of Foster human capital strategic management to create a capable, effective, Ensure that the armed forces are trained and equipped to meet the nation’s defense commitments Enhance the safety of Americans and foreign nationals at U.S. Assess ways of improving border security through biometric technologies Reduce the international debt problems faced by poor countries Reform the way federal agencies manage their finances Protect government computer systems from security threats Enhance the transition of e-government—the new “electronic connection” between government and the public During fiscal year 2002, GAO’s analyses and recommendations contributed to a wide range of legislation considered by the Congress, as shown in the following table. By year’s end, we had testified 216 times before the Congress, sometimes on as little as 24 hours’ notice, on a range of issues. We had responded to hundreds of urgent requests for information. We had developed 1,950 recommendations for improving the government’s operations, including, for example, those we made to the Secretary of State calling for the development of a governmentwide plan to help other countries combat nuclear smuggling and those we made to the Chairman of the Federal Energy Regulatory Commission calling for his agency to develop an action plan for overseeing competitive energy markets. We also had continued to track the recommendations we had made in past years, checking to see that they had been implemented and, if not, whether we needed to do follow-up work on problem areas. We found, in fact, that 79 percent of the recommendations we had made in fiscal year 1998 had been implemented, a significant step when the work we have done for the Congress becomes a catalyst for creating tangible benefits for the American people. Table 2 highlights, by GAO’s three external strategic goals, examples of issues on which we testified before Congress during fiscal year 2002. Congress and the executive agencies took a wide range of actions in fiscal year 2002 to improve government operations, reduce costs, or better target budget authority based on GAO analyses and recommendations, as highlighted in the following sections. Federal action on GAO’s findings or recommendations produced financial benefits for the American people: a total of $37.7 billion was achieved by making government services more efficient, improving the budgeting and spending of tax dollars, and strengthening the management of federal resources (see fig. 1). For example, increased funding for improved safeguards against fraud and abuse helped the Medicare program to better control improper payments of $8.1 billion over 2 years, and better policies and controls reduced losses from farm loan programs by about $4.8 billion across 5 years. In fiscal year 2002, we also recorded 906 instances in which our work led to improvements in government operations or programs (see fig. 2). For example, by acting on GAO’s findings or recommendations, the federal government has taken important steps toward enhancing aviation safety, improving pediatric drug labeling based on research, better targeting of funds to high-poverty school districts, greater accountability in the federal acquisition process, and more effective delivery of disaster recovery assistance to other nations, among other achievements. As shown in table 3, we met all of our annual performance targets except our timeliness target. While we provided 96 percent of our products to their congressional requesters by the date promised, we missed this measure’s target of 98 percent on-time delivery. The year’s turbulent events played a part in our missing the target, causing us to delay work in progress when higher-priority requests came in from the Congress. We know we will continue to face factors beyond our control as we strive to improve our performance in this area. We believe the agency protocols we are piloting will help clarify aspects of our interactions with the agencies we evaluate and audit and, thus, expedite our work in ways that could improve the timeliness of our final products. We also believe that our continuing investments in human capital and information technology will improve our timeliness while allowing us to maintain our high level of productivity and performance overall. The results of our work were possible, in part, because of changes we have made to maximize the value of GAO. We had already realigned GAO’s structure and resources to better serve the Congress in its legislative, oversight, appropriations, and investigative roles. Over the past year, we cultivated and fostered congressional and agency relations, better refined our strategic and annual planning and reporting processes, and enhanced our information technology infrastructure. We also continued to provide priority attention to our management challenges of human capital, information security, and physical security. Changes we made in each of these areas helped enable us to operate in a constantly changing environment. Over the course of the year, we cultivated and fostered congressional and agency relations in several ways. On October 23, 2001, in response to the anthrax incident on Capitol Hill, we opened our doors to 435 members of the House of Representatives and their staffs. Later in the year, we continued with our traditional hill outreach meetings and completed a 7- month pilot test of a system for obtaining clients’ views on the quality of our testimonies and reports. We also developed agency protocols to provide clearly defined, consistently applied, well-documented, and transparent policies for conducting our work with federal agencies. We have implemented our new reporting product line entitled Highlights—a one-page summary that provides the key findings and recommendations from a GAO engagement. We continued our policy of outreach to our congressional clients, the public, and the press to enhance the accessibility of GAO products. Our external web site now logs about 100,000 visitors each day and more than 1 million GAO products are downloaded every month by our congressional clients, the public, and the press. In light of certain records access challenges during the past few years and with concerns about national and homeland security unusually high at home and abroad, it may become more difficult for us to obtain information from the Executive Branch and report on certain issues. If this were to occur, it would hamper our ability to complete congressional requests in a timely manner. We are updating GAO’s engagement acceptance policies and practices to address this issue and may recommend legislative changes that will help to assure that we have reasonable and appropriate information that we need to conduct our work for the Congress and the country. GAO’s strategic planning process serves as a model for the federal government. Our plan aligns GAO’s resources to meet the needs of the Congress, address emerging challenges and achieve positive results. Following the spirit of the Government Performance and Results Act, we established a process that provides for updates with each new Congress, ongoing analysis of emerging conditions and trends, extensive consultations with congressional clients and outside experts, and assessments of our internal capacities and needs. At the beginning of fiscal year 2002, we updated our strategic plan for serving the Congress based on substantial congressional input—extending the plan’s perspective out to fiscal year 2007 and factoring in developments that had occurred since we first issued it in fiscal year 2000. The updated plan carries forward the four strategic goals we had already established as the organizing principles for a body of work that is as wide- ranging as the interests and concerns of the Congress itself. Using the plan as a blueprint, we lay out the areas in which we expect to conduct research, audits, analyses, and evaluations to meet our clients’ needs, and we allocate the resources we receive from the Congress accordingly. Following is our strategic plan framework. Appendix I of this statement delineates in a bit more detail our strategic objectives and our qualitative performance goals for fiscal years 2002 and 2003. We issued our 2001 Performance and Accountability Report that combines information on our past year’s accomplishments and progress in meeting our strategic goals with our plans for achieving our fiscal year 2003 performance goals. The report earned a Certificate of Excellence in Accountability Reporting from the Association of Government Accountants. We issued our fiscal year 2002 Performance and Accountability Report in January 2003. Our financial statements, which are integral to our performance and accountability, received an unqualified opinion for the sixteenth consecutive year. Furthermore, our external auditors did not identify any material control weaknesses or compliance issues relating to GAO’s operations. During the past year, we acquired new hardware and software and developed user-friendly systems that enhanced our productivity and responsiveness to the Congress and helped meet our initial information technology goals. For example, we replaced aging desktop workstations with notebook computers that provide greater computing power, speed, and mobility. In addition, we upgraded key desktop applications, the Windows desktop operating system, and telecommunications systems to ensure that GAO staff have modern technology tools to assist them in carrying out their work. We also developed new, integrated, user-friendly Web-based systems that eliminate duplicate data entry while ensuring the reusability of existing data. As the Clinger-Cohen Act requires, GAO has an enterprise architecture program in place to guide its information technology planning and decision making. In designing and developing systems, as well as in acquiring technology tools and services, we have applied enterprise architecture principles and concepts to ensure sound information technology investments and the interoperability of systems. Given GAO’s role as a key provider of information and analyses to the Congress, maintaining the right mix of technical knowledge and expertise as well as general analytical skills is vital to achieving our mission. We spend about 80 percent of our resources on our people, but without excellent human capital management, we could still run the risk of being unable to deliver what the Congress and the nation expect from us. At the beginning of my term in early fiscal year 1999, we completed a self- assessment that profiled our human capital workforce and identified a number of serious challenges facing our workforce, including significant issues involving succession planning and imbalances in the structure, shape, and skills of our workforce. As presented below, through a number of strategically planned human capital initiatives over the past few years, we have made significant progress in addressing these issues. For example, as illustrated in figure 3, by the end of fiscal year 2002, we had almost a 60 percent increase in the percentage of staff at the entry-level (Band I) as compared with fiscal year 1998. Also, the proportion of our workforce at the mid-level (Band II) decreased by about 8 percent. Our fiscal year 2002 human capital initiatives included the following: In fiscal year 2002, we hired nearly 430 permanent staff and 140 interns. We also developed and implemented a strategy to place more emphasis on diversity in campus recruiting. In fiscal years 2002 and 2003, to help meet our workforce planning objectives, we offered voluntary early retirement under authority established in our October 2000 human capital legislation. Early retirement was granted to 52 employees in fiscal year 2002 and 24 employees in fiscal year 2003. To retain staff with critical skills and staff with less than 3 years of GAO experience, we implemented legislation authorizing federal agencies to offer student loan repayments in exchange for certain federal service commitments. In fiscal year 2002, GAO implemented a new, modern, effective, and credible performance appraisal system for analysts and specialists, adapted the system for attorneys, and began modifying the system for administrative professional and support staff. We began developing a new core training curriculum for managers and staff to provide additional training on the key competencies required to perform GAO’s work. We also took steps to achieve a fully democratically-elected Employee Advisory Council to work with GAO’s Executive Committee in addressing issues of mutual interest and concern. The above represent just a few of many accomplishments in the human capital area. GAO is the clear leader in the federal government in designating and implementing 21st century human capital policies and practices. We also are taking steps to work with the Congress, the Office of Management and Budget, and the Office of Personnel Management, and others to “help others help themselves” in the human capital area. Ensuring information systems security and disaster recovery systems that allow for continuity of operations is a critical requirement for GAO, particularly in light of the events of September 11 and the anthrax incidents. The risk is that our information could be compromised and that we would be unable to respond to the needs of the Congress in an emergency. In light of this risk and in keeping with our goal of being a model federal agency, we are implementing an information security program consistent with the requirements in the Government Information Security Reform provisions (commonly referred to as “GISRA”) enacted in the Floyd D. Spence National Defense Authorization Act for fiscal year 2001. We have made progress through our efforts to, among other things, implement a risk-based, agencywide security program; provide security training and awareness; and develop and implement an enterprise disaster recovery solution. In the aftermath of the September 11 terrorist attacks and subsequent anthrax incidents, our ability to provide a safe and secure workplace emerged as a challenge for our agency. Protecting our people and our assets is critical to our ability to meet our mission. We devoted additional resources to this area and implemented measures such as reinforcing vehicle and pedestrian entry points, installing an additional x-ray machine, adding more security guards, and reinforcing windows. GAO is requesting budget authority of $473 million for fiscal year 2004 to maintain current operations for serving the Congress as outlined in our strategic plan and to continue initiatives to enhance our human capital, support business processes, and ensure the safety and security of GAO staff, facilities, and information systems. This funding level will allow us to fund up to 3,269 full-time equivalent personnel. Our request includes $466.6 million in direct appropriations and authority to use estimated revenues of $6 million from reimbursable audit work and rental income. Our requested increase of $18.4 million in direct appropriations represents a modest 4.1 percent increase, primarily for mandatory pay and uncontrollable costs. Our budget request also includes savings from nonrecurring fiscal year 2003 investments in fiscal year 2004 that we propose to use to fund further one-time investments in critical areas, such as security and human capital. We have submitted a request for $4.8 million in supplemental fiscal year 2003 funds to allow us to accelerate implementation of important security enhancements. Our fiscal year 2004 budget includes $4.8 million for safety and security needs that are also included in the supplemental. If the requested fiscal year 2003 supplemental funds are provided, our fiscal year 2004 budget could be reduced by $4.8 million. Table 4 presents our fiscal year 2003 and requested fiscal year 2004 resources by funding source. During fiscal year 2004, we plan to sustain our investments in maximizing the productivity of our workforce by continuing to address the key management challenges of human capital, and both information and physical security. We will continue to take steps to “lead by example” within the federal government in connection with these and other critical management areas. Over the next several years, we need to continue to address skill gaps, maximize staff productivity and effectiveness, and reengineer our human capital processes to make them more user-friendly. We plan to address skill gaps by further refining our recruitment and hiring strategies to target gaps identified through our workforce planning efforts, while taking into account the significant percentage of our workforce eligible for retirement. We will continue to take steps to reengineer our human capital systems and practices to increase their efficiency and to take full advantage of technology. We will also ensure that our staff have the needed skills and training to function in this reengineered environment. In addition, we are developing competency-based performance appraisal and broad-banding pay systems for our mission support employees. To ensure our ability to attract, retain, and reward high-quality staff, we plan to devote additional resources to our employee training and development program. We will target resources to continue initiatives to address skill gaps, maximize staff productivity, and increase staff effectiveness by updating our training curriculum to address organizational and technical needs and training new staff. Also, to enhance our recruitment and retention of staff, we will continue to offer a student loan repayment program and transit subsidy benefit established in fiscal year 2002. In addition, we will continue to focus our hiring efforts in fiscal year 2004 on recruiting talented entry-level staff. To build on the human capital flexibilities provided by the Congress in 2000, we plan to recommend legislation that would, among other things, facilitate GAO’s continuing efforts to recruit and retain top talent, develop a more performance-based compensation system, realign our workforce, and facilitate our succession planning and knowledge transfer efforts. In addition, to help attract new recruits, address certain “expectation gaps” within and outside of the government, and better describe the modern audit and evaluation entity GAO has become, we will work with the Congress to explore the possibility of changing the agency’s name while retaining our well-known acronym and global brand name of “GAO.” On the information security front, we need to complete certain key actions to be better able to detect intruders in our systems, identify our users, and recover in the event of a disaster. Among our current efforts and plans for these areas are completing the installation of software that helps us detect intruders on all our internal servers, completing the implementation of a secure user authentication process, and refining the disaster recover plan we developed last year. We will need the Congress’ help to address these remaining challenges. We also are continuing to make the investments necessary to enhance the safety and security of our people, facilities, and other assets for the mutual benefit of GAO and the Congress. With our fiscal year 2003 supplemental funding, if provided, or if not, with fiscal year 2004 funds, we plan to complete installation of our building access control and intrusion detection system and supporting infrastructure, and obtain an offsite facility for use by essential personnel in emergency situations. With the help of the Congress, we plan to implement these projects over the next several years. As a result of the support and resources we have received from this Subcommittee and the Congress over the past several years, we have been able to make a difference in government, not only in terms of financial benefits and improvements in federal programs and operations that have resulted from our work, but also in strengthening and increasing the productivity of GAO, and making a real difference for our country and its citizens. Our budget request for fiscal year 2004 is modest, but necessary to sustain our current operations, continue key human capital and information technology initiatives, and ensure the safety and security of our most valuable asset—our people. We seek your continued support so that we will be able to effectively and efficiently conduct our work on behalf of the Congress and the American people. This appendix lists GAO’s strategic goals and the strategic objectives for each goal. They are part of our updated draft strategic plan (for fiscal years 2002 through 2007). Organized below each strategic objective are its qualitative performance goals. The performance goals lay out the work we plan to do in fiscal years 2002 and 2003 to help achieve our strategic goals and objectives. We will evaluate our performance at the end of fiscal year 2003. Provide Timely, Quality Service to the Congress and the Federal Government to Address Current and Emerging Challenges to the Well- Being and Financial Security of the American People To achieve this goal, we will provide information and recommendations on the following: the Health Care Needs of an Aging and Diverse Population evaluate Medicare reform, financing, and operations; assess trends and issues in private health insurance coverage; assess actions and options for improving the Department of Veterans Affairs’ and the Department of Defense’s (DOD) health care services; evaluate the effectiveness of federal programs to promote and protect the public health; evaluate the effectiveness of federal programs to improve the nation’s preparedness for the public health and medical consequences of bioterrorism; evaluate federal and state program strategies for financing and overseeing chronic and long-term health care; and assess states’ experiences in providing health insurance coverage for low- income populations. the Education and Protection of the Nation’s Children analyze the effectiveness and efficiency of early childhood education and care programs in serving their target populations; assess options for federal programs to effectively address the educational and nutritional needs of elementary and secondary students and their schools; determine the effectiveness and efficiency of child support enforcement and child welfare programs in serving their target populations; and identify opportunities to better manage postsecondary, vocational, and adult education programs and deliver more effective services. the Promotion of Work Opportunities and the Protection of Workers assess the effectiveness of federal efforts to help adults enter the workforce and to assist low-income workers; analyze the impact of programs designed to maintain a skilled workforce and ensure employers have the workers they need; assess the success of various enforcement strategies to protect workers while minimizing employers’ burden in the changing environment of work; and identify ways to improve federal support for people with disabilities. a Secure Retirement for Older Americans assess the implications of various Social Security reform proposals; identify opportunities to foster greater pension coverage, increase personal saving, and ensure adequate and secure retirement income; and identify opportunities to improve the ability of federal agencies to administer and protect workers’ retirement benefits. an Effective System of Justice identify ways to improve federal agencies’ ability to prevent and respond to major crimes, including terrorism; assess the effectiveness of federal programs to control illegal drug use; identify ways to administer the nation’s immigration laws to better secure the nation’s borders and promote appropriate treatment of legal residents; and assess the administrative efficiency and effectiveness of the federal court and prison systems. the Promotion of Viable Communities assess federal economic development assistance and its impact on communities; assess how the federal government can balance the promotion of home ownership with financial risk; assess the effectiveness of federal initiatives to assist small and minority- owned businesses; assess federal efforts to enhance national preparedness and capacity to respond to and recover from natural and man-made disasters; and assess how well federally supported housing programs meet their objectives and affect the well-being of recipient households and communities. Responsible Stewardship of Natural Resources and the Environment assess the nation’s ability to ensure reliable and environmentally sound energy for current and future generations; assess federal strategies for managing land and water resources in a sustainable fashion for multiple uses; assess federal programs’ ability to ensure a plentiful and safe food supply, provide economic security for farmers, and minimize agricultural environmental damage; assess federal pollution prevention and control strategies; and assess efforts to reduce the threats posed by hazardous and nuclear wastes. a Secure and Effective National Physical Infrastructure assess strategies for identifying, evaluating, prioritizing, financing, and implementing integrated solutions to the nation’s infrastructure needs; assess the impact of transportation and telecommunications policies and practices on competition and consumers; assess efforts to improve safety and security in all transportation modes; assess the U.S. Postal Service’s transformation efforts to ensure its viability and accomplish its mission; and assess federal efforts to plan for, acquire, manage, maintain, secure, and dispose of the government’s real property assets. Provide Timely, Quality Service to the Congress and the Federal Government to Respond to Changing Security Threats and the Challenges of Global Interdependence To achieve this goal, we will provide information and recommendations on the following: Respond to Diffuse Threats to National and Global Security analyze the effectiveness of the federal government’s approach to providing for homeland security; assess U.S. efforts to protect computer and telecommunications systems supporting critical infrastructures in business and government; and assess the effectiveness of U.S. and international efforts to prevent the proliferation of nuclear, biological, chemical, and conventional weapons and sensitive technologies. Ensure Military Capabilities and Readiness assess the ability of DOD to maintain adequate readiness levels while addressing the force structure changes needed in the 21st century; assess overall human capital management practices to ensure a high- quality total force; identify ways to improve the economy, efficiency, and effectiveness of DOD’s support infrastructure and business systems and processes; assess the National Nuclear Security Administration’s efforts to maintain a safe and reliable nuclear weapons stockpile; analyze and support DOD’s efforts to improve budget analyses and performance management; assess whether DOD and the services have developed integrated procedures and systems to operate effectively together on the battlefield; and assess the ability of weapon system acquisition programs and processes to achieve desired outcomes. Advance and Protect U.S. International Interests analyze the plans, strategies, costs, and results of the U.S. role in conflict interventions; analyze the effectiveness and management of foreign aid programs and the tools used to carry them out; analyze the costs and implications of changing U.S. strategic interests; evaluate the efficiency and accountability of multilateral organizations and the extent to which they are serving U.S. interests; and assess the strategies and management practices for U.S. foreign affairs functions and activities. Respond to the Impact of Global Market Forces on U.S. Economic and Security Interests analyze how trade agreements and programs serve U.S. interests; improve understanding of the effects of defense industry globalization; assess how the United States can influence improvements in the world financial system; assess the ability of the financial services industry and its regulators to maintain a stable and efficient global financial system; evaluate how prepared financial regulators are to respond to change and innovation; and assess the effectiveness of regulatory programs and policies in ensuring access to financial services and deterring fraud and abuse in financial markets. Help Transform the Government’s Role and How It Does Business to Meet 21st Century Challenges To achieve this goal, we will provide information and recommendations on the following: Analyze the Implications of the Increased Role of Public and Private Parties in Achieving Federal Objectives analyze the modern service-delivery system environment and the complexity and interaction of service-delivery mechanisms; assess how involvement of state and local governments and nongovernmental organizations affect federal program implementation and achievement of national goals; and assess the effectiveness of regulatory administration and reforms in achieving government objectives. Assess the Government’s Human Capital and Other Capacity for Serving the Public identify and facilitate the implementation of human capital practices that will improve federal economy, efficiency, and effectiveness; identify ways to improve the financial management infrastructure capacity to provide useful information to manage for results and costs day to day; assess the government’s capacity to manage information technology to improve performance; assess efforts to manage the collection, use, and dissemination of government information in an era of rapidly changing technology; assess the effectiveness of the Federal Statistical System in providing relevant, reliable, and timely information that meets federal program needs; and identify more businesslike approaches that can be used by federal agencies in acquiring goods and services. Support Congressional Oversight of the Federal Government’s Progress toward Being More Results-Oriented, Accountable, and Relevant to Society’s Needs analyze and support efforts to instill results-oriented management across the government; highlight the federal programs and operations at highest risk and the major performance and management challenges confronting agencies; identify ways to strengthen accountability for the federal government’s assets and operations; promote accountability in the federal acquisition process; assess the management and results of the federal investment in science and technology and the effectiveness of efforts to protect intellectual property; and identify ways to improve the quality of evaluative information. develop new resources and approaches that can be used in measuring performance and progress on the nations 21st century challenges Analyze the Government’s Fiscal Position and Approaches for Financing the Government analyze the long-term fiscal position of the federal government; analyze the structure and information for budgetary choices and explore alternatives for improvement; contribute to congressional deliberations on tax policy; support congressional oversight of the Internal Revenue Service’s modernization and reform efforts; and assess the reliability of financial information on the government’s fiscal position and financing sources. Maximize the Value of GAO by Being a Model Federal Agency and a World-Class Professional Services Organization To achieve this goal, we will do the following: Sharpen GAO’s Focus on Clients’ and Customers’ Requirements continuously update client requirements; develop and implement stakeholder protocols and refine client protocols; and identify and refine customer requirements and measures.

GAO is a key source of objective information and analyses and, as such, plays a crucial role in supporting congressional decision-making and helping improve government for the benefit of the American people. This testimony focuses on GAO's (1) fiscal year 2002 performance and results, (2) efforts to maximize our effectiveness, responsiveness and value, and (3) our budget request for fiscal year 2004 to support the Congress and serve the American public. In fiscal year 2002, GAO's work informed the national debate on a broad spectrum of issues including helping the Congress answer questions about the associated costs and program tradeoffs of the national preparedness strategy, including providing perspectives on how best to organize and manage the new Transportation Security Administration and Department of Homeland Security. GAO's efforts helped the Congress and government leaders achieve $37.7 billion in financial benefits--an $88 return on every dollar invested in GAO. The return on the public's investment in GAO extends beyond dollar savings to improvements in how the government serves its citizens. This includes a range of accomplishments that serve to improve safety, enhance security, protect privacy, and increase the effectiveness of a range of federal programs and activities. The results of our work in fiscal year 2002 were possible, in part, because of changes we have made to transform GAO in order to meet our goal of being a model federal agency and a world-class professional services organization. We had already realigned GAO's structure and resources to better serve the Congress in its legislative, oversight, appropriations, and investigative roles. Over the past year, we cultivated and fostered congressional and agency relations, better refined our strategic and annual planning and reporting processes, and enhanced our information technology infrastructure. We also continued to provide priority attention to our management challenges of human capital, information security, and physical security. We have made progress in addressing each of these challenges, but we still have work to do and plan to ask for legislation to help address some of these issues. GAO is requesting budget authority of $473 million for fiscal year 2004. Our request represents a modest 4.1 percent increase in direct appropriations, primarily for mandatory pay and uncontrollable costs. This budget will allow us to maintain current operations for serving the Congress as outlined in our strategic plan and continue initiatives to enhance our human capital, support business processes, and ensure the safety and security of GAO staff, facilities, and information systems. Approximately $4.8 million, or about 1 percent, of our request relates to several safety and security items that are included in our fiscal year 2003 supplemental request. If this supplemental request is granted, our fiscal year 2004 request could be reduced accordingly.

You are an expert at summarizing long articles. Proceed to summarize the following text: Charter schools are public schools established under contracts that grant them greater levels of autonomy from certain state and local laws and regulations in exchange for agreeing to meet certain student performance goals. Charter schools are often exempt from certain state and school district education laws and in some states may receive waivers or exemptions from other laws; however, charter schools must comply with select laws, including those pertaining to special education, civil rights, and health and safety conditions. While charter schools are free from many educational regulations, they are accountable for their educational and financial performance, including the testing requirements under the No Child Left Behind Act. A wide range of individuals or groups, including parents, educators, nonprofit organizations and universities, may apply to create a charter school. Charter schools are typically nonprofit organizations and, like other nonprofits, are governed by a board of trustees. The board of trustees, which is initially selected by the school founders, oversees legal compliance, financial management, contracts with external parties, and other school policies. School trustees are also responsible for identifying existing and potential risks facing the charter school and taking steps to reduce or eliminate these risks. Charters to operate a school are authorized by various bodies, depending on the state’s laws, but may include local school districts, municipal governments, or special chartering boards. According to a GAO survey, about half of the charter school states and the District of Columbia allowed more than one authorizer, providing charter school founders an opportunity to find support for a wider range of instructional approaches or educational philosophies than might be possible with a single authorizer. Many charter school authorizing bodies have formal procedures to monitor charter school performance in areas such as student performance, compliance with regulations, financial record keeping, and the provision of special education services. If charter schools do not meet expected performance measures, authorizers may revoke a school’s charter or decide not to renew the charter when it expires, resulting in the charter school’s closure. Since the first charter school opened in Minnesota in 1992, about 350 charter schools—of the approximately 3,700 that opened—have closed as of April 2005. The D.C. School Reform Act, a federal law that applies only to D.C., designated two charter school authorizers—the D.C. Board of Education (BOE) and the D.C. Public Charter School Board (PCSB). Both authorizers have similar responsibilities, but are structured differently. While the PCSB was created as an independent board with the sole purpose of approving and overseeing charter schools, the BOE oversees both the 167 traditional public schools that enrolled about 59,000 students in the 2004-2005 school year and charter schools. To effectively manage its oversight responsibilities for both traditional public schools and charter schools, the BOE created an internal Office of Charter Schools to manage its functions as an authorizer. In fiscal years 2003 and 2004, the BOE generally determined how much local funding to allocate to each of the Board’s functions, including charter schools, while Congress determined the level of PCSB’s local funds through its D.C. Appropriations Act. In addition to the two authorizers, several D.C. offices have responsibilities related to the District’s charter schools, including the D.C. Inspector General, the D.C. Auditor, the D.C. Chief Financial Officer, the Mayor’s State Education Office, and the State Education Agency, which is part of the D.C. Public School system (see fig. 1). The D.C. School Reform Act allows the BOE and the PCSB to grant up to 10 charters each per year. Each charter authorizes a school for 15 years, at which point the charter may be renewed if the authorizer approves. To date, no school has reached the end of its 15-year term. After granting charters to schools, each authorizer is responsible for monitoring those schools. Under the D.C. School Reform Act, the BOE and PCSB are required to monitor charter schools’ academic achievement, operations, and compliance with applicable laws. Both authorizers conduct pre- opening visits to new schools and subsequently conduct annual monitoring visits and data reviews to meet this requirement (see fig. 2). All schools granted a charter in D.C. must create an accountability plan that outlines the school’s 5-year academic goals. Accountability plans become part of each school’s charter and are used as guides for the authorizers to monitor academic progress. Additionally, under the D.C. School Reform Act, the D.C. authorizers must conduct more comprehensive reviews of charter schools every 5 years to determine if the schools should be allowed to continue operating. Charter schools that are not meeting academic performance goals may be closed following a 5-year review. Charter schools may be closed for other reasons, such as financial mismanagement or legal noncompliance, at any time. As we noted in our May 2005 report, the BOE first began chartering schools in 1996, and the PCSB chartered its first schools in 1997. As of the 2004-05 school year, 23 BOE and 27 PCSB charter schools had opened. However, between 1998 and September 2005, nine charter schools closed. The BOE has revoked seven charters, and two PCSB charter schools closed; one voluntarily released its charter, and the other had its charter revoked at the end of the 2004-2005 school year. Financial reasons contributed to the closing of most of the schools that had their charters revoked. During the 2004-05 school year, 16 BOE schools and 26 PCSB were in operation. As of January 2005, BOE charter schools enrolled 3,945 students, and PCSB charter schools enrolled 11,555 students. The two D.C. authorizers monitored a diverse set of schools (see table 1). These schools enrolled students at all grade levels, from pre-kindergarten to high school and offered varied instructional and academic models. For example some schools had a particular curricular emphasis, such as math and science, art, or foreign language, while other charter schools focused on specific populations, such as students with learning disabilities, students who have dropped out or are at risk of doing so, youth who have been involved in the criminal justice system, and adults. Additionally, the charter schools pursued a variety of school-specific goals that were aligned with their missions or the student populations they served. The D.C. School Reform Act requires the authorizers to monitor schools’ annual and 5-year progress toward these goals. Some examples of goals included in school charters are improved attendance rates and increased parental satisfaction. Other goals varied widely. For example, Maya Angelou, a high school serving at-risk youth, included among its 5-year goals both an 85 percent graduation rate, as well as a significant reduction in violent behavior by students. JOS-ARZ, a high school serving students with emotional and behavioral problems, included as a goal that at least half of its students would acquire skills that would allow them to function independently and would earn a high school diploma or the equivalent. D.C. charter schools receive funding from a wide range of sources. Charter schools in D.C. receive funding on a per-pupil basis using the same allocation formula for operating expenses that is applied to traditional D.C. public schools. In the 2004-2005 school year, charter and traditional public schools in D.C. received $6,904 to $8,077 for a regular education student depending on grade level. D.C. charter schools received an additional allotment—equal to $2,380 per non-residential student and $6,426 per residential student—to help cover the cost of school facilities. In addition to the per-pupil allotments, charter schools in D.C., like all public schools that meet federal criteria, are eligible for other federal funds, such as funding under the No Child Left Behind Act and the Individuals with Disabilities Education Improvement Act. A few charter schools also receive additional funding from foundation grants and other fundraising efforts. The two D.C. authorizers’ revenue, staff, and use of available D.C. services differed, but the authorizers spent their funds on similar activities. The BOE Office of Charter Schools had less revenue and fewer schools and staff to oversee them than the PCSB. To help fulfill its oversight responsibilities, the BOE Office of Charter Schools occasionally called upon D.C. agencies for financial operations reviews and used some D.C. Public School services. The PCSB, which had more staff and oversaw more schools, had total revenue that was more than twice that of the BOE Office of Charter Schools’ and employed a larger staff. The PCSB also received more revenue per school than the BOE Office of Charter Schools. Unlike the BOE Office of Charter Schools, the PCSB did not use D.C. Public Schools services, which were available to it, but did use D.C. government services on one occasion. Despite these differences, both authorizers used their financial resources similarly. Both spent most of their fiscal year 2004 funds on board operations, including personnel costs, and their remaining funds on consultants to help with monitoring, application review and school closures. The BOE Office of Charter Schools received less funding from its two main sources of revenue—the local funds allocated to it by the BOE and the administrative fees it was permitted to charge the schools it oversaw— than the corresponding amounts received by the PCSB (see table 2). The BOE Office of Charter Schools received $307,340 from the BOE in fiscal year 2004, less than half the amount of local funds the PCSB received in accordance with congressional directives, and collected $251,623 in fees from the schools it oversaw. The BOE Office of Charter Schools collected less in fees from schools than the PCSB, because these fees are based on the number of students per school, and the PCSB oversaw more schools with more students. In total revenue, the BOE Office of Charter Schools received approximately $38,000 per school in fiscal year 2004. In fiscal years 2003 and 2004, the BOE Office of Charter Schools had three staff, including its Executive Director, to oversee its schools, which was less than a third the staff of the PCSB’s. In October 2005, the new budget for the BOE made possible the hiring of three new staff for its Office of Charter Schools. The BOE Office of Charter Schools supplemented its staff by using consultants to help oversee charter schools. In fiscal year 2004, the Office of Charter Schools spent $121,502 on consultants in areas such as reviewing applications, conducting annual monitoring visits, and assisting with school closings. Consultants with issue area expertise also provided specialized assistance associated with monitoring schools’ financial condition and special education compliance. The BOE Office of Charter Schools spent $28,589 per school on both in-house personnel and consultants in fiscal year 2004, which was 16 percent less than the PCSB spent. In addition to using consultants, the BOE Office of Charter Schools augmented its financial and staff resources by leveraging services provided by other D.C. government agencies. On four occasions, the BOE Office of Charter Schools referred schools to the D.C. Auditor or the Office of the Chief Financial Officer for financial operations reviews. For example, in 2002, the BOE Office of Charter Schools asked the Office of the Chief Financial Officer to review the internal controls of one school. Additionally, the BOE Office of Charter Schools referred one school to a special interagency team that included the D.C. Department of Mental Health and the D.C. Child and Family Services Agency, to review the level of services provided to children. For the past 2 years, D.C. Public Schools has provided the BOE Office of Charter Schools with some test score analysis and school performance data, which the office used to determine if its charter schools were in compliance with No Child Left Behind Act requirements. In fiscal years 2003 and 2004, the PCSB received more revenue, had a larger staff and oversaw more schools than the BOE Office of Charter Schools. As an agency independent from the D.C. Board of Education, the PCSB received $660,000 in local funds in fiscal year 2004, as required by Congress. Additionally, the PCSB collected over $500,000 in fees from schools that year and in total received $61,360 per school. The PCSB used its revenue, which was more than double that of the BOE Office of Charter Schools, in part to employ nine people to oversee 22 charter schools in fiscal year 2004. The PCSB also had other revenue sources that the BOE Office of Charter Schools did not, such as grants and interest income. Like the BOE Office of Charter Schools, the PCSB supplemented its staff by using consultants. In fiscal year 2004, the PCSB spent $134,756 on consultants to help with charter school oversight, such as reviewing applications, conducting annual monitoring visits, and assisting with school closings. PCSB consultants also reviewed schools’ financial conditions and special education compliance. The PCSB spent more than its counterpart—$33,897 per school—on both in-house personnel and consultants. The PCSB used fewer services available to the authorizers from D.C. government agencies than the BOE Office of Charter Schools. Unlike the BOE Office of Charter Schools, the PCSB did not use D.C. Public Schools test score analysis to determine if its schools were meeting No Child Left Behind Act standards. However, in April 2005, upon the recommendation of its financial consultants, the PCSB referred one school to the D.C. Inspector General for investigation of certain questionable financial practices. Although the PCSB could refer more cases to D.C. agencies, a PCSB official stated that the PCSB instead tries to resolve all school issues by itself in order to help maintain the organization’s independence as an authorizing board. Although the two authorizers differed in terms of revenue available to them, they both used their financial resources to support oversight activities. Both authorizers used their staff and consultants to perform functions such as reviewing applications, monitoring schools, and overseeing school closures, although the costs associated with in-house staff were not separately tracked by the authorizers. For both authorizers, the majority of their expenses were used to support salaries and benefits for authorizer personnel involved in these activities, and other operational costs, such as conferences and technology. In fiscal year 2004, about three- quarters of the BOE Office of Charter Schools’ expenses, and 88 percent of the PCSB’s expenses were used in this way (see fig. 4). However, a smaller percentage of the PCSB’s expenses were used on personnel and a larger percentage on other operational costs, such as technology, conferences, and books. The PCSB also had to pay for office space, an expense that the BOE Office of Charter Schools did not have to incur as its offices were provided by the BOE. The BOE Office of Charter Schools used a larger percentage of its total expenses for consultants than the PCSB. Consultant fees represented one- quarter of the BOE Office of Charter Schools’ total expenses and one- eighth of the PCSB’s in fiscal year 2004. Both used consultants primarily to monitor schools, but both also hired consultants to review applications and help with school closings. For example, both the BOE and PCSB hired consultants to conduct site visits and review schools’ academic programs. Expenses for both authorizers in fiscal year 2003 were similar to 2004 expenses, as both authorizers used most of their expenses for personnel and other operational costs. See table 3 for detailed expense information for both authorizers. Both D.C. authorizers provided schools technical assistance and oversight of charter schools by tracking schools’ academic achievement and financial condition. Both authorizers provided charter schools with assistance and had similar oversight practices, such as visiting each school at least once annually to assess performance and school operations. However, their approaches to oversight differed. The BOE Office of Charter Schools, staffed with only three employees, provided the same level of oversight to all of its 16 schools and in doing so limited its ability to provide additional assistance to those schools needing more help. Moreover, the BOE, which was also responsible for 167 traditional public schools, did not regularly review information collected by its Office of Charter Schools. BOE board members we interviewed acknowledged that problems were sometimes allowed to go unresolved for too long. By contrast, the PCSB targeted additional oversight on new charter schools and those where problems had been identified. Both authorizers provided charter schools technical assistance in several areas. They often integrated technical assistance and monitoring to help schools improve academic and financial programs, identify potential facilities, and apply for facility funding. For example, the BOE Office of Charter Schools helped a school improve its financial condition after its 2003 audit raised questions about the school’s financial viability. Specifically, its staff helped the school end a disadvantageous relationship with a school management company and negotiate a lower rent and security deposit for new school facilities. In another case, the BOE Office of Charter Schools obtained a financial operations review from the D.C. Chief Financial Officer in 2003 and a multi-agency school review in 2004 to help a school that was identified as having enrollment and funding problems. The PCSB also integrated technical assistance and monitoring. For example, the PCSB referred a school to several local organizations for help, after the PCSB’s 2005 review concluded that the school needed to improve teacher professional development. PCSB has also established a governance project to develop pools of candidates for schools’ boards of trustees, created a financial policy manual for charter schools, and provided guidance to help schools address transitional issues as the schools increase enrollment and add grade levels. To help schools address academic deficiencies identified through monitoring, both authorizers have helped schools develop their academic accountability plans. The BOE Office of Charter Schools and PCSB also helped schools develop school improvement plans to meet No Child Left Behind Act requirements. For example, BOE Office of Charter Schools officials told us that they worked with one school to help it create an academic improvement plan and get relevant training for school leadership after the school did not make Adequate Yearly Progress in reading and math under the No Child Left Behind Act in 2005. They also said that they worked with the seven schools identified as needing improvement as a result of not achieving Adequate Yearly Progress in the 2004-2005 school year by identifying actions each school must take to comply with the law, such as developing school improvement plans outlining corrective strategies and offering services such as tutoring. The BOE Office of Charter Schools plans to use its annual monitoring visits to track these schools’ progress. For the 13 PCSB schools identified in 2004-2005 as needing improvement as a result of not making Adequate Yearly Progress, the PCSB closed one and has made plans to track schools’ improvement efforts through its annual monitoring visits. For example, it has incorporated key questions into its visit protocols in order to measure schools’ progress. The BOE Office of Charter Schools provided oversight to charter schools by using a uniform process to collect academic and financial data from all its schools, as well as other information about schools’ governance structure and compliance with laws. Specifically, it required each school to submit the same information, such as monthly financial statements, annual student test scores, and teacher information. It also visited each school at least twice a year—once before the school year began to check the school’s facilities and operational systems and again during the school year to monitor school performance. At the beginning of the school year, the BOE Office of Charter Schools focused on compliance and governance issues, by checking areas such as school board membership, student record storage, and adequacy of school facilities. In subsequent visits during the school year, the BOE Office of Charter Schools monitored mainly performance information, such as tracking schools’ progress in achieving their own academic goals and reviewing school budgets and annual audits. Although the BOE Office of Charter Schools’ monitoring approach has enabled it to compile comprehensive data on every school, this approach has limited its ability to focus attention on those schools most in need of the monitoring: new schools and schools considered to be at risk. Because the office has collected the same data from all schools regardless of their years of operation or performance history, the small staff has had to spend considerable time sifting through considerable amounts of data on all schools, while problems at some schools go unaddressed. For example, by visiting all schools at the beginning of every school year—rather than only visiting new schools or schools in new locations—the BOE Office of Charter Schools has dedicated staff resources that could have been focused on higher risk schools. Moreover, according to a BOE Office of Charter Schools official, in the past collecting and reviewing monthly financial statements from all of its schools had been nearly a full-time responsibility. Furthermore, while the BOE Office of Charter Schools has relied on the schools’ annual financial statement audits for key information related to financial oversight, it has not developed a system to assign priority to schools whose audits documented ongoing problems. For example, one school’s 2002 audit identified weaknesses that made the school vulnerable to an embezzlement. Although this particular weakness was corrected, the 2003 audit showed additional evidence of weak internal controls. When we asked BOE Office of Charter Schools officials whether it was possible to focus oversight on schools like this one, they told us that their practice was to review all schools during the annual monitoring visit to determine whether the issues have been resolved and require a corrective action plan if they have not. Additionally, the BOE Office of Charter Schools generally has not reviewed schools’ annual financial statement audits when they were submitted to the office, and instead waited until after the authorizers’ financial monitors completed their reviews of the schools. This approach may not allow the BOE Office of Charter Schools to respond in a timely manner to schools with immediate problems and may have contributed to the number of BOE charter schools that closed for financial reasons. Even after BOE Office of Charter Schools staff identified problems, resolution was sometimes prolonged. For example, two Board members we interviewed said that timely action was not taken with regard to the Village Learning Center that eventually closed in 2004. According to the BOE Office of Charter Schools’ own monitoring reports, this school experienced numerous problems over a period of years, including noncompliance with special education requirements, and failure to pay federal taxes and submit required federal grant performance reports. This school was open for 6 years and was granted three probationary periods totaling 180 days. Of the seven BOE schools whose charters were revoked, four with long-standing problems were allowed to remain open 4 years or more. In two of these cases, the BOE allowed the schools to stay open to give them time to correct their deficiencies. According to two BOE Board members we interviewed, the Board did not regularly review information collected by the BOE Office of Charter Schools and has not always acted upon information it received. They also stated that the BOE has not provided adequate oversight of its charter schools; as one Board member explained, it is easy to think of charter school oversight as a secondary concern to overseeing the public school system as a whole. Furthermore, during our review of the BOE Office of Charter Schools, the BOE had not held regular meetings devoted to charter schools and did not have a committee dedicated to charter school oversight. In October 2005, the BOE approved the creation of a charter school committee. Additionally, our review of BOE minutes showed that charter schools were infrequently discussed at BOE’s meetings. According to the BOE Office of Charter Schools Director, BOE Board members devoted some working sessions to charter school oversight issues; however, no minutes were taken of these meetings. The PCSB also monitored schools’ financial condition and academic performance but targeted additional monitoring on schools that needed more oversight. To monitor schools’ financial performance, the PCSB collected and reviewed school budgets, monthly financial statements, and annual financial statement audits. To monitor academics, the PCSB visited schools annually and collected and analyzed test scores and other data to track schools’ outcomes as measured against their own academic goals and D.C. performance standards. Additionally, the PCSB created an annual compliance review process to track compliance with the No Child Left Behind Act, special education requirements, provisions of the D.C. School Reform Act and other laws. When schools have been identified as being out of compliance, the PCSB has used this process to identify specific actions each school must take to comply with the law, such as developing school improvement plans, offering services such as tutoring, and notifying parents. The PCSB has also monitored issues related to the schools’ governance, such as the composition and operation of school boards of trustees, through its annual review of schools’ compliance with applicable laws and regulations. To ensure that new schools or schools identified as at risk receive sufficient oversight, the PCSB has targeted monitoring to ensure that higher-risk schools receive more attention, while lower-risk entities that were operating smoothly received less scrutiny. For example, at the beginning of the school year, the PCSB conducted pre-opening assessments of only new schools and schools opening in new facilities, thereby freeing up staff resources for higher risk schools. The PCSB also provided additional oversight to new schools by conducting a special financial management review of the internal controls of schools in their first year of operation. According to the PCSB, the purpose of this early review was both to assess school compliance and help the schools address issues early in their implementation. Additionally, the PCSB required schools in their first year to prepare a self-study, providing another opportunity for the school to identify challenges that require attention. The PCSB also applied targeted monitoring to its financial reviews. Schools with demonstrated financial performance have been allowed by the PCSB to submit their financial statements on a quarterly—rather than monthly—basis. The PCSB required schools to return to monthly submissions of financial statements when financial concerns emerged. For example, in October 2004, the PCSB required one school to resume monthly reporting after it failed to submit a financial statement audit that was due in November 2003. Additionally, the PCSB has conducted interim financial reviews of schools where financial problems have been detected through regular monitoring. After identifying a potential budgetary shortfall at one school, the PCSB conducted an interim financial review of the school to assess its financial condition. According to a PCSB official, this review provided the PCSB with the opportunity to make recommendations to the school to reduce its expenses, which helped restore the school’s financial condition. The PCSB also modified its annual and 5-year review processes to highlight or prioritize schools considered at risk. For example, PCSB’s annual program review, which has focused on academic performance, labeled some trouble areas as “mission-critical problems,” signaling to the school that inadequate improvement in these areas could threaten the school’s viability. In one case, the PCSB highlighted a school leader’s extended absences as a mission-critical problem that needed to be addressed. Following the PCSB’s monitoring report, the school leader resigned, and the school hired a new principal. Furthermore, the PCSB has applied criteria to schools during their 5th year of operation to determine whether each school has met the majority of its academic and nonacademic goals. Any school that has not met both its academic and nonacademic goals can be placed on PCSB’s “Priority Review List.” In May 2004, the PCSB placed one such school on this list—the SouthEast Academy for Academic Excellence—and subsequently revoked its charter. One PCSB official stated that the rationale for using a targeted monitoring approach is to free up more resources for technical assistance. Although some of its schools have experienced problems, the PCSB’s targeted monitoring approach allowed it to identify and provide technical assistance to schools in need of attention, which helped PCSB schools focus on their deficiencies. For example, the PCSB’s monitoring reports highlighted one school’s need for retaining qualified special education staff as a “mission-critical” problem for 3 consecutive years. In response, the PCSB targeted additional monitoring on this school and worked with the school to develop plans for hiring and training teachers to mitigate the school’s special education skills shortfall. The PCSB’s targeted monitoring approach also highlighted problems at both of the PCSB’s schools that later closed. For example, PCSB monitoring reports show that the authorizer identified problems, such as noncompliance with special education requirements, noncompliance with its charter, and late financial statement audits, at Associates for Renewal in Education Public Charter School, in the school’s second year of operation. The PCSB also identified problems at SouthEast Academy, including the school’s inability to implement its own academic improvement plans. In both cases, the PCSB responded by intensifying monitoring and placing the schools on probation, and in the case of SouthEast Academy, revoked the school’s charter after it failed to correct identified deficiencies. When charter schools have closed, both authorizers undertook a wide range of activities to ensure student records and public assets were safeguarded, parents informed of their children’s school options, and closing schools received the assistance they needed; however, issues arose during closings that both found difficult to readily address. Officials from both authorizers stated that closing charter schools was costly, particularly when the closed schools were financially insolvent, and managing student records was the most challenging aspect of school closures. The authorizers’ processes for closing all nine schools varied in every instance. Authorizers used their staff and financial resources to oversee school closings as well as handle closing logistics, such as distributing student records, inventorying assets, and communicating with parents. Authorizer staff inventoried school property, returned assets bought with federal dollars to the U.S. government, and disbursed remaining assets to other non-profit organizations, including existing charter schools. For example, when BOE Office of Charter Schools closed one of its schools, D.C. Public School staff helped the office inventory and dispose of its property. In a case when the closing school was financially insolvent, BOE Office of Charter Schools staff referred its creditors to appropriate parties for repayment. When one of PCSB’s schools closed, it hired a contractor to inventory the school’s records. Additionally, both authorizers communicated closing procedures to parents and students. BOE Office of Charter Schools officials stated that when charter schools closed, they sent letters to students and spoke with parents about the closure process. When the PCSB closed SouthEast Academy in 2005, GAO staff observed a town hall meeting where PCSB discussed the closure and students’ options for moving to another school. However, parents at the meeting still expressed confusion about the closure process and their questions about whether the closed school would reopen under new management could not be definitively answered at that time. Both the BOE and PCSB incurred costs when closing charter schools, particularly for the five schools that were financially insolvent. For example, a PCSB official stated that when PCSB closed the Associates for Renewal in Education Public Charter School, the PCSB spent over $15,000 from its budget. The authorizers often had to hire additional temporary staff to help with closing logistics. For example, in some instances, the authorizers hired administrators from the closed schools to help transfer records and dispose of inventory, such as textbooks, computers, and desks. BOE Office of Charter School and PCSB staff stated that hiring these school administrators helped make the closing process more efficient because the administrators were knowledgeable of the schools’ financial and student record keeping systems, as well as the school staff, parents and students. Four of the nine schools that were closed were financially solvent. In these cases, the authorizers used school resources to help defray the cost of closing. For example, the PCSB used the remaining assets from one closed school to hire a records management company to help collect, transfer, and store student records. Both authorizers also devoted staff resources to school closings. Staff spent time inventorying and dispersing assets, speaking with parents, and dealing with creditors when schools closed. Both authorizers reported managing and safeguarding student records was the most challenging aspect of closing schools. Authorizers have assumed responsibility for reviewing student records for completeness, collecting records from closing schools, and distributing records to new schools. BOE Office of Charter Schools officials stated that this process can be delayed when student records were missing or were not complete. In some instances, student records may be on teachers’ desks or in classrooms rather than in central files, according to BOE Office of Charter Schools officials. Authorizer staff must then find and collect missing records. Student records can also be missing information or contain incorrect data. For example, BOE Office of Charter Schools officials told us that some student records have not included information about the most recent school quarter, while other records contained grade or class information that the students have stated is not correct. BOE Office of Charter Schools officials stated that updating and correcting these records can be difficult as the administrators or teachers with the pertinent information may no longer be available to provide assistance. PCSB officials also cited problems with managing student records. For example, PCSB officials stated that transferring records to new schools has been complicated when parents and students were unsure which school they would attend in the fall. In instances where students were no longer continuing their education, both authorizers had to find a place to store student records. Although D.C. law requires that student records become the property of D.C. Public Schools when a charter school closes, D.C. Public Schools officials stated that they thought responsibility for charter school records belonged to the authorizers. D.C. Public Schools officials nevertheless told the PCSB in September 2005 that they would be able to transfer these records to the D.C. Public Schools central administrative office once this office was ready to receive them. According to PCSB officials, as of November 2005, D.C. Public School officials have not notified them that they are ready to receive these records and therefore the records remain at the PCSB office. Similarly, BOE Office of Charter Schools staff told us that they also kept the records of students who did not continue their education in their office. Authorizer staff expressed concerns that parents and students could have difficulty locating these records, which they would need if they wished to continue their education or join the military. For example, students—who may have only had contact with school administrators, rather than authorizer staff—might not know which authorizer was responsible for their charter school or how to contact the authorizer when they need to obtain records from a closed charter school. In all nine instances where schools had been closed, neither authorizer has followed a consistent closure process, and each has dealt with issues as they arose on a case-by- case basis. For example, the PCSB recently had to deal with a new closure problem, when for the first time, a charter school was closed that owned rather than leased its facility. PCSB officials expressed concerns that the facility might not remain available to D.C. charter schools, a particular concern as new charter schools have often had difficulty finding adequate space and existing ones have had difficulty acquiring space to expand. In this case, the PCSB established guidance outlining a process by which a closed school could receive petitions from existing charter schools to utilize its facility, and subsequently approved the arrangement reached between schools. BOE Office of Charter Schools and PCSB officials stated that they varied their school closing process based partly on the size and type of school and its financial condition at the time of closing, but such a varied process and the reasons for it may not be evident to parents as they try to think through what they need to do to transition their children to other schools. For example, when the BOE has closed schools, its Office of Charter Schools notified parents of the closure through letters and phone calls, while PCSB officials also held a town hall meeting when it revoked a charter. The handling of student records has varied across school closings and could be confusing for parents. When PCSB closed Associates for Renewal in Education Public Charter School, the PCSB hand delivered student records or sent them by certified mail to the new schools. In a few instances, students also collected their records from the PCSB office. However, when SouthEast Academy had its charter revoked, the PCSB hired a record management company to collect and transfer all records using the funds from the closed school. PCSB staff and board members stated that they are hoping to use the SouthEast Academy closure procedures as a model for future school closings. While both authorizers have gained considerable experience with respect to what is required when schools close, neither has put in place a plan that would better guide school closing that would make it more efficient and clear to parents. With over a fifth of its students in charter schools, the District of Columbia has made a significant investment in charter schools. To protect this investment, the authorizers have a responsibility to provide timely oversight that ensures that students’ interests are served. However, the two authorizers conducted their monitoring differently, with the PCSB targeting its resources and the BOE Office of Charter Schools generally providing the same level of oversight to all its schools regardless of risk. While both approaches comply with the law’s requirements for authorizers, BOE can more effectively focus its resources where possible to oversee charter schools, particularly given its limited staff. Without such targeting, this authorizer may not be well positioned to ensure that its schools receive the assistance they need when they are most at risk. Additionally, the Board of Education did not have a routine structure or process to ensure that its members regularly reviewed monitoring data for the charter schools under its purview. As a result, the Board has not always reviewed the information before it in time to react effectively and in a timely manner. Although the Board has begun to address this issue by taking steps to create a charter school committee, it is not yet clear that this action will be sufficient to ensure that charter schools receive appropriate attention. Finally, when charter schools close, it is critical that a transparent process exist to ensure that schools, parents, and students understand their options. While each authorizer undertook a wide range of activities when schools closed, no process existed to guide the authorizers, schools, and students through the closing. Lacking such a process, school administrators and parents may not understand what is required and expected of them to ensure a smooth educational transition for students. Additionally, the absence of such a process may result in student records being misplaced or difficult for students to locate in the future, particularly if they do not know which entity authorized their school. Additionally, closing charter schools without a systematic approach may not allow the authorizers to build on previous experience or learn from each other. As a result, an opportunity may be lost to develop a uniform, transparent, and efficient process that protects the interests of all parties. To ensure that D.C. charter schools authorized by the BOE receive appropriate oversight, we recommend that the BOE Office of Charter Schools implement a risk-based oversight system that targets additional monitoring resources to new charter schools and those identified at risk. Additionally, we recommend that the BOE create a routine and timely process to review the monitoring information, including audit reports, collected by its Office of Charter Schools. To help alleviate confusion among parents, students and school administrators following the closure of a charter school and to help the D.C. authorizers close schools efficiently, we recommend that the BOE Office of Charter Schools, the PCSB and D.C. Public Schools establish a routine process when schools close, including, among other things, a system for the secure transfer and maintenance of student records. We provided a draft of this report to the BOE Office of Charter Schools. In her response, the Executive Director of the BOE Office of Charter Schools noted that the BOE was taking actions that would address the recommendations in this report. For example, in response to the first recommendation, the Executive Director stated that the hiring of three new staff members will help focus greater oversight on schools in need. Similarly, in response to the second recommendation, the Executive Director stated that the BOE’s newly established committee on charter schools has begun reviewing monitoring data. BOE Board members also provided technical clarifications, which we incorporated as appropriate in this report. In response to Board member comments, we did not change enrollment or school data, because the audited enrollment count and D.C. Public Schools confirmed our initial information was accurate. We also provided a draft of this report to the PCSB. The comments of the PCSB Executive Director supported our recommendation that the BOE Office of Charter Schools, the PCSB and D.C. Public Schools establish a routine process for the secure transfer and maintenance of records when schools close. PCSB officials also provided technical clarifications, which we incorporated as appropriate in this report. We are sending copies of this report to relevant District of Columbia officials, relevant congressional committees, the Secretary of the Department of Education, and other interested parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. Please contact me at (202) 512-7215 if you or your staffs have any questions about this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other major contributors to this report are listed in appendix IV. As required by the D.C. Appropriations Act of 2005, we conducted a review of D.C.’s two charter school authorizers, the Board of Education (BOE) and the Public Charter School Board (PCSB). In conducting our analysis, we reviewed the D.C. School Reform Act, as amended, and other applicable federal and District laws and regulations to determine the authorizers’ legal responsibilities. To determine how the authorizers used their resources (financial and otherwise), we analyzed the authorizers’ budgets and expenses for fiscal years 2003 and 2004. We also examined the authorizers’ use of staff resources and D.C. government services. Specifically, we identified the types of services available to the authorizers by D.C. agencies and learned if and how the authorizers used these services. To analyze the authorizers’ provision of oversight, we examined monitoring reports, audits and related documentation from 8 of the 42 DC charter schools operating in school year 2004-2005. We selected these schools using nonprobability procedures. In nonprobability sampling, staff selected a sample based on their knowledge of the population’s characteristics. We selected schools to ensure that our report was able to address a variety of the issues that the oversight boards faced in their monitoring efforts. Results from this nonprobability sample cannot be generalized to the entire population of schools. GAO also convened two focus groups of charter school administrators (one focus group per authorizer) to substantiate and augment information provided by the authorizers. Finally, we examined the actions the authorizers took to address issues arising from the closure of the nine charter schools that have lost their charters to date. (See below for more information about our budget, monitoring, and closure document analysis and use of focus groups.) We interviewed authorizer staff and board members and officials of District agencies, including D.C. Public Schools, the Office of the Chief Financial Officer, the Office of the D.C. Auditor, and the D.C. Office of the Inspector General. We also interviewed representatives from the D.C. Public Charter School Association and Friends of Choice in Urban Schools, a D.C. charter school advocacy group. We conducted our work between January and November 2005 in accordance with generally accepted government auditing standards. To analyze the authorizers’ resources and to learn how they have used them, we examined the PCSB’s and BOE Office of Charter Schools’s income and expense statements for fiscal years 2003 and 2004. We analyzed the income statements to determine the proportion of income each board derived from various sources. Additionally, through interviews with authorizer staff, we identified income that was carried over from the previous fiscal year, which was not specifically labeled as such. We analyzed expenses and categorized these expenses into similar groupings for comparability purposes. We compared these data with projected budgets for corresponding fiscal years to identify differences. Finally, we reviewed the PCSB’s financial statement audits for these fiscal years. While the D.C. School Reform Act explicitly requires the PCSB to obtain an annual financial statement audit, the Act contains no such requirement for the BOE Office of Charter Schools. As a result, we used unaudited financial information from the BOE Office of Charter Schools. To obtain information about the processes both authorizers used to monitor charter schools after they had opened, we examined monitoring documentation for eight charter schools—four from each authorizer. These eight schools were selected for variation in the date the schools opened, grades served, and the schools’ history of probation or sanctions. Additionally, in selecting the 8 schools, we considered whether or not the charter school had gone through the 5-year review process, targeted a special needs population, and had achieved Adequate Yearly Progress in math or reading as required by the No Child Left Behind Act, and chose schools for variation in these areas. While our nonprobability selection of 8 of the 42 D.C. charter schools does not allow GAO to generalize results to all 42 charter schools, our sampling procedures helped ensure that GAO was able to address the full assortment of issues that the oversight boards faced in their monitoring efforts. Once the schools were selected, we requested the authorizers provide us with all monitoring documents, including documentation of pre-opening visits, annual monitoring site visits, annual audited financial statements, and documentation of any sanctions placed on the school. We examined these documents to learn how the BOE and PCSB monitored academics, finances, school governance and compliance with applicable laws and regulations. For each of these areas, we examined the types of deficiencies the authorizers identified at the schools and how the authorizers ensured deficiencies were corrected. We analyzed this information on a year-by-year basis to identify trends in how the BOE and PCSB monitored schools and addressed problems. We also reviewed Board minutes from monthly meetings held between January 2003 and April 2005 to learn information about how the BOE and PCSB address charter school problems at board meetings. We also used this information to learn more about specific issues at D.C.’s charter schools. We also used focus groups to obtain the opinions and insights of D.C. charter school principals and other school officials regarding PCSB and BOE oversight efforts. Focus groups are a form of qualitative research in which a specially trained leader, the moderator, meets with a small group of people who have similar characteristics and are knowledgeable about the specific issue. The results from the discussion groups are descriptive, showing the range of opinions and ideas among participants. However, the results cannot serve as a basis for statistical inference because discussion groups are not designed to (1) demonstrate the extent of a problem or to generalize results to a larger population, (2) develop a consensus for an agreed-upon plan of action, or (3) provide statistically representative samples with reliable quantitative estimates. The opinions of many group participants showed a great deal of consensus, and the recurring themes provide some amount of validation. We conducted two focus groups—one with school leaders from schools overseen by PCSB and one with school leaders from schools overseen by BOE. We invited all of the eight schools whose monitoring documents had been assessed by GAO to attend their respective focus groups. In addition, we invited representatives from a random selection of the remaining charter schools (those whose monitoring documents were not assessed by GAO) to gather information from additional schools. Attendance on the part of invited participants was voluntary. We had three participants from three different schools at each of our two focus groups for a total of six schools participating. A trained focus group moderator led the discussions. We developed a discussion group guide to assist the moderator in leading the discussions. A transcription service recorded and then transcribed the conversations. To determine the actions the authorizers have taken when D.C. charter schools closed, we examined documentation from the seven charter schools closed by the BOE and the two closed PCSB charter schools—one voluntarily and one through charter revocation. In each instance, we reviewed the monitoring documentation for each of the closed schools to determine how the authorizers had identified and reacted to problems at the schools. We reviewed Board minutes to determine if and when sanctions were placed on the schools and how the schools responded to these disciplinary actions. We reviewed revocation documentation, including school and authorizer correspondence, school appeals, and minutes from Board meetings when revocations were discussed. Additionally, we analyzed the authorizers’ budget documents to determine how the authorizers used their financial resources to close schools. We reviewed D.C. Public School policies for closing schools and compared these policies with the authorizers’ school closure procedures. We attended a town hall meeting organized by the PCSB for parents of a charter school that was being closed to observe how the authorizer’s staff and school administrators communicated closure information to students and parents. Finally, we interviewed one school administrator from a school that had its charter revoked to learn about the closure process from the school’s perspective. Sherri Doughty, Assistant Director, and Tamara Fucile, Analyst in Charge, managed this assignment and made significant contributions to all aspects of this report. Christopher Morehouse also made significant contributions, and Carlos Hazera, Walter Vance, and Shannon VanCleave aided in this assignment. In addition, Richard Burkard and Shelia McCoy assisted in the legal analysis, Julie Phillips assisted with the financial analysis, and Tovah Rom and Rachael Chamberlin assisted in the message and report development. Charter Schools: Oversight Practices in the District of Columbia. GAO-05-490. Washington, D.C.: May 19, 2005. Charter Schools: To Enhance Education’s Monitoring and Research, More Charter School-Level Data Are Needed. GAO-05-5. Washington, D.C.: January 12, 2005. No Child Left Behind Act: Education Needs to Provide Additional Technical Assistance and Conduct Implementation Studies for School Choice Provision. GAO-05-7. Washington, D.C.: December 10, 2004. District of Columbia’s Performance Accountability Report. GAO-04-940R. Washington, D.C.: July 7, 2004. Charter Schools: New Charter Schools across the Country and in the District of Columbia Face Similar Start-Up Challenges. GAO-03-899. Washington, D.C.: September 3, 2003. Public Schools: Insufficient Research to Determine Effectiveness of Selected Private Education Companies. GAO-03-11. Washington, D.C.: October 29, 2002. DCPS: Attorneys’ Fees for Access to Special Education Opportunities. GAO-02-559R. Washington, D.C.: May 22, 2002. District of Columbia: Performance Report Reflects Progress and Opportunities for Improvement. GAO-02-588. Washington, D.C.: April 15, 2002. Title I Funding: Poor Children Benefit though Funding per Poor Child Differs. GAO-02-242. Washington, D.C.: January 29, 2002. District of Columbia: Comments on Fiscal Year 2000 Performance Report. GAO-01-804. Washington, D.C.: June 8, 2001. Charter Schools: Limited Access to Facility Financing. GAO/HEHS-00-163. Washington, D.C.: September 12, 2000. Charter Schools: Federal Funding Available but Barriers Exist. GAO/HEHS-98-84. Washington, D.C.: April 30, 1998. Charter Schools: Issues Affecting Access to Federal Funds. GAO/T-HEHS-97-216. Washington, D.C.: September 16, 1997.

D.C. has a larger percentage of students in charter schools than any state. To help oversee D.C. charter schools, Congress established two authorizers--the Board of Education (BOE), which has an Office of Charter Schools responsible for oversight, and the independent Public Charter School Board (PCSB). Congress required the GAO to conduct a study of the authorizers. This report--which completes GAO's May 2005 study--examines the (1) authorizers' resources, (2) oversight practices, and (3) actions taken once charter schools close. GAO examined BOE and PCSB monitoring reports, revenue and expenditure documents, and closure procedures. The two D.C. charter school authorizers differed in revenue, number of staff overseeing schools, and use of D.C. services, but both spent their funds to support oversight activities. The BOE Office of Charter Schools had less revenue and fewer staff overseeing fewer schools than PCSB. It fulfilled its oversight responsibilities by using some D.C. Public School services and also occasionally calling upon D.C. agencies for financial operations reviews. The PCSB had a larger staff that oversaw more schools and had revenue more than two times larger than that of the BOE Office of Charter Schools. The PCSB did not use any D.C. Public Schools services, but did refer one school to a D.C. agency for further examination. Despite these differences, both authorizers used most of their fiscal year 2004 expenses for in-house board operations, such as personnel, and also hired consultants to help monitor charter schools. Both D.C. authorizers provided technical assistance to schools and had similar oversight practices, such as tracking school academics and finances, but took different approaches. The BOE Office of Charter Schools, with only 3 staff, provided the same level of oversight to all of its 16 schools and thereby limited its ability to target additional resources to schools requiring more assistance. Moreover, when the BOE Office of Charter Schools gave its Board monitoring information on its charter schools, the Board--also responsible for the city's 167 traditional schools--did not regularly review that information. In contrast, the PCSB targeted additional oversight on new charter schools and those where problems had been identified. The PCSB also granted more flexibility to well-managed schools. Although problems persisted at some schools, the PCSB's targeted system enabled it to focus more attention on these schools. Once D.C. charter schools closed, both authorizers took a number of actions to safeguard student records and public assets and inform parents of their children's educational options; however, issues arose that both authorizers found difficult to adequately address, particularly when the closed school was insolvent. Managing and safeguarding student records was the most expensive and challenging aspect of closing schools, authorizers reported. Moreover, the authorizers' closure processes were different each of the 9 times charter schools closed, which limited opportunities to build on past experiences.

You are an expert at summarizing long articles. Proceed to summarize the following text: In performing our evaluation of the accuracy and completeness of DOD’s reported inventory of financial management systems, we reviewed DOD guidance related to classifying its systems as financial, mixed financial, and nonfinancial; determined whether systems categorized as nonfinancial contained information needed to produce DOD financial statements and other financial reports; compared DOD’s financial management systems inventory to other DOD systems inventories to determine whether categories of systems not included in financial management systems inventories and reports were properly categorized as nonfinancial (however, we did not test the accuracy of these inventories); interviewed appropriate DOD, OMB, and DFAS staff to obtain information regarding the categorizing and reporting of financial management systems; reviewed federal financial management system guidance and applicable laws, the Joint Financial Management Improvement Program’s (JFMIP) Framework for Federal Financial Management Systems, and OMB Circulars A-123, A-127, and A-130; and reviewed military service audits to identify systems used to prepare financial statements. We performed our work from December 1995 to November 1996 in the Washington, D.C., area in accordance with generally accepted government auditing standards. We requested agency comments from the Secretary of Defense or his designee. The Deputy Chief Financial Officer provided us with written comments that are discussed in the “Agency Comments and Our Evaluation” section of this report and reprinted in appendix II. Legislative and other requirements to which DOD is subject recognize the significance of developing a complete financial management systems inventory. The intent of these requirements, as indicated in the policy statement found in section 6 of OMB Circular A-127, is to ensure that financial management systems provide complete, reliable, and timely information to enable government entities to carry out their fiduciary responsibilities; deter fraud, waste, and abuse; and facilitate efficient and effective delivery of programs through relating financial consequences to program performance. Further details on federal financial management systems requirements can be found in appendix I. The Chief Financial Officers (CFO) Act of 1990 gives agency CFOs the responsibility for developing and maintaining integrated accounting and financial management systems. In addition, the act requires that the agency CFO provide policy guidance and oversight of agency financial management personnel, activities, and operations, including the implementation of agency asset management systems such as those for property and inventory management. OMB implementing guidance states that the CFO is to approve the design for information systems that provide, at least in part, financial and/or program performance data used in financial statements, solely to ensure that CFO needs are met. In addition, CFOs are required to prepare and annually revise agency plans to implement OMB’s 5-year financial management plan for the federal government. Agency 5-year plans are to include information such as the agency’s strategy for developing and integrating agency accounting, financial information, and other financial management systems. A recent congressional initiative in this area is the Federal Financial Management Improvement Act of 1996, which provides a legislative mandate to implement and maintain financial management systems that substantially comply with federal financial management systems requirements, applicable federal accounting standards, and the U.S. Standard General Ledger. The legislative history of the act expressly refers to JFMIP requirements and OMB Circular A-127 as sources of the financial management systems requirements. If the head of an agency determines that the agency’s financial management systems do not comply with the requirements of the act, a remediation plan must be established that includes resources, remedies, and intermediate target dates necessary to bring the agency’s financial management systems into substantial compliance. The act defines financial management systems to include the financial systems and the financial portions of mixed systems necessary to support financial management, including automated and manual processes, procedures, controls, data, hardware, software, and support personnel dedicated to the operation and maintenance of system functions. A mixed system is defined as an information system that supports both financial and nonfinancial functions of the federal government or its components. Additional key financial management systems requirements include the following. JFMIP’s Framework for Federal Financial Management Systems provides a model for the development of an integrated financial management system. Circular A-127 requires that executive agencies develop and maintain an agencywide inventory of financial management systems and ensure that appropriate assessments of these systems are conducted. Circular A-127 applies to financial management systems, which include financial and mixed systems. The circular also requires that agencies establish and maintain a single, integrated financial management system. According to the circular, a single, integrated financial management system refers to a unified set of financial systems and the financial portions of mixed systems encompassing the software, hardware, personnel, processes (manual and automated), procedures, controls, and data necessary to carry out financial management functions, manage financial operations of the agency, and report on the agency’s financial status to central agencies, the Congress, and the public. The Paperwork Reduction Act establishes a broad mandate for agencies to perform their information resources management activities in an efficient, effective, and economical manner. Consistent with the act, Circular A-130 states that the head of each agency shall maintain an inventory of the agency’s major information systems. OMB requires that executive agencies, under section 4 of the Federal Managers’ Financial Integrity Act (FMFIA), produce an annual statement on whether their financial management systems conform with governmentwide principles, standards, and requirements. DFAS maintains a DOD inventory of financial systems in the Systems Inventory Data Base (SID). Using SID, DOD reported 249 systems in its fiscal year 1995 annual financial management systems inventory to OMB. However, this does not include many systems that DOD relies on to produce financial management information and reports. A complete inventory is a critical step in DOD’s efforts to correct its long-standing financial systems deficiencies and develop a reliable, integrated financial management system. These deficiencies have been a major factor contributing to DOD’s inability to fulfill its stewardship responsibilities for its resources, including maintaining control over specific assets, such as shipboard supplies and weapons systems, and over its expenditures, such as payroll and contract payments. In addition, the DOD Inspector General (IG) recently reported that (1) the overarching deficiency that prevented auditors from rendering audit opinions on fiscal year 1995 DOD general fund financial statements was the lack of adequate accounting systems and (2) disclaimers of opinion can most likely be expected until the next century. The number of reported systems has been limited because both DOD regulations and DFAS guidance did not properly define financial management systems, as required. Although we did not identify all of the systems that should have been included, several of the excluded systems account for billions of dollars of DOD assets and are clearly mixed systems that meet the OMB and JFMIP definition of financial management systems. DOD Financial Management Regulation (DOD 7000.14-R, Volume 1) does not include all mixed systems in its definition of financial management systems, as required. Instead, the regulation states that “feeder systems ... are the initial record of financial data for processing by accounting systems” are not within the scope of financial management systems reporting. The regulation provides the following specific examples of feeder systems: (1) logistics and inventory systems that provide acquisition cost, location, and quantity information, (2) personnel systems that provide grade and entitlements information, and (3) timekeeping systems that provide attendance and leave information. DFAS repeats DOD’s limited definition of financial management systems in its annual guidance to Defense components for conducting financial management systems reviews. The feeder systems generally excluded by DOD are typical of systems used to track financial events and are specifically mentioned in the JFMIP Framework document as critical to an integrated financial management system. An integrated system under general ledger control is necessary to provide oversight and control to ensure accurate and complete accounting for DOD’s resources. To be truly effective, DOD’s integrated financial management system must link program delivery to the systems that process and track financial events. This linkage is crucial to support the information needs of management, central agencies, and the Congress. Integrated systems help to provide the overall discipline needed to ensure the accuracy and completeness of the information that is used to support DOD’s stewardship responsibilities for the vast resources entrusted to it. Audit reports have disclosed numerous problems resulting from the lack of an integrated financial management system that directly affect the military services’ ability to achieve mission objectives. For example, in our review of the Department of the Navy’s inventory management, we reported that Navy’s item managers could not keep track of the $5.7 billion in operating materials and supplies on board ships and at 17 redistribution sites. The Atlantic and Pacific Fleets and other Navy components are pursuing separate, nonintegrated systems projects in an attempt to improve visibility and thus management of their operating materials and supplies. In another example, at the end of fiscal year 1995, DOD reported that it had inventory valued at almost $70 billion, and we estimate that about half of the inventory includes items that are not needed to support DOD war reserves or current operating requirements. Since 1990, GAO has designated DOD inventory management a high-risk area, with billions of dollars being wasted on excess supplies. The lack of integrated financial management systems and the lack of accurate reliable data to support the quantity, condition, and value of items have been major contributing factors to DOD’s inability to account for and control its inventory. In addition, we previously reported that thousands of soldiers on Army’s payroll could not be matched with Army personnel records, and Army had no assurance that these individuals should have been paid. In fact, we found that DFAS paid $6.1 million to 2,279 soldiers who should not have been paid. In response to our recommendation that steps be taken to integrate its payroll and personnel systems, DOD stated that neither the DOD CFO nor the DFAS Director alone had sufficient authority to ensure that specific steps were taken toward the integration or interface of payroll and personnel systems. Since financial transactions are initiated in systems such as acquisition, logistics, and personnel, the DOD Comptroller is a stakeholder in them and has oversight responsibilities in accordance with the CFO Act. Furthermore, these systems are covered under the newly enacted Federal Financial Management Improvement Act of 1996. We believe that the Senior Financial Management Oversight Council could appropriately address issues dealing with systems that have multiple stakeholders that cross departmental boundaries. We compared DOD’s inventory of financial management systems to the systems inventories contained in the Defense Information Systems Agency’s (DISA) Defense Integration Support Tools (DIST) database. As of April 1996, DIST contained 8,624 information systems which were segregated by category. DIST labeled 931 of the systems as financial, 682 more than the 249 systems included in the DOD inventory. While DOD officials have indicated that the DIST listing may be incomplete or systems may be incorrectly identified as supporting financial management, the large discrepancy indicates that additional financial management systems likely exist. Most acquisition, personnel, property, and time and attendance systems were not included in the DIST financial systems category. For example, the DIST database did not identify as financial systems the Defense Civilian Personnel Data System, used for civilian personnel management, or the Civil Engineering Material Acquisition System, an inventory management system. These systems were also excluded from the DOD inventory. We performed a limited search on the entire DIST database for the key words acquisition, personnel, property, and time and attendance and identified 282 systems that contained one or more of these words in their system name and therefore appeared to meet the OMB and JFMIP definitions of financial management systems; however, only 43 of those systems were classified in the DIST as financial and only 6 were reported in the DOD financial management systems inventory. Several systems that were not included in DOD’s inventory provide critical information for use in formulating the financial statements of the military services. These systems clearly meet the OMB and JFMIP definition for financial management systems. For example, DOD’s list of 249 financial management systems did not include the following key systems, which account for billions of dollars of DOD assets and were identified in recent financial statement audit reports or other financial reporting. Continuing Balance System - Expanded (CBSX). Army uses CBSX to report the year-end value of retail equipment on hand and in transit for active Army and Army Reserve activities. In its fiscal year 1995 financial statements, Army reported about $82.6 billion of equipment on hand and about $500 million of assets in transit. Reliability and Maintainability Information System (REMIS). REMIS is an Air Force system designed to track inventory, status, and utilization of aircraft, as well as compute their value. For fiscal year 1995, Air Force used REMIS to report on over 9,450 aircraft and 4,500 guided and ballistic missiles valued at $144.6 billion. Support Equipment Resources Management Information System (SERMIS). This system is Navy’s automated source of information on naval aviation support equipment assets currently in use. SERMIS maintains financial and management information on support equipment valued at $5.3 billion in fiscal year 1995. Standard Installation/Division Personnel System (SIDPERS). SIDPERS is the personnel system operated by Army installation and field commanders for active duty personnel. This system is used to report data to the Total Army Personnel Data Base which in turn reports five pay events to DFAS for about 493,000 personnel. Army plans to fully implement a version of SIDPERS within the next 2 years which will interface directly with DFAS and account for 88 pay events. Despite their importance to the payroll process, neither SIDPERS nor the Total Army Personnel Data Base have been identified as financial management systems. A comprehensive inventory of the financial management systems used to record, accumulate, classify, and report DOD’s financial management information is a critical step if DOD is to (1) effectively manage its existing systems, (2) prioritize and coordinate efforts to correct its long-standing financial systems deficiencies, and (3) develop a reliable, integrated financial management system. DOD’s severe systems deficiencies have been a major factor contributing to its inability to meet its stewardship responsibilities for the vast resources entrusted to it. Finally, until a complete inventory of financial management systems is developed, DOD will not be able to fulfill the requirements of the financial management improvement initiatives enacted by the Congress. As part of DOD’s long-term systems improvement strategy, we recommend that you direct that the Under Secretary of Defense (Comptroller) revise the Department of Defense Financial Management Regulation, DOD 7000.14-R, Volume 1, to include all mixed systems in its definition of financial management systems; the Senior Financial Management Oversight Council oversee the development of an inventory of all financial management systems, using the revised definition; and systems identified be incorporated in the DOD Chief Financial Officer Financial Management 5-Year Plan, DFAS Chief Financial Officer Financial Management 5-Year Plan, and FMFIA section 4 reporting. In written comments on a draft of this report, DOD’s Deputy Chief Financial Officer stated that DOD concurred or partially concurred with all of our recommendations. In response to our first recommendation that DOD revise its financial management regulations to include all mixed systems in its definition of financial management systems, DOD stated that it will use the definition provided in OMB Circular A-127 as a base for the revised definition. DOD further stated that it will also include other relevant statutory and regulatory requirements in the revised definition. We want to reiterate our position that the OMB requirements be fully implemented. Since 1984, OMB’s Circular A-127 and all subsequent guidance have included a definition of financial management systems that includes personnel, property, procurement, and inventory. These are the types of systems that DOD has specifically excluded from its reporting. The most recent guidance, issued by OMB in 1993, classifies these types of systems as mixed systems. Also, the recently enacted Federal Financial Management Improvement Act of 1996 uses the same definitions for financial management systems and mixed systems as OMB Circular A-127. We provided OMB officials with a copy of our draft report, and they concurred with the representations of OMB Circular A-127 requirements included in our report. DOD partially concurred with our recommendation that the DOD Senior Financial Management Oversight Council oversee the development of the financial management systems inventory. DOD agreed that oversight was necessary but stated that the Council was not the appropriate body. Rather, DOD indicated that this responsibility will remain with the Chief Financial Officer and DFAS, with assistance from the DOD components. In light of the serious deficiencies in DOD’s financial management, DOD must address its financial management systems problems immediately. In our view, timely resolution of this issue can only be accomplished with the involvement of top-level management throughout the affected components of DOD, such as those responsible for logistics, acquisition, and personnel. We continue to believe that the Council’s oversight, together with participation of the CFO and DFAS, is necessary to ensure that the inventory is completed as soon as possible. We support DOD’s efforts to review the DIST database to determine if any of the systems should be included. For this effort to succeed, DOD must adopt a definition of financial management systems that is consistent with OMB Circular A-127 and the Federal Financial Management Improvement Act. In response to our recommendation that the financial management systems identified be incorporated in the DOD Chief Financial Officer Financial Management 5-Year Plan, DFAS Chief Financial Officer Financial Management 5-Year Plan, and FMFIA section 4 reporting, DOD stated that it has and will continue to report on its financial systems. However, until DOD changes its definition of financial management systems in acccordance with OMB guidance and the provisions of the Federal Financial Management Improvement Act, its reporting will continue to be incomplete. DOD needs to identify all of the systems it relies on to manage its vast resources as a critical step in its efforts to develop reliable financial management systems and resolve its long-standing financial management problems. Although DOD generally concurred with the report’s recommendations, DOD stated that some of the issues addressed in the report were significantly inaccurate. Specifically, DOD took issue with the report in its treatment of three areas. First, DOD asserted that its System Inventory Database provides a comprehensive inventory of financial management systems. Our report recognizes that DOD has an inventory maintained in the Systems Inventory Database. However, our report points out that DOD’s inventory is not a comprehensive inventory of all DOD financial management systems. The report states that the number of reported systems has been limited because both DOD regulations and DFAS guidance did not properly define financial management systems. Most personnel, property, procurement, and inventory systems have been excluded from DOD’s reporting. Our report includes examples of systems not included in DOD’s inventory that account for billions of dollars of DOD assets. These systems meet OMB’s definition of a mixed system and must be included in a comprehensive inventory if DOD is to develop a reliable, integrated financial management system. Second, DOD stated that DIST is not a database that is used for baselining financial systems and that the database does not contain a process or procedure for classifying or certifying systems as financial systems. As stated in the report, although the DIST listing may be incomplete or systems may be incorrectly identified as supporting financial management, the large disparity between the number of systems identified in DIST and SID indicates that additional financial management systems likely exist. Third, DOD stated that it is complying with the provisions of OMB Circular A-127. Our report recognizes that DOD has an established process intended to meet OMB requirements. However, because DOD has not adopted the OMB definition for financial management systems, its inventory and reporting have not been comprehensive. We are sending copies of this report to the Chairmen and Ranking Minority Members of the Senate Committee on Armed Services, the House Committee on National Security, the Senate Committee on Governmental Affairs, the House Committee on Government Reform and Oversight, and the Director of the Office of Management and Budget. We are also sending copies to the Secretary of Defense and the Under Secretary of Defense (Comptroller). Copies will also be made available to others upon request. Please contact me at (202) 512-9095 if you have any questions on this report. Major contributors to this report are listed in appendix III. The following are the specific requirements for financial management systems to which DOD, as an executive agency, is subject. The CFO Act specifies that the responsibilities of an agency CFO are to include developing and maintaining integrated accounting and financial directing, managing, and providing policy guidance and oversight of all agency financial management personnel, activities, and operations; and approving and managing financial management systems design and enhancement projects. On February 27, 1991, OMB issued guidance (M-91-07) for preparing organization plans required by the CFO Act. The guidance details the authorities, functions, and responsibilities that a CFO is to have to comply with the act. Specifically, the guidance states that the organization plans should provide the CFO with authority to manage directly and/or monitor, evaluate, and approve the design, budget, development, implementation, operation, and enhancement of agencywide and agency component accounting, financial, and asset management systems; to clear the design for other information systems that provide, at least in part, financial and/or program performance data used in financial statements, solely to ensure that CFO needs are met; to ensure that program information systems provide financial and programmatic data (including program performance measures) on a reliable, consistent, and timely basis to agency financial management systems; and to evaluate, where appropriate, the installation and operation of such systems. In addition, the CFO Act requires OMB to prepare annually and submit to the Congress a governmentwide 5-year financial management plan that describes planned OMB and agency activities for the next 5 fiscal years to improve the financial management of the federal government. Further, the act requires agency CFOs to prepare and annually revise agency plans to implement OMB’s 5-year plan. Each 5-year plan is to include information such as the following: a description of the existing financial management structure and any changes needed to establish an integrated financial management system; a strategy for developing and integrating individual agency accounting, financial information, and other financial management systems; and proposals to eliminate duplicate and other unnecessary systems and projects to bring existing systems into compliance with applicable standards and requirements. DOD is subject to section 4 of FMFIA; OMB requires executive agencies under section 4 to produce an annual statement on whether its financial management systems conform with governmentwide principles, standards, and requirements. Governmentwide systems requirements, developed by OMB in consultation with the Comptroller General, are presented in section 7 of OMB Circular A-127, “Financial Management Systems Requirements.” Circular A-127 requires that executive agencies, including DOD, develop and maintain an agencywide inventory of financial management systems and ensure that appropriate assessments are conducted of these systems. In addition, DOD must consider the results of its FMFIA reviews when it develops its financial management systems plans. Requirements for reporting the results of FMFIA section 4 systems assessments are found in OMB Circular A-123, “Management Accountability and Control.” Executive agencies, including DOD, must produce an annual statement on whether the agency’s financial management systems conform with governmentwide requirements found in Circular A-127. If the agency does not conform with these requirements, the statement must discuss the agency’s plans for bringing its systems into compliance. If the agency head judges any financial management systems weakness to be material, the issue must be included in the annual FMFIA report. The FMFIA report is to be transmitted to the President, the President of the Senate, the Speaker of the House of Representatives, the Director of OMB, and key congressional committees and subcommittees. Circular A-127 applies to financial management systems, which include financial and mixed systems. In determining which systems are subject to these requirements, the Circular categorizes and defines information systems in the following manner. A financial system (1) collects, processes, maintains, transmits, and reports data about financial events, (2) supports financial planning or budgeting activities, (3) accumulates and reports cost information, or (4) supports the preparation of financial statements. A mixed system supports both financial and nonfinancial functions. A nonfinancial system supports nonfinancial functions and any financial data included in the system are insignificant to agency financial management and/or not required for the preparation of financial statements. Circular A-127 also requires that DOD establish and maintain a single, integrated financial management system. According to the Circular, a single, integrated financial management system refers to a unified set of financial systems and the financial portions of mixed systems encompassing the software, hardware, personnel, processes (manual and automated), procedures, controls, and data necessary to carry out financial management functions, manage financial operations of the agency, and report on the agency’s financial status to central agencies, the Congress, and the public. Unified means that the systems are planned for and managed together, operated in an integrated fashion, and linked together electronically to provide the agencywide financial system support necessary to carry out the agency’s mission and support the agency’s financial management needs. In addition, Circular A-130 provides governmentwide information resources management policies as required by the Paperwork Reduction Act of 1980, as amended. The Paperwork Reduction Act establishes a broad mandate for agencies to perform their information resources management activities in an efficient, effective, and economical manner. Consistent with the act, Circular A-130 states that the head of each agency shall maintain an inventory of the agency’s major information systems. Developing and maintaining a complete inventory of DOD’s information resources is essential to implementing a strategic information resources management process, as required by the Paperwork Reduction Act and the recently enacted Clinger-Cohen Act of 1996. The Clinger-Cohen Act calls for agency heads, under the supervision of OMB’s Director, to design and implement a process for maximizing the value and assessing and managing the risks of their information technology acquisitions, including establishing minimum criteria on whether to undertake an investment in information systems. This process is to be integrated with the processes for making budget, financial, and program management decisions with the agency. In addition, the act states that the head of each executive agency, in consultation with the Chief Information Officer and the Chief Financial Officer, is responsible for establishing policies and procedures that ensure that the accounting, financial, and asset management systems and other information systems of the agency are designed, developed, maintained, and used effectively to provide financial or program performance data for financial statements. JFMIP’s Framework for Federal Financial Management Systems provides a model for the development of an integrated financial management system. This document points out the importance of financial management systems in the overall effort to improve government. “These systems should not only support the basic accounting functions for accurately recording and reporting financial transactions but must also be the vehicle for integrated budget, financial, and performance information that managers use to make decisions on their programs....Without meaningful financial information and supporting systems, neither the President, the Congress, nor the program managers can effectively carry out their stewardship responsibilities.” According to the Framework, an integrated system includes, among others, the following financial management system types: a core financial system that supports general ledger management, funds management, payment management, receipt management, and cost management; a personnel/payroll system; an inventory system; a property management system; an acquisition system; a budget formulation system; and a managerial cost accounting system. To function as a single, integrated system, the types of systems listed above must have these physical characteristics: common data elements, common transaction processing, consistent internal controls, and efficient transaction entry. The following are GAO’s comments on the Department of Defense’s letter dated January 24, 1997. 1. See the “Agency Comments and Our Evaluation” section of this report. 2. In a follow-up discussion on DOD’s statement that the additional 682 DIST systems have failed to satisfactorily complete the required process and qualify as legitimate financial management systems, DOD officials stated that these systems have not yet undergone the required process. As stated in DOD’s response to our second recommendation, DOD plans to review the DIST database to determine if any of these systems should be included in its SID. 3. In a January 10, 1997, discussion on a draft of this report, DOD officials stated that the Department defines a mixed system as an integrated system that performs both financial and program functions. For example, they told us that the Marine Corps Total Force System meets DOD’s definition because it is an integrated payroll and personnel system that shares the same database for both functions. In our discussions, DOD officials indicated that a personnel system that provided data to a separate payroll system with which it was not physically integrated would not meet its definition of a mixed system and therefore would be excluded from its inventory of financial management systems. However, neither Circular A-127 nor the Federal Financial Management Reform Act uses integration as a criterion in its definition of financial management systems. Lynn Filla Clark, Senior Evaluator Neal Gottlieb, Senior Evaluator Stewart Seman, Senior Evaluator Lenny Moore, Evaluator The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. 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Pursuant to a legislative requirement, GAO reviewed the Department of Defense's (DOD) financial management systems, focusing on the accuracy and completeness of DOD's inventory of financial management systems. GAO found that: (1) DOD does not have a comprehensive inventory of the systems it relies on to record, accumulate, classify, and report financial information; (2) the number of systems included in DOD's inventory was limited because the regulations and guidance from the Defense Finance and Accounting Service (DFAS) did not properly define financial management systems; (3) Office of Management and Budget Circular A-127, Joint Financial Management Improvement Program system requirements, and the recently enacted Federal Financial Management Improvement Act of 1996 define financial management systems to include the financial systems and the financial portions of mixed systems necessary to support financial management; (4) a mixed system is defined as an information system that supports both financial and nonfinancial functions of the federal government or its components; (5) DOD considers mixed systems that are generally not within the Chief Financial Officer (Comptroller) organization, such as acquisition, logistics, and personnel systems, to be nonfinancial and, therefore, does not include them in its inventory; and (6) although GAO did not identify all of the systems that should have been included, several of the excluded systems account for billions of dollars of assets and clearly meet the required definition of financial management systems.

You are an expert at summarizing long articles. Proceed to summarize the following text: The IRC permits employers to sponsor defined contribution (DC) retirement plans and outlines requirements to which plan sponsors must adhere for tax-qualified status. With DC plans, employees have individual accounts to which employers, employees, or both make periodic contributions. DC plan benefits are based on the contributions to, and investment returns on, the individual accounts, and the employee bears the investment risk. In some types of DC plans, including 401(k), 403(b), and 457 plans and the Savings Incentive Match Plan for Employees (SIMPLE), employees may choose to make tax-deferred contributions instead of receiving the same amount as taxable salary. IRS and the Pension and Welfare Benefits Administration (PWBA) of the Department of Labor are primarily responsible for enforcing laws related to private DC plans. Under the Employee Retirement Income Security Act (ERISA) of 1974, IRS and PWBA jointly enforce standards for coverage and participation, for vesting, and for funding that, respectively, determine how plan participants become eligible to participate in benefit plans, define how participants become eligible to earn rights to benefits, and ensure that plans have sufficient assets to pay promised benefits. IRS also enforces provisions of the IRC that apply to tax-qualified pension plans, including provisions under section 401(k) of the Code. PWBA enforces ERISA’s reporting and disclosure provisions and fiduciary standards, which concern how pension plans should operate in the best interest of participants. Since the IRS 401(k) plan compliance study was undertaken in 1995, various changes have occurred in certain legal requirements for tax- qualified status that IRS examined in the study. Certain requirements IRS examined in the 401(k) study are no longer applicable to tax-qualified DC plans or have been materially modified. Also, the IRC has since been amended to permit employers to adopt SIMPLE 401(k) plans and safe- harbor design methods for 401(k) plans. SIMPLE 401(k) plans and safe- harbor designs exempt 401(k) plan sponsors from certain rules that apply generally to 401(k) plans. However, many of the statutory requirements that IRS examined in the 401(k) study have not changed materially. We were not able to assess the extent to which changes in relevant pension laws and 401(k) plan designs have affected the overall prevalence and incidence of noncompliance among the population of 401(k) plans (see app. II for more detail on changes in relevant pension laws since the study was published). IRS groups violations of the IRC and corresponding regulations that must be satisfied to achieve tax-qualified status into four categories. Plan Document failure occurs when the language of the plan documents does not comply with provisions of the tax Code. Operational failure occurs when the implementation and operation of a plan does not comply with provisions of the tax Code. Demographic failure occurs when a plan fails to comply with fundamental nondiscrimination requirements faced by all tax-qualified plans. Employer Eligibility failure occurs when an employer that is not allowed to establish a section 401(k) plan, such as a state or local government, adopts such a plan. IRS issued Revenue Procedure 2001-17 in February 2001 to establish its current framework for promoting the compliance of tax-qualified pension plans with the applicable requirements of the IRC. This framework has evolved since IRS first introduced voluntary compliance procedures in the early 1990s. To promote compliance, IRS developed the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Correction Agreement Program (Audit CAP). SCP is used to correct insignificant Operational failures at any time, without fee or sanction and without IRS supervision. VCP allows plan sponsors to voluntarily report and correct all types of qualification failures with IRS approval. Upon receiving IRS approval of the proposed correction measures, plan sponsors must implement the specified corrective measures and pay a compliance fee, one that is, on average, much less than the financial sanctions assessed for violations identified by IRS audits. The Audit CAP allows plan sponsors to correct all types of qualification failures that IRS identifies through formal audits. Under Audit CAP, plan sponsors must correct all qualification failures and pay a negotiated financial sanction commensurate with the nature, extent, and severity of the failures. If IRS and the plan sponsor do not reach an agreement with respect to the correction of the failure(s), IRS can pursue disqualification of the plan for tax purposes. All IRS audits of tax-qualified employer-sponsored plans are carried out under one of two audit programs, the Examination Program or the Compliance Research Program. The Examination Program includes a wide range of compliance-related activities. These activities include auditing based on referrals and computer targeting, training for IRS examiners who perform plan audits, and reviewing closed audit cases. The Compliance Research Program sponsors studies, such as the 401(k) study, to identify and monitor noncompliance among private plans. Compliance studies are based on plan audits, which IRS conducts so that it can collect study data. IRS is in various stages of planning and conducting compliance research on several types of private pensions, and intends to use data from these studies to develop more effective enforcement and compliance activities. However, plan audits conducted under the auspices of the Compliance Research Program represent a small proportion of IRS’s total audit activity. In fiscal year 2001, IRS plans allocated a total of 1,845 staff days to audits for the Compliance Research Program, compared with 33,734 staff days allocated to audits for the Examination Program. For fiscal year 2002, IRS plans to increase the number of staff days related to compliance research activities, but direct examination activities will still constitute the majority of IRS’s audit work. Audits of employer pension plans are initiated when the IRS selects for audit a plan return, or form 5500 filing, from the Return Inventory Classification System. A notification letter is sent to the plan sponsor with a request for information that the examiner needs to complete the audit. IRS examiners complete a process that includes interviewing the plan benefits administrator, reviewing plan documents, and holding a closing conference to discuss the results of the audit with the plan sponsor. If an examiner finds a qualification issue, or a failure that can potentially disqualify a plan’s tax-exempt status, the examiner can resolve the violation through correction under IRS’s SCP (Self-Correction Program disposal) or enter into a closing agreement with the plan sponsor through the Audit CAP (closing agreement disposal). Both of these audit disposal methods indicate that the examiner identified a violation that could potentially disqualify the plan, but the Audit CAP closing represents a more significant disposal than correction under the SCP. IRS audited a sample of 401(k) plans to collect data and estimate noncompliance with certain requirements of the Internal Revenue Code. IRS examiners were provided with a questionnaire to obtain information on the compliance of these 401(k) plans after conducting the audits. Once the data were gathered, IRS identified 73 study questions that could indicate whether or not a plan was in compliance. IRS data analyses produced estimates on the number of plans that failed to comply in one or more instances, based on the answers to these 73 compliance indicators. IRS’s original estimates on noncompliance decreased after some adjustments were made to its initial analysis. In selecting a sample of plans to study, IRS analyzed a database that it maintains on the population of tax-qualified plans. This database contains records of form 5500 returns that plan sponsors file with the IRS and Department of Labor, and IRS identified pension plans that had reported a 401(k) feature for the 1993 plan year. IRS identified 143,535 plans that reported a 401(k) plan feature, but excluded about 470 plans prior to sample selection, because these plans had no participants at the end of 1993 or had recently been audited by IRS. This step reduced the population to 142,768 401(k) plans from which IRS would select plans to study. These remaining 401(k) plans were subdivided evenly by size into three groups labeled small, medium, and large plans. To create a sample of 525 plans, IRS randomly drew equal numbers of plans from these small, medium, and large categories. The method that IRS used to create the sample of 525 401(k) plans from these categories was basically equivalent to drawing a simple random sample in which each plan had an equal probability of selection. However, before drawing 175 plans from each of these three groups, IRS carved out the 25 largest plans from the large-plan category and put these plans into a separate group that it called “super- large plans”; this super large category was selected as a 100 percent sample of the largest 401(k) plans. Taken together, IRS’s sampling method was intended to produce a representative sample from, and reliable results for, the 401(k) plan population. The sample of 550 plans was assigned to IRS key district offices, where study coordinators were responsible for selecting the plan’s 1994 form 5500 return and assigning the plan to an IRS examiner for audit. IRS examiners were provided a questionnaire to obtain information on the compliance of the 401(k) plans and were instructed to complete the questionnaire after auditing each plan in the study. IRS examiners’ answers to the study questions were based on their plan audits. The questionnaire, or check sheet, that IRS used for its study was originally developed as part of a broad information-gathering project and included 254 questions to obtain information on 401(k) plan characteristics, design features, and compliance with certain requirements of the IRC. IRS used this available questionnaire to collect data relevant to its study objective of measuring 401(k) plan compliance. Once the study questionnaires were completed, they were sent to IRS Employee Plans headquarters for review and data analysis. Prior to its data analysis of 401(k) plan noncompliance, IRS reviewed all 550 questionnaires and excluded 78 of them from the analysis because the study questionnaire contained insufficient data or because the plan erroneously reported a 401(k) plan feature. Once the data on the 472 remaining plans were gathered in Employee Plans headquarters, IRS analysts identified 73 out of the 254 questions on the questionnaire that they believed could indicate whether or not a plan was in compliance with certain requirements. That is, IRS identified the study questions it expected would provide information that a plan was either in compliance or not in compliance with certain requirements. These 73 “compliance indicators” became the focus of IRS’s analysis in identifying and summarizing the prevalence and types of noncompliance among 401(k) plans. The study questions that related to compliance issues included a range of items concerning certain statutory requirements that apply to all qualified defined contribution plans and concerning legal requirements that apply to qualified 401(k) plans. For example, the compliance indicators that IRS analyzed included items concerning employer contribution requirements, coverage rules, nondiscrimination provisions, and limits on employee contributions in addition to other important rules and requirements that qualified plans must satisfy. IRS data analyses identified the number of plans that failed to comply with one or more of their compliance indicators. The IRS study reported that 44 percent of the 472 plans remaining in the study had one or more instances of noncompliance with certain requirements that IRS examined; the other 56 percent of the plans were found to have no violations. These percentages varied slightly according to plan size category. The study reports that 41 percent of small plans, 47 percent of medium plans, and 44 percent of large and super-large plans had one or more instances of noncompliance. IRS also used its noncompliance indicator data to estimate, by calculating the number of times specific violations were identified, the frequency with which these violations occurred in its study sample. IRS analyses counted 251 instances of noncompliance that it categorized by requirements to which tax-qualified 401(k) plans should adhere. In total, the study publication uses 16 categories, such as nondiscrimination, loans, coverage, vesting, and participation, to report on various types of noncompliance that IRS found among the 401(k) plans in the study. For each of the compliance categories, the study publication reports the total number of violations that occurred. According to the study report, the total number of violations for each compliance category cannot be correlated to the number of plans containing these violations because some plans may have contained more than one violation within a category. As a result, the study publication does not show how many plans had more than one instance of noncompliance in a single category or how many plans had more than one type of compliance violation. The analysis did not attempt to distinguish instances of noncompliance according to the severity of the violation. For the plans that had one or more instances of noncompliance, no study questions captured information on the insignificance or significance of the violations that IRS identified. Nor did the questionnaire include specific items on the number of participants (if any) affected and the amount of assets (if any) that were represented by the noncompliance errors IRS found. The questionnaire did contain items on the total number of plan participants and assets, but IRS did not analyze these data in relation to its findings on noncompliance. IRS’s original estimates on 401(k) plan noncompliance decreased after IRS made some adjustments to its initial analysis of compliance indicator data. Initially, IRS used its noncompliance indicator data to produce estimates of 401(k) plan noncompliance. For some plans, however, IRS found problems with the data for specific compliance indicators. During its analysis, IRS told us that it sometimes discovered instances in which data for certain compliance indicators were found to be either inaccurate or insufficient to determine whether an instance of noncompliance had occurred. However, IRS’s discovery of discrepancies in the data was not the result of systematically reviewing all the compliance indicator data for each plan in the study. Instead, in some of these instances where IRS discovered problems with its compliance indicator data, these data were compared with information that IRS routinely captures about the results of their plan audits. According to IRS, analysts who worked on the data analysis met occasionally to review the data recorded on the study questionnaires and to determine whether the compliance study data were sufficient to identify noncompliance. After comparing the compliance indicator data with the other information that IRS collects on their audits of these 401(k) plans, the analysts made adjustments to the compliance indicator data. However, IRS analysts sometimes adjusted the data solely on the basis of their assessments that specific compliance indicators were not reliable or sufficient to determine whether or not a violation had occurred. Because these adjustments were not based on a systematic review of the accuracy and sufficiency of the data, we could not determine whether the adjustments that IRS made resolved all potential problems with its compliance indicator data. These adjustments changed noncompliant plans to compliant, and vice versa. For example, IRS analysts determined that some 401(k) plans with at least one violation of certain nondiscrimination requirements were found to be fully compliant once the additional information was included in the analysis. Also, some plans that had been included in the original estimate of plans with no compliance errors were determined to have at least one instance of noncompliance when IRS used this extra information to inform its analysis. When IRS used these adjustments to supplement the analyses it had performed, the total number of compliance violations decreased. At one point during its data analysis, IRS estimated that 298 total instances of noncompliance had occurred among the plans in the study. However, IRS’s final estimate of the total number of compliance errors was revised downward to 251. As a result of these changes, IRS’s estimate of the percentage of 401(k) plans with one or more instances of noncompliance decreased from 56 percent to 44 percent. The IRS study did not, in general, provide accurate estimates of the overall prevalence and types of noncompliance among 401(k) plans. IRS’s estimates of noncompliance among 401(k) plans were inaccurate primarily because only 27 of the 73 questions that it identified as compliance indicators conclusively demonstrated a plan’s noncompliance. Also, the reported findings could not be generalized to the broader population of all 401(k) plans because the analysis did not take into account the sample weights. More than half of the study questions that IRS identified to analyze 401(k) plan compliance were unable to conclusively demonstrate noncompliance. We asked IRS analysts involved in the study’s data analysis to evaluate the 73 questions that were selected as compliance indicators and determine whether these questions could definitively demonstrate a compliance violation. In evaluating each of the compliance indicators, IRS assessed whether the answers to these questions would provide information that was relevant to, or suggestive of, noncompliance or in fact demonstrated an instance of noncompliance. As a result of this evaluation, the IRS analysts identified only 27 questions that could definitively demonstrate noncompliance. In contrast, IRS determined that the remaining 46 questions were not sufficient by themselves to demonstrate noncompliance because potential problems rendered these indicators less conclusive. Although a positive response was generally sufficient to demonstrate compliance, the IRS analysts whom we spoke with told us that additional information would be needed to determine whether or not negative answers to these questions conclusively indicated noncompliance. Consequently, the 44 percent of plans reported to have one or more compliance violations is at best an upper-bound estimate of the extent of noncompliance found in this study because the reported results are not limited to those items with sufficient information to identify noncompliance. IRS’s compliance indicators were not initially developed to specifically identify and substantiate noncompliance among 401(k) plans and the answers were not validated as accurately demonstrating noncompliance. Instead of formulating study questions that were directly relevant and sufficient to demonstrate noncompliance, IRS used an already available questionnaire that had been developed as part of a broad information- gathering project. This broadly scoped research project had been revised to address the narrower objective of 401(k) plan compliance. Only after administering the check sheet and collecting the data did IRS identify the study questions that it expected to demonstrate noncompliance. As a result, most of the 254 questions on the questionnaire were not directly relevant to the study objective of estimating noncompliance among 401(k) plans. Also, some of the answers expected to demonstrate noncompliance from IRS’s analysis of noncompliance indicator data were found to be suggestive, rather than demonstrative, of noncompliance. Although IRS, to help ensure ease in recording the answers, pretested the software that its examiners used to complete the study questionnaires, it did not pretest the study questions. Because IRS did not pretest the questionnaire for the accuracy and appropriateness of the answers, problems with the questionnaire were not identified or remedied before the data were collected. For example, answers might have more accurately reflected the types of information that were being sought if a preliminary evaluation and pretesting of the 73 compliance indicators had been used to improve the wording of the questions and the instructions provided to the examiners collecting the information. We found that the accuracy of IRS estimates was also hampered by the lack of adequate training for examiners who filled out the study questionnaires after completing the audits. Each field office sent representatives to a kickoff conference that provided training for the 401(k) study. However, the training did not address which study questions would be used to distinguish compliance from noncompliance, because IRS identified these questions after the data were collected. Additionally, IRS told us that uniform audit standards were not developed to guide examiners in conducting the audits and in using the audit information to answer the study questions. As a result, an IRS analyst responsible for the data analysis stated that the 401(k) plan audits were not uniform and that some of the data were not collected consistently. Further, the representatives trained were not the examiners expected to conduct the audits and complete the subsequent questionnaires but rather the field office representatives charged with managing the local data collection efforts and transmitting data to headquarters for analysis. However, the field office representatives did not receive information regarding which questions would be used to distinguish compliance from noncompliance and thus could not relay this information to the auditing examiners. Despite the discovery of inaccurate and inconsistent answers, IRS did not systematically verify the accuracy of all the data analyzed. Instead, the IRS analyst who summarized the study data told us that he made some judgmental corrections to obviously incorrect or inconsistent answers rather than ordering the relevant closed case file or contacting the relevant examiner to obtain valid and accurate answers. As a result, some answers to certain study questions were not used in IRS’s final estimates of 401(k) plan noncompliance and others were used but judgmentally adjusted. In addition, the use of additional information to revise estimates of noncompliance was not well documented. We could not verify the revisions in IRS estimates, because IRS was not able to provide us with a single complete data file to check whether its reclassifications of plans as compliant or noncompliant were accurate. More complete documentation would have helped IRS ensure that it accurately estimated the proportion of plans that had one or more compliance errors and the frequency of occurrence for specific violations. Not all of the IRS study findings could be generalized to the broader population of all 401(k) plans, a fact that makes them less useful. To the extent that findings were reported separately for the small, medium, large, or super-large groupings, these results are reliable estimates for compliance errors of all plans in such groups (other data issues notwithstanding). For example, the report estimates that 53 percent of the 162 medium plans audited had no violations. This figure can also be used as an estimate of the percentage of medium-size plans in the broader population that had no violations (other data issues notwithstanding). However, in cases where compliance information was aggregated to include results from more than one group, such results are not reliable estimates for compliance errors of other plans in these groups. IRS sampled all of the super-large 401(k) plans to ensure their inclusion in the study. Because the super-large plans were a 100 percent sample and the plans sampled in the other plan-size categories each represented about 1,000 plans from the total population, combining sample results for these groups without weighting them gives the super-large plans more influence in the final answer than is warranted by their representation in the total 401(k) plan population. Proper weighting of all sample cases is necessary to make tabulations and other estimates that can be generalized to the broader 401(k) population. In some cases, information from large and super-large plans was combined for reporting. In other cases, information was combined for all plans studied. For example, the report estimates that 56 percent of the 171 large and super-large plans studied had no compliance errors and that 56 percent of all 472 plans studied had no errors. In these cases where IRS has combined information for all plans in the study or for two plan-size categories, the reported percentages do not represent the percentages in the corresponding population of 401(k) plans. If IRS’s analysis had accounted for its sampling methodology, it is possible that IRS would have produced estimates similar to the reported results of the 401(k) study because the reported estimates of the proportion of plans with one or more instances of noncompliance were similar across plan- size categories. Furthermore, the 401(k) study findings cannot be used as estimates of noncompliance among the current population of 401(k) plans. To assess whether the 401(k) study results reflect the level and types of noncompliance among the current population of 401(k) plans, the data that support the published results would need further analysis to account for changes that have occurred in relevant pension laws since the study was undertaken. Although the 401(k) study publication describes changes to relevant pension laws that occurred during the course of the study, it is not possible to determine how these changes have affected noncompliance among 401(k) plans by simply examining the study findings. Also, changes have occurred in relevant pension laws since the study was published (see app. II for a description of changes in relevant pension laws since the study was published). IRS is currently planning and conducting research on several types of private pension plans to determine the prevalence and types of noncompliance. To obtain information on the extent and types of noncompliance among these plans, IRS plans to conduct compliance studies similar to the one conducted on 401(k) pension plans. After implementing initiatives to improve compliance, IRS plans to once again collect and analyze similar compliance data to determine the effectiveness of its initiatives. In its ongoing research efforts, IRS is adopting lessons from its prior compliance study. IRS is currently planning and conducting compliance research on several types of private pension plans. According to IRS officials who are involved in IRS enforcement and audit activities, compliance research will be used to help plan and implement initiatives that address compliance issues among various types of plans. IRS also told us that compliance research initiatives could be useful sources of information for plan sponsors and administrators, who are encouraged by IRS to use voluntary compliance procedures in identifying and remedying noncompliance. In addition, IRS uses this information to determine issues that are appropriate for published guidance. Ongoing compliance research is being conducted according to an overall strategy that IRS calls its market segment approach, developed to identify compliance issues among various types of tax-qualified pensions that employers sponsor. This market segment approach is being used by IRS to estimate the level and types of noncompliance among specific types of pension plans and to measure the impact of initiatives that IRS devises to address noncompliance. IRS has selected specific types of private plans for ongoing compliance research, including 401(k) plans, sections 403(b) and 457 plans, and multiemployer plans. IRS chose these plan types for several reasons, such as their prevalence, the significant degree of noncompliance known from past audits of these plan types, and/or the need to develop experience in conducting audits and compliance research. According to IRS, compliance studies for these plan types are in various stages of development and implementation. In the future, IRS plans to expand its compliance research and initiative development to other types of private plans. IRS officials whom we spoke with said that these compliance studies will be similar in overall design to the prior 401(k) study. For the various plan types that IRS has identified, IRS will select plans to study through sampling or some other mechanism. A study questionnaire will be developed to capture information about compliance with certain requirements. IRS examiners will audit plans that have been selected for the study and will answer study questions on the basis of the audits. The data that IRS collects will be analyzed, and the results will be used to estimate the extent and types of noncompliance among the plans in these studies. Study findings will be used by IRS as baseline information about noncompliance among the plan types selected for compliance research. After implementing initiatives designed to improve the compliance of the plan types that were selected for compliance research, IRS will conduct a follow-up compliance study to assess the impact of its compliance activities and specific initiatives. The follow-up studies will be designed to collect data that permit a comparison with baseline data from the initial studies of the level and types of noncompliance. IRS data analysis and examination of results from both the initial and follow-up studies will help IRS determine whether overall compliance has improved. IRS staff told us that as the results of compliance studies become available, IRS will be able to make better assessments of how to use compliance study data. For example, IRS has conducted compliance research on 403(b) plans that it has used to develop specific outreach and education initiatives, including a Web site with information on noncompliance and speaking points for IRS examiners who meet with plan sponsors and administrators. In addition, IRS plans to use its compliance studies to improve the way it conducts audits. For example, IRS intends to use the results of compliance studies to develop more standardized audit guidelines and targeted audits to better identify compliance issues among, and to limit plan audits to those issues relevant to, specific types of plans. IRS is adopting lessons learned from its prior compliance study to enhance the quality and usefulness of ongoing and future compliance research initiatives. Through our review of IRS work plans and interviews with IRS officials, we identified several aspects of current and future IRS compliance studies that are improvements on the prior 401(k) study. For example, IRS’s current approach to planning compliance research has become more comprehensive. Unlike the 1995 401(k) study, IRS work plans indicate that “compliance planning groups” have been assembled for each of the four plan segments on which IRS is conducting compliance research. These groups, which include key stakeholders from across the agency with expertise in various aspects of pension plan compliance, are being used to help IRS formulate comprehensive plans for conducting upcoming compliance research. According to IRS officials whom we spoke with, IRS will obtain guidance and input from its Research and Analysis group to assist with the design and implementation of its compliance studies. We identified other aspects of compliance studies, in addition to better planning, that improve on the prior 401(k) study. In conducting upcoming studies, IRS told us that it plans to develop and provide enhanced training for examiners who are responsible for auditing the plans and recording the study information. For example, IRS plans to conduct a training session for IRS examiners who will be assigned to conduct 401(k) plan audits for ongoing compliance research. IRS officials told us that examiners would receive training on the study questionnaires and in how to answer the study questions. In addition, part of the training that IRS intends to provide for 401(k) plan studies will be based on standardized guidelines that IRS has developed for collecting information from 401(k) plan audits. IRS has developed standardized audit guidelines for each of the plan types that the agency has selected for ongoing compliance research. According to IRS, these guidelines will help IRS examiners, including examiners involved in compliance studies, collect and record information consistently and accurately. IRS told us that it intends to incorporate other improvements into its upcoming 401(k) plan compliance studies. For example, IRS said that examiners who participate in upcoming IRS compliance studies will have a role in developing the questionnaires used to collect compliance study data, and IRS will pretest compliance study questionnaires to help determine their usefulness and the accuracy of the information that they are intended to collect. Also, IRS is developing automated tools that its examiners will use to record answers to compliance study questions. Automated tools that IRS examiners can use to collect information during the course of an audit have been developed for the 401(k) plans but are still in development for other plan segments. According to IRS officials, these automated tools will help IRS produce work papers to document and verify its compliance study data. Compliance research studies could play an integral role in IRS’s efforts to ensure that tax-qualified pension plans adhere to applicable laws and regulations. The findings from such studies can provide data on the prevalence and types of noncompliance among pension plans, helping IRS shape its enforcement efforts. For example, IRS can use compliance study findings to identify key aspects of noncompliance among specific types of plans and develop targeted audits and other activities to address compliance issues. In recent years, IRS enforcement efforts have placed greater emphasis on voluntary correction procedures—that is, encouraging plan sponsors to correct violations that are discovered. Information on noncompliance that is useful and accurate could help improve targeting for audits and enhance voluntary compliance initiatives that assist plan sponsors in discovering and making such corrections. Compliance research can also measure the impact of such efforts to determine whether they are effective. The more accurate the findings from compliance studies, the better able IRS is to ensure that plans are operating in accordance with applicable requirements, so that participants receive the coverage and benefits to which they are entitled. Compliance study findings can help IRS tailor its initiatives to identify, monitor, and address the most essential aspects of noncompliance among specific types of pension plans and measure whether its activities are effective in promoting compliance among plan sponsors. IRS recognizes the need to improve the way it conducts compliance studies and is in the process of implementing specific steps to improve aspects of planning and conducting these studies. Since IRS compliance research is focused on other types of plans besides 401(k) plans, it is important that IRS consistently implement these steps throughout its ongoing and future compliance research initiatives. Several shortcomings of the 1995 IRS 401(k) study undercut its effectiveness in meeting IRS’s research objective of estimating the extent and types of noncompliance among 401(k) plans. These shortcomings cut across important components of the 401(k) study, including questionnaire design, data collection, and data analysis. Whether these and other elements of research are designed and carried-out in a sound manner help determine the effectiveness of research studies in meeting their objectives. For example, the 1995 401(k) study questions were not pretested to determine whether they would have produced demonstrative data on noncompliance, and examiners who completed the study questionnaires were not provided with training on answering the questions in an accurate and uniform manner. To ensure the accuracy of its findings, IRS will need to build steps into its compliance studies that improve the accuracy and usefulness of the data that are collected, analyzed, and reported. Additionally, documenting a research study can help produce evidence that supports the answers to the research questions. Insufficient documentation limits the perceived accuracy and the usefulness of a research study. To ensure the quality and usefulness of ongoing and future compliance studies in providing information that enhances IRS’s efforts to promote compliance among private pension plans, IRS should take steps to improve how it conducts compliance study research. These steps, in addition to the agency’s current efforts to improve the quality of compliance studies, should be incorporated into all planned compliance studies. Accordingly, we are making three recommendations to the IRS Commissioner for all future compliance studies. We recommend that IRS pretest compliance study questionnaires to obtain information on the usefulness and accuracy of the answers in achieving IRS’s research objective. We also recommend that IRS provide uniform and comprehensive training to examiners who participate in compliance studies, so that they will know what information is needed to answer the study questions and can collect this information consistently and accurately. Finally, we recommend that IRS maintain sufficient written or electronic documentation to enable it to validate and verify the results of compliance studies with evidence; this would allow IRS to explain the methods used to analyze study data and arrive at findings. We provided a draft of the report to the Commissioner of the IRS and the Department of the Treasury. IRS generally agreed with our findings, conclusions, and recommendations. In its letter, IRS notes that has incorporated our recommendations in a current compliance study on 401(k) plans. We agree that IRS has taken specific steps to improve its current 401(k) plan compliance study and describe these steps in our report. In addition to the current 401(k) study, IRS should also implement our recommendations throughout its current and upcoming compliance study initiatives on 401(k) and other types of pension plans. The IRS also provided us with technical comments, which we incorporated as appropriate. IRS’s comments are included in Appendix III. We are sending copies of this report to the Honorable Paul H. O’Neill, Secretary of the Treasury, the Honorable Charles O. Rossotti, Commissioner of the IRS, and other interested parties. We will also make copies available to others on request. If you or your staff have any questions concerning this report, please call me at (202) 512-7215. Key contributors are listed in appendix III. To determine what IRS did to estimate the prevalence and types of 401(k) plan noncompliance with the requirements of the Internal Revenue Code, we reviewed the final 401(k) compliance study report that IRS posted to its Web site. In addition, we reviewed the initial and interim draft reports that we received from IRS, as well as study-related work papers, which documented the design, implementation, and analysis components of the study. We also interviewed IRS officials in the Employee Plans area of IRS’s Tax Exempt and Government Entities Division, including officials in the Office of Examinations and the Office of Education and Outreach who were responsible for conducting and disseminating compliance research on private plans to obtain information about how IRS designed and conducted the study. Our work focused on identifying and summarizing the major components of the 401(k) study in relation to key elements of research study methodology including the study objective, study design, sample selection, questionnaire design, data collection, and data analysis. Our evaluation of IRS’s estimates of the prevalence and types of noncompliance was limited because IRS was unable to provide us with a complete data set or documentation that supports the final study results. As a result, we could not assess the usefulness of the study in relation to compliance among the broader population of 401(k) plans because we did not have data or other documentation that supported IRS estimates on specific types of noncompliance. Without this information, we could not make the appropriate sample weight adjustments to assess IRS estimates of the overall prevalence of noncompliance among all plans in the study or within specific plan size categories. Furthermore, the lack of a complete data set or comprehensive documentation supporting the published results limited our ability to reliably assess revisions in IRS estimates of the proportion of plans that had one or more compliance errors and the frequency with which specific types of errors occurred among the plans in the study. Additionally, the inability of IRS to provide closed case file information on audited plans limited our ability to assess the reliability of the data collected for analysis. In light of these limitations, we elected to assess to what extent the IRS study provides accurate estimates on 401(k) plan noncompliance by evaluating, in relation to published guidance for conducting research, how the study was conducted. We evaluated the IRS study using a series of brochures on surveys published by the American Statistical Association (ASA) and published GAO guidance on methodology and program evaluation. These published guidelines address important elements of research studies, such as sampling and questionnaire design. Our evaluation examined and compared the sampling methodology, the questionnaire development, the data collection process, and the data analysis on which the IRS report is based with ASA and GAO guidelines on each of these elements. To examine and compare elements of the IRS study with published guidance, we collected and reviewed relevant documents such as draft study reports, the questionnaire check sheet, and other working papers made available by IRS. We also received and examined many electronic data files pertaining to the 401(k) study. Additionally, we interviewed IRS analysts who were responsible for conducting the data analysis and the IRS statistician who assisted with selecting the stratified random sample. To describe IRS’s current efforts in planning and conducting compliance research on private pension plans, we reviewed draft work plans for IRS’s ongoing and future compliance research initiatives, including plans for an upcoming 401(k) plan compliance study; discussed lessons learned from the prior 401(k) study with IRS officials and analysts involved in compliance research initiatives; interviewed IRS officials in the Division of Tax Exempt and Government Entities, Employee Plans office to discuss the role of compliance research in IRS efforts to promote compliance among plan sponsors; reviewed official IRS guidance on agency procedures for identifying and remedying compliance violations; and discussed how compliance research initiatives can inform IRS’ voluntary compliance activities with IRS officials. We assessed IRS work plans and our discussions with IRS to identify and summarize the agency’s overall plans for ongoing and future compliance research, including the role of compliance studies. As part of our work, we identified lessons learned from the previous 401(k) study that IRS has adopted in its plans to design and conduct compliance research initiatives. The IRS 401(k) study publication provides information on changes in relevant laws that occurred while the study was performed. The summary information that IRS includes in its published study report describes changes in relevant pension laws since the study was conducted and is pertinent up to the time at which the profile was posted on IRS Web site. This appendix summarizes and describes key changes in laws that apply to tax-qualified 401(k) plans that have occurred since the release of the published 401(k) study report, mostly changes arising from the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) as they relate to violation categories identified in the study. Our summary of recent changes in applicable laws is grouped by the compliance categories that IRS used to present its 401(k) study results. Neither the IRS 401(k) study report nor this appendix should be regarded as a comprehensive explanation of the laws that relate to tax-qualified pension plans in general and tax-qualified 401(k) plans in particular. While this appendix provides context where necessary to understand how EGTRRA provisions change certain pension laws, it does not provide a history or complete description of the purpose and nature of the Internal Revenue Code (IRC) requirements that EGTRRA changes. The published 401(k) study report provides more in-depth description of the purpose and requirements of the specific IRC provisions that IRS examined as part of its 401(k) study. A. Distributions Eligible For Rollover Treatment EGTRRA section 636(b) mandates that any distribution made upon hardship of an employee will not be an eligible rollover distribution. Thus, no assets distributed to an employee on account of his or her hardship will be eligible for direct rollover to another plan or individual retirement account (IRA). Such distributions will therefore be subject to the withholding rules applicable to distributions that are not eligible rollover distributions. Section 401(a)(31) of the Code provides that participants receiving an eligible rollover distribution must have the option to have the distribution transferred in the form of a direct rollover to another eligible retirement plan. If an eligible rollover distribution is not transferred by a direct rollover, the distribution is subject to withholding at a 20% rate, under section 3405(c)(1). Regulations under section 401(k) currently provide that elective (pre-tax) deferrals under a 401(k) plan can, if the plan provides, be distributed (without earnings) in the event of the financial hardship of the employee. The regulations provide that a distribution is made on account of hardship only if the distribution is made on account of an immediate and heavy financial need of the employee and the distribution is necessary to satisfy such financial need. Under pre-EGTRRA law, hardship withdrawals of elective deferral amounts under 401(k) plans were not eligible for rollover, while other types of hardship distributions (e.g., employer matching contributions distributed on account of hardship) were eligible rollover distributions. Different withholding rules apply to eligible rollover distributions than to distributions that are not eligible rollover distributions. EGTTRA section 641(c) also provides for an expanded explanation to recipients of rollover distributions. This provision requires that the rollover notice include a description of the provisions under which distributions from the eligible retirement plan receiving the distribution may be subject to restrictions and tax consequences which are different from those applicable to the plan making the distribution. Effective for distributions after December 31, 2001, EGTRRA section 641 allows rollovers among 401(k) plans, 403(b) plans, or governmental section 457 plans. EGTRRA section 657 mandates that unless the participant elects otherwise, any eligible rollover distribution in excess of $1,000 that may be distributed without the participant’s consent be automatically rolled over to a designated IRA. This change applies to distributions that occur after the Department of Labor issues final regulations implementing section 657. Section 642(a) of EGTRRA provides that an eligible rollover distribution from an IRA may be rolled over to another IRA or an eligible retirement plan as long as the amount is transferred no later than 60 days after the date the distribution was received. Section 642(b)(3) of EGTRRA provides that a distribution from a Savings Incentive Match Plan for Employees (SIMPLE) IRA may also be rolled over to another SIMPLE IRA. Under pre-EGTRRA law, elective (pre-tax) deferrals may not be distributed earlier than one of the events described in section 401(k)(2)(B) or section 401(k)(10). EGTRRA modifies these rules as they apply in the case of a corporate transaction, such as an asset or stock sale, that results in employees of the seller going to work for the buyer. Pre-EGTRRA law permits distribution in the case of certain types of transactions but not others. EGTRRA section 646 amends section 401(k)(2)(B) by replacing “separation from service” with the more lenient standard of “severance from employment.” This generally will permit distributions to employees who move from seller to buyer in connection with a corporate transaction, unless corresponding assets of the seller’s plan move as well. Section 646 of EGTRRA also makes conforming changes to section 401(k)(10). The amendments made by section 646 apply to distributions made after December 31, 2001. B. Nondiscrimination (ADP/ACP) EGTRRA section 666 repeals the multiple use test effective for plan years beginning after December 31, 2001. The multiple use test occurs where a 401(k) plan is subject to both the ADP and ACP tests and both tests can only be satisfied using the alternative limitations of those tests described under section 401(k)(3) and section 401(m)(2) (the 2 percentage point limit or the 200 percent limit). The purpose of the multiple use test is to prevent the multiple use of the more generous alternatives for meeting both the ACP and the ADP test when certain employees are eligible under both a section 401(k) plan and a section 401(m) plan. EGTRRA section 612 repeals the rule prohibiting loans to sole proprietors, partners who own more than 10% of the partnership, and shareholders of S corporations who own more than 5% of the S corporation effective for years beginning after December 31, 2001. D. Contingent Benefits – No change. EGTRRA section 636(a) directs that the regulations under section 401(k) be revised to permit a participant who receives a hardship distribution to resume elective (pre-tax) deferrals 6 months, instead of 12 months, after receiving a hardship distribution. This change is effective for years beginning after December 31, 2001. EGTRRA section 613 generally simplifies several elements of top-heavy testing and their application. First, it simplifies the definition of key employee, so that the term includes only individuals who during the year in question or the immediately preceding year were officers earning over $130,000 (adjusted for cost of living increases), 5% owners, or 1% owners earning more than $150,000. Second, it specifies that in determining whether or not a plan is top heavy, only distributions made within the preceding 1 year, rather than the preceding 5 years (except for in-service distributions, for which the 5-year rule will continue to apply) must be added. Third, it requires that matching contributions to a top-heavy plan be counted in determining whether nonkey employees have received the required minimum benefit. Last, it states that certain plans meeting safe- harbor requirements applicable to the nondiscrimination rules regarding 401(k) and matching contributions will automatically be deemed to not be top heavy, and frozen defined benefit plans (with respect to which there are no current benefit accruals for current or former key employees) will be exempt from certain of the minimum accrual requirements. The new rules are effective for years beginning after December 31, 2001. G. Coverage – EGTRRA section 664 directs that the regulations under Code section 410(b) be revised to allow a 401(k) plan to treat as excludable employees the employees of a Code Section 501(c)(3) entity who are eligible for a Code section 403(b) arrangement provided that: (1) no employee of the 501(c)(3) entity is eligible to participate in a 401(k) plan; and (2) at least 95 percent of the employees who are not employees of the 501(c)(3) entity are eligible to participate in the 401(k) plan. This change is effective January 1, 1997. Under EGTRRA section 611, the $35,000 limit on combined employer and employee contributions for defined contribution plans is raised to $40,000 (indexed for the cost of living in $1,000 increments). The 25% of compensation limit is increased to 100% of compensation. Therefore, the new 415(c) limit will be the lesser of (1) 100% of compensation or (2) $40,000 (adjusted for cost of living increases). This provision is effective for years beginning after December 31, 2001. Catch-up contributions are not taken into account in applying the $40,000 limit. Section 611(d) of EGTRRA also increases the limit on elective contribution under Code section 402(g) from $10,500 in 2001 to $11,000 in 2002; $12,000 in 2003; $13,000 in 2004; $14,000 in 2005; and $15,000 in 2006. The limit is adjusted for increases in the cost of living for years after 2006 in $500 increments. Section 631 of EGTRRA amends Code section 414 and provides that the otherwise applicable dollar limit on elective deferrals under a 401(k) plan, 403(b) plan, SEP, or SIMPLE plan, or deferrals under a governmental 457 plan will be increased for individuals who have attained age 50 before the end of the plan year, and who have otherwise already made the maximum permitted deferral under the Code or the plan or arrangement. The additional or “catch-up” contribution amount under a 401(k) plan, 403(b) plan or 457 plan is $1,000 for 2002, $2,000 for 2003, $3,000 for 2004, $4,000 for 2005, and $5,000 for 2006 and thereafter. The limit is adjusted for cost of living increases for years after 2006 in $500 increments. These additional contributions are for individuals who are age 50 and or older and such contributions will not violate the nondiscrimination, top-heavy or 415 requirements. Under Code section 401(a)(17), for years beginning after December 31, 2001, the amount of compensation that may be taken into account under a 401(k) plan is also increased from $150,000 (adjusted for cost of living increases to $170,000 in 2001) to $200,000. This limit is adjusted for cost of living increases in $5,000 increments. I. Nondiscrimination under Section 401(a)(4) – No change. Under EGTRA section 633, employer matching contributions must vest at least as rapidly as under one of two new vesting schedules. These schedules provide for faster vesting than the current schedules. The first schedule requires 100% vesting after three years of service and the second requires 20% vesting after two years of service with an additional 20% vesting for each year of service, reaching 100% vesting after six years of service. This provision is effective for contributions for plan years beginning after December 31, 2001, with a delayed effective date for plans maintained pursuant to collective bargaining agreements. K. Prohibited Transactions – No change. EGTRRA section 655 modifies the effective date of the rule excluding certain elective deferrals (and earnings thereon) from the definition of eligible individual account plan by providing that the rule does not apply to any elective deferral which is invested in qualifying employer securities, qualifying employer real property, or both acquired before January 1, 1999. M. Partnership Issues – No change. N. Participation – No change. O. Miscellaneous Limits – Under the Taxpayer Relief Act of 1997, the former 15% tax on excess distributions and the 15% estate tax on excess retirement accumulations from qualified retirement plans, tax-sheltered annuities, and individual retirement arrangements is repealed. P. Miscellaneous Violations – No change. In addition to those named above, Jeremy Citro, Gene Kuehneman, Ed Nannenhorn, Corinna Nicolaou, and Roger Thomas made key contributions to this report.

The Internal Revenue Service (IRS) studied 401(k) plan compliance with Internal Revenue Code requirements for tax-qualified plans. GAO found that IRS's estimates of noncompliance were inaccurate. The study, which audited a sample of 401(k) plans, did not provide information on the severity of the compliance violations identified and did not determine the number of plan participants or the amount of assets associated with noncompliance errors. Only 27 of the 73 study questions identified as compliance indicators conclusively demonstrated whether a plan was compliant or not. Consequently, the 44 percent reported to have one or more instances of noncompliance is at best an upper limit on the extent of noncompliance found. IRS has chosen specific types of private pension plans to study in a manner similar to the one conducted on 401(k) pension plans. The data that IRS collects will be analyzed to determine the prevalence and types of noncompliance among the plans studied.

You are an expert at summarizing long articles. Proceed to summarize the following text: To meet our study’s challenges, we used several methods from ethnography, and in certain cases we blended them with survey methods to provide in-depth knowledge of organizational culture from the perspective of VA’s frontline staff—its physicians, nurses, and others directly responsible for patient care. We intend this study to complement our earlier reports on organizational culture and changing organizations. We chose ethnography because several of its techniques and perspectives helped us study aspects of patient safety that would otherwise have remained overlooked or would not have been observed, such as informal mores, and to assist GAO in the development of new evaluation methods. These aspects were ethnography’s research traditions of (1) conversational interviews, enabling interviewers to explore a participant’s own view of and associations with an issue of interest, (2) the researchers’ observations of real processes to further understand the meaning behind patient safety from the natural environment of staff, and (3) systems thinking. Our study measures, at the facility level, the extent of familiarity with, participation in, and cultural support for the Program, and it complements a cultural survey VA conducted in 2000. VA expects to resurvey staff in the near future, using its past survey data as a baseline. VA’s original, nonrandom survey contained questions regarding shame and staff willingness to report adverse events when the safety of patients was at hazard during their care. The VA survey did not establish staff familiarity with key concepts of the Program, participation in VA safety activities, or the facilities’ levels of cultural support for the Program. We recognized that a tradition of fear of being blamed for adverse events and close calls might make staff reluctant to talk about their experience of potential harm to patients. Besides breaking through an emotional barrier, we wanted to understand the private views of staff on what facilitates patient safety. To achieve the informal, open, and honest discussions we needed, we conducted private, nonthreatening, conversational interviews with randomly selected clinicians and other staff in a judgmental sample. At each site, we chose one random and one judgmental (nonrandom) sample of staff to interview in a conversational manner, using similar semistructured questionnaires (see app. III). For the first sample, we interviewed a random selection of 10 physicians and 10 nurses at each of the four facilities. While this provided us with a representative sample of clinicians (physicians and nurses) from each facility, the sample size was too small to provide a statistical basis for generalizing our survey results to an entire facility. To give us a better understanding of the culture and context of patient safety beyond the clinicians involved in direct patient care at each facility, we also interviewed more than a hundred other staff in the four study sites, including medical facility leaders, Patient Safety Managers, and hospital employees from all levels—maintenance workers, security officers, nursing assistants, technicians, and service chiefs. (Appendix I contains more technical detail about our analysis.) Reporting adverse events and close calls is a highly sensitive subject and can successfully be explored with qualitative methods that allow respondents to talk privately and freely. When staff did not recognize a key element of the Program, our interviewers explained it to them. (We were not giving the respondents a test they could fail.) Selecting clinicians randomly at each of four facilities, and asking some close-ended questions such as those expecting “yes” or “no” answers, allowed us to analyze and present some issues as standard survey data. This combined survey and ethnographic approach afforded us most of the advantages of standard surveys while establishing an environment in which the respondents could talk, and did talk, at length about the cultural context of patient safety in their own facilities. Clinicians responded to a standard set of questions, many open ended, such as, To what extent do you perceive there to be trust or distrust within your unit or team? Among the advantages these questions had were that they allowed the clinicians to discuss issues spontaneously and they allowed us to discover what facilitates trust from their point of view. Thus, if clinicians thought leadership was important, we had an opportunity to see this from their viewpoint rather than starting from the premise that leadership would be important to them. An important part of our approach was content analysis, which we used to analyze answers to both the standard and open-ended questions. Content analysis summarizes qualitative information by categorizing it and then systematically sorting and comparing the categories in order to develop themes and summarize them. We determined, by intercoder reliability tests, that our content analysis results were trustworthy across different raters. (See app. I.) We added another ethnographic technique in order to more completely understand the culture within each facility. Since responses to surveys are sometimes difficult to understand out of context, our in-depth ethnographic observations of the patient care process gave us a more complete picture of how the elements of the Patient Safety Program interacted. They also gave us a better understanding of VA’s medical facility systems. We observed staff in their daily work activities at each medical facility, which helped us understand patient safety in context. For example, we attended staff meetings where the Program was discussed and we attended RCA meetings, and we followed a nurse on her rounds. We took detailed field notes from our observations, and we analyzed and summarized our notes. We reviewed files to examine data on adverse events, close calls, and RCA reports. We read files from administrative boards, reward programs, and patient safety committee minutes. And we interviewed high-level VA officials. Finally, our ethnographic research approach was systemic. This was to help us appreciate interactions between the elements of the Program and the facilities’ existing culture. Ethnography has traditionally been used to provide rich, holistic accounts of the way of life of a people or a community; in recent decades, it has also been used successfully to study groups in modern societies. A systems approach casts a wide net over the subject. In this case, we chose to study the Patient Safety Program in relation to other aspects of culture in VA’s medical facilities that might affect its adoption, such as the extent to which staff have mutual trust. We also developed a model, or flow chart, to guide our study of the Program and the culture of the facilities. The model, in figure 2, helped us conceptualize the important safety activities within the Program and analyze and present our results. We looked not only at the Program’s key elements, in the darkly shaded boxes in figure 2, but also at what surrounds them—the context of the medical facilities’ culture—and whether the culture supports the adoption of the Program. Our model illustrates that our primary focus was measuring clinicians’ supportive culture for reporting close calls and adverse events and their familiarity with and participation in reporting programs and RCAs. The model also depicts the interaction between clinicians’ receiving feedback and being rewarded and their desire to continue reporting close calls and adverse events. It also allows us to describe how clinicians’ reporting close calls and adverse events, and the subsequent investigation of the root causes of them, developed into system changes that in turn resulted in patients being safer. We conducted the study at three medical facilities that VA had recommended as being well managed. We selected a fourth facility for geographic balance. Thus, the four facilities were in different regions of the country. Using rapid assessment techniques, we conducted fieldwork for approximately a week at each of two facilities, for 3 weeks at a third, and for 25 days at the fourth. We did our work from November 2002 to August 2004 in accordance with generally accepted government auditing standards. “to make health care safe we need to redesign our systems to make error difficult to commit and create a culture in which the existence of risk is acknowledged and injury prevention is recognized as everyone’s responsibility. A new understanding of accountability that moves beyond blaming individuals when they make mistakes must be established if progress is to be made.” This vision of making patients safe through “redesign . . . to make errors difficult to commit” led to VA’s National Center for Patient Safety (NCPS), established to improve patient safety throughout the largest health care system in the United States. To transform the existing culture of patient care in VA’s medical facilities, VA’s leaders aimed to persuade clinicians and other staff in health care settings to adopt a new practice of reporting, free of fear and with mutual trust, identifying vulnerabilities, and taking necessary actions to mitigate risks. The Under Secretary had recognized risk to patients during care and that a focus on VA’s existing culture could improve patient safety. Related research shows that if complex decision making organizations are to change, they must modify their organizational culture. Traditionally, clinicians involved in an adverse event could be blamed or sued, but the roots of unintentional errors are now understood as originating often in the institutions and structures of medicine rather than in clinicians’ incompetence or negligence. Several contextual factors influence how the Patient Safety Program is experienced at the medical facilities we visited and show the increasingly complex world of patient care. Our study’s limitations meant that we could not study these factors, but health care facilities in general, as well as VA’s, are experiencing difficulty in hiring and retaining nurses, as well as potential staffing shortages. Patients admitted to VA medical facilities have more multiple medical problems that require more extensive care than in the past. VA’s eligibility reform allowed veterans without service- connected conditions to seek VA services, leading to a 70 percent increase in the number of enrolled veterans between 1999 and 2002. VA has provided funding of $37.4 million to NCPS for its Patient Safety Program operations and related grants and contracts for fiscal years 1999–2004. In fiscal year 1999, NCPS defined three major initiatives: (1) a more focused system for mandatory close call and adverse event reporting, including a renewed focus on close calls; (2) reviews of close calls and adverse events, including RCAs, using interdisciplinary teams at each facility to discover system flaws and recommends redesign to prevent harm to patients; and (3) staff feedback on system changes and communication about improvements to patient safety. Starting with the NCPS program in 1999, reporting of close calls increased dramatically as their value for patient safety improvement was widely disseminated and increasingly recognized by VA personnel. A close call is an event or situation that could have resulted in harm to a patient but did not, either by chance or by timely intervention. VA encourages reporting close calls and adverse events, since redesigning system flaws depends on staff revealing them. VA’s Patient Safety Managers told us that only adverse events and not close calls were traditionally required to be reported to supervisors and then up the chain of command. Under the Program, staff also have optional routes for reporting—through Patient Safety Managers or a confidential system outside their facilities. Staff can now report close calls and adverse events directly to the facilities’ Patient Safety Managers. They, in turn, evaluate the reports, based on criteria for deciding which adverse events or close calls should be investigated further. NCPS also has a confidential reporting option— the Patient Safety Reporting System (PSRS)—through a contract with the National Aeronautics and Space Administration (NASA). NASA has 27 years of experience with a similar program, the Federal Aviation Administration’s Aviation Safety Reporting System. Under the contract with VA, NASA removes all identifying information and sends selected items of special interest to the NCPS. NASA also publishes a newsletter based on reports that have had their identifying information removed. Working on interdisciplinary teams of usually five to seven participants, staff focus on either one or a group of similar close calls or adverse events to investigate their causes. Then they search for system flaws and redesign patient care so that mistakes are harder to make. Under the Program, NCPS envisioned that these teams would be a key step to improving patient safety through system change and one of its primary mechanisms of introducing clinicians to the Program. In 1999, NCPS began RCA implementation. In this on-the-job training, Patient Safety Managers guide local interdisciplinary teams in studying reports of close calls or adverse events to identify and redesign system weaknesses that threaten patients’ safety. Teams are allowed 45 days to learn as much as possible from a close call or adverse event or a group of similar close calls or adverse events such as falls, missing persons, medication errors, and suicides called aggregated reviews. Within the given time period, teams are to develop action plans for system improvement. Personal experience on interdisciplinary RCA teams investigating close calls and adverse events at their home facilities is the clinicians’ key training experience. VA expected that the RCA experience would persuade staff that VA was changing its culture by encouraging a different approach to reporting. Staff need to receive proof that the Program is working by receiving timely feedback on their reporting. A feedback loop fosters and perpetuates close call and adverse event reporting. Without it, staff may feel the effort is not worth their time. NCPS built in feedback loops at several levels of the system. For example, individuals who report a close call or adverse event are supposed to get feedback from the RCA team on actions recommended as a result of their reports. Also, NCPS issues an online bimonthly newsletter that reports safety changes. In chapter 2, we measure clinicians' familiarity and participation in the Program at the four facilities we visited. Chapter 3 is an examination of whether the culture at the four facilities supports the Patient Safety Program and chapter 4 provides examples of management practices that promote patient safety. We asked VA to comment on our report; VA’s comments are in appendix IV. Our response to their comments is in the conclusions located in chapter 5. VA also provided some additional comments to emphasize that it believes that it has taken steps to address the issue of mutual trust. VA describes those steps in the report on page 67. In general, we found progress in clinicians’ understanding and participation in the Patient Safety Program. Three facilities had medium or higher familiarity with and participation in the Program’s core elements, and one had lower. At that facility, the staff were not following VA’s policy of reporting close calls and were not being educated in the benefits of doing so. Examining the data across our total random sample, we found that some clinicians were familiar with several core concepts of the Program and were unfamiliar with others—a picture NCPS officials said did not surprise them. About three-quarters of clinicians were familiar with the concept of RCAs (newly introduced in 2000) and the concept of the close call. About half the clinicians recognized the new confidential reporting process—another equally important program. One-third had participated in an RCA or knew someone who had. NCPS staff told us that participation in RCAs is crucial to culture change at VA, and clinicians who were on RCA teams indicated that they experienced the beginning of a culture shift. Of the staff who had participated in RCAs, many indicated that it was a positive learning experience, but facilities varied in ensuring clinicians’ broad participation. VA has made progress in familiarizing and involving clinicians with the Program’s key concepts. But while the facilities we studied shared basic safety problems, three had made more progress than the fourth. First, all four experienced similar hazards to patient safety. Second, we report clinicians’ familiarity with and participation in the Program in two ways— grouped first by facility and then across the four sites. The four facilities shared an overall pattern in the types of adverse events they reported, reflecting their common safety challenge. To establish the Program’s context, we asked at the four facilities to review documents related to close calls and adverse events reported over a one-month period (June 2002). All the facilities reported falls for this period, while two facilities or more recorded patients’ violence toward staff, patients’ suicides and suicide attempts, missing patients, and medication errors (see fig. 3). Although our data reflect a limited time period, the highly overlapping types of reporting at the facilities parallel those found in the wider VA patient care system, as documented in an earlier review by the VA Medical Inspector. Staff at one facility had less familiarity with and participation in the Program than staff at the three others (see fig. 4). In the interviews with the random sample, we found Facility D had lower familiarity with the Program’s concepts than the other facilities and lower participation in RCAs; this pattern was buttressed by additional interviews at Facility D. For example, the quality manager who supervised Patient Safety Managers at that facility did not realize that close call reporting was mandated, and the education officer who trained staff in patient safety told us that staff were generally not acquainted with the concept of reporting close calls. Because knowing that an initiative exists is often the first step to participation, the lower familiarity with the Program at Facility D in the fifth year of implementation was a likely impediment to the adoption of the Program there. The four medical facilities we studied also varied in their adherence to close call reporting policies under the Program. We found three out of four facilities followed the policy of reporting close calls. One facility, in particular, showed a marked increase in the number of close calls in a short period of time; close call reports were rare in the 6 months before but numbered 240 in the 6 months after its leaders told staff patient safety was an organizational priority and introduced a simple reward system for close call reporting. However, one facility we visited was not reporting close calls in the Program’s fifth year. We looked at interview responses with randomly selected clinicians across all four facilities. We found that three-quarters of the clinicians knew the meaning of close call—that is, when a potential incident is discovered before any harm has come to a patient—but only half were aware of the option of reporting close calls and adverse events confidentially. (See table 1.) Close calls are presumed to occur more often than adverse events, and reporting them in addition to adverse events is central to the Program’s goal of discovering and correcting system flaws. Staff who do not recognize the close call concept cannot bring to light system flaws that could harm patients. Further, because changing from traditional blaming behavior to reporting without fear can take time, staff familiarity with the confidential reporting option is important. However, only half the clinicians surveyed at the four facilities knew that they could report adverse events or close calls confidentially under the NASA reporting contract. Clinicians who had participated in interdisciplinary RCA teams found that their participation enabled them to understand the benefits of using a systems approach rather than blaming individuals for unintentional adverse events and close calls. To understand the RCA process from close call reporting to RCA team analysis, we provide an example from fieldwork that shows how two misidentifications in a surgery ward led to a reexamination of the preoperative process in an RCA. (See “Developing Patient Safety from Examining Close Calls and an RCA.”) While examining how many RCAs were conducted from 2000 to 2003 at the four facilities, we found that the most active facility we studied had performed twice as many RCAs as the least active. The RCAs have the potential to promote a cultural shift from blaming staff for unintentional close calls and adverse events to a rational search for the root causes, but clinicians at the four facilities had inconsistent opportunities to participate in the Program. “Developing Patient Safety from Examining Close Calls and an RCA” illustrates an RCA team’s initial steps by following a series of events involving two close calls of mistaken identity in surgery at one facility. Developing Patient Safety from Examining Close Calls and an RCA The Patient Safety Manager had an unusual visit from the Chief Surgeon. He had come to report two recent instances of patients being mistakenly scheduled for surgery. The identity mix-ups had been discovered before the patients were harmed—a situation the surgeon recognized as fitting the Program’s mandate to report close calls in order to identify hazards in the system. After each close call, he had filled out a form and made a report to NCPS, which had called him back within 24 hours to ask for more information and to offer some reengineering suggestions. At the next weekly surgery preoperation meeting, the Chief Surgeon and his staff discussed their schedule and details of coming surgeries, using a matrix timetable projected for all to see. Then he discussed the two close calls. In both cases, the correct patient had come to the surgery preparation room, but the staff had been expecting someone else. In one case, the scheduling staff had confused two similar names. In the other case, the scheduling staff had, as usual, used the last four digits of the Social Security number to help identify the patient but had had two patients with the same last four digits. In the meeting’s discussion, the staff tried to understand how such mistakes could happen. The Patient Safety Manager convened an expedited RCA team of three other VA staff to get at the root cause of such identification problems. She opened the meeting by saying, “If we don’t learn from this [close call], we’re all fools.” She announced that the RCA would be limited to two or three meetings rather than several weeks. After introductions, the staff members explained their role in scheduling and what happened in such cases. As they spoke, the staff tried to outline the scheduling process: what forms were completed, whether they were electronic or paper, how they moved from person to person, and who touched the forms. Several problems emerged. (1) Some VA patients might not always know their identity or surgical site because of illness or senility or both. Also, patients with multiple problems cannot always relay them to staff, because they may focus on one problem while the appointment scheduled is for another problem. (2) Two key VA staff may be absent at the same time and a substitute may make the error. (3) In one case, two patients’ names differed only by m and n. (4) A scheduler noted that scheduling is filled with interruptions and opportunities for confusion. For example, it is not uncommon that scheduled patients have overlapping numerals for the last four digits of their Social Security numbers. The RCA team’s next meeting was scheduled. In future meetings, the RCA team would consider various ways of preventing or minimizing similar events. Staff who had participated in RCAs told us that their experience was a valuable and convincing introduction to the Patient Safety Program. In lieu of giving clinicians formal training in the central concepts of the Program, NCPS expected to change the culture of patient care one clinician at a time by their individual experience in RCAs. NCPS intended that experience on multidisciplinary RCA teams investigating the underlying causes of reported close calls and adverse events at their home facilities would be clinicians’ key educational experience and that it would persuade them that VA was taking a different approach to reporting. All facilities are expected to perform RCAs, in which local interdisciplinary teams study reports of close calls and adverse events in order to identify and redesign systems that threaten patients’ safety. Staff also reported that RCA investigations created a learning environment and were an excellent way to introduce staff to redesign systems to prevent harm to patients. Two doctors at one facility, for example, told us that the RCAs they participated in were a genuine “no blame learning experience” that they felt good about or found valuable. Two nurses at another facility reported being amazed at the change from a blaming culture to an inquiring culture as they experienced the RCA process. However, staff also told us that the RCA process took too much time or took time away from patient care. At another facility, where trust was low and only 5 of 20 clinicians had a positive view of reporting, each of those 5 clinicians had a positive experience with RCAs under the new Program. “How Participating in RCAs Affects Clinicians’ Work” presents some clinicians’ own stories of their participation in RCAs. How Participating in RCAs Affects Clinicians’ Work Physician 1: I participated in an RCA through my work in the blood bank. It taught me to look at errors systematically and not rush to blame individuals. But if an employee were eventually found responsible, then the Lab would hold that person accountable. [This example reflects the decision leaders must make between personal accountability and systemic change.] Physician 2: RCAs are a good thing. It’s fixing a potential disaster before it can coalesce and become a disaster. Nurse 1: I think RCAs are a good thing, because usually the problems are system problems. I think if you fix the system, you fix the problem. It seems to be that way in surgery. You try and concentrate on the things you can fix. Nurse 2: They used to have a process in psychiatry called “post mortem.” That process often led to the conclusion that a suicide could not have been prevented. By contrast, in the new RCA process, we look at how the RCA can promote system changes. Nurse 3: RCA does a good job of identifying not only the actual adverse event but also the contributing factors. This is very helpful because it allows us to better understand what to do about an adverse event. Nurse 4: RCA is a good system. It’s a good way to share information and avoid recurring error. Nurse 5: My general impression is that RCAs are great. They’re especially important when teams look for results and action items. Over the 4 years of the RCA implementation, the most active facility we studied (Facility A) had performed twice as many RCAs as the least active facility (Facility D). (See table 2.) The number of RCAs, similar to the number of close calls and adverse events, does not reflect the actual numbers of adverse events or close calls that occurred or how safe the facility is; rather, it reflects whether organizational learning is taking place, through increasing participation in a core Program activity. Similarly, NCPS staff recently reported to a facility leaders’ training session that networks of their facilities varied fourfold in fiscal year 2002 with respect to number of RCAs conducted. Facility D’s director told us that NCPS had recently identified his facility as having too few RCA reviews. One facility was more successful than the three others at providing busy physicians with the opportunity to participate in RCA teams by adopting a mandatory rotation system. RCAs have been required under the Program since 2000. About three- fourths of the respondents were familiar with the RCA concept. Seventy- five percent staff familiarity represents substantial learning, given when the concept was introduced. However, only about a third had participated in an RCA or knew someone who had. At one facility, we found broad participation by physicians because management required it. NCPS envisions RCA experience as central to changing to a culture of safety, but many VA clinicians (approximately 65 percent) at the facilities we studied had yet to participate in the nonblaming process that NCPS’s director told us he viewed as the most effective experience for culture change: “We don’t want professional root cause analysis people doing this stuff. Then you don’t change the culture.” We found a wide spectrum of methods being used to recruit physicians into RCA teams. One facility had broad physician participation in RCAs as its policy, and at another facility one unit had a rotational plan that encouraged its own clinicians to participate, in contrast to the whole facility. Administrators at three of the four had no policy across the facility to ensure physician participation on the teams. At two facilities, Patient Safety Managers told us it was difficult to get physicians to participate because of their busy schedules. Understandably, most of the clinicians we surveyed had not served on RCA teams. Clinicians at three of the four facilities had medium or higher cultural support for the Program. One facility had lower support, and many clinicians indicated that they would not report adverse events because they feared punishment. This suggests that the Program will not succeed unless cultural support is bolstered. We explored the cultural support from these four groups in two ways: (1) by graphically comparing the groups’ levels of mutual trust and comfort in reporting close call and adverse events with their levels of familiarity with the Program and (2) by graphically demonstrating the barriers clinicians see as blocking their close call and adverse event reporting, in conjunction with some elements of basic familiarity with and cultural support for the Program. In figure 5, we compare our findings on clinicians’ mutual trust and their comfort in reporting close calls and adverse events at the four facilities. The levels of these components of a supportive culture appeared to vary among the clinician groups. For example, staff at Facility A had medium familiarity with the Program but had the lowest levels of comfort in reporting adverse events and close calls and mutual trust among the four facilities. Knowledge from specific safety training or RCA participation was not sufficient for them to readily change to safety practices under the Program if levels of comfort in reporting and mutual trust were not high enough. Figure 5 contrasts information on the supportive culture (mutual trust and comfort in reporting) with a measure of staff familiarity with the Program from figure 4. Many staff at Facility A were afraid of being punished, and they mistrusted management and other work units. One staff member explained why staff would not report adverse events: “We have a culture of back-stabbing here. They are always covering themselves.” Many other staff members echoed this characterization of the atmosphere, linking the lack of cultural support to their decision not to perform the most basic of the Program’s activities. Staff at that facility needed a boost in supportive culture to fully implement the Program. In contrast, Facility D, with the least familiarity with the Program, had trust and comfort levels almost as high as any of the others, indicating that if the Program were to be pursued with greater vigor there, cultural support would not be a barrier to reporting close calls and adverse events. In interviewing clinicians, we found that barriers remain to reporting adverse events and close calls. Even for staff familiar with the concepts, reporting required overcoming numerous remaining obstacles. These staff indicated that reporting formally would be a time-consuming diversion from patient care or, worse, “an invitation to a witch hunt.” In figure 6, we display the cumulative effect of the barriers to reporting close calls that staff told us about, in conjunction with familiarity with and cultural support for the Program. Clinicians told us about barriers to their participation in reporting, including (1) limited perceived value, (2) not knowing how to report, (3) not having enough time to report, (4) fearing traditional blame or punishment, (5) lacking trust that coworkers would not shame them, and (6) lacking knowledge of the confidential reporting option. Staff at all four sites reported such barriers in reporting both close calls and adverse events. We present some of their views in “Clinicians’ Barriers to Reporting Close Calls and Adverse Events.” Clinicians’ Barriers to Reporting Close Calls and Adverse Events Nurse 1: Some clinicians feel comfortable reporting adverse events and close calls. I agree with the concept. It depends on the person. Some would feel it would be used against them. I’ve seen nonreporting, because, before, they got written comments such as “This is not a near miss.” “This is not a close call.” We get shut down instead of worked with. [By “shut down,” she meant that management told her it was not a close call and not to report it.] It happened to me. Management generally discourages and does not empower staff to feel comfortable reporting patient safety conditions. Instead, I reported and it was used against me. Physician 1: I can’t remember if I’ve written a close call. That does not happen here—only very, very rarely. Maybe I wrote one early on in my career, but I’m not sure. Physician 2: I thought I had a close call once and showed it to the chief of staff and he told me that it was not a close call. I’m unclear what the definition of a close call is. Physician 3: I know what a close call is in other settings, but not in the hospital setting. They are not reporting on close calls in this hospital. Physician 4: Yes, I know what a close call is. I’ve not reported a close call, but if I were to, I would go to a nurse supervisor and tell her about it orally and have her report it. I would not use incident reports to report a close call—only actual events. Physician 5: I have not reported a close call. I’m removed from the nursing communications. Physician 6: I’m unsure if it is safe to report close calls without punishment. Nurse 2: If I saw a close call, I would go talk to the nurse who did it. Writing up a close call on someone would be cruel. I would not write up a close call or adverse event report on someone else. If something happened to the patient, I would write it up. Writing up another person would cause conflict. We need to help each other, and writing each other up is not considered helpful. The themes for work conditions that promote a supportive culture for patient safety that clinicians articulated most often were (1) leadership, (2) communication, (3) professional values, and (4) workflow. A few strong patterns emerged from the clinicians’ responses to our open- ended interview questions about what affects trust and comfort in reporting close calls and adverse events. First, across the survey, the clinicians said their leaders’ actions were most likely to increase or decrease comfort and trust. Attributes of communication were the second most common aspect of their work that they said influenced their comfort and trust. Third, and somewhat less commonly, clinicians thought that the values and norms that they had developed in their professional training and that had been reinforced on the job influenced their culture, but they also thought that workflow could support or undercut trust generally. In their view, trust literally could be made or broken, depending on whether tasks shared between individuals or between units went smoothly and cooperation was maintained. Table 3 shows the results of our content analysis, listing the clinicians’ four top themes—leadership, communication, professional values, and workflow—and how many times we found these themes in our analysis. When we asked clinicians what affected a culture that supported comfort in reporting and trust among the different professions, departments, teams, and shifts they worked with, their most frequent answers were effective leadership and good two-way communication. Moreover, the clinicians told us that an unsupportive culture lacks these characteristics. Clinicians gave us these same answers, whether we asked about comfort in reporting or mutual trust. Further, we found that the culture of blame and punishment traditionally learned in medical training hampers close calls and adverse event reporting but that mutual trust is developed more by workplace conditions. Leadership’s role is important in fostering a supportive cultural environment for the Program. Clinicians reported examples of leaders facilitating comfort in reporting and mutual trust that enabled them to participate in the Program. But at several facilities we also heard about distrust of the Program that resulted from leaders’ action or lack of action. Clinicians told us that some VA leaders had not focused sufficiently on building the supportive culture that the Program requires. Staff reported that in order to trust, they needed information and needed to take part in decisions about their workplace and policies that affect their work. For example, clinicians told us that they wanted to be part of management’s decisions or, at the very least, to be informed about management’s decisions when a number of changes were being introduced, such as when medical supplies and software were purchased, clinicians were assigned temporary rotations, and performance measures were implemented. Their observations are in line with other studies that show that leaders’ making decisions without consulting frontline workers can cause serious problems of trust. In “Clinicians’ Perspectives on Leaders’ Supporting Trust,” we illustrate staff’s positive attitudes toward patient safety and how leadership is instrumental in developing mutual trust and comfort. Clinicians’ Perspectives on Leaders’ Supporting Trust Nurse 1: I asked my staff what the role of leaders should be so I could serve staff better. Many answered, “communication” and “knowing what is happening at the facility is important.” Physician 1: Leaders often bring up patient safety. They’re “taking a lead in making staff aware of patient safety.” At my facility, they hold staff meetings to review the patient safety goals of the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). The chief of staff constantly brings up patient safety in meetings. The administration takes the lead, not only “talking the talk” but also “walking the talk.” Nurse 2: Trust is sustained, in part, because of weekly meetings with management, where they talk about patient safety. Physician 2: It’s leadership’s responsibility to communicate that staff are accountable for cooperation and coordination of patient care. Conversely, respondents said leaders’ actions can diminish clinicians’ comfort and trust, as summarized in “Clinicians’ Perspectives on Leaders’ Undercutting Trust.” Physicians and nurses at different facilities told us that trust is diminished when staff do not work in stable teams. Some of the policies that clinicians told us were obstacles to building a stable team include assigning floating or nonpermanent supervisory personnel, rotating physicians on and off the ward, and the monthly rotation of student nurses and doctors. Clinicians’ Perspectives on Leaders’ Undercutting Trust Physician 1: For 20 years, there was nothing but “blame and train.” In the past, an adverse event or close call was associated with a person you had to blame, and the “fix” was to train them. Nurse 1: We have a panel of nurse managers who have discouraged adverse event reports for medication errors. I vow to encourage reporting errors without blame. We still have a way to go to be honest about reporting. Nurse 2: I know of instances when staff reported adverse events, they were transferred, so that does not make staff comfortable reporting them. There is no trust of management. Nurse 3: Decisions that affect our work are made without talking to staff or understanding our work situation. Physician 2: If you don’t know what’s going on, you invent it. Physician 3: The most critical change needed at this facility is in the area of leadership. Leaders are ineffective because they are not good at communication. We hear about reasons why we are blamed. This causes a feeling of distrust. Physician 4: Leadership has little grasp of patient care and, thus, policy directives have little impact. If we’re given a policy to spend a maximum of 20 minutes per patient, including completing records, I do what the patient needs. Management can just yell at me. Staff indicated that communication in the workplace affects trust and comfort in reporting. Further, they told us that communication is challenging, since it involves coordinating tasks with and between leaders and teams and their empowerment, all of which can be problematic in the medical setting. Some VA staff told us that unequal power relationships and hierarchical decision making are often obstacles to patient safety. They also elaborated on the kinds of communication that support patient safety, including empowering staff so that they can be heard. Traditionally, a nurse’s status is lower than a physician’s in hospitals, and some nurses could find it difficult to speak up in disagreement with physicians. For patients to be safe, however, nurses indicated they wanted to be empowered to openly disagree with physicians and other staff when they found an unsafe situation. For example, nurses told us that they had to speak up when they disagreed with the medication or dosage doctors had ordered. They also said that they had problems when physicians telephoned nurses and gave directions orally when policy stated that physicians’ orders must be written. The clinicians spoke to us about empowerment and their involvement or lack of involvement in decision making. “Clinicians’ Perspectives on How Communication Promotes Trust” gives some examples of what they told us about communication that they believed supports patient safety. Clinicians’ Perspectives on How Communication Promotes Trust Nurse 1: We interact with doctors and nurses in clinic. If something happens, we share with one another about how we might have done it differently. This goes on daily. Nurse 2: The director of the medical facility is a good communicator; he keeps us informed. He maintains a personal newsletter. Our nurse manager is well rounded and she listens. Nurse 3: Peers and coworkers communicating with one another supports patient safety. For instance, sometimes we have patients who have a history of violence. This information is reflected in the computer and comes up when they “chart them in,” but sometimes a nurse may still not know of such a history. Therefore, in the nurses’ reports, the history of violence and the need for caution is passed on. Extra information about the patients can also help them deescalate confrontations between patients. Physician 1: VA’s Computerized Order Entry system [a computerized method for ordering medications] promotes patient safety. Before, it was hard to read the physicians’ handwriting. The Computerized Order Entry at least eliminated the legibility problem. They do not have Computerized Order Entry at the university where I also work. VA also got rid of using Latin abbreviations. Now everything has to be written out. Physician 2: Open communication promotes team buy-in and therefore better customer service. (continued from previous page) Physician 3: We have a good department because staff can communicate their complaints. Nurse 4: We do an RCA on our own close call or adverse event or those from other sources, and then we present the results to the staff. I brought a PowerPoint briefing to our staff meeting about another hospital’s wrong site surgery, so we could know what had happened. If JCAHO published an adverse event, I put it in our staff notes and have it discussed at the next staff meeting. Nurse 5: Management is more involved with the workers. It seems that they are listening more. Physician 4: Within the unit, we have good trust. Outside the unit, the administration has more trust and more communication. We’re in the loop more. In the clinic, we have good trust in nurse-to-doctor and doctor-to-doctor relationships and with leadership. Physician 5: I reported a close call recently and feared blame, but it was not that way at all. It was a learning experience for all who heard about it. I think it’s wonderful that VA has created this open atmosphere. Formerly, you might be a scapegoat, have backlash, and get a poorer rating. Today, we don’t feel we’re going to be punished. In “Clinicians’ Perspectives on How Faulty Communication Diminishes Trust,” we give clinicians’ examples of management’s undermining patient safety by deciding policies without consulting them, as when nurses were not included in decision making. Such policies sometimes proved dysfunctional or were ignored. Clinicians’ Perspectives on How Faulty Communication Diminishes Trust Nurse 1: I have to double-check changes in supplies in order to safeguard patients, because Supply often sends ABC instead of XYZ. Since we’re not included in decisions about product changes, we’re forced to continually double-check Supply to keep patients safe. Nurse 2: We have poor communication between other units and the radiology unit. They send incontinent or violent Isolation patients without notifying X-ray staff to be wary. Facility staff also wanted additional and more timely feedback on what happens to their reports of close calls, adverse events, and the results of RCAs. Some Patient Safety Managers often felt too busy to provide feedback to staff because their jobs included a number of activities, including facilitating RCAs. At one facility, Patient Safety Managers routinely reported system changes back to staff who made the reports, but at the other facilities, they did not have a routine way of doing this. Many staff at the four facilities told us that they did not know the recommendations of the RCA teams or the results of close call or adverse event reports. NCPS agrees that feedback to staff is necessary but inadequate, and it plans to focus on the need for feedback at facilities in the near future. NCPS’s Web site publicizes selected results of RCAs and alerts and system changes that result from reporting. Some of what VA’s leaders and frontline clinicians told us about the need for more feedback is presented in “Facility Staff Concerns about Limited Feedback.” Facility Staff Concerns about Limited Feedback Nurse Manager: We do a good job of following up on close call or adverse event reports in my unit, but not as good a job following up on the recommendations from RCAs. I was able to implement the action items right away in my unit after I participated in an RCA on patients’ falls, but other nurse managers didn’t hear about the results from the RCA for 2 or 3 months. The RCA teams develop really good ideas, but we need follow-through to make sure everyone knows that this is what we’re going to do to change the system. Delays result from organizational routing and financial constraints. Even when the recommendation is signed, sometimes there’s a delay getting the information down to the nurse managers. Physician 1: There should be an annual report of actions taken as a result of reporting adverse events and close calls. For example, if three units have developed a different way of labeling medication that used to be labeled alike, then the rest of the staff should know about it. [This was a reference to medication that looks alike and confuses staff. One solution is for the pharmacy to buy the two medications from different manufacturers so that the labels will be different.] It makes people feel better to know the information they reported helped make things better. I’d make sure that the information on improved medical care gets reported back to the staff. Administrative Official: The distribution of RCAs has been limited to staff responsible for the action or system change, but in the future the results will be distributed more broadly. Physician 2: I haven’t heard any results from the RCAs. A pamphlet on the results would be a good idea. In addition, staff spoke to us frequently about workflow issues—how safely handing off tasks between shifts and teams required trust but could cause mistrust when the transition was not smooth or efficient. VA clinicians clarified for us that mutual trust could be either gained or lost between workers and units, depending on coordination. And they drew conclusions about the importance of the quality and nature of workflow to patient safety. Clinicians also elaborated on aspects of the values they learned in training that did not facilitate a blame-free workplace. They indicated that shifting patient care between groups was an ongoing challenge to patient safety. For analysis purposes, we found these issues in continuity of care to be part of the larger problem of workflow, because they entailed the coordination of tasks and communication within and across teams. In the views of the clinicians at the facilities we studied, if staff, teams, or units begin to feel they cannot adequately communicate their patients’ needs for care because of workflow problems, then trust may be lost, in turn diminishing patient safety. At one facility, where trust and comfort were lower than at the others, clinicians told us that workflow failures diminished trust and threatened patient safety. In “Clinicians on Workflow Problems and Patients’ Safety,” some physicians and nurses talk about these problems and how they tried to find solutions to promote patients’ safety. Clinicians on Workflow Problems and Patients’ Safety Nurse 1: Some units are less particular about paperwork and records than others, so when we transfer patients, their information is sometimes incomplete. Patients don’t come back to my unit as quickly from one unit as from other units, and sometimes their information is not available. Physician: Personnel tends to lose things, and this makes it hard to recruit new staff. Nurse 2: We often have difficulty getting the supplies we need. For example, it’s especially difficult to obtain blood on the night shift. Nurse 3: At the change of a shift, I had to discharge one patient and admit another. Since I couldn’t do both at the same time, I chose to admit but not to discharge. But my relief nurse expressed unhappiness about the situation, suggesting that I had left my work for another crew to do. I spoke with the relief nurse, and the problem of mistrust was resolved when everyone understood the work context better. When people communicate across shifts this way, they have a better understanding of and appreciation for one another. Nurse 4: I go to the ward before my shift starts to make sure the patients’ wounds have been properly dressed. I take dressings to homebound patients when they weren’t sent home with them. I cultivate motivated individuals from the ward staff, letting them see the procedures in the Dialysis Unit, and give them responsibility for those patients when they’re back on the ward and reward them. I stock snacks because feeble elderly patients are sent to Dialysis without breakfast, and then they’re expected to get to breakfast after their dialysis session and pay for their own meal. I see this situation as inherently unsafe, so I supply them with free snacks. The professional values physicians and nurses learned in their formal education or on the job can also be an obstacle to the Program, because these values do not always foster a nonpunitive atmosphere. Some of the values clinicians have been trained in run counter to the Program’s expectations for open reporting, as we show in “Clinicians’ Professional Values and the Patient Safety Program.” Clinicians’ Professional Values and the Patient Safety Program Nurse 1: There is much trust within the nursing profession. We have to trust each other because of the critical nature of passing patients from one shift to another. Nurse 2: The only group I worry about is Clerical. Their work is frontline and high-stress, but it’s entry level, so they may have never worked in a hospital before. We have to double-check their work because there’s no system in the clinic to verify orders, as there is in the hospital. Nurse 3: We trust those we work with. The exception is Housekeeping. We have to continually call to complain about the cleanliness of the clinic. Nurse 4: Nurses have a value system in which we “eat our young,” which undercuts comfort in reporting errors. Traditionally, older nurses taught younger ones their way of doing things, and the younger ones were punished when they failed to do things that way. Now, we must allow nurses to do things a new way without punishment. Nurse 5: I keep hearing that we’re looking to learn and not blame. Nursing culture is a blaming culture, and is helping to stop this. Nurse 6: The model in nursing is “a nun with a ruler.” Physician 1: The culture is changing, but it’s taking a while. I’m impressed with administration here that tries to say, “How can we learn from this?” Physician 2: To promote the Program, you have to have a change to a no-blame culture. Physician 3: Clinicians have to stop blaming each other and learn from their mistakes. VA clinicians explained that nurses see themselves as the patients’ first and last guard against harm during care. Nurses are expected to be double- checking physicians’ orders, medicines, and dressings and, for example, preventing falls or suicide attempts. Generally speaking, in their traditional role, nurses feel personally responsible for patients’ welfare and are designated to fulfill that role. They hold fast to protocols as safety devices, follow rules, and double-check work orders. Some spoke favorably of a bygone era when nurses could be counted on to back up one another, while many others thought this described their current work environment. In contrast, VA staff told us that physicians have thought of themselves as taking more original and independent actions but not as part of a multidisciplinary team. Their actions, based on traditional professional values, would thus undercut mutual trust. Physicians told us that patient safety would be improved if they were better trained to work on teams. Both nurses and physicians face many obstacles to improving patients’ safety in the increasingly complex and ever changing world of medicine. VA clinicians take seriously their mission as caretakers of the nation’s veterans, many of whom are older and have multiple chronic diseases, making these efforts to improve patient safety even more challenging. Many told us that they feel ethically and morally bound as frontline caretakers to keep their patients safe by reducing the number of adverse events and close calls. Although VA conducted a cultural assessment survey in 2000 and plans to resurvey VA staff in the near future, it has not measured staff familiarity with, participation in, and cultural support for the Program. For example, it did not ask about staff knowledge and understanding of key concepts (close call reporting, RCAs, and VA’s confidential reporting system to NASA) or RCA participation. Although the 2000 survey did describe some important attitudes about patient safety, such as shame and punishment related to reporting adverse events, it did not explicitly measure mutual trust among staff, a central theme of VA clinicians in describing what affected patient safety and a supportive culture. Finally, while NCPS staff asked each facility to administer the survey to a random sample, many facilities did not follow their directions. The VA survey may serve as a baseline measure of national local trends, but it could not be used to identify facility-level improvements or interventions. VA leaders at some facilities we studied showed staff they support the Program by telling stories. They used the stories to publicly demonstrate a changed and open atmosphere for learning from adverse events and close calls, for example. While leaders must still distinguish episodes that warrant professional accountability, they must fairly draw the line between system fixes and performance issues. One way to do this is by repeating stories that demonstrate that VA leaders encourage a culture that supports the Program and an atmosphere of open reporting and learning from past close calls and adverse events. Leaders supported the Program by telling staff stories that demonstrated a systems change to safeguard patients after a medical adverse event was reported. Storytelling has a long tradition in medicine as way of teaching newcomers about a group’s social norms. One leader shared with us the story he used to kick off VA’s Patient Safety Program. Each time he tells the story, he confirms the importance of changing VA’s culture and helps transform the organization because staff remember it. Instead of dismissing an employee who has reported not giving a patient the drug the patient was supposed to receive, the leader judged the adverse event to be a systems problem. In discussions with NCPS, the leader recognized that this story was an opportunity to show his staff that the facility was following the Program by taking a systems rather than a disciplinary approach and to highlight that reporting close calls and adverse events was critical in changing the patient care practice so that such problems would not recur. “Leaders’ Effective Promotion of Patient Safety in Staff Meetings” contains another example of storytelling to change communication practice. Leaders’ Effective Promotion of Patient Safety in Staff Meetings [The Administrative Official met with a unit leader and about 20 physicians and residents.] Administrative Official: The Patient Safety Program includes close calls as reportable incidents. [That is, VA is accepting staff reports of close calls.] A culture change is needed at VA, brought about by sharing a vision of what is valuable to us. We also want to show that leadership endorses the Program. [He walked the meeting through an aviation example that showed that the first officer should have challenged the captain, raising parallels with failure to question authority—or to “cross-check”— at this facility. He asked the group how they challenged authority effectively. Finally, he introduced RCAs as a new type of system analysis. Physicians continued their discussion.] Physician 1: Cross-checking is more effective if it’s not hostile. Physician 2: There are fewer errors in medical settings where there’s a stable team, but recently VA has been trying to do things more quickly with fewer staff. Physician 3: Communication is a problem on my unit, where we have 28 contract nurses. Physician 4: Could it be bad if one unit reported a lot of close calls? Physician 5: : VA has 50 years of being punitive. The Patient Safety Managers will be looking for patterns across a large number of reports, not seeking to blame individuals. Physician 6: Why can’t the reporting simply be open and the names of the reporters known? [Several members of the meeting talked about the fear of punishment that still existed.] Physicians 7 and 8: Are the forms discoverable? Can they be subpoenaed? Can the reports be anonymous? (continued from previous page) [In a subsequent interview, leaders told about how the Program was progressing.] Leader 1: We must change doing what you’re told without questioning orders. We tell nurses that it’s OK to challenge physicians in an atmosphere of mutual respect. We’re establishing it as a facility goal, keeping it on the front burner and keeping it a priority. Leader 2: Since leaders began visiting staff meetings to get the word out on close call reporting, we’ve noticed a change—a significant reduction in the fear of reporting close calls. Not all fear is gone, but the close call program is a success. Leader 3: Leadership raised safety consciousness with the close call airplane accident lesson. If it had been handed to us as just another memo, it might have been thrown away, but when leaders are there in person to answer questions, then it raises people’s awareness of patient safety. Physician 1: Leadership here went out and talked about patient safety. Their support and emphasis and bringing their level of importance to it made the Program happen. Staff at one facility told us that VA’s leadership supported the Program and the patient safety culture by teaching, coaching, and role modeling patient safety concepts to their staff in more than a hundred small meetings. VA’s leaders had a three-part agenda in their initial staff meetings. First, they taught a scenario in which two pilots failed to communicate well enough to avoid a fatal crash. The first officer did not cross-check and challenge an order from his captain to descend in a wind shear, resulting in the plane’s crashing and killing 37 people. Facility leaders depicted the strong parallels—-including the communication effects of unequal power relationships and hierarchical decisionmaking discussed earlier—- between the pilots’ communication to save the plane and clinicians’ communications to save the patient. Second, they discussed the importance of communications in medical care, coaching lower-level staff to speak up when they saw adverse events and emphasized the importance of two-way communication. Finally, they introduced a new close call reporting program at the facility and modeled for staff that they supported this type of reporting in introducing the new Program and its elements. “Leaders’ Effective Promotion of Patient Safety in Staff Meetings” presents a portion of one such meeting and also interviews with VA staff when they discussed how the staff meetings had raised their consciousness about patient safety. “Leaders’ Effective Promotion” represents more than a hundred small meetings conducted at one facility that successfully demonstrated that patient safety was a priority for the organization. When top leaders attended staff meetings, staff listened to their message. It may be no coincidence that this facility had the highest rating for comfort in reporting, according to the findings of our survey. Many staff at this facility told us that because their top leaders spoke to them about the Program, they concluded that the Program and its culture change were a priority for their leaders. Midlevel staff also acknowledged progress but admitted to some remaining fear. Participants heard their leaders say that challenging authority—here called “cross-checking”—was important for patient safety. They were asked to compare their own communication patterns with the aviation crew’s communication in a similarly high-risk setting that depended on teamwork. The administrative official at the medical facility meeting, drawing an analogy between the aviation example and participants’ work, noted that an RCA had found that an adverse event could have been prevented if authority had been challenged. His message to the meeting’s participants was that VA’s leadership saw cross-checking as acceptable and necessary. The same facility that held small meetings for staff developed a close call reward system that reinforced the idea that reporting a close call not only did not result in punishment but was actually rewarded. Staff feared a negative atmosphere when the close call program was first established, with staff telling on one another, but this did not occur. The number of close calls at this facility was few before the reward program began. In the first 6 months of the program, 240 close calls were reported. While we were visiting the Patient Safety Managers, many staff called them to report close calls; each staff member was given a $4 cafeteria certificate. Patient Safety Managers at this facility told us that they rewarded reporting, no matter who reported or how trivial the report. The unit with the month’s best close call received a plate of cookies. The Patient Safety Manager reported that a milestone had been reached when a chief of surgery reported a close call—a first for surgery leadership. “Rewarding Close Call Reporting” paraphrases leaders and clinicians on the success of the close call program at their facility. Leader 1: With the close call program, the wards do not feel as secretive. VA leadership thought the new close call program might cause staff to turn on one another and begin to blame one another for reporting close calls, but this has not happened. Nurse 1: People are rewarded for reporting close calls and adverse events—and not punished. Nurse 2: I feel comfortable about reporting close calls and adverse events. When management first introduced the close call program, we thought everyone was going to tell on each other. If everyone starts to find out things about you, you could lose your job, because it could be on your record. You would have to ask yourself, “Is this something I would really want to tell someone about?” We thought it would be like “Big Brother Is Watching You.” But that is not what it’s like. I feel comfortable reporting close calls and adverse events. Administrative Official: To promote patient safety, we did a lot of reward and recognition to let staff know that what they have done is important. Other facilities did not have as extensive a reward system. At one facility, the Patient Safety Manager had recently given a certificate to someone who had done a good job in describing an adverse event. However, at another facility, the quality manager who supervised Patient Safety Managers told us that she thought it improper to reward staff for reporting: She did not want to reward people for almost making a mistake. Clinicians in our interviews, however, pointed to the need to develop reward programs around patient safety. For example, one nurse said that if she were the director, she would call staff to thank them for reporting close calls and adverse events and would develop a reward system. Clinicians’ familiarity with the Program and opportunities to participate in RCAs could be measured at each facility in order to identify facilities that require specific interventions. Because low familiarity or participation can hinder the success of the Program, VA could attempt to measure and improve basic staff familiarity with the Program’s core concepts and ensure opportunities to participate in RCA teams. Our study developed measures of familiarity with and participation in the Program by analyzing responses from interviews of a small random sample of clinicians, and these could be further developed into useful measures in a larger study. These measures could also be developed into goals to be achieved nationally and, more importantly, locally for each facility. According to the clinicians we interviewed, the supportive culture of individual facilities plays a critical role in clinicians’ participation in the Program and warrants VA leadership’s priority. In one of the three facilities where staff had above average familiarity with the Program, staff told us that fear prevented them from fully participating in the Program. From the clinicians’ vantage point, their leaders need not accept given levels of mutual trust or comfort in reporting close calls and adverse events; instead, once facilities are identified as having low cultural support for the Program, that can be a starting point for change. In our conversational interviews with clinicians, they consistently pointed to specific workplace conditions that fostered their mutual trust and comfort in reporting. Notably, management can take actions to stimulate culture change by developing a work environment that reinforces patient safety. Drawing from their own experience, clinicians had views that were consistent with many studies of culture change in organizations, indicating that leaders’ actions and open communication are important in the transformation sought under the Program. We were able to directly observe practices that have convinced frontline workers that the Program is a priority for VA, that it is worth their while to participate in it, and that by doing so medical facilities are safer for patients. These practices included leadership’s demonstrating to staff that patient safety is an organizational priority—for example, by coaching and by communicating safety stories in face-to-face meetings with all staff— and that the organization values reporting close calls because it rewards and does not punish staff for reporting them. To better assess the adequacy of clinicians’ familiarity with, participation in, and cultural support for the Program, we recommend that the Secretary of Veterans Affairs direct the Under Secretary for Health to take the following three actions: 1. set goals for increasing staff familiarity with the Program’s major concepts (close call reporting, confidential reporting program with NASA, root cause analysis), participation in root cause analysis teams, and cultural support for the Program by measuring the extent to which each facility has mutual trust and comfort in reporting close calls and adverse events; 2. develop tools for measuring goals by facility; and 3. develop interventions when goals have not been met. We provided a draft of this report to VA for its review. The Secretary of Veterans Affairs stated in a December 3, 2004, letter that the department concurs with GAO’s recommendations and will provide an action plan to implement them. VA also commented that the report did not address the question of whether VA’s work in patient safety improvement serves as a model for other healthcare organizations. GAO’s study was not designed to evaluate whether VA’s program was a model, compared with other programs, but was limited to how the program had been implemented in four medical facilities. VA also provided several technical comments that we incorporated as appropriate. To analyze the data we collected, we used content analysis, a technique that requires that the data be reduced, classified, and sorted. In content analysis, analysts look for, and sometimes quantify, patterns in the data. We conducted tests on clinicians’ responses to our key variables and found a number of significant differences. We also conducted intercoder reliability tests—that is, we assessed the degree to which coders agreed with one another. The tests showed that the consistency among the coders was satisfactory. Ethnography is a social science method, embracing qualitative and quantitative techniques, developed within cultural anthropology for studying a wide variety of communities in natural settings. It allowed us to study the Program in VA’s medical facilities. Ethnography is particularly suited to exploring unknown variables, such as studying what in VA’s culture at the four facilities affected the Program. In our open-ended questions, we did not supply the respondents with any answer choices. We allowed them to talk at length, and therefore the interviews lasted anywhere from a half hour to an hour or more. Ethnography is also useful for giving respondents the confidence to talk about sensitive topics. We anticipated that clinicians would find the study of VA’s medical facility culture, including staff views of close calls and adverse events, a sensitive subject. Therefore, we gave full consideration to the format and context of the interviews. Although ethnography is commonly associated with lengthy research aimed at understanding remote cultures, it can also be used to inform the design, implementation, and evaluation of public programs. Governments have used ethnography to gain a better understanding of the sociocultural life of groups whose beliefs and behavior are important to federal programs. For example, the U.S. Census Bureau used ethnographic techniques to understand impediments to participation in the census among certain urban and rural groups that have long been undercounted. We conducted fieldwork for approximately a week at each of two facilities, for 3 weeks at a third, and for 25 days at the fourth. Although ethnographers traditionally conduct fieldwork over a year or more, we used a more recent rapid assessment process (RAP). RAP is an intensive, team-based ethnographic inquiry using triangulation and iterative data analysis and additional data collection to quickly develop a preliminary understanding of a situation from the insider’s perspective. We drew two samples, one judgmental and one random. To understand how the Program was implemented at each medical facility, we conducted approximately a hundred nonrandom interviews with facility leaders, Patient Safety Managers, and a variety of facility employees at all levels, from maintenance workers, security officers, nursing aides, and technicians to department heads. This allowed us a detailed understanding of how the Program was implemented at each facility. To ensure that we represented clinicians’ views at all four facilities, we selected a random sample of 80, using computer-generated random numbers from an employee roster of clinicians, yielding 10 physicians and 10 nurses at each facility. While this provided us with a representative sample of clinicians (physicians and nurses) from each facility, the size of this sample was too small to provide a statistical basis for generalizing from our survey results to the entire facility or to all facilities. For both samples, we used a similar semistructured questionnaire (see app. III). It consisted of mostly open-ended questions and a few questions with yes-or-no responses. At every interview, we asked staff for their ideas, and we incorporated a number of their perspectives into this report. A hallmark of ethnography is its observation of behavior, attitudes, and values. Observation is conducted for a number of purposes. One is to allow ethnographers to place the specific issue or program they are studying in the context of the larger culture. Another, in our case, was to allow some facility staff to feel more comfortable with us as we interviewed them. Both purposes worked for us in this study. Because we had observed meetings and RCA teams at work, we could better understand respondents’ answers. Respondents noted how comfortable they were in talking to us and how different our conversational interviews were from other interviews they had experienced in the past. We observed staff in their daily activities. For example, we accompanied a nurse while she administered medication using bar code technology that scans the medication and the patient’s wristband. We also observed staff at numerous meetings, including RCA team meetings, patient safety conferences, patient safety training sessions, staff meetings in which patient safety was discussed, and daily leadership meetings. Our methodology included collecting data from facility records. We examined all close calls and adverse events reported for a 1-month period and all RCA reports conducted at each facility, and we reviewed administrative boards and rewards programs. We read minutes from patient safety committees and other committees that addressed safety issues. Our data were mostly recorded, but some interviews were written, depending on respondents’ permission to record. Using AnnoTape, qualitative data analysis software, we coded the interviews for both qualitative and quantitative patterns, and we used the software to capture paraphrases for our analysis. We developed a prescriptive codebook to guide the coders in identifying interviews and classifying text relevant to our variables. After several codebook drafts, we agreed on common definitions and uses for the codes. In the content analysis of our random sample data, we looked for patterns, associations, and trends. AnnoTape allowed us to mark a digital recording or transcribed text with our codes and then sort and display all the marked audio or text bites by these codes. Because all the coders operated from a common set of rules, we achieved a satisfactory intercoder rater reliability score. AnnoTape also allowed us to record prose summaries of the interviews, some of which paraphrased what the clinicians said; the paraphrases we present in the report reflect the range of views and perceptions of VA staff at the four medical facilities. A rough gauge of the importance of their views is discernible in the extent to which certain opinions or perceptions are repeatedly expressed or endorsed. Using the statistical package SAS, we analyzed the variables with two- choice and three-choice answers and transferred them to an SAS file for quantitative analysis. Among the quantifiable variables were five yes-or-no questions asking about respondents’ familiarity with key elements of the Patient Safety Program. We created a new variable that reflected a composite familiarity score for the Program, using the five questions about familiarity with the key elements (the questions are listed in the note to fig. 4). We also assessed respondents’ levels of comfort in reporting close calls and adverse events and mutual trust among staff at each facility, based on each whole interview. We used these two assessments, rated high, middle, or low to characterize cultural support for the Patient Safety Program. In quantifying verbal answers for display and comparison purposes, we decided that the maximum individual familiarity, trust, and comfort levels should be 10. Thus, in each key elements question, we let “yes” equal 2 and “no” equal 0, ensuring that an individual who knew all of the five elements would achieve a composite score of 10. Finally, we averaged composite scores to get an average score for each facility. In the trust and comfort summary judgments, we let “high” equal 10, “medium” equal 5, and “low” equal 0. Rather then display these numbers, we used a scale of high, medium, and low for 10, 5, and 0 and placed the answers accordingly. We were able to determine statistically significant differences in clinicians’ responses by facility and, unless otherwise noted, we report only significant results. First, we conducted a nonparametric statistical test, called Kruskal-Wallis, on all possible comparisons in the subset of variables that we report in our text. Four of these variables were central to the report: comfort summary score, trust summary score, close call score, and root cause score. In the Kruskal-Wallis test, each observation is replaced with its rank relative to all observations in the four samples. Tied observations are assigned the midrank of the ranks of the tied observations. The sample rank mean is calculated for each facility by dividing its rank sum by its sample size. If the four sampled populations were actually identical, we would expect our sample rank means to be about equal—that is, we would not expect to find any large differences among the four medical facilities. The Kruskal- Wallis test allows us to determine whether at least one of the medical facilities differs significantly from at least one other facility. This test showed that—for each of the comfort, trust and close call variables—at least one of the medical facilities differed significantly from at least one of the other medical facilities. Next, we conducted a follow-up test to determine specifically which pairs of medical facilities were significantly different from other pairs on key variables. This follow-up test is a nonparametric multiple comparison procedure called Dunn’s test. Our using Dunn’s test meant testing for differences between six pairs of medical facilities: A vs. B, A vs. C, A vs. D, B vs. C, B vs. D, and C vs. D. Table 4 presents the results of Dunn’s test, along with each facility’s sample rank mean and sample size. The pairs of facilities that are statistically significantly different from one another are in the far right column. Note that for the root cause characteristic, there are no statistically significant findings from the multiple comparison testing, which conforms to the results of the earlier Kruskal-Wallis test on root cause. Consistency among the three coders was satisfactory. We assessed agreement among the coders for selected variables for interviews with seven clinicians—that is, we assessed the extent to which they consistently agreed that a response should be coded the same. To measure their agreement, we used Krippendorff’s alpha reliability coefficient, which equals 1 when coders agree perfectly or 0 when coders agree as if chance produced the results, indicating a lack of reliability. Our Krippendorff’s alpha values ranged from 0.636 to 1.000 for nine of the selected variables (see table 5). Compared with Krippendorff’s guidelines that alpha is at least 0.8 for an acceptable level of agreement and ranges from 0.667 to 0.8 for a tentative acceptance, we believe our overall our results are satisfactory. This timeline highlights the training programs and other events NCPS completed between 1997 and 2004. VA announces a special focus on patient safety VA drafts patient safety handbook VA develops Patient Safety Event Registry Patient Safety Awards Program begins Expert Advisory Panel is convened to look at reporting systems Four Patient Safety Centers of Inquiry are funded NCPS is established and funded VA informs Joint Commission on Accreditation of Healthcare Organizations that it will go beyond JCAHO’s sentinel event reporting system to include close calls VA pilots RCAs at six facilities Institute of Medicine issues To Err Is Human VA and NASA sign interagency agreement on the confidential Patient Safety Reporting System NCPS adverse event and close call reporting system established throughout VA NCPS trains clinical and quality improvement staff in patient safety topics, including the RCA process VA establishes Patient Safety Manager (hospital level) and Officer (network level) positions Online and print newsletter Topics in Patient Safety begins publication RCA software is rolled out Facilities and networks are given the performance measure of completing RCAs in 45 days Healthcare Failure Mode and Effect Analysis (HFMEA), a proactive risk assessment tool is developed by VA and rolled out through multiple videoconferences Aggregate RCA implementation is phased in over the year New hires are trained in RCAs and Patient Safety Officers and Managers are given refresher training The Veterans Health Administration’s Patient Safety Improvement Handbook, 3rd rev. ed. (VHA 1050.1), is officially adopted Facilities are given a new performance measure, being required to conduct proactive risk assessment, using HFMEA to review contingency plans for failure of the electronic bar code medication administration system The American Hospital Association (AHA) sends Program tools developed by VA to 7,000 hospitals Rollout of confidential reporting to NASA is largely complete Facility directors receive a day of training to reinforce what they could do to improve the success of their patient safety programs Facilities are given a performance measure for timely installation of software patches to critical programs VA begins to provide training, funded by the Department of Health and Human Services, for state health departments and non-VA hospitals as the “Patient Safety Improvement Corps, an AHRQ/VA Partnership” From 1999 through 2004, NCPS has conducted training in the Patient Safety Program. It was attended primarily by quality managers and Patient Safety Officers and Managers. Typically, the training lasted 3 days and included an introduction to the new Patient Safety Improvement Handbook and small group training in the RCA process. Trainees, especially Patient Safety Managers, were expected to take the Program back to their medical facilities, collect and transmit reported adverse events and close calls to NCPS, and guide clinicians in the RCA teams. We observed health fairs at several of the four facilities. Beginning in 2003, NCPS convened medical facility directors and other managers in 1-day sessions that introduced them to the systemic approach to improving patient safety, including a blame-free approach to adverse events in health care. Additional staff who made major contributions to this report were Barbara Chapman, Bradley Trainor, Penny Pickett, Neil Doherty, Jay Smale, George Quinn and Kristine Braaten. Donna Heivilin, recently retired from GAO, also played an important role in preparing this report. A research and development arm of NCPS’s Patient Safety Program. The centers concentrate on identifying and preventing avoidable, adverse events, and each has a different focus. An event or situation that could have resulted in harm to a patient but, by chance or timely intervention, did not. It is also referred to as a “near miss.” Staff directly involved with patient care. An incident directly associated with care or services provided within the jurisdiction of a medical facility, outpatient clinic, or other Veterans Health Administration facility. Adverse events may result from acts of commission or omission. JCAHCO is an accrediting organization for hospitals and other health care organizations. A VA hospital and its related nursing homes and outpatient clinics. NCPS is the hub of VA’s Patient Safety Program, where approximately 30 employees work, in Ann Arbor, Michigan. Other employees work in the Center of Inquiry in White River Junction, Vermont, and in Washington, D.C. PSRS, a confidential and voluntary reporting system in which VA staff may report close calls and adverse events to a database at the National Aeronautics and Space Administration. An interdisciplinary group that identifies the basic or contributing causes of close calls and adverse events.

The Department of Veterans Affairs (VA) introduced its Patient Safety Program in 1999 in order to discover and fix system flaws that could harm patients. The Program process relies on staff reports of close calls and adverse events. GAO found that achieving success requires a cultural shift from fear of punishment for reporting close calls and adverse events to mutual trust and comfort in reporting them. GAO used ethnographic techniques to study the Patient Safety Program from the perspective of direct care clinicians at four VA medical facilities. This approach recognizes that what people say, do, and believe reflects a shared culture. The focus included (1) the status of VA's efforts to implement the Program, (2) the extent to which a culture exists that supports the Program, and (3) practices that promote patient safety. GAO combined more traditional survey methods with those from ethnography, including in-depth interviews and observation. GAO found progress in staff familiarity with and participation in the VA Patient Safety Program's key initiatives, but these achievements varied substantially in the four facilities we visited. In our study conducted from November 2002 through August 2004, three-fourths of the clinicians across the facilities were familiar with the concepts of teams investigating root causes of unintentional adverse events and close calls. One-third of the staff had participated in such teams, and most who participated in these teams found it a positive learning experience. The cultural support clinicians expressed for the Program also differed. At three of four facilities, GAO found a supportive culture, but at one facility the culture blocked participation for many clinicians. Clinicians articulated two themes that could stimulate culture change: leadership actions and open communication. For example, nurses need the confidence to disagree with physicians when they find an unsafe situation. Although VA has conducted a cultural survey, it has not set goals or explicitly measured, for example, staff familiarity and mutual trust. Clinicians reported management practices at one facility that had helped them adopt the Program, including (1) story-telling techniques such as leaders telling about a case in which reporting an adverse event resulted in system change, (2) management efforts to coach staff, and (3) reward systems. The Patient Safety Program Process shows how ideally (1) clinicians have cultural support for reporting adverse events and close calls, (2) teams investigate root causes, (3) systems are changed, (4) feedback and reward systems encourage reporting, and (5) patients are safer.

You are an expert at summarizing long articles. Proceed to summarize the following text: The FLSA requires that workers who are covered by the act and not specifically exempt from its provisions be paid at least the federal minimum wage (currently $7.25 per hour) and 1.5 times their regular rate of pay for hours worked over 40 in a workweek. The act also regulates the employment of youth under the age of 18 and establishes recordkeeping requirements for employers, among other provisions. There are a number of exceptions to the requirements of the FLSA; for example, independent contractors are not covered by the FLSA, and certain categories of workers, such as those in bona fide executive, administrative, or professional positions, are exempt from the minimum wage requirements, overtime requirements, or both. WHD has issued regulations implementing the FLSA that further define these exemptions and other requirements of the FLSA. The mission pursued by DOL through its WHD is to promote and achieve compliance with labor standards to protect and enhance the welfare of the nation’s workforce. The FLSA authorizes DOL to enforce its provisions by, for example, conducting investigations, assessing penalties, supervising payment of back wages, and bringing suit in court on behalf of employees. DOL’s WHD also conducts a range of compliance assistance activities to support employers in their efforts to understand and meet the requirements of the law. WHD’s enforcement and compliance assistance activities are conducted by staff in its 52 district offices, which are located throughout the country and managed by staff in its five regional offices and Washington, D.C. headquarters. In response to complaints of alleged FLSA violations it receives from workers or their representatives, WHD conducts several types of enforcement activities. These range from comprehensive investigations covering all laws under the agency’s jurisdiction to conciliations, a quick remediation process generally limited to a single alleged FLSA violation such as a missed paycheck for a single worker. Before WHD initiates an investigation of a complaint, it screens the complaint to determine, among other factors, whether the allegations, if true, would violate the law, and to ensure the statute of limitations has not expired. If WHD identifies a violation through an enforcement activity, but the employer refuses to pay the back wages or penalties assessed, DOL’s Office of the Solicitor may sue the employer on behalf of the affected workers. In fiscal year 2012, WHD conducted investigations or conciliations in response to about 20,000 FLSA complaints and DOL’s Office of the Solicitor filed about 200 federal lawsuits to enforce the requirements of the FLSA on behalf of workers. In addition to responding to complaints, WHD enforces the requirements of the FLSA by initiating investigations of employers by targeting industries it believes have a high probability of violations but a low likelihood that workers will file a complaint. In fiscal year 2012, WHD concluded about 7,000 targeted FLSA investigations. WHD encourages compliance with the FLSA by providing training for employers and workers and creating online tools and fact sheets that explain the requirements of the law and related regulations, among other efforts. The agency refers to these efforts collectively as compliance assistance. One form of FLSA compliance assistance WHD provides is written interpretive guidance that attempts to clarify the agency’s interpretation of a statutory or regulatory provision. WHD disseminates this guidance to those who request it—such as employers and workers— and posts it on the WHD website for public use. WHD’s interpretive guidance includes opinion letters which apply to a specific situation. However, in 2010, WHD stopped issuing opinion letters and indicated that it would instead provide administrator interpretations, which are more broadly applicable. As a result of the Portal-to-Portal Act of 1947, which established a “safe harbor” from liability under the FLSA for employers that rely in good faith on a written interpretation from WHD’s administrator, certain WHD written guidance could potentially provide a “safe harbor” in FLSA litigation. The FLSA also grants workers the right to file a private lawsuit to recover wages they claim they are owed because of their employer’s violation of the act’s minimum wage or overtime pay requirements. WHD cannot investigate all of the thousands of complaints it receives each year because of its limited capacity. Therefore, the agency informs workers whose complaints of FLSA violations are not investigated or otherwise resolved by WHD of their right to file a lawsuit. Workers filing an FLSA lawsuit may file in one of the 94 federal district courts, which are divided into 12 regional circuits across the country. FLSA lawsuits may be brought individually or as part of a collective action. A collective action is a single lawsuit filed by one or more representative workers on behalf of multiple workers who claim that an employer violated the FLSA in similar ways. The court will generally certify whether an action meets the requirements to proceed as a collective; in some cases, the court may decertify a collective after it is formed if the court subsequently determines that the collective does not meet those requirements. In such cases, the court may permit the members of the decertified collective to individually file private FLSA lawsuits. Over the last two decades, the number of FLSA lawsuits filed nationwide in federal district courts has increased substantially, with most of this increase occurring in the last decade. Since 1991, the number of FLSA lawsuits filed has increased by 514 percent, with a total of 8,148 FLSA lawsuits filed in fiscal year 2012. Since 2001, when 1,947 FLSA lawsuits were filed, the number of FLSA lawsuits has increased sharply (see fig. 1). Not only has the number of FLSA lawsuits increased, but they also constitute a larger proportion of all federal civil lawsuits than they did in past years. In 1991, FLSA lawsuits made up less than 1 percent (.6 percent) of all civil lawsuits, but by 2012, FLSA lawsuits accounted for almost 3 percent of all civil lawsuits, an increase of 383 percent. These increases, however, were not evenly distributed across all states. In fact, while federal district courts in most states saw increases in both the number of FLSA lawsuits filed and the percentage of all civil lawsuits filed that were FLSA lawsuits, increases in a small number of states were substantial and contributed significantly to the overall trends. In each of three states—Florida, New York, and Alabama—more than 1,000 more FLSA lawsuits were filed in fiscal year 2012 than in fiscal year 1991 (see fig. 2). Since 2001, more than half of all FLSA lawsuits were accounted for by filings in those three states. About 43 percent of FLSA lawsuits filed nationwide during this period were filed in either Florida (33 percent) or New York (10 percent). At the same time, the percentage of all federal civil cases that were FLSA cases in those three states also increased significantly. In both Florida and New York, growth in the number of FLSA lawsuits filed was generally steady, while changes in Alabama involved sharp increases in fiscal years 2007 and 2012 with far fewer lawsuits filed in other years. Each spike in Alabama coincided with the decertification of at least one large collective action, which likely resulted in multiple individual lawsuits. From 1991 to 2012, while most states experienced increases in the number of FLSA lawsuits filed, the proportion of civil lawsuits that were FLSA lawsuits, or both, these trends were not universal. In 14 states, the number of FLSA lawsuits filed in 2012 was less than or the same as the number of FLSA lawsuits filed in 1991, and in 10 states the proportion of civil lawsuits FLSA cases made up was smaller in 2012 than in 1991. While many factors have likely contributed to the overall increase in FLSA lawsuits and stakeholders we interviewed cited multiple factors, they most frequently cited increased awareness about FLSA cases and activity on the part of plaintiffs’ attorneys as a significant contributing factor. Many stakeholders, including two plaintiffs’ attorneys, told us that financial incentives, combined with the fairly straightforward nature of many FLSA cases, made attorneys receptive to taking these cases. In some states, specifically Florida, where nearly 30 percent of all FLSA lawsuits were filed from 1991 to 2012, several stakeholders, including federal judges, WHD officials, and a defense attorney, told us that plaintiffs’ attorneys advertise for wage and hour cases via billboards, radio, foreign language press, and other methods. Two stakeholders we spoke with also said that some plaintiffs’ attorneys, when consulted by potential clients about other employment issues, such as wrongful termination, will inquire about potential wage and hour claims; a plaintiffs’ attorney we interviewed also said that it is generally easier to evaluate the potential merits of wage and hour cases than of wrongful termination and employment discrimination cases. While a few stakeholders said they did not view increased interest among plaintiffs’ attorneys to be a significant factor in the increase in FLSA lawsuits, most did, including some plaintiffs’ attorneys. Two stakeholders, including an academic and a representative of an organization that works on behalf of low wage workers, told us that this increased interest was beneficial because it served to counterbalance DOL’s limited FLSA enforcement capacity. In addition, several stakeholders told us that evolving case law may have contributed to the increased awareness and activity on the part of plaintiffs’ attorneys. In particular, they mentioned the 1989 Supreme Court decision Hoffmann–La Roche, Inc. v. Sperling, which held that federal courts have discretion to facilitate notice to potential plaintiffs of ongoing collective actions. Historically, according to several stakeholders, the requirement that plaintiffs must “opt in” to a collective action had created some challenges to forming collectives because the plaintiffs’ attorneys had to identify potential plaintiffs and contact them to get them to join the collective. Stakeholders we interviewed said the Hoffmann-La Roche decision, which made it easier for plaintiffs’ attorneys to identify potential plaintiffs, reduced the work necessary to form collectives. In addition, according to several stakeholders we interviewed, case law in other areas of employment litigation, such as employment discrimination, has evolved, making FLSA cases relatively more attractive for plaintiffs’ attorneys who specialize in employment litigation and large multi-plaintiff cases. For example, one attorney cited two Supreme Court decisions in the late 1990s that made it more difficult for plaintiffs in employment- based sex discrimination lawsuits to prevail, and led plaintiffs’ attorneys to consider other types of employment litigation such as FLSA cases. Stakeholders also cited other factors that may have contributed to the increase in FLSA litigation over the last two decades; however, these factors were endorsed less consistently than the role played by plaintiffs’ attorneys. First, a number of stakeholders said that economic conditions, such as the recent recession, may have played a role in the increase in FLSA litigation. Workers who have been laid off face less risk when filing FLSA lawsuits against former employers than workers who are still employed and may fear retaliation as a result of filing lawsuits. In addition, some stakeholders said that, during difficult economic times, employers may be more likely to violate FLSA requirements in an effort to reduce costs, possibly resulting in more FLSA litigation. Moreover, one judge we interviewed noted that the recent recession has also been difficult for attorneys and may be a factor in the types of lawsuits and clients they choose to accept. In addition, ambiguity in applying the FLSA statute or regulations—particularly the exemption for executive, administrative, and professional workers—was cited as a factor by a number of stakeholders. In 2004, DOL issued a final rule updating and revising its regulations in an attempt to clarify these exemptions and provided guidance about the changes, but a few stakeholders told us there is still significant confusion among employers about which workers should be classified as exempt under these categories. Finally, the potentially large number of wage and hour violations was given as a possible reason for the increase in FLSA litigation. Federal judges in New York and Florida attributed some of the concentration of such litigation in their districts to the large number of restaurants and other service industry jobs in which wage and hour violations are more common than in some other industries. An academic who focuses on labor and employment relations told us that centralization in the management structure of businesses in retail, restaurant, and similar industries has contributed to FLSA lawsuits in these industries because frontline managers who were once exempt have become nonexempt as their nonmanagerial duties have increased as a portion of their overall duties. Service jobs, including those in the leisure and hospitality industry, increased from 2000 to 2010, while most other industries lost jobs during that period. Many stakeholders also told us that the prevalence of FLSA litigation by state is influenced by the variety of state wage and hour laws. For example, while the federal statute of limitations for filing an FLSA claim is 2 years (3 years if the violation is “willful”), New York state law provides a 6-year statute of limitations for filing state wage and hour lawsuits. A longer statute of limitations may increase potential financial damages in cases because more pay periods are involved and because more workers may be involved. Adding a New York state wage and hour claim to an FLSA lawsuit in federal court may expand the potential damages, which, according to several stakeholders, may influence decisions about where and whether to file a lawsuit. In addition, according to multiple stakeholders we interviewed, because Florida lacks a state overtime law, those who wish to file a lawsuit seeking overtime compensation generally must do so under the FLSA. Our review of a representative sample of FLSA lawsuits filed in federal district court in fiscal year 2012 showed that approximately half were filed against private sector employers in four industries. Almost all FLSA lawsuits (97 percent) were filed against private sector employers. An estimated 57 percent of the FLSA lawsuits filed in fiscal year 2012 were filed against employers in four broad industry areas: accommodations and food services; manufacturing; construction; and “other services” which, in our sample, included services such as laundry services, domestic work, and nail salons. Almost one-quarter of all lawsuits filed (an estimated 23 percent) were filed by workers in the accommodations and food service industry, which includes hotels, restaurants, and bars. This concentration of lawsuits is consistent with what several stakeholders, including DOL officials, told us about the large number of FLSA violations in the restaurant industry. At the same time, almost 20 percent of FLSA lawsuits were filed by workers in the manufacturing industry. In our sample, most of these lawsuits were filed by workers in the automobile manufacturing industry in Alabama, and most were individual lawsuits filed by workers who were originally part of one of two collective actions that had been decertified. It is important to note that, because of the presence of collective actions, the number of lawsuits filed against an industry’s employers may understate the number of plaintiffs involved in these suits. FLSA lawsuits filed in fiscal year 2012 included a variety of alleged FLSA violations in addition to at least one of the three types of claims— overtime, minimum wage, and retaliation—that each private FLSA lawsuit must at minimum contain. Allegations of overtime violations were the most common type among those explicitly stated in the documents we reviewed (see fig. 3). An estimated 95 percent of the FLSA lawsuits filed in fiscal year 2012 alleged violations of the FLSA’s overtime provision, which requires certain types of workers to be paid at one and a half times their regular rate for any hours worked over 40 during a workweek. Thirty-two percent of the FLSA lawsuits filed in fiscal year 2012 contained allegations that the worker or workers were not paid the federal minimum wage, another main provision of the FLSA, while a smaller percentage of lawsuits included allegations that the employer unlawfully retaliated against workers (14 percent). In addition, the majority of lawsuits contained other FLSA allegations, most often that the employer failed to keep proper records of hours worked by the employees (45 percent); failed to post or provide information about the FLSA, as required (7 percent); or violated requirements pertaining to tipped workers such as restaurant wait staff (6 percent). We also identified more specific allegations about how workers claimed their employers violated the FLSA. Nearly 30 percent of the FLSA lawsuits filed in fiscal year 2012 contained allegations that workers were required to work “off-the-clock” so that they would not need to be paid for that time, and 16 percent alleged that workers were not paid appropriately because they were employees who were misclassified as being exempt from FLSA protections. In a similar proportion of cases (13 percent), alleged overtime violations were claimed to be the result of the miscalculation of the wage rate a worker was entitled to as overtime pay. Such miscalculations could be the result, for example, of an employer not factoring in bonuses paid to workers when determining their regular rate of pay, which is used for the calculation of the overtime pay rate. Other lawsuits included allegations that a worker was misclassified as an independent contractor rather than an employee (4 percent). Independent contractors are generally not covered by the FLSA, including its minimum wage and overtime provisions. In our review of FLSA lawsuits filed in fiscal year 2012, we found that a majority of them were filed as individual actions, but collective actions also composed a substantial proportion of these lawsuits. Collective actions can serve to reduce the burden on courts and protect plaintiffs by reducing costs for individuals and incentivizing attorneys to represent workers in pursuit of claims under the law. They may also protect employers from facing the burden of many individual lawsuits; however, they can also be costly to employers because they may result in large amounts of damages. We found that an estimated 58 percent of the FLSA lawsuits filed in federal district court in fiscal year 2012 were filed individually, and 40 percent were filed as collective actions. An estimated 16 percent of the FLSA lawsuits filed (about a quarter of all individually- filed lawsuits), however, were originally part of a collective action that was decertified (see fig. 4). For example, 14 of the 15 lawsuits in our sample filed in Alabama were filed by individuals who had been members of one of two collectives that were decertified in fiscal year 2012. Consistent with its stated mission of promoting and achieving compliance with labor standards, WHD has an annual process for planning how it targets its FLSA enforcement resources. Each year, WHD’s national office plans the share of its enforcement resources that will be used for targeted investigations versus responding to complaints it receives from workers or their representatives about potential FLSA violations. To plan the deployment of its resources for targeted investigations, WHD identifies broad initiatives that focus on industries it determines have a high likelihood of FLSA violations and where workers may be particularly vulnerable. For example, WHD has targeted industries where workers may be less likely to complain about violations or where the employment relationship is splintered because of models such as franchising or subcontracting. WHD’s regional and district offices then refine the list of priority industries to develop plans that focus on the most pressing issues in their areas. Each year, with input and ultimate approval from the national office, WHD’s regional and district offices use these plans to target their enforcement resources. In developing their enforcement plans, WHD considers various inputs. For example, WHD officials consider the nature and prevalence of FLSA violations by using historical enforcement data to study trends in FLSA complaints and investigation outcomes in particular areas. University- based researchers under contract with DOL have also used the agency’s historical enforcement data to help it plan for and strategize its FLSA enforcement efforts. In addition, WHD considers data from external sources, such as reports from industry groups, advocacy organizations, and academia. Although WHD’s national office is aware of significant FLSA lawsuits through its monitoring of FLSA issues in court decisions, WHD’s national, regional, and district offices do not analyze data on the number of FLSA lawsuits filed or use the results of such analyses to inform their enforcement plans. WHD officials noted that data on the number of FLSA lawsuits filed may not provide an accurate or sensitive gauge of FLSA violations because the number of workers involved and the outcomes of these lawsuits are not readily available. In developing their annual enforcement plans, WHD regional and district offices identify approaches to achieving compliance given the industry structure and the nature of the FLSA violations that they seek to address. According to WHD internal guidance, strategic enforcement plans should not only include targeted investigations of the firms that employ workers potentially experiencing FLSA violations, but they should also contain strategies to engage related stakeholders in preventing such violations. For example, if a WHD office plans to investigate restaurants to identify potential violations of the FLSA, it should also develop strategies to engage restaurant trade associations about FLSA-related issues so that these stakeholders can help bring about compliance in the industry. Our prior reports and DOL’s planning and performance documents have emphasized the need for WHD to help employers comply with the FLSA. In documenting best practices about planning and performance management, we have suggested that agencies “involve regulated entities in the prevention aspect of performance.” In the case of WHD, this best practice means helping employers voluntarily comply with the FLSA, among other laws. Similarly, DOL’s planning and performance documents have emphasized the importance of WHD promoting “sustained and corporate-wide compliance among employers” as a strategic priority. According to federal standards for internal control, program managers need operational data to determine whether they are meeting their agencies’ strategic and annual performance plans as well as their goals for effective and efficient use of resources. In addition, according to our guidance on the Government Performance and Results Act of 1993 (GPRA), for planning and performance measures to be effective, federal managers need to use performance information to identify problems and look for solutions and approaches that improve results. WHD expects staff in its regional and district offices to play a key role in delivering some forms of compliance assistance. For example, staff in the district offices respond directly to employers’ questions about laws such as the FLSA by providing informal guidance, most of which is offered over the phone but is sometimes provided in writing when the guidance is particularly technical. In addition, in each of WHD’s five regions, there are three or more staff who specialize in community outreach and planning. These specialists are involved in planning meetings and developing outreach efforts and other forms of compliance assistance as part of the annual, district-specific enforcement plans. Finally, WHD investigators in the field are responsible for providing information and education to employers during their enforcement actions. At the national level, WHD publishes FLSA-related guidance including notably its interpretive guidance, though this guidance is not informed by systematic analysis of data on requests for assistance. To develop and assess its interpretive guidance about the FLSA, WHD’s national office considers input from its regional offices, but it does not have a data-based approach that is informed by objective input, such as data on areas which employers and workers have indicated the need for additional guidance. Officials from WHD’s Office of Policy, which is responsible for publishing interpretive guidance about the FLSA, told us they meet with WHD regional and national office leadership weekly to discuss ongoing initiatives and emerging issues. While WHD collects some data on the inquiries it receives from the public via its call center, the Office of Policy does not analyze these data to help guide its development of interpretive guidance. According to WHD officials, the call center frequently refers callers with technical questions to a WHD district office, but WHD does not compile data on FLSA-related questions received by its district offices. In addition, WHD does not use advisory panels to gather input about areas of confusion that might be addressed with the help of additional or clarified interpretive guidance on the FLSA. WHD officials cited the administrative burdens associated with the Federal Advisory Committee Act as a deterrent to using such panels to inform its guidance. At the same time, despite the issuance of several FLSA-related fact sheets, WHD’s publication of FLSA-related interpretive guidance has declined in recent years. From 2001 to 2009, WHD published on its website, on average, about 37 FLSA interpretive guidance documents annually. However, in the last 3 years (2010 to 2012), WHD published seven FLSA interpretive guidance documents. WHD officials cited various reasons for this decline, including the resource-intensive nature of developing the guidance; WHD’s finite resources; and other priorities, such as promoting compliance with the Family and Medical Leave Act of 1993. In addition, WHD cited its issuance of several FLSA-related fact sheets, which WHD posts separately from interpretive guidance on its website. For example, in September 2013, WHD published several fact sheets about domestic service employment under the FLSA, and, in July 2013, it revised a fact sheet about ownership of tips under the FLSA. According to WHD officials, there is no backlog of requests for FLSA interpretive guidance; however, WHD does not maintain a system for tracking requests for such guidance. Because WHD does not have a systematic approach for identifying areas of confusion about the FLSA or assessing the guidance it has published, WHD may not be providing the guidance that employers and workers need. Of the nine wage and hour attorneys we interviewed, seven indicated that more interpretive guidance on the FLSA would be helpful to them. The attorneys cited determining whether workers qualify for exemptions and calculating workers’ regular rate of pay for purposes of overtime compensation as examples of FLSA topics on which more guidance would be useful. Some policymakers have raised questions about the effect that an increasing number of FLSA lawsuits might have on employers’ finances and their ability to hire workers or offer flexible work schedules and other benefits, but it is difficult to isolate the effect of these lawsuits from the effects of other influences such as changes in the economy. On the other hand, the ability of workers to bring such suits is an integral part of FLSA enforcement because WHD does not have the capacity to ensure that all employers are in compliance with the FLSA. While there has been a significant increase in FLSA lawsuits over the last decade, the reason for this increase is difficult to determine: it could suggest that FLSA violations have become more prevalent, that FLSA violations have been reported and pursued more frequently than before, or a combination of the two. Improved guidance from WHD might not affect the number of FLSA lawsuits filed, but it could increase the efficiency and effectiveness of WHD’s efforts to help employers voluntarily comply with the law. Without a precise understanding of the areas of the law and related regulations that are not clear to employers and workers, WHD may not be able to improve the guidance and outreach it provides in the most appropriate or efficient manner. A clearer picture of the needs of employers and workers would allow WHD to more efficiently design and target its compliance assistance efforts, which may, in turn, result in fewer FLSA violations. Moreover, using data about the needs of employers and workers in understanding the requirements of the FLSA would provide WHD greater confidence that the guidance and outreach it provides to employers and workers are having the maximum possible effect. Such data could, for example, serve as a benchmark WHD could use to assess the impact of its efforts. To help inform its compliance assistance efforts, the Secretary of Labor should direct the WHD Administrator to develop a systematic approach for identifying areas of confusion about the requirements of the FLSA that contribute to possible violations and improving the guidance it provides to employers and workers in those areas. This approach could include compiling and analyzing data on requests for guidance on issues related to the FLSA, and gathering and using input from FLSA stakeholders or other users of existing guidance through an advisory panel or other means. We provided a draft of this report to DOL for review and comment. DOL's WHD provided written comments, which are reproduced in appendix II. WHD agreed with our recommendation that the agency develop a systematic approach for identifying and considering areas of confusion that contribute to possible FLSA violations to help inform the development and assessment of its guidance. WHD stated that it is in the process of developing systems to further analyze trends in communications received from stakeholders such as workers and employers and will include findings from this analysis as part of its process for developing new or revised guidance. WHD also emphasized that it is difficult to determine with sufficient certainty that any particular action contributed to the described increase in FLSA lawsuits. In addition, WHD provided technical comments, which we incorporated as appropriate. We also provided a draft of this report to the Administrative Office of the United States Courts and the Federal Judicial Center. These agencies had no comments—technical or otherwise—on the report. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Labor, the Director of the Administrative Office of the United States Courts, and the Director of the Federal Judicial Center. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. To describe what is known about trends in the number of lawsuits filed under the Fair Labor Standards Act of 1938, as amended (FLSA), we analyzed federal district court data provided by the Federal Judicial Center. The data included case-specific information for all FLSA lawsuits filed in federal district court during fiscal years 1991 through 2012. We analyzed these data by year, circuit, state, and district. The Federal Judicial Center also provided data on the number of civil lawsuits filed during this time period, which we used to analyze the percentage of civil cases that were FLSA cases. We did not review FLSA lawsuits filed in state courts because data on these cases were not available in a consistent way. To provide context about identified trends such as the increase in FLSA lawsuits, we interviewed a range of FLSA stakeholders, including Department of Labor (DOL) officials, attorneys who specialize in wage and hour cases, federal district court and magistrate judges, officials from organizations representing workers and employers, and academics. To ensure balance, we interviewed both attorneys who represent plaintiffs and those who represent defendants. We identified some of these attorneys through organizations that represent workers, such as labor unions and advocacy organizations such as the National Employment Law Project, and industry organizations such as the National Small Business Association. In selecting judges to interview, we chose from districts with a significant increase in FLSA litigation in recent years as well as districts that had not seen such increases to ensure a variety of perspectives. To provide information on selected characteristics of FLSA lawsuits filed, we reviewed a nationally representative random sample of complaints from FLSA lawsuits filed in federal district court during fiscal year 2012. The sample of 97 complaints from FLSA lawsuits was drawn from the case-specific FLSA lawsuit data provided by the Federal Judicial Center. The filing date was determined by the “filing date” field, which records the date a case was docketed in federal court. Cases that were initially filed in federal court, cases removed from state court to federal court, cases transferred from another federal court, and cases for which a new federal docket was otherwise created during fiscal year 2012 (e.g., an individual docket created in fiscal year 2012 after a previously filed collective action was decertified) could be in our sample. We did not review cases from the federal courts of appeals because data linking appeals to their corresponding cases filed in district court were not readily available. All estimates from our sample have a 95 percent confidence interval of within plus or minus 10 percentage points. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval (e.g., plus or minus 10 percentage points). This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. After the sample was drawn, we used the docket number associated with each lawsuit in the sample to retrieve the complaint from the Public Access to Court Electronic Records (PACER) database and review and record information about the lawsuit. In cases where multiple complaints were associated with a docket, such as amended complaints, we used information from the first available complaint in the docket. We selected this approach to ensure that we recorded information for each individual case at approximately the same stage of litigation. We relied solely on information that could be ascertained from the complaint; we did not do additional research to confirm the accuracy of the information. With respect to our analysis of the specific types of violations alleged in our sample of complaints, our estimates include only those cases in which an allegation was explicitly made in the complaint. It is possible that a larger percent of FSLA litigation involved specific issues that were not alleged explicitly in the complaint and instead were described more generically as overtime or minimum wage violations. In addition, we did not review subsequent documents filed in the case beyond the initial complaint. Therefore, our review does not provide any information about how these lawsuits were ultimately resolved. Information on the number of plaintiffs taking part in a collective action was neither consistently available in the complaints nor was it precise when it was available. Our analysis with regard to the industries in which FLSA lawsuits are filed is based on the number of FLSA lawsuits filed, not the number of plaintiffs included in those lawsuits. A single collective action represents multiple plaintiffs. Therefore, the number of FLSA lawsuits filed against employers in a specific industry may not accurately reflect the number of workers or relative frequency of workers claiming FLSA violations by industry. The complaint from each lawsuit was reviewed by a GAO analyst and a GAO attorney to identify the FLSA violation(s) it alleged and other information, such as whether the lawsuit was a collective action, whether there were associated allegations of state wage and hour law violations, and the industry of the worker or workers who filed the lawsuit. In cases in which the two reviewers recorded information about the lawsuit differently, a discussion between them was held to resolve the difference. We assessed the reliability of the data received from the Federal Judicial Center by interviewing officials at the Administrative Office of the U.S. Courts and the Federal Judicial Center and by reviewing documentation related to the collection and processing of the data. In addition, we conducted electronic testing to identify any missing data, outliers, and obvious errors. We determined that certain data fields were not sufficiently reliable, and therefore did not use them. For example, we could not analyze data about judgments such as the amount of monetary awards in FLSA lawsuits because, for a large percentage of the cases, the information on the judgment was missing. We determined that the data included in our report were sufficiently reliable for our purposes. To describe how DOL’s Wage and Hour Division (WHD) plans its FLSA enforcement and compliance assistance efforts, we reviewed the agency’s planning and performance documents, as well as its published guidance on the FLSA. In addition, we interviewed DOL officials in WHD’s Office for Planning, Performance, Evaluation, and Communications; Office of Policy; two regional WHD offices; and DOL’s Office of the Solicitor about the agency’s enforcement and compliance assistance activities. In addition, we asked the other stakeholders we interviewed about their views of WHD’s enforcement and compliance assistance efforts. To provide context throughout the report, we also reviewed relevant federal laws and regulations. Finally, we compared WHD’s planning process to internal control standards (see GAO, Standards for Internal Control in The Federal Government, GAO/AIMD-00-21.3, Washington, D.C.: November 1999) and best practices that we have previously identified (see GAO, Managing for Results: Enhancing Agency Use of Performance Information for Management Decision Making, GAO-05-927, Washington, D.C.: Sept. 9, 2005; and Managing for Results: Strengthening Regulatory Agencies’ Performance Management Practices, GAO/GGD-00-10, Washington, D.C.: Oct. 28, 1999). We did not assess WHD’s implementation of its enforcement and compliance assistance plans. We conducted this performance audit from November 2012 to December 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Betty Ward-Zukerman (Assistant Director), David Barish, James Bennett, Ed Bodine, David Chrisinger, Sarah Cornetto, Justin Fisher, Joel Green, Ying Long, and Walter Vance made significant contributions to this report. Also contributing to the report were Jessica Botsford, Susanna Clark, Melinda Cordero, Ashley McCall, Sheila McCoy, Drew Nelson, Catherine Roark, Sabrina Streagle, Anjali Tekchandani, and Kimberly Walton.

The FLSA sets federal minimum wage and overtime pay requirements applicable to millions of U.S. workers and allows workers to sue employers for violating these requirements. Questions have been raised about the effect of FLSA lawsuits on employers and workers and about WHD's enforcement and compliance assistance efforts as the number of lawsuits has increased. This report (1) describes what is known about the number of FLSA lawsuits filed, and (2) examines how WHD plans its FLSA enforcement and compliance assistance efforts. To address these objectives, GAO analyzed federal district court data from fiscal years 1991 to 2012 and reviewed selected documents from a representative sample of lawsuits filed in federal district court in fiscal year 2012. GAO also reviewed DOL's planning and performance documents and interviewed DOL officials, as well as stakeholders, including federal judges, plaintiff and defense attorneys who specialize in FLSA cases, officials from organizations representing workers and employers, and academics about FLSA litigation trends and WHD's enforcement and compliance assistance efforts. Substantial increases occurred over the last decade in the number of civil lawsuits filed in federal district court alleging violations of the Fair Labor Standards Act of 1938, as amended (FLSA). Federal courts in most states experienced increases in the number of FLSA lawsuits filed and the percentage of total civil lawsuits filed that were FLSA cases, but large increases were concentrated in a few states, including Florida and New York. The number of workers involved in FLSA lawsuits is unknown because the courts do not collect data on the number of workers represented. Many factors may contribute to this general trend; however, the factor cited most often by stakeholders, including attorneys and judges, was attorneys' increased willingness to take on such cases. In fiscal year 2012, an estimated 97 percent of FLSA lawsuits were filed against private sector employers, often from the accommodations and food services industry, and 95 percent of the lawsuits filed included allegations of overtime violations. The Department of Labor's (DOL) Wage and Hour Division (WHD) has an annual process for planning how it will target its enforcement and compliance assistance resources to help prevent and identify potential FLSA violations, but it does not compile and analyze relevant data to help determine what guidance is needed, as recommended by best practices previously identified by GAO. In planning its enforcement efforts, WHD targets industries it determines have a high likelihood of FLSA violations. Although WHD does not analyze data on FLSA lawsuits when planning its enforcement efforts, it does use information on its receipt and investigation of complaints about possible FLSA violations. In developing its guidance on FLSA, WHD considers input from its regional offices, but it does not have a systematic approach that includes analyzing relevant data, nor does it have a routine, data-based process for assessing the adequacy of its guidance. For example, WHD does not analyze trends in the types of FLSA-related questions it receives. Since 2009, WHD has reduced the number of FLSA-related guidance documents it has published. According to plaintiff and defense attorneys GAO interviewed, more FLSA guidance from WHD would be helpful, such as guidance on how to determine whether certain types of workers are exempt from overtime pay and other requirements. GAO recommends that the Secretary of Labor direct the WHD Administrator to develop a systematic approach for identifying and considering areas of confusion that contribute to possible FLSA violations to help inform the development and assessment of its guidance. WHD agreed with the recommendation, and described its plans to address it.

You are an expert at summarizing long articles. Proceed to summarize the following text: veterans with existing skills who are looking for immediate employment. Self-Employment: For veterans who have the skills to start a business, and for whom self-employment is the best or only option for successful rehabilitation. fiscal year 2011 and is currently 2,700. VR&E anticipates an increase in future demand for IL benefits. All veterans are required to meet VR&E’s basic entitlement criteria before they are assigned to one of its five tracks. To be entitled to VR&E services, veterans must generally have at least a 20 percent service- connected disability rating and be in need of rehabilitation because of an employment handicap. The period of eligibility for which veterans can receive benefits from VR&E is 12 years and begins on either (1) the date of separation from active military duty, or (2) the date that VA notifies the veteran of his or her service-connected disability rating. The 12-year eligibility period may be deferred or extended if certain conditions prevent the veteran from participating in a rehabilitation program or if a veteran has a serious employment handicap. To be considered for the IL track, veterans must meet all of VR&E’s eligibility requirements and be deemed currently unable to pursue an employment goal. VR&E’s Central Office, located in Washington D.C., has responsibility for several areas, including (1) overseeing the implementation of the VR&E program, including the IL track, (2) developing program policies and procedures, and regional guidance, and (3) formulating and monitoring the agency’s budget and program expenditures. Currently, there are 56 VA regional offices with responsibility for administering the IL track in their jurisdiction. Reporting to these regional offices are 179 satellite offices that help ensure veterans who do not live near a regional office are able to access VR&E benefits, including those provided through the IL track (see fig. 1). The VR&E Officer in each regional office is responsible for ensuring that the office complies with national policies and procedures for monitoring performance to ensure VR&E’s national rehabilitation rate is met. In addition, this officer supervises regional Vocational Rehabilitation Counselors (VRCs) who are responsible for working directly with veterans to assess their IL needs and provide benefits. VR&E has established a formal process that all veterans must go through to receive any of the benefits offered through its five tracks (see fig. 2). It is not possible to be assigned to any of the five tracks without first applying and being accepted into the VR&E program. An individualized IL plan is developed for each veteran admitted to the IL track. This plan identifies the veteran’s IL goals, the benefits (goods and services) VR&E will provide to help the veteran meet those goals, estimated time frames for providing benefits, and how improvements in the veteran’s independence will be measured, among other areas (see fig. 3). In general, IL plans may not exceed 24 months except under certain circumstances. According to officials, there is also no statutory limit on the number of IL plans a veteran can have. Veterans can reapply to the VR&E program at any time. Furthermore, all IL plans are required to be reviewed and approved by the veteran, the VRC, and the VR&E Officer before the veteran is admitted to the IL track. Once the plan is approved, VRCs are required to meet with the veteran at least once a month to track progress in meeting the plan’s goals. In addition, VRCs are required to coordinate with other VA programs to determine if they can provide any of the goods and services identified in the veteran’s plan. The VA programs that officials told us they regularly coordinate with are: VBA’s Specially Adapted Housing (SAH) Program, which helps servicemembers and veterans with certain service-connected disabilities purchase or construct an adapted home, or modify an existing home to accommodate a disability. These modifications can include specially adapted bathrooms or the installation of exit ramps. VHA medical centers, which provide a wide range of health-related services to veterans, such as physical therapy and dental and optometry services. In addition, VHA’s Prosthetic and Sensory Aids Service (PSAS) provides a variety of medical devices and equipment to veterans, including artificial limbs, eyeglasses, hearing aids, hospital beds, and wheelchairs. PSAS also administers the Home Improvements and Structural Alterations grant to eligible veterans for home modifications, such as the widening of bedroom or bathroom doorways to allow wheelchair access. If the goods and services needed cannot be obtained through other VA sources, the VR&E program will purchase them directly or contract for them. VR&E may declare a veteran successfully “rehabilitated” when all goals in their IL plan have been achieved, or if not all achieved, when the following three conditions have been met: (1) the veteran has attained a substantial increase in the level of independence; (2) the veteran has maintained the increased level of independence for at least 60 days; and (3) further assistance is unlikely to significantly increase the veteran’s level of independence. “Rehabilitation” does not necessarily mean that a veteran’s disability has improved, but rather that the goals in the veteran’s IL plan have been met to facilitate their independence. When veterans are not successfully rehabilitated, their case may be closed as “discontinued.” When circumstances arise that affect the ability of VR&E to provide the goods and services identified in the IL plan to the veteran, VR&E can temporarily “interrupt” the veteran’s case until it becomes possible to continue. From fiscal years 2008 through 2011, the typical participant in the IL track was an older male Vietnam-era veteran. Of the 9,215 veterans who entered the IL track at some point during these years, most (67 percent) were males 50 years old or older. Most women in the IL track were in their 40s or 50s (see fig. 4). The gender and age distributions of IL track veterans were similar to those of veterans who were receiving VA Disability Compensation cash benefits. In fiscal year 2011, about 92 percent of these veterans were male, and almost 68 percent were age 55 or older. Most of the 9,215 veterans who entered the IL track during fiscal years 2008 through 2011 served in the Vietnam War. However, there was a slight increase in the number of “Global War on Terrorism” veterans— including those who served during the war in Afghanistan as part of Operation Enduring Freedom and the war in Iraq as part of Operation Iraqi Freedom—from 13 percent in fiscal year 2008 to 16 percent in fiscal year 2011 (see fig. 5). In addition, almost 60 percent of IL track veterans served in the U.S. Army and less than 1 percent served in the National Guard or Reserves. Forty-one percent served in the U.S Navy, U.S. Air Force, or U.S. Marine Corps (see fig. 6). With regard to severity of service-connected disabilities, more than three- quarters of IL track veterans had a combined service-connected rating of at least 60 percent. Thirty-four percent of IL track veterans had a combined service-connected disability rating of 100 percent. Many IL track veterans may have also been eligible for the VA Disability Compensation program’s Individual Unemployability cash benefit. Indeed, 38 percent of IL track veterans were eligible for this supplement to their disability compensation payments. Moreover, of those IL track veterans who were at least 60 years old, 85 percent had combined service-connected disability ratings of at least 60 percent and more than a third had combined ratings of 100 percent. IL track veterans had a wide variety of service-connected disabilities, and most had more than one. Regardless of disability rating level, the most prevalent disabilities among this group were Post-traumatic Stress Disorder (PTSD), tinnitus (“ringing in the ears”), and hearing loss. As shown in figure 7, many of these disabilities—7 of the top 10 we identified in these cases—are similar to the most prevalent conditions among veterans rated by VA’s Disability Compensation program in fiscal year 2011. Our review of the case files of 182 randomly selected IL track veterans in fiscal year 2008 shows that they were provided a wide range of goods and services to help them live independently. Goods and services ranged from individual counseling and the installation of ramps to improve accessibility of veterans’ homes, to a boat, camping gear, and computers intended by VA to help decrease veterans’ social isolation. Figure 8 provides examples of the types of benefits provided in four IL track cases we reviewed. (See appendix III for a complete list of goods and services we identified in 182 IL track cases.) While VR&E can provide a wide range of benefits to IL track veterans, VR&E’s policy as of November 2012 prohibits providing courses of study and training to veterans that would lead to academic degrees, and purchasing certain types of equipment, such as lawn tractors. Our review of fiscal year 2008 IL cases shows instances where VR&E purchased lawn tractors and a riding mower. However, VR&E officials told us that there was no specific guidance prohibiting provision of such equipment in that year. As shown in table 1, we classified the wide range of goods and services we found in the 182 IL track case files we reviewed into nine general categories: Although we were unable to estimate the number of times certain goods and services were provided in the 182 IL track cases we reviewed, we generally found that the most common type of goods or services provided in the cases we reviewed were in three categories: 1) counseling, 2) education and training, and 3) computer and camera equipment. We were, however, able to estimate the costs of the goods and services purchased for IL track cases. For all veterans who entered the IL track in fiscal year 2008, we estimate that VR&E purchased a total of almost $14 million in goods and services. The average spent on purchases of goods and services per IL track case that year was nearly $6,000. In the 182 IL track cases we reviewed, the total amount VR&E spent on purchases of goods and services per veteran varied from $20 to over $33,000. Nearly 40 percent of the 182 veterans received $4,000 or more on purchases of goods and services (see fig. 9). Based on our analysis of IL track veterans who began only one plan during fiscal year 2008, we found that most of these veterans were classified by VR&E as “rehabilitated”—successfully reaching and maintaining the goals identified in their IL plan. By the end of fiscal year 2011, as shown in figure 10, about 89 percent of veterans who began an IL plan in fiscal year 2008 had been classified by VR&E as “rehabilitated.” About 5 percent of cases were “discontinued” or closed by VR&E because the rehabilitation goals in the veteran’s IL plan were not completed. The remaining 6 percent of veterans’ cases were still open at the end of fiscal year 2011. Of the 122 IL cases from fiscal year 2008 that had been discontinued, we found that about half were discontinued because the veteran declined benefits or did not respond when VA attempted to contact them. Another 29 percent were discontinued because the veteran died. Also, some VR&E officials and staff we spoke with during our site visits told us that veterans may drop out of the IL track for other reasons, such as their condition worsens or they experience family problems. Furthermore, while most veterans were classified by VR&E as “rehabilitated,” we found that the nature and complexity of IL plans can vary based on veterans’ individual disabilities and needs. As such, some plans are easier for VR&E to close as rehabilitated than others. For example, in one case we reviewed, the IL plan for a veteran with rheumatoid arthritis only called for the purchase and installation of eight door levers and a grab rail for the bathtub, so that the veteran could enter the rooms of his home without pain or assistance, and be able to safely enter and exit the bathtub without fear of falling. Other cases were more complex to close as rehabilitated because of the nature of services being provided to the veteran. For instance, another case we reviewed called for providing a veteran who used a wheel-chair with medical, dental, and vision care as needed and about $24,000 in modifications to the veteran’s home, including modifying the veteran’s bathroom, widening doors and modifying thresholds, and installing an emergency exit ramp in a bedroom. While the overall IL rehabilitation rate nationwide of 89 percent is fairly high, we found that the percentage of veterans who began an IL plan in fiscal year 2008 and were rehabilitated by the end of fiscal year 2011 varied by regional office. IL rehabilitation rates in these cases ranged from 0 to 100 percent across regional offices, although about two-thirds of regional offices had rehabilitated 80 percent or more of 2008 IL track veterans by the end of fiscal year 2011. (See appendix IV for a complete list of rehabilitation rates for all regional offices.) In addition, VR&E’s IL rehabilitation rate was higher in regional offices with larger IL caseloads. Among veterans who entered the IL track in fiscal year 2008, an average of 90 percent were rehabilitated at offices with more than 25 IL entrants, compared to an average of 79 percent at offices with 25 or fewer IL entrants (see fig. 11). Furthermore, we found that fiscal year 2008 IL track veterans nationwide completed their IL plans, i.e., were classified rehabilitated, in an average of 384 days (about 13 months). About 50 percent of these veterans completed their IL plans within 1 year, 79 percent within 2 years, and 88 percent within 3 years. Average days for these IL track veterans to complete their plans varied by regional office from a low of 150 days at the St. Paul Regional Office to a high of 895 days at the Roanoke Regional Office. However, at most regional offices (49 of 53) the average time to complete IL plans ranged from 226 to 621 days (8 to 21 months). (See appendix V for a complete list of rehabilitation times for all regional offices.) Also, as shown in figure 12, IL track veterans generally completed their plans in less time at regional offices with larger IL caseloads than at offices with smaller caseloads. The average time for veterans to complete their IL plans also varied by veteran age. The oldest veterans completed their plans slightly more quickly than the youngest. More specifically, veterans who were 70 to 79 completed their plans in an average of 369 days, while those who were 20 to 29 completed them in an average of 413 days (see fig. 13). Because differences in the length of time to complete IL plans could have occurred by chance or be explained by many factors—including the type and severity of disability or veteran age—we used a statistical model to estimate the amount of time it would take certain groups of IL track veterans to complete their IL plans while controlling for type and severity of disability and other demographic characteristics. (See appendix II for more detailed information on our model and analysis.) The results of our model showed that the chance of rehabilitation within 2 years varied by regional office. At four regional offices the chance of being rehabilitated within 2 years was less than 50 percent. At 18 offices the chance was between 50 and less than 90 percent. At 16 offices the chance was 90 percent or greater. Our model also estimated that a veteran served by a regional office with a large IL caseload had a higher probability of completing an IL plan more quickly than a veteran served by an office with a small IL caseload. More specifically, we determined that a typical IL track veteran at an office with a total of 75 IL cases entering the IL track during fiscal years 2008 through 2011 had a 48 percent chance of completing an IL plan within 1 year and a 92 percent chance of completing an IL plan within 3 years, while a veteran at a regional office with 700 IL cases had a 57 percent chance of completing an IL plan within 1 year and a 96 percent chance of completing their plan within 3 years (see fig. 14). Finally, based on our model we estimated that older veterans had a higher probability of completing an IL plan more quickly than younger veterans. For example, a 75 year old veteran had a 41 percent chance of completing an IL plan within one year, while a 30 year old veteran had a 33 percent chance. We found no meaningful differences in the time it takes to complete an IL plan as “rehabilitated” according to veteran gender and most disability types. However, we found small differences according to length of military service, education, and combined service-connected disability rating (see appendix II). National oversight of VR&E’s IL track is limited in four key areas: (1) ensuring compliance with case management requirements; (2) monitoring regional variation in IL track caseload and benefits provided; (3) adequacy of policies and procedures for approving expenditures on goods and services for IL track veterans; and (4) availability of critical program management information. Based on VR&E’s compliance reports from two of the regional offices we visited and interviews with staff in these offices, we found that some offices may not be complying with certain VR&E case management requirements governing the IL track. Specifically, some Vocational Rehabilitation Counselors (VRC) are not fulfilling VR&E’s requirement to meet in-person each month with IL track veterans to monitor progress in completing their IL plans. Site visit monitoring reports from two regional offices we visited indicated that these offices faced difficulties complying with this requirement. According to these reports, some VRCs were not able to schedule monthly in-person meetings with IL track veterans to check their progress in completing their IL plans. In addition, VRCs we spoke with during our site visits said that compliance with this requirement continues to be a challenge due to the size of their caseloads and the distances that they have to travel to meet with veterans. While VR&E’s Central Office acknowledges that it can be challenging for some offices to comply with this requirement, officials stated that face-to-face contact with IL track veterans is extremely important due to the nature of their disabilities and the need for more intensive rehabilitation services. Furthermore, while VR&E and VHA both have policies that require them to coordinate on the provision of goods and services for IL track veterans, we found that some VRCs experience challenges in doing so. Specifically, VA regulations governing VR&E’s IL track require that if a veteran needs special equipment and is eligible for such equipment under another VA program, the items will be provided under that program. Therefore, prior to VR&E purchasing services for veterans, officials told us that VRCs are required to refer cases to other VA providers, such as VHA’s Home Improvements and Structural Alterations (HISA) program and VA medical centers, to determine whether veterans are eligible to receive the goods and services identified in their plan from these providers. In addition, VHA ‘s policy directive for coordinating with VR&E is intended to ensure that all VR&E participants, including those in the IL track, receive timely access to VHA health care services. The directive requires medical center directors to (1) provide clinically appropriate care to VR&E participants, (2) establish procedures to manage these participants’ timely access to care, and (3) ensure that clinical staff are trained in these procedures, including how to alert appropriate VBA officials when timeliness of care could be an issue, among other requirements. Despite these VR&E and VHA policies, our review of 182 IL track records found some instances where VR&E purchased goods and services that appear to be medically related, such as ramps and grab bars, and could have been provided by VHA. There may have been little coordination on IL track cases because, as VR&E officials and staff at the five VA regional offices we visited told us, coordinating with VHA medical center staff can be challenging. Several VRCs indicated that when they refer IL track cases to VHA physicians to determine whether any of the medical-related benefits identified in the IL plans—such as grab bars, wheelchairs, and safety rails—had been or could be provided by VHA, in many instances, VHA physicians do not respond or respond too late. As a result, services for IL track veterans were either delayed or purchased by VR&E instead of VHA. According to some VHA staff, lack of or delays in coordination are sometimes due to differences in VR&E rehabilitation goals and VHA long-term medical goals for veterans. For example, VHA staff members mentioned they would not approve VRCs’ requests for lift chairs unless veterans absolutely needed them because VHA staff members said their medical goal is to promote continued mobility. While IL track caseload size and benefits vary across regions, VR&E does not systematically monitor these variations. We found regional differences in the size of IL caseloads, the range of needs covered in a veteran’s IL plan, and the types of goods and services provided. As shown in figure 15, the total IL track caseload during fiscal years 2008 through 2011 ranged from over 900 cases in the Montgomery Regional Office in Alabama to 4 cases in the Wilmington Regional Office in Delaware. (See appendix VI for annual IL caseload data.) While one would expect differences in caseload size based on the number of veterans in an office’s service area, some differences in IL caseload could not be explained by the size of the veteran population in an office’s service area. For example, while the estimated size of the veteran populations in Alabama and Massachusetts are similar, Montgomery’s IL caseload of over 900 veterans was more than 100 times as large as Boston’s IL caseload of 8 veterans. VR&E officials told us they are aware that some offices have low IL participation levels, and attributed some of the difference to factors, such as the presence of specialized treatment centers in certain areas of the county that can increase caseload numbers in those regions. However, evidence from our site visits suggests that there may be other factors that drive the number of veterans entering a region’s IL track. For example, officials from the Detroit Regional Office—which had the second highest total IL caseload across fiscal years 2008 through 2011—attributed the size of their caseload to their office’s focus on IL cases and community outreach efforts, including the involvement of veteran service organizations. The Atlanta Regional Office also mentioned that in addition to the size of the veteran population in Georgia and the presence of army bases, the size of their IL caseload is influenced by increased community interest in the IL track in recent years, and the informal efforts of past IL participants to provide information about the IL track to other veterans. Based on discussions with regional personnel and our review of the results of past studies, IL plans and the goods and services provided can also vary by region. According to VR&E officials, the law gives VA broad discretion in defining the range of needs covered in an IL track plan, as well as in choosing the types of goods and services required to achieve the plan’s goals. VR&E’s policy does, however, prohibit the agency from providing courses of study and training leading to academic degrees, and purchasing certain types of equipment, such as lawn tractors. As a result, some regions appear to develop IL plans that address a broader range of needs while others elect to develop more focused plans. Officials we spoke with during our site visits also confirmed that regions differ in their approach to developing IL plans, and in one region, officials commented that some regions may develop simpler plans with fewer benefits to achieve VR&E’s rehabilitation goal. Moreover, VR&E’s 2008 study of the IL track reported that some regions relied repeatedly on the same types of benefits to meet veterans’ IL needs. For example, in the New York and Hartford regional offices, nearly 90 percent of IL participants were provided computer training. This was almost twice the rate of Detroit—the office with the next highest rate of providing veterans with computer training—in 44 percent of its IL cases. Other offices focused more heavily on providing goods or services to support veterans’ avocational interests or on finding veterans volunteer opportunities, while some consistently focused on providing veterans with health club memberships. For example, the St. Petersburg Regional Office accounted for 33 percent of veterans receiving volunteer opportunities. In addition, the 2004 VR&E Task Force report noted significant differences in field office philosophy regarding the scope and administration of the IL track, and also recommended providing VR&E Central Office greater “line-of-site authority” over VR&E field operations. As noted earlier, VBA’s Office of Field Operations rather than VR&E’s Central Office has direct line of authority over regional VR&E staff and operations. While VA officials acknowledged the existence of regional variation in these areas, VR&E’s current oversight approach may not be adequate to ensure consistent administration of the IL track across regions. The standards for internal control in the federal government emphasize the need for federal agencies to have timely information to effectively monitor and mitigate program risks. To oversee administration of the IL track, VR&E has relied on the information provided through its general quality assurance (QA) activities and a series of periodic ad hoc studies. The QA activities are conducted by each region as well as VR&E’s QA staff located in Nashville, Tennessee. However, these activities are limited in scope, frequency, and how the information is used. At the national level, a team of VR&E QA staff are required to perform periodic site visits to each VA regional office at least every 3 years, although officials told us they have not been able to meet this goal in recent years because of budgetary constraints. This team also periodically reviews a sample of veterans’ records from VR&E’s IL and employment tracks in selected regions. After each site visit and case review, the QA team produces a report for the particular region under review. While VR&E officials told us that QA results are “analyzed to determine trends,” it is unclear how VR&E uses these results to ensure that consistent procedures are used by regional offices nationwide. In addition to these QA activities, VA has funded two studies over the past several years on the VR&E program, including implementation of the IL track, and a third is under way. In 2003, VA appointed a task force to evaluate the overall VR&E program and recommend ways service delivery could be improved. In 2008, as mentioned, a study was issued by VR&E on the types of services received by IL track participants and the impact those services had on veterans. This study found, among other things, that IL participants received a broad range of services, and that some regional offices favored providing certain types of services to IL track veterans. Finally, in October 2012, VR&E awarded a contract for about $890,312 to study the IL track service delivery process, barriers and incentives for field staff when considering the provision of services, current and future training strategies, and other areas. VR&E officials anticipate receiving the final results from this study in July 2013. Considering the broad discretion VR&E provides to regions in determining the range of needs covered in IL track plans and the types of goods and services selected to meet these needs, VR&E’s current policy for approving IL track expenditures may not be adequate. To guard against fraud, waste, abuse, and mismanagement, the standards for internal control emphasize the need for agencies to have appropriate levels of supervision and controls in place to prevent one individual from having responsibility for all key aspects of a transaction or event. VR&E Central Office is responsible for managing the program’s national budget. While officials told us that VRCs are required to include all cost estimates when they submit veterans’ IL plans to be reviewed and approved by the region’s VR&E Officer, VR&E was unable to provide any written policy or guidance that explicitly states this requirement for all IL expenditures. VR&E’s current written policies allow each region to unilaterally approve construction-related expenditures up to $25,000 per case and non- construction expenditures up to $100,000 per case without approval from VR&E Central Office. In addition, VRCs can spend up to $2,000 on construction-related expenditures and up to $25,000 on non-construction expenditures without supervisory review of any kind (see table 2). Under this policy, regional offices are permitted to purchase a broad range of items without any Central Office approval, resulting in some offices purchasing goods and services that may be questionable or that are costly. For example, in one of the 182 IL cases we reviewed, VR&E Central Office would not have been required to approve total expenditures of $18,829 for a riding lawn mower—which VR&E policy prohibits—and other IL goods and services including a bed, bed frame, desktop computer, and woodworking equipment. In another case, VR&E Central Office approval would not have been required for the purchase of a boat, motor, trailer, and the boat’s shipping cost to Molokai, Hawaii, among other items, totaling about $17,500. Without appropriate approval levels, VR&E’s IL track may be vulnerable to potential fraud, waste, and abuse. VR&E does not collect or report critical program management information—such as the costs of goods and service purchased, the types of benefits provided, and the number of IL veterans served—that would help the agency in its oversight responsibilities. Specifically, VR&E’s Corporate WINRS case management system—commonly referred to as “CWINRS”—lacks information on the total amount of funds VR&E expends on IL benefits because the agency does not maintain specific cost information on each of its five tracks or the key program areas these tracks represent, which are employment services and independent living. VR&E aggregates costs across all its tracks, despite VA’s managerial cost accounting policies that require the costs of products and services to be captured for management purposes. Federal financial accounting standards also recommend that costs of programs be measured and reported. According to officials, they do not collect cost information on the IL track alone because they view the five tracks as a single program with the same overarching goal—to help veterans achieve their employment goals. However, in our 2009 report on the VR&E program, we reported that VR&E serves veterans with fundamentally different program goals and outcomes—those seeking to obtain employment and those seeking to live independently. As a result, we recommended that VR&E separately track its IL rehabilitation rate. In addition, the CWINRS system does not collect information on the types of IL benefits provided to veterans in a standardized manner that can be easily aggregated and analyzed for oversight purposes. Currently, VRCs are required to write in a description of the benefits they purchased for IL track veterans in CWINRS. We found, however, that the recorded descriptions lack consistency and vary in their level of detail. In several of the IL track cases we reviewed, the goods and services purchased were grouped together under a general description, such as “IL equipment” or “IL supplies,” without any further details. In other cases, VRCs recorded each purchase separately. For instance, in one case, the VRC created separate entries for each item purchased, for example, “desktop computer,” “computer desk,” “Queen Mattress,” “all in one printer,” “USB cable and ink,” “threshold ramp,” and “washer.” In addition, we found that controls for data entry are not adequate to ensure that all important data is recorded. For example, we estimated that the service provider field was either missing or unclear for one or more services in about 15 percent of all IL cases that began in fiscal year 2008. Moreover, in another 7 percent of IL cases that began during fiscal year 2008, we found that service provider data was unavailable because CWINRS had overwritten veterans’ 2008 IL plans with subsequent plans. CWINRS only retains veterans’ current IL plan. Furthermore, CWINRS does not provide VR&E with the information it needs to account for the actual number of IL track veterans it serves to monitor its statutory entrant cap and program operations. The law allows VR&E to initiate “programs” of independent living services and assistance for no more than a specified number of veterans each year, which is currently set at 2,700. A VR&E policy letter to VA regional offices, dated December 14, 2010, states that “VR&E Service will monitor new IL programs by tracking the number of veterans entering independent living case status in each fiscal year and notify the field of any necessary action if the 2,700 statutory limit is being approached.” However, in analyzing VR&E’s administrative data, we found that VR&E counts the number of IL plans developed annually and not the number of individual veterans admitted to the track. VR&E officials told us that the law does not limit the number of IL plans that can be developed for a veteran in a single fiscal year. Because multiple IL plans can be developed for an individual veteran during the same fiscal year, veterans with multiple plans are counted more than once towards the statutory cap by CWINRS. Based on data from CWINRS, 403 (4 percent) of the 9,215 veterans beginning an IL plan during fiscal years 2008 through 2011 had more than one plan during that time. About 22 percent of these veterans had more than one IL plan in the same fiscal year. From fiscal years 2008 through 2011, VR&E did not exceed the statutory cap (see fig. 16). Moreover, VR&E officials indicated that they were unaware that CWINRS was calculating the number of plans and not individual veterans. As a result, VR&E lacks complete information on the number of veterans it is serving through the IL track at any given time—information it could use to better manage staff, workloads, and program resources. According to the standards for internal control, it is important for program managers to have reliable and timely “operational” information to ensure agency goals are met, resources are used efficiently and effectively, and requirements under various laws and regulations are being complied with. Finally, recent evaluations of CWINRS have determined that the system does not meet VR&E’s current needs and limits its oversight abilities because important data elements are not captured to support the agency’s “evolving business needs.” According to a 2012 VR&E report, VR&E plans to improve CWINRS by (1) increasing data automation to reduce instances of human error, and (2) enhancing system controls to improve the accuracy and comprehensiveness of the data, among other improvements. However, it appears that the CWINRS redesign will not enable VR&E to obtain data on IL track expenditures from the system or to use the system to accurately and efficiently track the types of goods and services the IL track provides. While officials told us that they plan to modify the system to enable them to track individual veterans served through the IL track, they could provide no time frame for this project and noted that it could take up to 3 years to obtain funding for it. VR&E’s IL track can provide a wide range of benefits to help veterans with service-connected disabilities maximize their ability to live independently when the achievement of an employment goal is not currently feasible. Under the law, each VA region has broad discretion in determining the range and types of goods and services each IL track veteran should receive. Consequently, adequate oversight at the national level is extremely important in ensuring that IL track case management requirements are met, the track is administered consistently across regions, expenditures for goods and services are appropriate, and critical IL track information is collected and used. In this context and absent better coordination with VHA, VR&E will continue to face challenges in ensuring goods and services for IL track veterans are provided by VHA, when appropriate, in a timely manner. With regard to VR&E’s Central Office oversight, its current policy governing the review and approval of expenditures might not effectively mitigate the risk of fraud, waste, abuse, or mismanagement inherent in activities, such as the development and implementation of IL plans, where there are few limitations on the types and cost of goods and services that can be provided. Furthermore, without collecting information on cost and the types of benefits regional offices provide to IL track veterans, and maintaining an information system that ensures IL track data are recorded consistently and are accurate and complete, VR&E cannot effectively oversee the performance and activities of its IL track. Finally, as more servicemembers from the conflicts in Iraq and Afghanistan transition into civilian life and veterans’ programs and as the overall veteran population ages, the demand for IL services will likely increase. VR&E must, therefore, be able to accurately count the number of individual IL track veterans served to ensure it can effectively manage its cap and assess program performance and resource needs. The Secretary of Veterans Affairs should direct the Undersecretary for Benefits to take the following actions: 1. Work with the Undersecretary for Health to explore options on ways to enhance coordination to ensure IL track veterans’ needs are met by VHA, when appropriate, in a timely manner. This could include improving staff education, response times to IL referrals, and the provision of medically related goods and services. 2. Implement an oversight approach that enables VR&E to better ensure consistent administration of the IL track across regions. In developing this approach, consider ensuring that VR&E’s CWINRS system: Tracks the total cost and types of benefits provided to each veteran in the IL track by regional office. Accounts for the number of individual veterans served to ensure that the agency has the information it needs to adequately manage the IL track. Contains stronger data entry controls to ensure that IL track information is recorded in a consistent manner and is accurate and complete. 3. Reassess and consider enhancing the agency’s current policy concerning the required level of approval for IL track expenditures, given the broad discretion individual regional offices have in determining the types of goods and services IL track veterans receive. We provided a draft of this report to the Secretary of Veterans Affairs for review and comment. VA generally agreed with our conclusions, and concurred with our three recommendations. VA’s written comments are reproduced in appendix VII. In addition, VA provided technical comments that we have incorporated in the report where appropriate. With regards to our recommendation that VA enhance coordination between VR&E and VHA on the provision of IL benefits to veterans, VA noted there are efforts underway that will permit VR&E counselors to make IL referrals to VHA providers through VHA’s Compensation and Pension Record Interchange system, also referred to as CAPRI. In addition to these efforts, we encourage VR&E and VHA to continue to explore other options to enhance coordination, such as engaging in staff education and training efforts to improve the timely provision of IL benefits and prevent any duplication. Furthermore, with regards to our recommendation to improve IL track oversight, VA said that it will perform an assessment of its current IL track oversight procedures and consider including enhancements to CWINRS. Because having a sound information system plays such a critical role in helping program managers monitor agency performance and operations, we urge VA to take steps to prioritize enhancements to CWINRS. Finally, VA noted that, in response to our recommendation that it reassess its current policy for approving IL track expenditures, it plans to make any needed improvements by March 2014. As part of its assessment process, we believe that VA should review its existing cost- thresholds for approving all IL expenditures, including non-construction related expenditures, to ensure adequate oversight of goods and services purchased for veterans. We are sending copies of this report to the appropriate congressional committees, the Secretary of Veterans Affairs, and other interested parties. The report is also available at no charge on the GAO web-site at www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7215 or at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff members who made key contributions to this report are listed in appendix VIII. The objectives of this report were to examine (1) the characteristics of veterans who have participated in the IL track, as well as the types and costs of benefits they were provided; (2) the extent to which their independent living plans were completed, and the time it took; and (3) the extent to which the IL track has been administered appropriately and consistently. To answer these objectives, we used a variety of methodologies, which are described in greater detail below. Specifically, we analyzed VA administrative data from fiscal years 2008 through 2011 to provide information on the characteristics and outcomes of veterans who participate in the IL track, and how long it takes to achieve these outcomes. We also used statistical models to determine any differences in rehabilitation times. In addition, to determine the types of benefits provided and their costs, we conducted a case file review of a random, generalizable sample of 182 veterans who started in the IL track during fiscal year 2008. Lastly, to examine the administration of the IL track, we visited five VA regional offices and interviewed officials and staff from VR&E, Specially Adapted Housing (SAH), Prosthetics and Sensory Aid Service (PSAS) under the Veterans Health Administration (VHA), and veteran service organizations. We also reviewed relevant federal laws and regulations, standards for internal controls and managerial cost accounting, as well as VR&E policies, procedures, and other relevant studies and documentation. We analyzed VA administrative data in the Corporate WINRS system— commonly referred to as “CWINRS”—from fiscal years 2008 through 2011 to describe the characteristics and outcomes of veterans in the IL track, and how long it takes veterans to achieve these outcomes. VR&E has used the CWINRS system since 2001 to track veteran cases through its process and to manage program costs. The “WINRS” part of the acronym represents the first 5 regional offices that tested the original system. These offices include Waco, Texas; Indianapolis, Indiana; Newark, New Jersey; Roanoke, Virginia; and Seattle, Washington. we found the data to be sufficiently reliable for our purpose, unless otherwise noted. To identify our universe of 9,215 veterans who started in the IL track during fiscal years 2008 through 2011, we counted the number of individual veterans who had an “IL status” recorded in CWINRS during our time frame. While veterans can enter into the IL track more than once in a given fiscal year, we counted a veteran only once if he or she had more than one IL status during these years. To determine the characteristics of the 9,215 veterans who began in the IL track during fiscal years 2008 through 2011, we examined several demographic variables in CWINRS, including veterans’ age, gender, types of disabilities, and combined disability rating. Data on the war era in which veterans served was obtained from VA’s Benefits Delivery Network. To examine the outcomes of veterans in the IL track, we limited our analysis to veterans who began only one IL plan at some point during fiscal year 2008. This accounted for about 92 percent of the 2,465 veterans who began an IL plan during fiscal year 2008. The remaining 8 percent of veterans who had more than one plan were excluded from our analysis because of potential data reliability issues associated with how certain case actions were recorded. In our analysis of IL veteran rehabilitation rates, we excluded veterans whose cases were transferred to one of VR&E’s employment tracks. To estimate the difference in rehabilitation times across regional offices and groups of veterans with various characteristics, we used different statistical models. These “survival modeling” methods allowed us to appropriately estimate rehabilitation probabilities at various points in an IL plan, even when a significant proportion of the cases are discontinued or in progress. Our models used the same VA administrative data noted above for veterans in the IL track who began only one IL plan at some point during fiscal years 2008 through 2011. Consequently, our model results only apply to a subset of veterans, which make up about 95 percent of the veterans who began in the IL track during this time frame. For a detailed discussion of our statistical models, see appendix II. To obtain information on the types of benefits provided through the IL track, as well as the costs and coordination of these benefits, we conducted a case file review of a random, generalizable sample of 182 veterans whose cases started in the IL track at some point during fiscal year 2008. To track and manage IL cases, VR&E utilizes both paper records located at each regional office, and electronic case records in the CWINRS system. For the purpose of our file review, we used veterans’ electronic records in CWINRS, and found the information in these records to be sufficient for our purpose. We selected fiscal year 2008 because it allowed us to follow veterans’ progress in the IL track beyond 24 months—the authorized benefit duration time frame unless a 6-month extension is approved. We stratified our sample of 182 cases into three groups—those veterans’ whose cases were (1) rehabilitated, (2) discontinued, or (3) still open. We used this approach to obtain information on any differences in IL benefits and expenditures by veteran groups. We also elected to use a sample design that mixes the features of a proportional allocation and equal sample per stratum. Table 3 provides more detailed information on our sample stratification. To produce population estimates from our sample of cases, information collected from each case reviewed was weighted in the analysis to account statistically for the total population of all IL track cases started in fiscal year 2008. Because our estimates for the entire population of IL track cases that started in fiscal year 2008 are based on a probability sample of these cases, they are subject to sampling error. To recognize the possibility that other samples drawn from this population might yield different results, we express our confidence in the precision of our sample’s results as a 95 percent confidence interval. A 95 percent confidence interval is expected to include the actual value for the population in 95 out of 100 samples drawn from the population. With regard to expenditures in IL track cases, at the 95 percent confidence interval, the amount of total expenditures across all IL track cases that started in fiscal year 2008 falls between $11.3 million and $16.6 million; the actual amount expended, on average, in these cases falls between $4,835 and $7,104. To conduct our case file review, we developed a web-based data collection instrument to record information from the electronic printouts VR&E provided us with of veterans’ records. After these records were collected, GAO staff members entered the information into the electronic data collection instrument for each veteran case in our sample. Once the data was entered, a second GAO staff member reviewed each entry for clarity and accuracy. With regard to the types of benefits provided to IL track veterans, we cannot generalize the types of goods and services provided because we recorded in our data collection instrument information on only eight goods and services identified in each of the 182 IL case files we reviewed. However, we were able to generalize information we obtained on IL track service providers from the IL cases we reviewed because in less than 3 percent of these cases, there were at least eight service providers. Our estimate of the number of cases where service provider information was missing, unclear, or overwritten in CWINRS may be slightly understated. The 95 percent confidence interval for the 15 percent of cases where the service provider information was unclear or missing for one or more service ranged from 9 to 21 percent. The 95 percent confidence interval for the 7 percent of cases we reviewed where one or more service was overwritten in CWINRS ranged from 4 to 11 percent. To better understand the extent to which the IL track is being effectively administered, we visited five VA regional offices—San Diego, California; Atlanta, Georgia; Detroit, Michigan; Philadelphia, Pennsylvania; and the District of Columbia. We selected these sites because they were geographically diverse, and have varying levels of IL track participation and success in achieving VR&E’s IL rehabilitation goal. During each of our site visits, we interviewed VR&E Officers and vocational rehabilitation counselors (VRCs) using a standard set of questions to identify how IL cases were managed and any factors that may have affected the administration of the IL track. In particular, during our Detroit and Atlanta site visits, we interviewed VRCs who specialized in working on IL cases. Moreover, we obtained the perspectives of veteran service organizations that work with IL track veterans at two regional offices we visited—Detroit and Atlanta. Furthermore, we interviewed SAH and PSAS officials at the national level and relied on our case file review to determine the extent to which the IL track cases were referred to VA and non-VA service providers. In addition, we interviewed SAH and PSAS staff during our site visits to determine the extent to which VR&E, SAH, and PSAS coordinate in the provision of goods and services to IL track veterans. We used statistical models to estimate the difference in rehabilitation times across regional offices and groups of veterans with various characteristics. These “survival modeling” methods can appropriately estimate rehabilitation probabilities at various points in an IL plan, even when a significant proportion of the cases are discontinued or in progress. In addition, survival methods allowed us to estimate the unique association between rehabilitation times and various other factors, described below. In this appendix, we describe the data we used to fit the models and their structure, assumptions, and estimates. We estimated our models using VA administrative data on veterans who began exactly one IL plan from fiscal years 2008 through 2011. Due to the data reliability issues described in appendix I, our analysis excluded veterans who began multiple IL plans during this period. Consequently, our results only apply to this subset of 8,737 veterans, who made up 94.8 percent of the original population. We measured the length of time each veteran spent in his or her IL plan as the duration between the start of the plan and one of three later times: entering rehabilitation status, discontinuing the plan, or being in progress on September 30, 2011, the end of our observation period. We modeled rehabilitation as the outcome of interest, treating discontinued or in progress plans as having rehabilitation times that were censored. Among the veterans starting IL plans from fiscal years 2008 through 2011, 3.2 percent discontinued their IL plans prior to rehabilitation, and 35.9 percent had plans that were in progress on September 30, 2011. These data imply that 91.7 percent of the censored observations were in-progress cases, which suggests that most of the censoring is likely to be uninformative. We found no large differences in the probability of dropping out of an IL plan across the covariates we included in our models. This group also excluded veterans who transferred to a VR&E employment track and veterans who had more than one instance of rehabilitation. Missing data on age and length of service further reduced our sample size to 8,655 veterans for modeling purposes. We fit the data to several types of Cox proportional hazards models. The primary model took the following form: 𝜆𝑖𝑗(𝑡) denotes the hazard rate of rehabilitation at time t after veteran i enters an IL plan, and 𝜆0𝑗 (t) denotes the baseline hazard rate for the reference veteran with covariates equal to zero, served by one of j = 1, 2, to 908. 𝑥ij is a vector of the following covariates: age, length of military … ,36 regional offices. We combined a number of offices that served less 𝜆𝑖𝑗(𝑡)=𝜆0𝑗 (t) exp(𝑥ij𝛽) reference veteran with covariates equal to zero, served by one of j = 1, 2, … ,36 regional offices. We combined a number of offices that served less than 50 veterans into a residual group, in order to ensure sufficient sample within each office. The sample sizes within offices ranged from 58 service, and indicators for sex, branch of service, era of service, education, year the IL plan began, partial vs. full disability, and disability type. We coded the covariates such that the baseline reference veteran was substantively meaningful—a male Army veteran with a high school education, who served in the Vietnam era, entered an IL plan in fiscal year 2008, was processed by the Detroit Regional Office, and had a full musculoskeletal disability—either by setting values of categorical variables to the appropriate levels or by centering continuous variables at their means. All categorical variables included levels for missing data. In this application, the proportional hazard structure of the model implies that the instantaneous rate of rehabilitation at any time during an IL plan, or the hazard, varies across values of the covariates by a constant amount over time. For example, the model assumes that rehabilitation rates vary by the same amounts among veterans with different types of disabilities after 12 months, 18 months, or any other point in an IL plan. In our initial exploratory data analysis, Kaplan-Meier estimates of the hazard and survival functions suggested that the hazard was not proportional across regional offices. Using an unstratified version of the model above that included fixed effects for regional offices, we found that the Schoenfeld residuals for many offices were correlated with time at a sufficiently high level to reject the hypothesis that the hazard functions were proportional across the covariates (p < .0001). These results are consistent with our interviews and document reviews suggesting that program administration varied across offices, which could produce variation in hazard functions. (The body of this report summarizes these administrative inconsistencies in more detail.) For these reasons, we stratified the baseline hazard function by regional office, and we used this version of the model to calculate hazard rate ratios and elasticities, along with their standard errors, in table 3. Under the stratified model, we failed to reject the proportional hazards assumption for 𝛼 < .47. The estimated rehabilitation (failure) probabilities discussed in the body of this report came from a version of the model that did not stratify by office and, instead, assumed office fixed effects. This allowed us to calculate illustrative rehabilitation probabilities by various follow-up points and for specific covariate values, without having to produce 36 sets of estimates implied by separate hazard functions for each office. The differences in the estimated probabilities across covariate values should resemble estimates that we would have calculated from the stratified model, because estimates of 𝛽 and their variances were similar in both versions. The hazard rate ratios and elasticities in table 3 are consistent with our estimated rehabilitation probabilities in the body of the report. To calculate these probabilities, we fixed the value of each covariate at its sample mode or mean, depending on whether the variable was categorical or continuous. For this profile of covariate values, we calculated survival probabilities at various times using the estimated parameters of the unstratified model, and transformed them to failure probabilities by subtracting the survival estimates from 1. We estimated a final version of the model that used neither office strata nor fixed effects. This allowed us to estimate the association between office workload, measured by the total number of IL plans developed from fiscal year 2008 through 2011, and rehabilitation timeliness. Stratifying the model by office or estimating fixed effects would have absorbed the variation needed to estimate the coefficient on workload, as an office- level covariate. Table 3 provides estimates of 𝛽 and hazard ratios derived from them, along with standard errors and p values for the hypothesis that each ratio equals 1. These estimates come from the stratified model above. Figure 17 presents the failure functions implied by the separate hazard functions the model assumes for each regional office. These results are generally consistent with those discussed in the body of this report, where we interpret the results in more detail. The table below lists the goods and services as they were recorded in the 182 cases we reviewed in the CWINRS system. Goods and Services Provided Counseling Services “(1) Specialized Contractial Counseling Services 637” “(1) Specialized Contractual Counseling” “(1) Specialized Contractual Counseling Services 637, Vocational, Educational, Psychological or Personal adjustment counseling which I” “(1) Specialized Independent Living Services 638” “(1) Specialized Rehabilitation Service 631” “(1) Specialized Rehabilitation Services” “(1) Specialized Rehabilitation Services 631, Specialized services involving unique skills and techniques, such as learning di” “(1) Specialized contractual counseling services 637; IILP Initial Assessment” “(316) Contract Counseling Assistance 451” “(343) Rehab Services 556, All services not otherwise described to advance the objectives of the rehabilita” “(343) Rehab Services 556; Connections Vocational Services; IILP Evals; All service not otherwise described to advance the objectives of the rehabilita” “(372) Independent Living Services 644, Provide Independent Living services (i.e. IL Evaluation, Occupational Therapy Ev” “(372) Psychotherapy 667; provide psychotherapy and adjustment counseling” “Rehabilitation Counseling Services 158, Specialized counseling services as required to assist and support veteran in ful” “SRS/IL Special Rehab Service/Independen Li” “SRS/V Special Rehab Service/Vocaational; Center for Independent Living; IL Case Mgmt” “SRS/V Special Rehab Service/Vocational” “Special Rehab Service/Independent Living” “Special Rehab. Srvs/Indepen. Living 24” “Special rehab service/Independent Living” “VA MEDICAL CENTER - ANN ARBOR” “YMCA East Belleville Center; YMCA Membership; YMCA annual fee” Residential Adaption and Repair “(317) Independent Living Residence Adaptation 645” “(317) Independent Living Residence Adaptation 645, Residential adaptations to allow a veteran to complete ILP.” “A&E services for home modification per ILP” “Basic construction as approved on IL plan” “Ch 31 One Time Miscellaneous Items Purchase—Reconstruction of front porch per IL plan” “Gould’s Discount Medical — Home Improvements” “Herrera Engineering; house modifications; special contractual services” “Home Reab Equipment — Supply and set up bath mods (up)” “Home Rehab Equipment — custom railing” “buyrailings.com; stair railing w/brackets” “smoke detectors/fire extinguisher/co2 detector” “IHL Institutions of Higher Learning – for period 2/5/08-7/23/08” “IHL Institutions of Higher Learning; 24 training session” “IHL Institutions of Higher Learning (College books)” “IHL Institutions of Higher Learning; Central Community College-Hastings Degree” “Individual/Independent Instruction / Trg 164” Jewish Vocational Services; non college degree “Kendall & Davis, Inc.; computer training” “Mastering MS Office Made Easy (CD-ROM version)” “OJT On the Job Training/Apprenticeship” 1 “1-year audio book subscription (2 CDs/month)” “All Temperature system; IL- Heating System” “CPI*Contour living web; wedge cushions/with massage; shipping charge” “Ch 31 non-Contractual Speicial . . . \r\n” Computer Evaluation Services 21, Technical evaluation for computer hardware and software needs. “Installation of Camera Security System” “KID 1240 talking dictionary with headphones” “King size adjustable bed with massage” “Pride GL 358M lift chair w/set up and delivery” “Sports authority; Treadmill, delivery & assembly, 4 yr warranty” Goods and Services Provided “US Computers Inc; Shipping/handling fees for computer and furnitures” “set and instruct on scooter lift with swing arm.” Adaptive Equipment “All in one accessibility - adaptive equipment” “ALI*AMIMED INC.; Backrest air obusforme grey; shipping charge” “Alex Orthopedic; Walking Cane; Shipping charge” “COLDERS, INC.; Bed & Chair - Independent Living” “Colder’s; TempurPedic King Size Solution Mattress and Box Sp; HTC-1650 Massage Chair” “Deluxe swivel seat cushion, UpEasy lifting cushion seat assist (plus shipping)” “Glide rail & shower wand,PT-WR28R,LABOR” “Grab bar specialists, Inc.; handi-grip portable grab bar and shipping” “IL Adaptive Equipment \r\nCh 31 Special Equipment” Goods and Services Provided “IL Adaptive equipment, Shipping and Handling\r\nCh 31 Special Equipment” “Lamp for independent living and surge protector” “MAXIAUDS; CO2 Alarm; shiping charge” “Medication dispenser, phone, printer, mouse” “Mother Earth Design INC.; Trigger point pillow; shipping charge” “Ontime supplies; ergonomic chair, dry erase board” “Perching Stool, Height Adjustable, 250lb Capacity” “Portable Lift Cushion, 250 1b Capacity” “Queen Matt, Box, Tempura Symphony pillow” “Rehab Engineering Inc.; Large Handle cups; walker, 3-inch wheels, 300lbs. capacity; 24-inch grab bar, inside tub” “Rolling laundry cart & ergonomic grabber” “Sliding Shelves (for Bathroom Cabinet)” “Special equipment — one-handed jar opener, suction cup plates, suction cup bowls” “Tub safety bar and lever door handles (QTY 6)” “Vocational Resource Services; good grips eating utensils; sock assist; elastic shoelaces” “Vocational Resource Services; locking elevated toilet seat w/ arms; special equipment” “Walker Furniture; mattress, frame and bed cover” “computer w/19 inch monitor, 4n1 printer + internet” “2hp soft start fixed and plunge base router” “Craftsman fixed base router/table combo” “Embroidery Machine & Accessories, Classes” “Jarvi Facetron; Facitron Machine with grit; shipping” “Rikon 18 inch bandsaw, excess weight charge” “Searrs; rts bit saw nailer plnr sander warrenties” “Tracrac T3B portable miter saw sta Bosch” “drill press, protection agreement, shipping” “The Rock Shed; Thumlers tumbler; 5lbs 60/90 grit; 5lbs 120/220 grit” “Accessory Kit, Bench Clamp and shipping for workbench” Goods and Services Provided “Shipping/delivery charges for CD-ROM” “Voc Rehab Panel, PO 348-08-039 dtd 7/23/08” “McGavic Outdoot power equipment; lawn tractor and delivery” Transfers to a VR&E Employment Track 4 n.a. n.a. The Denver Regional Office includes totals for the Cheyenne, Wyoming office. This office is considered a satellite office of Denver. The Washington Regional Office, located in the District of Columbia, was renamed the National Capital Region Benefits Office in November 2012. The Denver Regional Office includes totals for the Cheyenne, Wyoming office. This office is considered a satellite office of Denver. The IL entrant total for the Denver Regional Office includes the total number of veterans who entered the Cheyenne, Wyoming, office. This office is considered a satellite office of Denver. The Washington Regional Office, located in the District of Columbia, was renamed the National Capital Region Benefits Office in November 2012. Daniel Bertoni, (202) 512-7215 or [email protected]. In addition to the contact listed above, individuals making key contributions to this report were Clarita Mrena (Assistant Director), James Bennett, Melinda Bowman, David Chrisinger, Mary Ann Curran, David Forgosh, Danielle Giese, Angela Jacobs, Mitch Karpman, John Lack, Kirsten B. Lauber, Karen O’Conor, James Rebbe, Martin Scire, Almeta Spencer, Jeff Tessin, Jack Warner, and Ashanta Williams. Veterans’ Employment and Training: Better Targeting, Coordinating, and Reporting Needed to Enhance Program Effectiveness. GAO-13-29. Washington, D.C.: December 13, 2012. VA Health Care: Spending for and Provision of Prosthetic Items. GAO-10-935. Washington, D.C.: September 30, 2010. Veteran Affairs: Opportunities Exist to Improve Potential Recipients’ Awareness of the Temporary Residential Adaption Grant. GAO-10-786. Washington, D.C.: July 15, 2010. Veterans Affairs: Implementation of Temporary Residence Adaptation Grants. GAO-09-637R. Washington, D.C.: June 15, 2009. Federal Information System Controls Audit Manual (FISCAM). GAO-09-232G. Washington, D.C.: February 2009. VA Vocational Rehabilitation and Employment: Better Incentives, Workforce Planning, and Performance Reporting Could Improve Program. GAO-09-34. Washington, D.C.: January 26, 2009. VA Vocational Rehabilitation and Employment: Service Contract Management Is Improving, but Challenges Remain. GAO-07-568R. Washington, D.C.: April 23, 2007. Managerial Cost Accounting Practices: Leadership and Internal Controls Are Key to Successful Implementation. GAO-05-1013R. Washington, D.C.: September 2, 2005. VA Vocational Rehabilitation and Employment Program: GAO Comments on Key Task Force Findings and Recommendations. GAO-04-853. Washington, D.C.: June 15, 2004. Internal Controls Management and Evaluation Tool. GAO-01-1008G. Washington, D.C.: August 2001. Managing For Results: Barriers to Interagency Coordination. GAO/GGD-00-106. Washington, D.C.: March 29, 2000. Standards for Internal Control in the Federal Government. GAO/AIMD-00-21.3.1. Washington, D.C.: November 1999.

The IL "track"--one of five tracks within VA's VR&E program--provides a range of benefits to help veterans with service-connected disabilities live independently when employment is not considered feasible at the time they enter the VR&E program. These benefits can include counseling, assistive devices, and other services or equipment. GAO was asked to review issues related to the IL track. This report examines (1) the characteristics of veterans in the IL track, and the types and costs of benefits they were provided; (2) the extent to which their IL plans were completed, and the time it took to complete them; and (3) the extent to which the IL track has been administered appropriately and consistently across regional offices. To conduct this work, GAO analyzed VA administrative data from fiscal years 2008 to 2011, and reviewed a random, generalizable sample of 182 veterans who entered the IL track in fiscal year 2008. In addition, GAO visited five VA regional offices; interviewed agency officials and staff; and reviewed relevant federal laws, regulations, and agency policies and procedures. Of the 9,215 veterans who entered the Department of Veterans Affairs' (VA) Independent Living (IL) track within the Vocational Rehabilitation and Employment (VR&E) program in fiscal years 2008 to 2011, most were male Vietnam era veterans in their 50s or 60s. Almost 60 percent served in the U.S. Army, and fewer than 1 percent served in the National Guard or Reserve. The most prevalent disabilities among these veterans were post-traumatic stress disorder and tinnitus. GAO's review of 182 IL cases from fiscal year 2008 found that VR&E provided a range of IL benefits to veterans. Among these cases, the most common benefits were counseling services and computers. Less common benefits included gym memberships, camping equipment, and a boat. GAO estimated that VR&E spent nearly $14 million on benefits for veterans entering the IL track in fiscal year 2008--an average of almost $6,000 per IL veteran. Most veterans completed their IL plans, which identify their individual goals to live independently and the benefits VR&E will provide. About 89 percent of fiscal year 2008 IL veterans were considered by VR&E to be "rehabilitated," that is, generally, to have completed their IL plans by the end of fiscal year 2011. VR&E discontinued or closed about 5 percent of cases for various reasons, such as the veteran declined benefits. Six percent of cases were open at the end of fiscal year 2011. Because the complexity of IL cases varied depending on veterans' disabilities and needs, some cases were fairly simple for VR&E to close. For example, one IL case only called for the installation of door levers and a bathtub rail. Another more complex case involved the provision of a range of IL benefits, including home modifications. Rehabilitation rates across regions varied from 0 to 100 percent, and regions with larger IL caseloads generally rehabilitated a greater percentage of IL veterans. While IL plans nationwide were completed in 384 days, on average, completion times varied by region, from 150 to 895 days. VR&E exercises limited oversight to ensure appropriate and consistent administration of the IL track across its regions. First, some regions may not be complying with certain case management requirements. For instance, while VR&E is required to coordinate with the Veterans Health Administration (VHA) on IL benefits, VR&E counselors have difficulty obtaining timely responses from VHA. VHA physicians respond to VR&E's IL referrals late or not at all, resulting in delayed benefits or VR&E providing the benefits instead of VHA. Second, VR&E does not monitor regional variation in IL caseloads and benefits provided. Instead, it has relied on its quality assurance reviews and ad hoc studies, but these are limited in scope. Third, given counselors have broad discretion in selecting IL benefits, VR&E's written policies for approving IL expenditures may not be appropriate as regions were permitted to purchase a range of items without any Central Office approval, some of which were costly or questionable. For example, in one case, Central Office review would not have been required for expenditures of $18,829 for a riding mower, which is prohibited, and other items. Finally, VR&E's system does not collect IL costs and benefits provided. VR&E also lacks accurate data on the number of IL veterans served. While the law currently allows 2,700 veterans to enter the IL track annually, data used to monitor the cap are based on the number of IL plans developed, not on the number of individual veterans admitted. Veterans can have more than one plan in a fiscal year, so one veteran could be counted multiple times towards the cap. GAO recommends that VR&E explore options to enhance coordination with VHA; strengthen its oversight of the IL track; and reassess its policy for approving benefits. VA generally agreed with GAO's conclusions and recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: Congress built into the Recovery Act numerous provisions to increase transparency and accountability, including requiring recipients of funds to report quarterly on a number of measures. To implement these requirements, OMB worked with the Recovery Board to deploy a nationwide system at FederalReporting.gov for collecting data submitted by the recipients of funds. OMB set the specific timeline for recipients to submit reports and for agencies to review the data. Recipients are required to submit the reports in the month after the close of a quarter, and, by the end of the month, the reports are to be reviewed by federal agencies for significant errors and missing information before being posted to Recovery.gov. For the programs discussed in this report, information was submitted by recipients for the quarter ending December 31, 2009 (second round reporting) and posted on Recovery.gov on January 30, 2010. While OMB’s role was to provide governmentwide guidance, one of the functions of the Recovery Board was to establish the Web site and to publish a variety of data, including recipient data once it was reviewed by the federal agencies. These data, collected through www.FederalReporting.gov, are made available to the public for viewing and downloading on www.Recovery.gov. The Recovery Act set a demanding schedule for implementing Recovery.gov, requiring the Recovery Board to establish the Web site within 30 days. The Recovery Board’s goals for this Web site were to promote accountability by providing a platform to analyze Recovery Act data and serving as a means of tracking fraud, waste, and abuse allegations by providing the public with accurate, user-friendly information. This was an extensive undertaking across the federal government. OMB, the Recovery Board, and federal agencies, among others, worked to design a Web site, develop the capability to handle tens of thousands of submissions, develop guidance on reporting, and assist recipients in meeting reporting requirements. More specifically, within a short period of time, OMB and the Recovery Board implemented a recipient reporting system that covered a wide-range of programs and provided detailed and up-to-date information on the use of Recovery Act funds. Our fieldwork and initial review and analysis of recipient data from www.Recovery.gov indicated that there was a range of significant reporting and quality issues that needed to be addressed, including issues with interpretations of reporting guidance. OMB told us that achieving the promised degree of transparency will be an iterative process, during which the reporting process and submitted information will improve. The Recovery Act required recipients to report specific information, including descriptive information on each award, which we discuss further in the following section. In the accountability and transparency section of the act, transparency is not specifically defined. However, the act requires that the award information on Recovery.gov be made available to enhance public awareness of the use of funds. Furthermore, both Members of Congress and the President have asserted the need for accountability, efficiency, and transparency in Recovery Act spending, with the administration pledging that the Recovery Act would “break from conventional Washington approaches to spending by ensuring that public dollars are invested effectively and that the economic recovery package is fully transparent and accountable to the American people.” Thus, the transparency of award information on Recovery.gov, particularly in narrative fields (the focus of this review) is particularly important. For this report, we reviewed the 11 energy and infrastructure programs introduced previously. (See table 1.) No awards were made for two of the programs—the Broadband Initiatives Program and the Supplemental Discretionary Grant Program—by December 31, 2009. Awards were made for the other 9 programs by this date, requiring recipients to submit reports for the second round of reporting. Both the Recovery Act and OMB require recipients to report on a wide range of items to track the uses of funds. These items include—but are not limited to—overall descriptions of the awards, projects and activities funded, funding amounts, numbers of jobs created or retained, compensation for certain executives, and awards to subrecipients. As discussed earlier, our focus is on the extent to which descriptions of awards reported by recipients and published on Recovery.gov provide a basic understanding of what funds are being spent on and what outcomes are expected. As a result, we focused on certain reporting requirements and guidance that provide that basic understanding, such as the location of the project and the nature of the award activities. The act created broad requirements for recipient reporting. Specifically, the act requires, among other types of information, that recipients report the total amount of Recovery Act funds received, associated obligations and expenditures, and a detailed list of those projects or activities. For each project or activity, the detailed list must include its name and a description, an evaluation of its completion status, and an estimate of the number of jobs created and the number of jobs retained through that project or activity. The act did not include any more specific interpretation or explanation of these requirements. To operationalize the act’s requirements, OMB provided recipients with a range of guidance through memorandums, supplemental materials, and reporting instructions. Specifically, starting for the period ending September 30, 2009 (and repeated for the quarter ending December 31), OMB’s reporting instructions for the Recipient Reporting Data Model specified that recipients would provide, among other things, the project name, which should be brief and descriptive; a project description that captures the overall purpose of the award and expected outputs and outcomes or results; an award description that describes the overall purpose, expected outputs, and outcomes or results of the award, including significant deliverables and, if appropriate, units of measure; the project status, which was specified as not started, less than 50 percent complete, completed 50 percent or more, or complete; an activity description, which categorizes projects and activities; the amount of the award; and the primary place of performance, which is the physical location of award activities. Three of these fields—project name, project description, and award description—are narrative fields. OMB’s Recipient Reporting Data Model does not specifically address the clarity of such descriptions, although OMB, in its December 2009 guidance to heads of executive departments and agencies, has stated that the narrative information must be sufficiently clear to facilitate understanding by the general public. Several of these fields are defined in ways that are inconsistent with reporting award project and activity information as required by the Recovery Act. Where, for example, funds are awarded using a single award to cover multiple projects, requiring a project description that captures the overall purpose of the award is not consistent with the requirement in the act to report a detailed list of all projects and activities each having its own name, description, completion status, and potential outcomes. Requiring that status, outcomes, or other information covered be reported in single fields on an award-by-award rather than a project-by-project or activity-by- activity basis may convey an incomplete impression if multiple projects or activities are being included. Officials from OMB agreed with this assessment but said that the agency, in creating its guidance and reporting data model, weighed the level of reporting detail required against the potential reporting burden. OMB created the guidance to require general information that could be applied broadly across a wide range of recipients. OMB defined the three narrative fields to solicit high-level information that is not overly specific to a single program. In this regard, the guidance had to be applicable to awards that are for discrete activities at a single location and for a single purpose. For example, under the Federal Highway Administration’s (FHWA) Highway Infrastructure Investment program, an award might be for a single project to widen a section of a road or to replace a substandard bridge. bundle several discrete activities at different locations. For example, under the Federal Transit Administration’s (FTA) Transit Capital Assistance Program, a transit agency could receive an award that has different purposes at different locations. are like block grants in which recipients (i.e., states, territories, and tribes) receive funds for a broad purpose and make subawards to local entities, which then decide the specific uses for which funds are to be spent. For example, under the Department of Energy’s Weatherization Assistance Program, recipients receive funding to enable low-income families to reduce their energy bills by making energy-efficiency improvements to their homes. In turn, the recipients provide grant funds to a number of local agencies to actually carry out the purposes of the program, which might involve modernizing heating equipment in one home and installing insulation in another. are components of a larger project, but are not linked to the larger project for reporting purposes. For example, under the Civil Works Program, the U.S. Army Corps of Engineers (Corps) may enter into a contract (the award) with one company to dredge a river channel and with another company to build a seawall, all for the purpose of improving navigable waters at a specific location. Each recipient reports on the activities conducted under the individual award but not the overall project being funded as each recipient works on only a piece of the larger project. OMB officials also told us the agency created generic reporting guidance because they expected the guidance to be a baseline, with agencies providing supplemental guidance that was more specific to unique program characteristics and situations that OMB’s one-size-fits-all guidance could not effectively address. According to OMB, the agencies would be better sources of program-specific individualized guidance, tailored to the awards made under their programs. As discussed in the next section of this report, most agencies included in our review did provide some type of technical assistance or supplemental materials to aid recipients in reporting. However, most did not develop formal, program-specific supplemental guidance that was approved by OMB, and OMB did not require agencies to do so. For agencies that do develop program-specific supplemental guidance, OMB officials told us that they primarily review this guidance for consistency with their agency’s general guidance, and review the supplemental guidance to ensure its overall sufficiency. OMB officials did not indicate if their review includes whether agencies developed guidance on their narrative fields. Also, while OMB reviews formal guidance, it does not monitor other forms of agency supplemental material or technical assistance provided to recipients. (See apps. I-XI for additional information on the agencies’ reporting assistance and its possible effects on the transparency of descriptions). OMB continues to update its guidance based on lessons learned from early reporting experiences, recognizing that the reporting process is a work in progress. For example, OMB clarified its guidance on calculating jobs created or retained to address issues with the jobs data reported by recipients during the first reporting round. During the course of our review, OMB officials signaled that they are willing to revise their guidance should our assessment or other input suggest that changes are needed, but would need to balance any changes in guidance against additional reporting burdens. We found two instances in which OMB’s guidance on narrative fields was unclear. First, for the award description field, the guidance provided that recipients of grants should describe the overall purpose of the award; recipients of contracts should provide a description of the overall purpose and expected outcomes including significant deliverables. OMB provided three examples of how to fill in the field, at least two of which do not conform to OMB’s expectations: “community development” and “special education – part B/preschool.” These examples provide only high-level titles but do not identify the purpose or outcomes. Furthermore, OMB allowed recipients to enter descriptions of up to 4,000 characters, providing space for more robust descriptions. As a result, based on our assessment of award descriptions, recipients are reporting widely varying types of information in this field—some of it very detailed, while other reporting is quite limited and uninformative. This issue is discussed more fully in the following section and can be seen in award information from Recovery.gov that we reproduced in appendixes I through XI. Second, for the quarterly activities/project description field, OMB instructed grantees to provide a description of the overall purpose and expected outputs and outcomes or results of the award. As mentioned, project description, as that term is used in the act, refers to listed projects or activities, not awards. Instead, OMB's guidance anticipated that, for contracts, recipients were supposed to provide a description of all significant services or supplies delivered in the current calendar quarter. The example OMB provided in its Recipient Reporting Data Model, “Powers and Gold Beach Ranger Districts Curry County OR Has Fuels Item 1 Chetco Area and Item 3 – Powers Area” is, in our opinion, unclear, and it does not meet the general requirements that OMB laid out. As discussed in the next section, the inconsistency and lack of clarity in OMB’s guidance may have contributed to the level of transparency in some of the award description information that we reviewed. We estimate that about a quarter of the awards on Recovery.gov for the nine programs we reviewed were transparent—that is, had sufficiently clear and understandable information on the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work. Many others (an estimated 68 percent) had at least some or most of this information, and a small percentage (an estimated 7 percent) had little of this information. A few factors may have contributed to the lack of transparency in the descriptions we assessed, including the type of guidance and technical assistance provided by OMB and federal agencies. In addition to the information published on Recovery.gov, federal, state, and other public sources provide some additional information on the uses of Recovery Act funds. Because the Recovery Act did not define transparency, we developed our own set of criteria by which to measure the transparency of the awards’ descriptive fields. In order to assess the descriptions, we selected key fields required for recipient reporting from Recovery.gov that describe the uses of Recovery Act funds, including the three narrative fields. Using the Recovery Act, OMB’s guidance, and our professional judgment, we determined that these fields should collectively contain information on the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work—information necessary to make the use of funds transparent to the public. We also considered the extent to which information in the fields was clear and understandable. We drew a probability (simple random) sample of prime recipient awards to review for each of the nine energy and infrastructure programs that had awards in Recovery.gov for the second round of recipient reporting and compared the descriptions of these awards to our transparency criteria. (See app. XIII for more information about our transparency criteria and overall methodology.) We estimate that 25 percent of the awards for the nine programs we reviewed (out of a total of over 14,000 awards) were transparent—had sufficiently clear and understandable information on the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work. (See table 2.) We estimate that another 68 percent had some or most of this information, but not all. Importantly, the descriptions of awards that partially met our transparency criteria varied widely. Some of these award descriptions had much of the information needed to make them transparent, but might be missing one important aspect, such as the expected outcomes. Other descriptions contained much less information and provided sufficient detail to meet only a few attributes of our criteria, such as purpose and location. Finally, an estimated 7 percent of the descriptions provided little or no information on nature, scope, purpose, location, or outcomes of the award. Recipient-reported information varied widely in its transparency. For example, a Napa, California, transit recipient provided clear information in sufficient detail for the general public to understand the award’s purpose, scope, location, cost, nature of activities, outcomes, and status of work. Specifically, the description of the award states that it will be used to purchase four hybrid buses and construct a multimodal park-and-ride facility and, as a result, the transit fleet will be modernized, and the park- and-ride facility will allow hundreds of commuters to make more efficient, safe, and timely transit connections. (See table 3.) Thus, we determined that this description met our transparency criteria. Other recipient-reported information was less transparent and partially met our transparency criteria. For example, a weatherization program description for the Commonwealth of Virginia partially met our transparency criteria because it contained some, but not all of the attributes needed to make the use of funds transparent to the public. (See table 4.) For example, the description did not provide information on the scope of the award because it did not indicate how many homes would be weatherized in the state. From publicly available information on other federal and state Web sites, we found information that would have made this description more complete. Specifically, we found that approximately 9,193 homes throughout the state of Virginia will undergo weatherization activities such as tests for carbon monoxide, heating/cooling equipment inspection and repair, domestic water heater insulation, and refrigerator and stove replacement. (The extent to which federal agency and state agency Recovery Act Web sites have material that supplement Recovery.gov recipient-reported information is discussed later in this section.) Finally, some recipient-reported information contained little or no information on what funds are being spent on and what outcomes are expected. These did not meet our transparency criteria. For example information reported by the State of Michigan for a highway project did not describe the location of the roadway or the extent of the project, and used technical terminology to describe the nature of the project—chip sealing—that is not likely to be familiar to the general public. (See table 5.) As a result, this description did not meet our transparency criteria. From publicly available information on other federal and state Web sites, we found information that would have made this description more understandable and clearer. Specifically, we found that the award supports pavement improvement activities to resurface 7.8 miles of Featherstone Road from M-66 to Engle Road north of Sturgis. The award will result in improved driving quality by making the road smoother. For more information on the transparency results for each program, as well as our assessment of each of the 467 awards that we reviewed, see appendixes I-XI. Two key factors may have contributed—positively or negatively—to the transparency of the award descriptions we assessed from Recovery.gov, although we cannot directly correlate our specific transparency results to these factors. Most notably, the guidance provided may have played a role in the degree to which recipients transparently described their awards. As noted in the previous section, OMB’s guidance for reporting information on the uses of an award is unclear, which could have prevented some recipients from meeting some or all of our criteria in the transparency assessment. In addition, the type of assistance—program-specific guidance or technical assistance—as well as the level of detail, which varied across agencies, may have played a role in the extent to which awards met our transparency criteria. Some agencies supplemented OMB’s high-level guidance with program- specific technical assistance on how to meet OMB’s reporting requirements, including specific instructions on what to write in the narrative fields. For example, FTA annotated OMB’s guidance with program-specific instructions and examples for all the reporting fields in FederalReporting.gov. In the project description field, FTA suggested that recipients “describe the specific outputs and outcomes that will result from the grant. This entry should include quantitative information about the activities conducted and items purchased under the grant.” For the most part, the programs in our review for which agencies provided program-specific guidance or technical assistance—Highway Infrastructure Investment, Transit Capital Assistance, and Geothermal Technologies Program—tended to have more transparent descriptions. However, other program-specific factors, such as grant applications that involved creating project descriptions for public dissemination in advance of award selection, may have also played a role in the degree to which such descriptions met our transparency criteria. For example, when some applications required recipients to create project descriptions for public dissemination in advance of award selection, such as in the Broadband Technology Opportunities Program, the recipients may have been more prepared to describe their awards in the narrative fields. For additional information by program, see appendixes I-XI. Other agencies we reviewed only provided general reporting assistance to recipients, primarily by disseminating OMB’s guidance to help recipients navigate OMB’s reporting requirements. However, this assistance did not necessarily include specific clarification or instructions for completing narrative fields. For example, the Department of Energy provides technical assistance to Weatherization Assistance Program recipients that, for the most part, summarizes OMB’s guidance. The Federal Aviation Administration (FAA) distributes OMB’s guidance and provides recipient reporting assistance through each of its field offices, which in turn, determines how to disseminate guidance to recipients. In one FAA field office, a contractor hired to oversee Recovery Act efforts distributed information and guidance to every airport in the region by e-mail. For the most part, the programs in our review that only provided general reporting assistance to recipients, mostly through disseminating OMB’s guidance—Weatherization Assistance Program, Grants-in-Aid for Airports, and the Federal Buildings Fund—tended to have less transparent descriptions. However, other factors, such as the level of experience of the recipients in reporting on government awards, may have also played a role in the degree to which such descriptions met our transparency criteria. For additional information by program, see appendixes I-XI. Federal agencies’ data quality reviews may also have played a role in the extent to which some recipients met our transparency criteria. OMB’s guidance requires that federal agencies conduct data quality reviews to address two key data problems—material omissions and significant reporting errors—but does not specify methodologies for such reviews. However, OMB does require federal agencies to develop data quality plans to articulate how they intend to detect and correct material omissions and significant reporting errors. OMB officials told us that given the limited amount of time federal agencies have to conduct these reviews, identifying misleading or erroneous information must take priority. Officials from almost all of the programs included in this review that had awarded funds for the second reporting round told us that they conduct automated checks of data, specifically of the numerical fields. For example, Department of Energy officials told us that they ensure the quality of recipient reported data for the Weatherization Assistance Program primarily through an automated analysis of key data fields, including the award number, recipient name, award amount, and jobs calculated. In a few cases, they also manually review the data for other anomalies. However, officials from some of the programs included in our review told us they did not typically review the information provided in narrative fields, and, of the three programs that do, none had a systematic process in place to evaluate the accuracy or transparency of the information. For example, FHWA officials told us that they “spot check” the information for significant errors because of the volume of awards—over 10,000—in their program. In light of the importance of the quality of the Recovery Act data, the Recovery Board has worked with federal Inspectors General to establish a multiphased review process to look at the quality of the data submitted by Recovery Act recipients. To date, this process has focused on (1) whether agencies developed data quality reviews in anticipation of the data to be submitted and (2) identified data errors and omissions in recipients’ first cycle reports and factors that may have contributed to them and the actions taken by agencies, OMB, and the Recovery Board to improve the quality of the data that recipients will submit in future reporting cycles. The resulting report did not comment on the quality of the data in the narrative fields. According to the Recovery Board, future reports will focus on the effectiveness of the agency data quality review processes. For information on each agency’s data quality reviews, see appendix XII. Recovery.gov includes award information on Recovery Act spending from both recipients and agencies, as well as various other required agency reports, including agency-specific Recovery Act plans and weekly financial and activity reports. Aside from the information on Recovery.gov, descriptive information on the uses of awards is available through other resources. At the federal level, agency Web sites provide information on Recovery Act activities as required by OMB’s guidance. The level and type of award information provided on agency Web sites varies across the programs we reviewed. For example, FHWA has a link to a spreadsheet on its Web site that provides information such as the location and obligation amount for each award, as well as a short description. The Geothermal Technologies Program Web site has detailed information on each project, including the technology type, recipient name, location, objectives, description, and targets/milestones. The Recovery Act did not require states to establish Web sites to provide Recovery Act information. However, all 50 states and the District of Columbia do post some information on their state-specific Recovery Act Web sites. As with the federal agency Web sites, however, the state Web sites provide varying levels of detail. For example, the New York State Recovery Act Web site, NYWorks (www.recovery.ny.gov), details how the state of New York is spending its Recovery Act funds through a map that provides specific information on each project that has been announced. In addition, the Web site provides links to over 40 other federal, state, and local entities that have additional information on Recovery Act spending. Mississippi’s Recovery Act Web site (www.stimulus.ms.gov) provides links to federal guidance and the recipient reports for projects in the state, but it does not provide additional information on a project-by-project basis beyond what is published on Recovery.gov. In some cases, state auditors have also developed Web pages or sites to provide information to the public on the oversight and monitoring of Recovery Act spending. In addition to federal and state Web sites, information on the uses of Recovery Act funds can be found on some recipients’ Web sites and in other publicly available documents. For example, the Ohio Department of Transportation has a one-page description and photo for most recovery projects that provides detail on the activities and outcomes of that project, as well the expected completion date. Likewise, 36 of the 58 states, territories, and tribes receiving Recovery Act funds through the Weatherization Assistance Program have their weatherization plans on their Web sites. The Department of Energy requires all states, territories, and tribes to create these plans to outline how they will use weatherization funds, including Recovery Act funds. For the most part, the officials we spoke with said they are not systematically tracking the citizen feedback that they have received on publicly available award information. The Recovery Board tracks the total number of comments received on Recovery.gov—it receives about 125 to 200 e-mails per week—but does not categorize the e-mails by type of comment. However, Recovery Board officials told us that they plan to begin linking e-mails to specific projects in the future. OMB officials told us that the information published from the first round of reporting received public scrutiny and commentary, which they viewed as evidence that the transparency and reporting processes for the Recovery Act are working effectively. In fact, based on the comments OMB received, the agency added an automated check to FederalReporting.gov to ensure that certain numerical fields, such as zip codes or congressional districts, were correctly entered. In general, federal agency officials told us that they have received some feedback on Recovery Act awards and the award information made available to the public. Officials from the Weatherization Assistance Program and Grants-in-Aid for Airports Program told us that the public has provided little feedback on awards and the award information made available to the public, while Geothermal Technologies Program officials told us that the public and media have provided positive feedback on the program’s Web site, which provides detailed information on each project. According to officials at a few agencies, many public inquiries on the Recovery Act addressed the availability of funding and jobs, not individual awards. According to FHWA officials, the agency has no baseline information for comparing the feedback on Recovery Act awards with comments on awards made before the Recovery Act, because they did not previously track feedback on project information they provided to the public. The administration faced a daunting task in simultaneously putting in place ways to spend large sums of Recovery Act funds that required, in some instances, developing new programs and, in others, significantly expanding the size of existing ones, while also seeking to make these efforts more transparent to the public than previous efforts had been. Although OMB initially focused on quickly designing a reporting system that covered a vast array of Recovery Act programs delivered in different ways, now that such requirements are largely in place, OMB can begin focusing on other important aspects of its transparency efforts. Specifically, ensuring that the narrative portions of Recovery.gov award descriptions prepared by recipients are understandable is an important aspect of OMB’s transparency effort. These descriptions provide a key mechanism through which the public can understand clearly how their tax dollars are being spent and what is likely to be achieved from these expenditures. Looking forward, OMB has an opportunity to improve the transparency of the recipient-reported narrative information on Recovery.gov by revising its guidance to remedy the problems we found. Assuredly, the more difficult task is having tens of thousands of recipients follow this guidance and report on their awards in a way intended by the act and the administration. In our view, one promising approach is for OMB to work with the executive departments and agencies that seek to provide supplemental guidance on narrative description information. In doing so, OMB can use its central position to further mission agencies' efforts to tailor resulting guidance to their individual situations in a way that furthers the transparency goals discussed in this report. A second approach is for OMB, in partnership with federal agencies, to periodically review the descriptions of awards submitted by recipients and to work with the Recovery Board on the board’s assessments of agencies’ data quality reviews to gain a sense of whether the information reported is meeting the administration’s expectations. We are not making recommendations to individual agencies at this time because we believe that there are actions that OMB can take which may lead to substantial improvements in recipient reporting of narrative information. However, as we continue to monitor OMB’s efforts to achieve transparent Recovery Act spending, we will reassess, as needed, whether actions in these areas are needed. To further the goals of public understanding of what Recovery Act funds are being spent on and what results are expected, we recommend that the Director, Office of Management and Budget, take the following three actions: Revise OMB’s recipient reporting guidance, including the Recipient Reporting Data Model, to provide recipients with clearer general instructions and examples for narrative fields aimed at fostering more complete information on the uses of funds and expected outcomes. Work with executive departments and agencies to determine (1) whether supplemental guidance is needed to meet, in a reasonable and cost-effective way, the intent of the Recovery Act for reporting on projects and activities and (2) whether that supplemental guidance or other agency-proposed technical assistance dealing with narrative descriptions of awards provides for transparent descriptions of funded activities. Periodically (1) review, in partnership with executive departments and agencies, the descriptions of awards—in particular, the narrative fields—submitted by recipients to determine whether the information provides a basic understanding of the uses of the funds and the expected outcomes, and, if not, determine what actions to take, including encouraging agencies to develop or improve program-specific guidance and (2) work with the Recovery Board on the board’s assessments of departments’ and agencies’ data quality reviews to ensure the adequacy of these reviews and further reinforce actions to meet transparency goals. We provided a draft of this report to the Office of Management and Budget; the Departments of Agriculture, Commerce, Energy, and Transportation; the Corps of Engineers; and the General Services Administration for their review and comment. OMB officials agreed with our recommendations. The officials stated that our report would be enhanced if it better communicated information in three areas. First, regarding our findings on transparency, the large “partially met” category contains awards that have a substantial amount of the information needed to understand what funds are being spent on and what outcomes are expected as well awards that contained sufficient information on only a few attributes. Second, OMB asked that we recognize the need to balance more extensive reporting with the effort needed to comply with that reporting. Third, OMB officials suggested that we state more clearly that we assessed the transparency of award information collectively—that is, from reviewing the 12 data fields as a whole rather than from looking at the information contained in each field individually—since some information that might not appear in one data field could show up in another field. We revised our report to better communicate these aspects. The officials also provided technical and clarifying comments, many of which we incorporated. For the most part, the other agencies’ comments were limited to technical and clarifying comments, which we incorporated where appropriate. In its technical comments, the Department of Transportation provided a general comment from FTA that the transit administration believed that many of the award descriptions for transit projects that we assessed as partially meeting our transparency criteria could have been assessed as meeting the criteria. Given the procedures that we used to make our assessment, we remain confident that these assessments were fair and accurate. We do note that providing narrative information is a learning experience, with recipients having opportunities in subsequent reporting rounds to improve their narrative material to be more transparent. Finally, the Department of Commerce provided a letter in which it detailed a number of ways that it undertook to achieve transparency for its Broadband Technology Opportunities Program. (See app. XV.) As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to congressional committees and subcommittees with responsibilities for the programs discussed in this report; the Director, Office of Management and Budget; and the Secretaries of the agencies discussed in this report. In addition, this report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact Katherine Siggerud at (202) 512-2834 or [email protected] for buildings, telecommunications and transportation issues, Patricia Dalton at (202) 512- 3841 or [email protected] for energy and Army Corps of Engineers issues. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Contributors to this report are listed in appendix XVI. Within the Department of Agriculture, the Rural Utilities Service’s Broadband Initiatives Program makes funding available for broadband infrastructure projects in rural areas that lack sufficient access to high- speed broadband service. The Recovery Act provides $2.5 billion of budget authority for the Rural Utilities Service to extend grants, loans, and loan/grant combinations to projects for the purpose of facilitating broadband deployment in rural communities. Through the use of loans, the Rural Utilities Service can support a principal amount exceeding the appropriation. On July 9, 2009, the Rural Utilities Service and the Department of Commerce’s National Telecommunications and Information Administration (NTIA) released a joint Notice of Funds Availability detailing the requirements, rules, and procedures for applying for broadband funding. Under this funding notice, the Rural Utilities Service received 401 applications requesting nearly $5 billion, and another 833 applications were joint applications to the Broadband Initiative Program and NTIA’s Broadband Technology Opportunities Program totaling nearly $13 billion. Broadband grants and loans fall into several first round project categories: Last Mile projects. Up to $1.2 billion was available for last mile infrastructure projects in remote and non-remote areas. A “last-mile” project is defined as any broadband infrastructure project that provides service to end users or end user devices. A remote area is an unserved, rural area 50 miles from the limits of a nonrural area, and an unserved area is defined as a proposed service area composed of one or more contiguous census blocks, where at least 90 percent of households in the proposed funded service area lack access to facilities-based, terrestrial broadband service. Middle Mile projects. Up to $800 million was available for Middle Mile projects. A Middle Mile project is defined as a broadband infrastructure project that does not predominantly provide broadband service to end users or to end user devices, and may include interoffice transport, backhaul, Internet connectivity, or special access. The Rural Utilities Service released a separate second funding round notice on January 22, 2010. Under this second funding notice, the Rural Utilities Service received a total of 776 applications requesting nearly $11.2 billion. The second funding notice retained funding for Last Mile and Middle Mile projects, but eliminated the funding category for Last Mile Remote projects. Several new categories have been established for satellite, rural library broadband, and technical assistance, as described below: Last Mile projects. Up to $1.7 billion is available for loans or loan/grant combinations. Middle Mile. Up to $300 million is available for loans or loan/grant combinations. Satellite, rural library broadband, and technical assistance projects. Up to $100 million is available in grants for satellite projects, as well as any and all funds not obligated for Last Mile and Middle Mile projects, and up to $5 million is available in grants for connecting rural libraries and developing regional broadband development strategies in rural areas. Second round awards are expected to be announced starting in June 2010. In the first round, the Rural Utilities Service announced over $1 billion in grants and loans for 68 broadband projects in 31 states, one territory, and 17 tribal lands and Alaska Native regions. According to the Department of Agriculture, these projects will make high-speed Internet available to an estimated 529,000 households and 96,000 rural businesses and public facilities. Of the 68 awarded projects, 49 are for Last Mile non-Remote areas, 13 are for Last Mile Remote areas, and 6 are for Middle Mile projects. As of May 3, 2010, the agency had obligated nearly $250 million for 26 of the 68 awards. There have been no program expenditures to date. The projects selected include a range of efforts to bring high-speed Internet to remote and rural communities that currently have little or no access to broadband technology. Funding has been awarded to a range of providers—small telecommunications companies, wireless providers, and rural electric and telephone providers—to build networks in rural areas. These projects feature a variety of Internet technologies, including wireline and wireless, and are expected to provide Internet connectivity to homes, business, and anchor institutions in rural communities. Since no grant or loan money had been obligated to recipients as of December 31, 2009, there were no awards reported on Recovery.gov for the second reporting round. The Rural Utilities Service did not issue supplemental technical assistance to recipients to augment the Office of Management and Budget’s (OMB) guidance on recipient reporting. Because Broadband Initiatives Program funds have not yet been expended, recipient reporting for the program will not occur until July 2010. Therefore, the agency does not have experience with how well OMB’s guidance ensures that the public has accurate information. Based on information that the Rural Utilities Service received in the first funding round, the agency developed enhanced application guide procedures and developed more comprehensive forms for the applicant’s use that should enable an applicant to submit better data. The agency held a series of workshops together with NTIA in July 2009 and January 2010 coinciding with the first and second funding round notices and agency officials said that they will be hosting upcoming workshops to discuss compliance and reporting requirements. The Rural Utilities Service makes broadband stimulus project information available to the public in several forms, including the following: Department of Agriculture Web site (www.usda.gov/recovery). This Web site includes an overview of all Recovery Act funds provided to the Department of Agriculture and a Recovery Act project map that provides the award recipient, type, and amount, among other things, for all departmental awards. The agency also publishes a blog for each state (linked to the project map), with an entry that briefly describes each award and provides a venue for public feedback. Broadband USA (www.broadbandusa.gov). This joint Rural Utilities Service/NTIA broadband portal includes an information library on Recovery Act broadband programs and an application database. The database, which includes funded applications, provides information such as the project type, proposed project area, description, and in many cases, a project executive summary. Press releases (www.usda.gov/rus). On its site, the Rural Utilities Service posts press releases announcing awards for the Broadband Initiatives Program. According to agency officials, there has been considerable interest from various groups about projects funded by the Broadband Initiatives Program. These comments range from full support for a project to questions about why the agency made an award to a community. Officials stated that, in most cases, the public is satisfied with the information that has been made to the general public, but some groups want more information than the Rural Utilities Service can make available, such as proprietary information about the award recipient. The agency plans to make all information available to the public in conformance with the requirements of the Freedom of Information Act. Within the Department of Commerce, the National Telecommunications and Information Administration’s (NTIA) Broadband Technology Opportunities Program makes grant funding available to a variety of entities for broadband infrastructure, public computer centers, and innovative projects to stimulate demand for, and adoption of, broadband. Of the $4.7 billion appropriated for the program, up to $350 million was also available for the State Broadband Data and Development Program pursuant to the Broadband Data Improvement Act for the purpose of developing and maintaining a nationwide map featuring the availability of broadband data. On July 9, 2009, NTIA and the Department of Agriculture’s Rural Utilities Service released a joint Notice of Funds Availability detailing the requirements, rules, and procedures for applying for broadband funding. Under this funding notice, NTIA received 260 applications requesting over $5.4 billion to fund broadband infrastructure projects in unserved and underserved areas. In addition, parties filed more than 320 applications with NTIA requesting nearly $2.5 billion in grants for projects that promote sustainable demand for broadband services and more than 360 applications with NTIA requesting more than $1.9 billion in grants for public computer centers. Parties submitted another 833 joint applications to the Broadband Technology Opportunities Program and the Rural Utilities Service’s Broadband Initiatives Program requesting nearly $13 billion for broadband infrastructure projects. Broadband Technology Opportunities Program funds were available through the following three categories of eligible projects during the first round: Broadband Infrastructure. Up to $1.2 billion was available for Broadband Infrastructure projects. This category consists of two components—Last Mile and Middle Mile—and funds projects to deliver access to unserved and underserved areas. An “unserved” area is defined as one or more contiguous census blocks, where at least 90 percent of households in the proposed funded service area lack access to facilities-based, terrestrial broadband service. An “underserved” area is defined as one or more contiguous census blocks where (1) no more than 50 percent of the households have access to facilities-based, terrestrial broadband service; (2) the rate of broadband adoption is 40 percent of households or less; and (3) no service provider advertises broadband speeds of at least 3 megabits per second (“mbps”). Public Computer Centers. Up to $50 million was available for projects that expand public access to broadband service and enhance broadband capacity at entities such as community colleges and public libraries that permit the public to use these computing centers. Sustainable Broadband Adoption. Up to $150 million was available for innovative projects that promote broadband demand, including projects focused on providing broadband education, awareness, training, access, equipment, or support, particularly among vulnerable population groups that traditionally have underutilized broadband technology. NTIA released a subsequent funding round notice on January 22, 2010. Under this second funding notice, the agency received a total of 886 applications requesting a total of $11 billion in funding. For the second funding notice, NTIA is adopting a “comprehensive communities” approach as its top priority in awarding infrastructure grants, focusing on Middle Mile projects that connect community anchor institutions, such as libraries, hospitals, community colleges, universities, and public safety institutions. The following project categories are funded in the second funding round: Comprehensive Community Infrastructure projects. Up to $2.35 billion is available for broadband infrastructure projects that emphasize Middle Mile broadband capabilities and new or substantially upgraded connections to community anchor institutions, especially community colleges. Under the second funding notice, a Middle Mile project is defined as any component of a comprehensive community infrastructure project that provides broadband service from one or more centralized facilities (i.e., the central office, the cable headend, the wireless switching station, or other equivalent centralized facility) to an Internet point of presence. Public Computer Centers. At least $150 million is available to provide broadband access to the general public or a specific vulnerable population and must either create or expand a public computer center or improve broadband service or connections at a public computer center, including those at community colleges, that meets a specific public need for broadband service. Sustainable Broadband Adoption. At least $100 million is available to fund innovative projects that promote broadband demand, including projects focused on providing broadband education, awareness, training, access, equipment, or support, particularly among vulnerable groups that traditionally have underutilized broadband technology. Second round awards are expected to be announced starting in July 2010. In the first funding round, NTIA awarded and obligated 82 Broadband Technology Opportunities Program grants worth more than $1.2 billion. As of May 10, 2010, more than $8.6 million had been expended; however, NTIA officials said that more funds have been spent, but not yet drawn down. NTIA has funded 49 infrastructure projects, 20 public computing centers, and 13 sustainable broadband adoption projects in 45 states and territories. In addition, NTIA has initially funded 54 broadband mapping and planning grants in 50 states, three territories, and the District of Columbia, totaling more than $100 million. We assessed the transparency of descriptive information for broadband awards available on Recovery.gov. We found that an estimated 57 percent met our transparency criteria, 43 percent partially met our criteria, and zero percent did not meet our criteria. For broadband descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet the transparency criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. Since the Broadband Technology Opportunities Program is an entirely new program, NTIA focused on developing application processes to ensure the timely distribution of project funding. NTIA did not issue supplemental technical assistance to recipients to augment OMB’s guidance on recipient reporting. The agency held a series of workshops in July 2009 and January 2010 that coincided with the first and second funding round notices, and agency officials said that they will be hosting upcoming workshops to discuss compliance and oversight requirements. According to several grant recipients that we spoke with, agency officials have been very helpful in providing assistance throughout the application and reporting process. NTIA makes broadband stimulus project information available to the public in several forms. For example: NTIA Web site (www.ntia.doc.gov/broadbandgrants/). On April 7, 2010, NTIA launched a new Web site for current information on the Broadband Technology Opportunities Program. The Web site includes sections on Recovery Act grants awarded and grants management, as well as an application database, and will make publicly available copies of reports on award recipients’ progress that contain detailed descriptions of recipient activities. For each award, the agency posts an award summary that includes the name, location, and amount of the award, as well as a detailed description of the award activities and outcomes. Broadband USA (www.broadbandusa.gov). This joint Rural Utilities Service/NTIA broadband portal includes an information library on Recovery Act broadband programs and an application database. The database, which includes funded applications, provides information such as the project type, proposed project area, description, and, in many cases, a project executive summary. Press releases (www.ntia.doc.gov/press). NTIA also posts press releases announcing awards for the Broadband Technology Opportunities Program, including the mapping grants. These press releases typically include short, narrative information on the awards. In addition, award recipients are using a variety of methods to inform the public about their projects, including company/institution Web sites, press releases, and local news media reports. Award recipients told us that they have received hundreds of phone calls or Web inquiries from individuals who were looking for employment or vendors who were attempting to sell goods or services to the award recipients. According to agency officials, there has been considerable interest from various groups about projects funded by the Broadband Technology Opportunities Program. These comments range from full support for a project to questions about why a project was funded in an area where there may already be an incumbent broadband service provider. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. . STATE LIBRARY, ARCHIVES & PUBLIC RECORDS, ARIZONA American Recovery and Reinvestment Act - PCC - Arizona Public Computer Centers The Arizona Public Computer Centers project plans to enhance existing facilities in more than 80 public libraries throughout Arizona. The project expects to deploy more than 1,000 computers across the state to meet the growing demand for public computers and broadband access. The project intends for users to access valuable e-resources and enable libraries to provide training in 21st century skills. The Arizona State Library plans to partner with a variety of government, not-for-profit, and tribal organizations. The Arizona State Library expects 84 public computer centers to serve more than 75,000 users per week or more than 450,000 residents throughout the term of the grant. The Arizona Public Computer Centers project plans to enhance existing facilities in more than 80 public libraries throughout Arizona. The project expects to deploy more than 1,000 computers across the state to meet the growing demand for public computers and broadband access. The project intends for users to access valuable e-resources and enable libraries to provide training in 21st century skills. The Arizona State Library plans to partner with a variety of government, not-for-profit, and tribal organizations. The Arizona State Library expects 84 public computer centers to serve more than 75,000 users per week or more than 450,000 residents throughout the term of the grant. Public, Society Benefit, General/Other (Information not reported) CONNECT ARKANSAS INC. Little Rock, AR 72201-1766 Less Than 50% Completed PUBLIC UTILITIES COMMISSION, CALIFORNIA For Broadband Mapping, CPUC is gathering and verifying broadband data and creating a publicly available, interactive web-based map that will display information about the broadband services and providers available at each address throughout California. For Broadband Planning, CPUC is partnering with the California State University, Chico Research Foundation (CSU), to carry out activities intended to increase broadband subscribership. Broadband Mapping: collection of certain broadband data from all broadband providers in California, specified data verification tasks, GEO-coding, and creation and on-going maintenance of a state-level broadband availability map. Data must be collected, verified, geo-coded, and submitted to the NTIA twice yearly for the entire duration of the broadband mapping portion of this Grant Program. Broadband Planning: identify subscribership levels in order to develop a plan to identify barriers to broadband adoption, develop marketing and promotional material aimed at promoting broadband adoption and usage, and work with broadband providers to encourage high speed Internet services. San Francisco, CA 94102-3214 Less Than 50% Completed 06-50-M09001 GOVERNOR'S OFFICE OF INFORMATION TECHNOLOGY, THE State Broadband Data and Development Grant Program The State of Colorado Governor's Office of Information Technology (OIT) is overseeing Colorado's State Broadband Data and Development Program which will map broadband availability across the state and provide the information regarding broadband service required by the NTIA. OIT will verify this broadband service data through a number of methods. The Broadband Data and Development Program grant also includes a planning effort, funded through five years. This planning program will start by working closely with local stakeholders in several regions of the state to develop local technology planning teams during the first two years of the grant period. The teams will assess broadband demand and barriers to adoption and will disseminate the broadband service information being mapped. Successful methods in developing these teams' work will then be generalized across the state over the last three years of the funded planning period. 12/30/09: Finalizing award documents, selection and contract development of data contractor and defining positions to be hired. 601 East 18th Avenue, Suite 250 08-50-M09032 TECHNOLOGY & INFORMATION, DELAWARE DEPT OF State Broadband Data and Development Grant The Delaware Department of Technology and Information (DTI) was designated by Govenor Markell as the Delaware entity eligible to receive a federal grant under the National Telecommunications and Information Administration's (NITA) State Broadband Data and Development Grant Program. DTI applied for $1,069,922 to cover broadband mapping activities for the first 2 years, as well as $472,811 for broadband planning purposes. DTI will oversee the broadband mapping data collection and verification, including public anchor institution information, and the development of an interactive state broadband inventory mapping system. The resulting data will be presented to NITA per their specifications and also made available to the public from a user friendly website. DTI will leverage exsisting IT infrastructure, and will partner with the University of Delaware's Information for Public Administration (UD-IPA) to achieve the overall NTIA goals. The longer term broadband planning activities will be carried out by DTI in partnership with UD-IPA. Relationships will be built with Technology Planning Teams comprised of representativies from local governments, small businesses, and agricultural communities. These teams will be formed in parallel with mapping activities and will continue for the full 5 years of the program. They will idnentify (1) broadband best practicies for their community; (2) issues affecting the deployment and full use of broadband; and (3) potential projects to expand the use and deployment of broadband in these communities. DTI signed the approved grant on December 16,2009. Internal resources for the the project have been assigned. Initial meetings have been conducted within DTI and the Delaware Office of Management and Budget to review reporting requirements. DTI is currently working on finalizing the Statement of Work with vendor to begin data collection. 10-50-M09029 PARTNERSHIP FOR A CONNECTED ILLINOIS, THE Connect Illinois Mapping and Planning American Recovery and Reinvestment Act - SBDD - The Partnership for a Connected Illinois, Inc. This project, conducted on behalf of the State of Illinois, seeks to employ GIS toolsets and experienced personnel to deliver comprehensive broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning, in a manner compliant with the National Telecommunications and Information Administration?s (NTIA) Notice of Funding Availability (NOFA) for the State Broadband Data and Development Grant Program. The ensuing deliverables will include datasets as required by the NTIA as well as web-based, interactive broadband maps to inform state and local government officials, consumers, broadband providers, community development organizations, researchers, and other stakeholders. This interactive web site (www.ConnectIllinois.org) will be critical to ensure accessibility of the broadband data, but it will also be key to increasing awareness of the mapping program and the benefit of broadband. It will also play an important role in ensuring local verification of the mapping data. Data will be compiled directly from network providers with protection to the proprietary aspects of that data provided by non-disclosure agreements. Connect Illinois partner Connected Nation will utilize the value of long-standing relationships with providers to negotiate the non-disclosure agreements, receive datasets from individual providers, develop comprehensive datasets of Illinois providers of all platforms excluding satellite, then incorporating those datasets into informative GIS mapping that will be the first of its kind in Illinois. The end product of the mapping activities will be that of a highly interactive and accessible mapping suite called BroadbandSTAT. This product will allow easily functional search activity at street levels and will be combined with U.S. Census and research data to provide users with the ability to drill down to neighborhoods, see which companies provide service in their areas, determine the density of households and populations, and county-level adoption rates. Also of great value will be the collection of datasets reflecting the presence of community anchor institutions throughout the state. Teams are already at work identifying the locations of various health care providers, K-12 schools, public and private colleges and universities, public safety answering points (PSAP?s), fire departments, police departments, and ambulance services, and, to the extent permissible, other local emergency services agencies. Community anchor institution data, including connectivity information, will be submitted as datasets to NTIA, but it will also be overlaid within a mapping context to create a remarkable graphic depiction of the locations of these critical connection points from a statewide to a local level. Community anchor institutions tend to be key junctures in the development of telecommunications systems nodes that provide greater access to households and businesses in unserved and underserved areas. Lastly, SBDD funding under this award will provide for five years of planning activities that relate to the consistent and steady communication of the ?messages? of the mapping products throughout the state, including instruction on the use of the mapping tools. Through strategic relationships with various organizations including the Illinois Resource Network, the Governor?s Broadband Deployment Council, the Illinois Library Association, the Illinois Department of Commerce and Economic Opportunity, and the Connect Illinois Broadband Resource Development Council, this project envisions a steady flow of communication and information that will ensure full statewide penetration of awareness of the mapping artifacts and how to employ them at their best and highest uses. Teams are already at work identifying the locations of various health care providers, K-12 schools, public and private colleges and universities, public safety answering points (PSAP?s), fire departments, police departments, and ambulance services, and, to the extent permissible, other local emergency services agencies. Community anchor institution data, including connectivity information, will be submitted as datasets to NTIA, but it will also be overlaid within a mapping context to create a remarkable graphic depiction of the locations of these critical connection points from a statewide to a local level. Community anchor institutions tend to be key junctures in the development of telecommunications systems nodes that provide greater access to households and businesses in unserved and underserved areas. Lastly, SBDD funding under this award will provide for five years of planning activities that relate to the consistent and steady communication of the ?messages? of the mapping products throughout the state, including instruction on the use of the mapping tools. Through strategic relationships with various organizations including the Illinois Resource Network, the Governor?s Broadband Deployment Council, the Illinois Library Association, the Illinois Department of Commerce and Economic Opportunity, and the Connect Illinois Broadband Resource Development Council, this project envisions a steady flow of communication and information that will ensure full statewide penetration of awareness of the mapping artifacts and how to employ them at their best and highest uses. The performing partners of The Partnership for a Connected Illinois, Inc. have been working diligently and proactively during the fourth quarter of 2009 to produce the requisite datasets of broadband availability in the state of Illinois. The federal award notification sent to The Partnership was dated December 29, 2009. As such, ASAP registration at this writing is incomplete. No funds have been received or invoiced as yet. Not withstanding, work continues. A total of 344 potential broadband providers in Illinois were identified. Through further research and direct contact, that number was pared to approximately 250. Non- disclosure agreements were developed, submitted, negotiated, and signed. Data from providers of various size and platform are now submitting data. Negotiations, contacts, and research continues to increase the flow of data. Foundational work has been accomplished in terms of identification and location of community anchor institutions. Recruitment has begun by one subcontractor to hire a researcher specifically assigned to community anchor institution data development. A hire in this regard is anticipated in the first two weeks of 2010. Demonstrations of the BroadbandSTAT product described in the proposal have been made to several state agencies. The combination of highly granular mapping and research will be crucial to the information and development of a statewide comprehensive broadband strategic plan. As described in the Planning Outcomes section, the Illinois Resource Network has agreed to prepare an online tutorial about the Illinois BroadbandSTAT product, increasing access and user-friendliness. Hard work lies ahead, and the performing partners of The Partnership for a Connected Illinois, Inc. remain focused on meeting federal deadlines and providing the citizens of Illinois with quality data, maps, research, education, and broadband advocacy. Partnership for a Connected Illinois, Inc., 150 E. Pleasant Hill Rd, MC 6879 Less Than 50% Completed 17-50-M09033 CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Kansas. The State Broadband Data Program is a competitive, merit- based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect Kansas Progress to Date * Commenced with broadband planning efforts in late February 2009 and included working groups among the public sector and provider communities * Provided a number of staff hours in-kind to the planning effort * State of Kansas contracted with professional facilitators to help with the initial organizing of the planning effort * Developed budget/finance cost model for Connect Kansas * Developed, distributed, reviewed and finalized project work plan and Work Breakdown Structure (WBS) * Assigned project team and distributed project organization chart * Developed and launched a Connect Kansas website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Outreach Plan * Created and implemented a outreach strategy * Scheduled periodic bi-weekly Connect Kansas project team meetings * Produced bi-weekly status reports, data collection activity log and website statistics; and, distributed to the Connect Kansas project team * Compiled and refined broadband provider list * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community * Executed NDAs with the provider community * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing 1020 College Street, P. O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed 20-50-M09021 American Recovery and Reinvestment Act ? SBDD ? Massachusetts Technology Park Corporation dba MTC (?Mass Broadband Institute?)?. The goal of the Massachusetts Broadband Mapping Project is to develop detailed and accurate statewide broadband availability and infrastructure datasets to support the development and updating of a national broadband map that will be made available to the public. This goal will be accomplished by: developing collaborative relationships and data sharing agreements with broadband providers to develop a broadband availability database; validating and enhancing the provider database through the analysis of cable strand maps, DSL-equipped central office and remote terminal locations and wireless tower locations and various modeling methods based on the transport technology; verifying broadband availability in the field through a grassroots, civic engagement component using industry experts, partner organizations, and public participation and; making the data easily accessible and useable through an innovative web-based map library, data repository, and searchable broadband map. The MBI will collect, integrate, verify and submit five substantially complete datasets to NTIA in the first quarter of 2010 with subsequent semi-annual updates. A wireline broadband availability dataset will include availability, technology and speed of wireline broadband services by census block or street segment. A wireless broadband availability dataset will include availability, technology, speed and spectrum of wireless broadband services by census block or street segment. A residential broadband speed dataset will include average nominal speed for residential broadband users for each broadband service by metropolitan and rural statistical areas. A middle-mile infrastructure dataset will include location, ownership, technology, capacity and typical speeds of interconnect points between broadband provider services and the Internet. A community anchor institution dataset will include address, current broadband subscribership, technology and typical speed for each community anchor institution in the state (e.g., public safety entities, medical and healthcare facilities, libraries, state and local government entities, schools, community colleges and other higher education buildings). The Massachusetts Broadband Planning Project will identify barriers and assets to the deployment of broadband infrastructure and broadband adoption and then develop and implement innovative solutions to overcome barriers and best utilize assets. These solutions include: developing and supporting Local Technology Planning Teams and organizing outreach efforts to engage, inform, and energize residents, businesses, and public officials; supporting municipalities in making educated decisions on broadband issues impacting their communities, including technology, siting locations, zoning, and permitting; improving access to broadband and increasing adoption rates by providing technical assistance, support and coordination to the public, community anchor institutions, municipalities, and providers and; facilitating the development of public computing centers, training programs, and other efforts to improve broadband access and adoption Quarterly activities for the Massachusetts Broadband Mapping Project included: hiring staff and selecting consultants; purchasing hardware and software; establishing information security policies and procedures; requesting data from and negotiating non-disclosure agreements with broadband service providers; acquiring publicly available cable and DSL data; performing cable and DSL availability modeling by census block; submitting initial statewide availability datasets to the NTIA; and establishing data verification and web site development plans. Quarterly activities for the Massachusetts Broadband Planning Project included: approving a sub-award to WesternMA Connect; developing a community contact database; planning sub-regional public forums; and coordinating with other broadband initiatives in western Massachusetts. Less Than 50% Completed CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Michigan. The State Broadband Data Program is a competitive, merit- based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect Michigan Progress to Date * Developed budget/finance cost model for Connect Michigan * Developed draft project work plan and Work Breakdown Structure (WBS) * Assigned project team and distributed project organization chart * Developed and launched a Connect Michigan website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Outreach Plan * Conducted project kick-off meeting with public stakeholders * Scheduled periodic bi-weekly Connect Michigan project team meetings * Compiled and refined broadband provider list * Conducted introductory meeting with broadband provider community * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community * Started execution of NDAs with the provider community ? Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing 1020 College Street, P. O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed 26-50-M09035 CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Minnesota. The State Broadband Data Program is a competitive, merit-based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Bowling Green, KY 42102-3448 Less Than 50% Completed CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: Nevada. The State Broadband Data Program is a competitive, merit- based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect Nevada Progress to Date * Developed budget/finance cost model for Connect Nevada * Developed draft of project work plan and Work Breakdown Structure (WBS) * Assigned project team * Developed and launched a Connect Nevada website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, & Outreach Plan * Scheduled and participated in monthly Connect Nevada project team meetings with the Nevada Broadband Task Force * Presented to the broadband providers association meetings * Compiled and refined broadband provider list * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Started distribution of NDAs to provider community * Executed NDAs with the provider community * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community (National Providers in Nevada) * Distributed broadband coverage data sets to GIS Mapping team for processing. 1020 College Street, P. O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed CULTURAL AFFAIRS, NEW MEXICO DEPARTMENT OF American Recovery and Reinvestment Act - SBA - Fast Forward New Mexico NM State Library, University of NM-Los Alamos, Global Center for Cultural Entrepreneurship, and 1st Mile Institute partner to sponsor 'Fast-Forward New Mexico, a broadband stimulus initiative that integrates a statewide broadband awareness campaign, a NM Broadband Conference, and a series of broadband training initiatives in public and tribal libraries across the state. Trainings are in computer literacy and e-commerce. A centralized website and on- line catalog will support current and future trainings. No activities during this quarter. Public, Society Benefit, General/Other SANTA FE, NM 87507-5166 CYBER SECURITY & CRITICAL INFRASTRUCTURE COORDINATION, NYS OFFICE OF American Recovery and Reinvestment Act - State Broadband Data and Development Grant Program - NY State Office of Cyber Security and Critical Infrastucture Coordination In keeping with the Recovery Act's direction that NTIA develop and maintain a comprehensive and interactive national broadband map, NTIA established a grant program where awardees will collect broadband-related data and conduct planning programs at the state level. In addition to supporting state level planning activities, these data will be used to construct the following deliverables: (1) Datasets detailing broadband availability, technology, speed, infrastructure and in the case of wireless broadband, the spectrum used, across New York State. (2) A dataset identifying community anchor institutions and associated broadband information. (3) Development of a statewide interactive broadband map identifying available broadband service levels, providers, unserved and underserved areas. Much of this data will be collected from broadband service providers. Other data sources, existing and to be created, will be used to validate the accuracy and completeness of these deliverables. The overall purpose and expected results of the award are stated above in the Award Description Section. The following is a summary of quarterly activities: (1) Reviewed grant documentation and identified reporting requirements and deadlines; (2) Worked with other NYS agencies to assemble a comprehensive list of companies that potentially provide end user broadband services or provide backbone/infrastructure related services. Contacted approximately 120 of these companies thus far in order to execute non-disclosure agreements and begin the data collection process; (3) Began assembling community anchor institutions dataset from existing and available information; (4) Began procurement process to purchase required hardware and software to complete the project; (5) Began development of workflows to be used to standardize, cleanse, improve, geo-process and validate data received from providers; (6) Began hiring process to staff seven open project team positions. Three were hired in late December but will not be calculated as jobs created until next quarter; (7) Began mapping related planning activities in support of the NYS Broadband Development and Deployment Council. Less Than 50% Completed 36-50-M09010 RHODE ISLAND ECONOMIC DEVELOPMENT CORPORATION State Broadband Data and Development Grant Program The purpose of the project is to develop geographic information system maps displaying levels of broadband service by connection speed and type of technology used to integrate the maps with demographic information to produce a comprehensive statewide inventory and mapping of existing broadband service and capability. Project will be compliant and consistent with requirements specified by the U.S. Department of Commerce, National Telecommunications and Information Administration (NTIA) Notice of July 1, 2009 related to the ARRA and Broadband Mapping, specifically the State Broadband Data and Development Grant Program. No activities to report for Qtr 4 - 2009 as grant was awarded on 12/28/09 315 Iron Horse Way, Suite 101 CONNECTED NATION, INC. STATE BROADBAND DATA AND DEVELOPMENT PROGRAM Recipient DBA Name: South Carolina. The State Broadband Data Program is a competitive, merit-based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connect South Carolina Progress to Date * Developed budget/finance cost model for Connect South Carolina * Developed draft project work plan and Work Breakdown Structure (WBS) * Assigned project team * Developed and launched a Connect South Carolina website to explain the program and gather information from the consumer community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Outreach Plan * Created a outreach strategy * Compiled and refined broadband provider list * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community (National) * Executed NDAs with the provider community (National) * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing. 1020 College Street, P.O. Box 3448 Bowling Green, KY 42102-3448 Less Than 50% Completed STATE BROADBAND DATA AND DEVELOPMENT GRANT PROGRAM Recipient DBA Name: Tennessee. The State Broadband Data Program is a competitive, merit-based matching grant program that effects the joint purposes of the Recovery Act and the Broadband Data Improvement Act (BDIA) by funding projects that collect comprehensive and accurate state-level broadband mapping data, develop state-level broadband maps, aid in the development and maintenance of a national broadband map, and fund statewide initiatives directed at broadband planning. Connected Tennessee Progress to Date * Developed budget/finance cost model for Connected Tennessee * Developed draft project work plan and Work Breakdown Structure (WBS) * Assigned project team and distributed project organization chart * Refined Connected Tennessee website to include Broadband Provider page to explain the program and gather information from the provider community * Prepared Project Kick-off Plan, Roles & Responsibilities, and Communications Plan * Conducted project kick-off meeting with stakeholders * Scheduled periodic bi-weekly Connected Tennessee project team meetings * Compiled and refined broadband provider list * Conducted introductory meeting with broadband provider community * Developed a broadband data collection activity log * Developed SBDD compliant Non Disclosure Agreement (NDA) * Distributed NDAs to provider community * Started execution of NDAs with the provider community * Securely stored executed NDAs * Conducted webinars with provider community * Conducted demonstrations of the BroadbandSTAT product * Requested broadband coverage coordinate data sets from provider community * Distributed broadband coverage data sets to GIS Mapping team for processing 618 Church Street Suite 305 Less Than 50% Completed VERMONT CENTER FOR GEOGRAPHIC INFORMATION, INCORPORATED The VT Broadband Mapping Initiative will initiate the development of a comprehensive and verified geographic inventory of broadband service availability in the State of VT. Landline and wireless services (fixed and mobile) will be mapped, including wireless voice and data with information from providers and other sources. The broadband mapping information collected and verified through this proposed effort will then support the broadband development objectives identified in the RUS Broadband Initiatives Program (BIP) and NTIA's Broadband Technology Opportunities Program (BTOP) in VT. Most importantly, the geographic inventory will further refine our understanding of the location of 'unserved' and 'underserved' areas, supporting targeted investments in these areas. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. ARRA SBDD Georgia Technology Authority (GTA) ARRA SBDD Georgia Technology Authority(GTA) The purpose of this project is to provide NTIA (Dept Commerce)and Georgia Public/Private sector stakeholders with broadband mapping and data collection, analysis, and broadband mapping display services for the State of Georgia residents, businesses, and community anchor institutions. The GTA Broadband office operations will utilize planning funds to promote sustainable adoption throughout the state as a part of this project's deliverable. The Georgia Technology Authority is in the process of selecting a vendor through a statement of need process with qualified vendors. We expected to select a mapping vendor by the end of January, 2010. Information GAO gathered to improve the description This award supports broadband data collection, mapping, and planning activities across Georgia over a 2-year period. Data on the availability, speed, and location of broadband across the state will be collected and verified on a semi-annual basis between 2009 and 2011. These data will be used to develop publicly available state-wide broadband maps and to inform the comprehensive, interactive, and searchable national broadband map that the National Telecommunications and Information Administration (NTIA) is required by the Recovery Act to create and make publicly available by February 17, 2011. Mapping Indiana Broadband is a project that will collect, map, verify, and distribute data that will contribute to a publicly available national broadband map to inform policymaker’s efforts and provide better information to consumers about the availability of broadband Internet services. State Broadbamd Data and Development Grant. Award letter received. Grants 100 N Senate Avenue IGCN551 Information GAO gathered to improve the description The award supports collection of information from broadband providers across the state. ADMINISTRATION, LOUISIANA DIVISION OF American Recovery & Reinvestment Act - SBDD - State of Louisiana Division of Administration Louisiana State Broadband Data & Development Program - Data Collection & Mapping; Louisiana State Broadband Data & Development Program - Planning The intent of the award is to allow the State of Louisiana to collect/verify statewide broadband availability and submit the findings to the NTIA, according to the requirements contained in the SBDD NOFA and its subsequent clarification. In this reporting period, we completed our project kickoff meeting and finalized our strategy for Service Provider Outreach. 1201 North 3rd Street, Suite 2-130 Baton Rouge, LA 70802-5243 Information GAO gathered to improve the description The award funds mapping activities including broadband availability data collection, verification, mapping and analysis. These efforts are expected to raise awareness of the availability of broadband, identify barriers to adoption, and develop a plan for sustainable broadband adoption for currently “underserved” and “unserved” businesses and households. Further, these activities will increase coordination and collaboration between the state and regional economic development efforts. Overall Approach/How grant will increase Broadband Adoption: The city's 3 partners who operate the 66 centers are established communiy anchor organizations which provide multipe services to constituents incuding public computing. PCCs are embedded in multi- muliple services organizations providing ideal institutional setting for reaching a large audience of potential broadband adopters. These partners are: The Boston Pubic Library (BPL) and its 25 neighborhood branches; Boston Centers for Youth and Families (BCYF), Boston's largest youth and human services agency serving over 90,000 resident annually in 46 facilities including 29 PCCs; and the Boston Housing Authority (BHA) operating 62 pubic housing sites, serving 11,500 household with 11 computers labs. No fund spent on infrastructure City of Boston/Auditing Dept., One City Hall Sq. R-M-4 Information GAO gathered to improve the description The city is using the award funds to wire 66 community centers and some public housing within the City of Boston for Internet use and purchase a few hundred computers for those centers. These activities will provide internet access to low-income individuals who may not otherwise have access to the Internet. NORTH DAKOTA, STATE OF ARRA-SBDD-North Dakota Information Technology Department $1,305,354 is for efforts related to mapping broadband availability across the state and year two maintenance of that data. $308,400 is for efforts related to broadband planning activities to identify how the state could leverage current organizational structure and relationships, either directly or indirectly, to provide the broadband requirements for additional anchor institutions No project activities occurred during this period (Information not reported) Information GAO gathered to improve the description The award supports broadband planning activities, including drafting non-disclosure agreements, a project plan, and a project schedule. The award covers personnel salaries, travel expenses, and equipment associated with this planning. EXECUTIVE OFFICE STATE OF OHIO State Broadband Data and Development Grant Program State Broadband Data and Development program grant - supports state broadband mapping and related planning activities. Award annouced 12/28/09 - no activities to report for quarter ending 12/31/09. 30 E. Broad Street, 39th Floor Information GAO gathered to improve the description The award supports the development of a statewide map that will pinpoint areas in Ohio that do not currently have access to broadband technology. The activities under this award include collecting broadband data, to be displayed in a national broadband map, and planning delivery of broadband services. PUBLIC UTILITY COMMISSION, STATE OF OREGON State Broadband Data and Development Grant Program Governor Theodore Kulongoski designated the Public Utility Commission of Oregon (PUC) as the single eligible entity to receive a grant under the National Telecommunications and Information Administration (NTIA) State Broadband Data and Development Grant Program. The PUC was granted a $1,609,692 million Broadband Data Collection and Mapping Grant and a $498,610 Broadband Planning Grant. The OPUC selected One Economy through the state's 'Request for Proposal' process to assist Oregon with fulfilling the requirements of these Grant Programs. None to date. 550 Capitol St NE, Suite 215 Less Than 50% Completed Information GAO gathered to improve the description The award supports the collection and mapping of specific data on broadband infrastructure and the availability of broadband services throughout Oregon, including on tribal lands. These data will identify unserved and underserved areas at the most granular level possible; identify community anchor points; be displayed on a publicly accessible and interactive state Web site in the form of a broadband map; be updated semi-annually through 2011; and be provided to the National Telecommunications and Information Administration (NTIA). These data will inform Oregon about the affordability, availability, and adoption of broadband technology in all areas of the state. These data will also provide information for analyzing and reporting on Oregon's use of broadband technology in the telehealth industry and for energy management, education and government. In year 2, additional data collection efforts will provide fresh data that may show the effects of any actions taken by the State of Oregon to address broadband adoption or availability and allow for further development of state broadband strategies. Spokane Broadband Technology Alliane: Public Computer Centers This Public Computer Centers project will provide establish 17 public computer centers throughout the Spokane Washington Area. This is a newly awarded grant. During the 8 days of the quarter the grant was active, we held a press conference, notified stakeholders and partners, had front page coverage in the local newspaper, and established a preliminary calendar. Public, Society Benefit, General/Other Grants 827 West First Avenue, Suite 121 Information GAO gathered to improve the description The award provides 3 new and expands 14 existing public computer centers in Spokane's poorest neighborhoods, and equips a vehicle to bring computers and training to other organizations and hard-to-reach populations. The training will cover basic Internet search training and links to needed services, video production, and using the Internet for small businesses. The award is anticipated to serve 298,906 unduplicated users. Spokane Broadband Technology Alliane: Sustainable Adoption This Sustainable Broadband Adoption project will provide training to individuals and organizations throughout the Spokane Washington Area. We estimate that we will train 12150 people over the three years of the project, and that about 1550 will become new broadband subscribers. This is a newly awarded grant. During the 8 days of the quarter the grant was active, we held a press conference, notified stakeholders and partners, had front page coverage in the local newspaper, and established a preliminary calendar. Place of performance - city, state, and postal code Information GAO gathered to improve the description The award supports sustainable adoption of broadband services, which includes acquiring broadband-related equipment, developing and providing education and training programs, and conducting broadband-related public outreach. The Sustainable Broadband Adoption project in Spokane will provide training at 11 not-for-profit organizations and community centers on the benefits of broadband access to enhance work/life skills. Small businesses are being trained to create an online presence, sell on the Internet, and use social media and low-cost, targeted Web advertising. Additional training will be available at 6 public libraries. GEOLOGICAL & ECONOMIC SURVEY, WEST VIRGINIA ARRA-SBDD-WV Geological and Economic Survey The purpose of this program is to develop a statewide broadband coverage map to provide a comprehensive picture of current infrastructure deployment and availability of broadband service in the State of West Virginia. Working with providers to encourage the provision of service in unserved and underserved areas, and engaging local entities to analyze current use of the technology and educate on service expansion opportunities. this quarter's activity was gathering data from broadband service providers By the way, this is the message I get when changing the number of jobs to 4, since we have not used federal funds yet. ?If Number of Jobs is greater than 0, it cannot equal or exceed Total Federal Amount ARRA Funds Received/Invoiced. ?If Number of Jobs is greater than 0, it cannot equal or exceed Total Federal Amount of ARRA Expenditure. ?If Number of Jobs is greater than 0, it cannot equal or exceed Total Federal ARRA Infrastructure Expenditure. 1124 Smith St, LM-10 Less Than 50% Completed Information GAO gathered to improve the description The award supports the collection and verification of the availability, speed, and location of broadband access across West Virginia. This information will be mapped on a semi-annual basis from 2009-2011, and the map will be used to increase broadband access and adoption through better data collection and broadband planning. PUGET SOUND CENTER FOUNDATION FOR TEACHING, LEARNING ANDTECHNOLOGY, THE Wyoming State Broadband Data and Development Grant Provide targeted, timely and useful information that will enable local solutions to address local broadband priorities for the State of Wyoming: Data Project Feasibility; Expedient Data Delivery; Process for Repeated Data; Updating, Planning and Collaboration In November and December 2009 the project was initiated and the team assembled. Mapping project activities included the execution of NDAs with all relevant providers and the development and release of a broadband provider survey. This online survey was designed to collect coverage and speed information in the format requested by NTIA. Outbound e-mail and telephone calling efforts helped encourage provider responses to the survey. Initial data submissions were reviewed, normalized and stored in a master database. In addition, consumer website templates were developed for the ultimate delivery of statewide maps for Wyoming. Planning activities included the establishment of planning objectives and state oversight procedures. Initial interviews with stakeholders across the State of Wyoming will begin in Q1 2010. 19020 33rd Avenue West Suite 210 Less Than 50% Completed Information GAO gathered to improve the description The award supports the development of a statewide interactive map showing (1) areas that do and do not have broadband access (or have limited access), (2) transmission speeds, and (3) the type of access (e.g., wireless, cable, etc.) available. This information will be used to help broadband providers apply for future infrastructure funding to build capacity across the state of Wyoming. SOUTH DAKOTA NETWORK, LLC South Dakota Network,LLC, $20.6 million grant with an additional $5.1 million matching funds to add 140 miles of backbone network and 219 miles of middle mile spurs to existing network, enabling the delivery of at least 10Mbps service to more than 220 existing anchor institution customers in rural and underserved areas of the state. Delivering 10 Megabit Connectivity for Community Anchor Institutions in areas currently not served. Power and Communication Line and Related Structures Construction (Information not reported) Sioux Falls, SD 57104-2543 $20,572,242.00 Information GAO gathered to improve the description The award is being used throughout the state to add 140 miles of fiber optic cable to an existing 1,850-mile network and an additional 219 miles of fiber optic cable to connect anchor institutions (such as schools, hospitals, and libraries) to the expanded network. Funds will be used for fiber construction, equipment, and end-point electronics, plus permitting and engineering fees. ION Upstate New York Rural Broadband Initiative ION will build 10 new segments for a total of 1308 plant miles of 'Middle Mile' infrastructure, which will incorporate more than 70 additional rural communities into its current statewide fiber backbone. ION will enhance its reach throughout rural New York with its Open Network design; this will enable a host of last mile service providers to bring their products and services to numerous underserved and unserved areas of rural NY. No activities this quarter we are in the planning phase of the project. Power and Communication Line and Related Structures Construction 80 State Stret, 7th floor Information GAO gathered to improve the description The award encompasses 10 projects to build Middle Mile infrastructure that will bring broadband service to 125 anchor institutions. The project will occur throughout the State of New York in a majority of the rural areas of New York and parts of Pennsylvania and Vermont. The Weatherization Assistance Program assists low-income families while improving their health and safety, by making such long-term energy- efficiency improvements to their homes as installing insulation, sealing leaks, and modernizing heating equipment, air circulation fans, and air- conditioning equipment. These improvements enable families to reduce energy bills, allowing these households to spend their money on more pressing needs, according to the Department of Energy. In 2009, the Recovery Act provided $5 billion for the program—increasing the department’s portion for local weatherization efforts by more than 20 times over a 2-year period based on fiscal year 2008 funding levels—about $227.2 million per year. The department distributes 58 awards to each of the 50 states, the District of Columbia, and seven territories and American Indian tribes (recipients) and relies on the recipients to administer the programs. The department had obligated approximately $4.73 billion of the Recovery Act’s weatherization funding to recipients for weatherization activities as of March 31, 2010, retaining about 5 percent of the funds to cover its expenses, such as those for training and technical assistance, management, and oversight for the expanded Weatherization Assistance Program. Funds are available for obligation until September 30, 2010, and the department has indicated that the recipients are to spend the funds by March 31, 2012. As of March 31, 2010, recipients had spent about $659 million, or about 14 percent of the $4.73 billion obligated, to weatherize about 82,200 homes nationwide. Many recipients are just beginning to use Recovery Act funding, in part because certain federal requirements, such as Davis-Bacon wage requirements, affected the ability of some agencies to start work in programs, including the Weatherization Assistance Program, and because they have needed time to develop the infrastructures required for managing the significant increase in weatherization assistance funding. We assessed the transparency of descriptive information for Weatherization Assistance Program awards on Recovery.gov, as described in the report. We found that an estimated: about 12 percent met our transparency criteria, 71 percent partially met our criteria, and 18 percent did not meet our criteria. For weatherization descriptions that partially met or did not meet our transparency criteria, we collected information necessary to make the descriptions meet our criteria. The descriptions of awards in our Weatherization Assistance Program sample, whether they met our criteria, and information that would complete the descriptions of award activities are provided at the end of this appendix. The department provided additional documentation to assist recipients in fulfilling Recovery Act reporting requirements but did not assess the quality of the information reported by recipients in narrative reporting fields. The department issued supporting documentation on the grant application process for the Weatherization Assistance Program in March and December 2009. This documentation includes information about requirements for a public hearing, budget, and program oversight. The department also issued supporting documentation twice in March 2010, providing additional information about requirements for quarterly reporting and calculation of jobs created. The supporting documentation is available on the department’s Web sites, as is a capability to search responses to frequently asked questions. The department also provided technical assistance restating the Office of Management and Budget (OMB) requirements in the form of reporting instructions and training for completing specific fields, including narrative description fields, to fulfill Recovery Act reporting requirements in December 2009. The department has made its technical assistance available on the Weatherization Assistance Program’s technical assistance Web site, http://www.waptac.org, and has established a call center—the Recovery Act Clearinghouse—to answer specific reporting questions from recipients. This technical assistance includes some information specific to the weatherization program, such as the definition of a completed unit, but for the most part, restates OMB’s guidance, as shown in table 6 for the project description field. However, the department did not evaluate the quality of the information in narrative fields. OMB’s guidance, issued December 2009, states that where a narrative description is required, as in the award description field, the “description must be sufficiently clear to facilitate understanding by the general public.” Department of Energy officials told us that the agency ensures the quality of data primarily through an automated analysis of key data fields, including award number, recipient name, award amount, and jobs calculated, but not including narrative fields, such as award description or project description. Instead, department officials said every weatherization award has an assigned agency reviewer who may, at his or her discretion, review the accuracy of any and all data submitted by recipients. Department of Energy officials said that they do not have a robust process for evaluating the quality of information in descriptive fields because they do not consider the narrative description fields key to reporting and could not automate a review of narrative fields. Also, they noted that the limited scope of the Weatherization Assistance Program ensures that narrative descriptions—such as the award description—are sufficiently clear to be understood by the general public. Weatherization Assistance Program award information is made available to the public by the department, recipients, and some local agencies: The Department of Energy maintains weatherization information and data on its Web site at http://apps1.eere.energy.gov/weatherization/recovery_act.cfm and http://www.energy.gov/recovery/. It also maintains a Web site housing technical assistance for recipients at http://www.waptac.org. Many of the 58 recipients have some weatherization information available on their Web sites that, for example, describes the assistance program, summarizing activities performed, eligibility requirements, the application process, and contact information. In some cases, the Web sites also provide greater detail on the program, including the amount obligated to the recipient, the number of homes weatherized, and the number of jobs created. In addition, approximately 36 of 58 recipients post their weatherization plans on their Web sites. These plans are required for each recipient receiving weatherization assistance funds and outline how funds will be used. Information available in the weatherization plans includes a description of the types of weatherization activities that could be performed, the counties or regions in which weatherization activities will occur, the number of units to be weatherized, the budget for weatherization activities, the community action agencies performing weatherization activities, the energy savings expected, and monitoring activities to ensure the quality of the weatherization activities performed. In accordance with privacy guidance, the specific location for individual homes weatherized is not reported. Several state Offices of Inspector General have issued reports on the Weatherization Assistance Program in their states. Furthermore, recipients also provide weatherization award information through press releases, hearings, public forums, and community meetings. Finally, many of the local agencies that provide weatherization services directly to residents also make information available to the public, through press releases, public service announcements, community events, or Web sites. Most of the feedback that the Department of Energy, recipients, or local community action agencies have received about the Weatherization Assistance Program has been about proposed regulations or weatherization activities performed, and few comments have been about the weatherization information available to the public. At the department, many of the comments received relate to proposed regulations on reporting frequency (and not to project description information). Recipients have received comments and inquiries from individuals wanting to apply for weatherization services or learn how to get a job and from vendors wishing to market products. Inquiries have also addressed how much money the recipient received, how many homes will be weatherized and the total amount of funding to be spent on each household—-but not the accessibility of project description information. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. HUMAN SERVICES, MICHIGAN DEPARTMENT OF Recovery Act Weatherization Award for the state of Michigan Michigan Department of Human Services has been awarded stimulus funding from the U.S. Department of Energy Weatherization Assistance Program for Low-Income Persons in the amount of $243 million dollars over the next three years. The State plan includes changes in the Weatherization Program for year 2009: average cost per unit maximum of $6,500, increase in income eligibility limits to 200% of poverty or 60% of state median income, whichever is higher, and program training plan. Changes in the plan also include the new positions; 10 weatherization inspectors, report analyst, Davis Bacon specialist, grant manager/monitor, fiscal monitor, division manager and the secretary. Funding has been allocated to the 32 Community Action Agencies and Limited Purpose Agencies that serve as Local Weatherization Operators (LWOs) in Michigan under the existing weatherization program. The funding is exclusively for weatherization, which involves the installation of energy efficiency measures on low-income homes. Applications are taken at Local Weatherization Operator offices. Approximately 33,000 homes will be weatherized in Michigan through March 2012 with the ARRA funding. Households generally realize a 25% reduction in their energy usage as a result of weatherization. We have hired 10 technical monitors and they have attended and passed the Level I & II Michigan Inspector training. They were all required to do field activities including 8 inspector shadowing events and 8 inspections where they took the lead. They had to prepare all required paperwork/audit materials for each of these 16 inspections and have submitted to supervision for review and comment. They must next go through the final step in the inspector certification process- the over-the-shoulder Inspector Observation test. This will be scheduled in January. We have acquired two training houses- one in the Upper Peninsula and one in Lansing. These houses are being used to schedule over the shoulder inspection tests, as well as hands on contractor trainings and lead safe weatherization training. As of December 2009, we have trained 180 new program inspectors to ensure an adequate number of inspectors statewide. We have also conducted lead safe weatherization training for over 200 contractor/crew members. We continue to work with local community colleges to adopt the DOE recommended curriculum for contractors/crews that will enable ongoing classroom and hands on weatherization worker training. In support of the program (and of the Jobs Created/Saved/Retained) a total of 703 persons/jobs were supported, in whole or in part, utilizing DOE ARRA funds generating 101,503 hours of work. During this reporting period we have seen an increase in the amount of ARRA funded work grow as new workers ramp up to start projects. There will continue to be a lag between actual Funds Received and actual Funds Disbursed due to the use of 'General Funds' dollars to support the sub-recipient activities until Federal Funds are drawn down to cover the actual expenditures reported. 235 S. Grand Ave., Suite 1314 Less Than 50% Completed Weatherization Assistance for Low-Income Persons ARRA Supplemental Funding for the Weatherization Assistance Program (WAP): To reduce energy costs for low-income families, particularly for the elderly, people with disabilities and children, by improving the energy efficiency of their homes while ensuring their health and safety. In October VI WAP was still in the program implementation stage. A 3 day electric base load audit training for staff was conducted on Oct. 7th, 8th, and 9th by Pure Energy Inc. Four members of VI WAP staff were trained and 3 Energy Office engineers who will serve as back up to the VI WAP auditors. VI WAP identified a home that would qualify to be weatherized and used it for a demonstration energy audit. The information obtained in this energy audit was very useful and provided very good information for DOE's technical assistance visit. Oct 19th thru Oct 23rd DOE officials conducted a Technical Assistance Visit and reviewed various VI WAP procedures on Client Intake. VI WAP has started purchasing tools, equipment, and supplies and has obligated funds for two vehicles for the program and funds to pay for the disposal of old refrigerator replaced in the program. November 2009 VI WAP Client Intake was finalized forms for the in-take application, and procedures for determining eligibility, proof of ownership, and ranking system. A web meeting was hosted with DOE on Nov. 17, 2009, regarding the Virgin Islands Priority List, for VI specific energy measures for the program. The major issue being the cost limitation on the refrigerators at $1000.00, which may cause a problem for the Virgin Islands because of the high price of refrigerators due to shipping cost. In December, Susan White a DOE consultant on Procurement and Financial Management trained staff and provided three days of technical assistance. Ms. White assisted VI WAP on finalizing VI WAP's procurement manual and developing RFP’s for the certifying agency, final inspections, and two Requests for Bids. The approved Priority list for the program has still not been approved by DOE. VI WAP also completed the Production schedule average is 15 homes a month being weatherized in the Territory. The goal is 430 home by March 2012. Less Than 50% Completed HOUSING AND COMMUNITY RENEWAL, NEW YORK STATE DIVISION OF Weatherization formula grants allocated to the New York State Division of Housing and Community Renewal (DHCR) under the American Recovery and Reinvestment Act (ARRA). Funds are provided to reduce the energy expenditures of low-income households by conducted instrumented energy audits and installing energy conservation materials such as insulation, weatherstripping and caulk, high-efficiency heating and hot water systems, high- efficiency electrical fixtures and efficient building materials such as windows and doors. Award amount includes administrative funding (up to 5%) that will be retained by DHCR for administration. Funds are allocated to eligible subrecipients throughout the state who are responsible for proper installation, compliance with program rules and quality assurance. ARRA funds are expected to provide energy conservation assistance for more than 45,000 dwelling units. Preliminary activities such as training, conducting energy audits and health and safety tests, and installation weatherization materials in eligible units. Less Than 50% Completed EXECUTIVE OFFICE OF THE STATE OF NEW HAMPSHIRE To audit and weatherize low-income residential single and multi-family units for the purpose of lowering residents' energy costs and increasing their health, safety, and comfort. The program is also designed to decrease greenhouse gas emissions, decrease our country's dependence on fossil fuels, and create jobs, especially in the hard-hit construction related trades. At least 2600 units are slated to be weatherized, coordinated by six Community Action Agencies within New Hampshire. ARRA funding is expected to greatly increase the number of residential units to be weatherized, from a few hundred over two years to 2600 over three years. As of December 31st, all six Community Action Agencies in the state are weatherizing with ARRA funds. Completed units now stand at approximately 275, with at least 100 in the process of being weatherized. Two energy auditing classroom trainings have been held, with over 27 new auditors receiving state energy auditing certification, seven new since the last quarterly report. Two combustion appliance training sessions are being planned for January '10. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. STATE, LOUISIANA DEPARTMENT OF Weatherization Assistance for Low-Income Persons ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. Most activities have continued to support the ramp up of workforce and infrastructure. Baton Rouge, LA 70808-0120 Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 5,646 homes throughout the state will undergo weatherization activities such as performing client education, weatherizing site-built and mobile homes, and making weatherization repairs, such as installing attic insulation and performing basic air sealing. NATURAL RESOURCES, MISSOURI DEPARTMENT OF WEATHERIZATION ASSISTANCE FOR LOW-INCOME PERSONS FUNDING TO BE USED TO INCREASE THE ENERGY EFFICIENCY OF DWELLINGS OWNED OR OCCUPIED BY LOW-INCOME PERSONS, REDUCE THEIR TOTAL RESIDENTIAL EXPENDITURES AND IMPROVE THEIR HEALTH AND SAFETY. A grand total of 1,093 homes have been weatherized by the subgrant agencies through December 31, 2009. A total of 839 homes have been weatherized by the subgrant agencies from October 1, 2009 through December 31, 2009. On October 13, 2009 the Missouri Department of Natural Resources Energy Center (MDNR/EC) staff conducted a one-day administrative and technical training for the subgrant agencies in Branson, Missouri. The training consisted of an update of the revised Weatherization Program Operational Manual and sessions concerning Davis-Bacon requirements, procurement, ARRA reporting, and technical monitoring. During December 2009 seven regional ARRA Energize Missouri Housing Initiative meetings were held throughout the state to provide information and networking opportunities to those interested in participating in the program. Also in December the Department of Labor issued a revised Weatherization wage rate determination for Missouri. The MDNR/EC has hired four weatherization employees to help with ARRA implementation. MDNR/EC has five technical staff that are BPI certified. Jefferson City, MO 65101-4272 Less Than 50% Completed Information GAO gathered to improve the description Over a period of 3 years, 21,506 homes throughout the state will undergo weatherization activities and 221 of these will be reweatherized. Weatherization activities may include air leakage reduction, attic insulation, wall insulation, foundation and floor insulation, duct insulation, heating system clean and tunes, repairs, and replacements, lighting retrofits, and replacement of hot water heaters, refrigerators, and air conditioning units. HEALTH & HUMAN SERVICES, NORTH CAROLINA DEPARTMENT OF Weatherization Assistance for Low Income Persons. American Recovery and Reinvestment Act (ARRA) The Weatherization Assistance Program’s mission is to enhance the well-being of low- income residents, particularly those persons who are most vulnerable such as the elderly, the handicapped, and children, through the installation of energy efficient and energy-related health and safety measures, thus benefiting clients through reduced energy bills, enhanced comfort, and the mitigation of energy related health risks. Sub Recipients will be responsible for weatherizing over 20,000 homes. The Weatherization Assistance Program’s mission is to enhance the well-being of low- income residents, particularly those persons who are most vulnerable such as the elderly, the handicapped, and children, through the installation of energy efficient and energy-related health and safety measures, thus benefiting clients through reduced energy bills, enhanced comfort, and the mitigation of energy related health risks. Sub Recipients will be responsible for weatherizing over 20,000 homes. Office of Economic Opportunity, 222 North Person Street Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 22,000 homes throughout the state of North Carolina will undergo weatherization measures, including air sealing, attic insulation, dense-pack sidewalls, floor insulation, sealing and insulation of ducts, and general heat waste (weatherstripping, caulking, glass patching, water heater tank wrap, pipe insulation, faucet aerators, low-flow showerheads, furnace filters). HOUSING & COMMUNITY DEVELOPMENT, MD DEPT OF Weatherization Assistance Program for low-income persons. The American Recovery and Reinvestment Act of 2009, Public Law 111-5, appropriates funding for the Department of Energy to issue/award formula-based grants under the Weatherization Assistance Program. The purpose of the program is to increase the energy efficiency of dwellings owned or occupied by low-income persons, reduce their total residential expenditures, and improve their health and safety. The priority population for the Weatherization Assistance Program is persons who are particularly vulnerable such as the elderly, persons with disabilities, families with children, high residential energy users, and households with high-energy burden. Maryland began in earnest ARRA production during the Quarter after working with the LWA's to implement the Davis-Bacon Act requirements for the prevailing wages and required reporting. Production has steadily increased during each month of the Quarter. Maryland completed training for the Hancock Energy Solutions software system for managing all program information and the system is now live. All 18 LWA's are entering client case information into the system and invoices are now being paid out. Maryland DHCD has purchased 4 vehicles (Ford Escape Hybrids) to be used by our quality control inspectors for their field work. Note that costs were two @ $29,300 and two @ $30,860., expenditures that do not show up elsewhere in this report. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 6,850 homes throughout the state of Maryland will undergo weatherization activities such as energy audits, incidental repairs, lighting retrofits, water system treatment, attic and floor insulation, furnace testing and service, blower door air sealing, and health and safety abatement. Weatherization Assistance for Low-Income Persons/ARRA ARRA Supplemental Funding for Weatherization Assitance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. The State of South Carolina plans to weatherize 5000 homes over the three year life of the grant. We anticipate completing 40% of our goal within the first year, and the remainder within the next two and half years. This will be accomplished through a collaborative partnership with both public and private entities. $58,892,771.00 Less Than 50% Completed Information GAO gathered to improve the description Weatherization activities include air sealing, attic insulation, dense-pack sidewall insulation, sealing and insulating ducts, floor insulation, and installation of a smart thermostat, compact fluorescent lamps, and refrigerator. Activities will be performed statewide. HOUSING AND COMMUNITY DEVELOPMENT, VIRGINIA DEPT OF Weatherization Assistance Program for Low-Income Persons To improve home energy efficiency for low-income families through the most cost-effective measures possible. Sub-awardees were expected to complete ramp-up activities. This includes the purchase of additional or upgraded vehicles and equipment, hiring of additional personnel, identifying additional new beneficiaries and limited production increases. 600 East Main Street, The Main Street Centre Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 9,193 homes throughout the state of Virginia will undergo weatherization activities such as tests for carbon monoxide, pre- and post-blower door tests, pressure diagnostic tests, pre- and post-health and safety tests, heating/cooling equipment inspection and repair, floor insulation, domestic water heater insulation, and refrigerator and stove replacement. DISTRICT OF COLUMBIA, GOVERNMENT OF The Weatherization Assistance Program (WAP) grant will provide assistance to reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. The stimulus Weatherization Assistance Program (WAP) will expand efforts to audit income-qualified homes and install energy efficiency measures to reduce energy use. DDOE has completed selection of community-based organizations and is preparing final grant agreements and awards to initiate partnerships with 7 organizations. DDOE has posted 6 position descriptions to hire additional program staff; candidates have been identified and are being screened and interviewed by DDOE human resources. 51 N St. NE 6th FL Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 785 units throughout the District will undergo weatherization activities, including conducting energy audits of single-family and multifamily homes/residences and performing weatherization improvements to these residences, such as installing energy-efficient lighting, insulation, and weather stripping, and replacing windows/doors; heat pump repair; hot water heater repair/replacement; faucet, showerhead replacement, and programmable thermometer installation. Under this award, inefficient air- conditioners and refrigerators will be replaced in order to reduce electric bills in low-income households. LABOR AND INDUSTRIAL RELATIONS, HAWAII DEPARTMENT OF Weatherization Assistance Program for Low -Income Persons Weatherization Formula Grants - American Recovery and Reinvestment Act of 2009 The quarter ending 12/31/09 we processed a total of 14 units have been installed. Of these 9 units are hot water solar systems and 5 are compact fluorescent lights (CFL’S). Projected units installed for the coming quarter is 137. As of this date 107 families have been assessed, 17 are currently being considered for solar installations, and 22 are approved for solar and cfl installations. Applicants to HCAP's WAP-ARRA program are currently in receipt of energy conservation education. Applicants watch a video about general energy conservation practices and receive free copies of the publications 'Power to Save: An Energy Conservation Guide to Your Home' and '101 Ways to Save.' In addition to collateral materials, income eligible applicants received dwelling-specific tips and advice from the WAP-ARRA Technical Specialist during an initial home survey and assessment. During the post-installation phase, vendors will provide information on how to use and care for energy saving devices. HCAP continues to develop and refine its process for related weatherization programming with help from the State of Hawaii, Office of Community Services. In the later part of this quarter the WAP-ARRA Program Specialist and WAP-ARRA Technical Specialist traveled to the island of Kauai to discuss procedures with neighbor island CAPs and to receive technical training from Hawaii Energy. Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for 672 households in all four Hawaii counties. These activities include an energy audit service, installation of energy saving devices, and follow-up and energy monitoring of low-income homes, as well as technical assistance and training to subawardees. HOUSING & COMMUNITY SERVICES, OREGON DEPARTMENT OF DOE ARRA Weatherization Assistance Program Statewide The purpose of the Weatherization Assistance Program is to increase the energy efficiency of dwellings owned or occupied by low-income persons, reduce their total residential expenditures, and improve their health and safety. The program promotes job creation, provides energy savings, and reduces carbon emissions. The priority population for the program is persons who are particularly vulnerable such as the elderly, persons with disabilities, families with children, high residential energy users, and households with high-energy burden. Income requirements for ARRA Weatherization funds are 200 percent of the national poverty level. A DOE-approved energy audit is performed on each home to determine the greatest cost saving measures for the client's dwelling. Weatherization contractors then install the most cost-effective, energy efficient measures, address health and safety concerns, and improve comfort. The use of ARRA funds on dwelling units may include, but are not limited to auditing, testing, and installation of energy saving materials. Energy-efficiency education is also provided for each household receiving weatherization. ARRA Weatherization funds may also be used for training and technical assistance. During the quarter OHCS continued formalizing program and legal agreements with subrecipients and conducted training necessary for proceeding with Weatherization operations throughout the state. Work activities during the period covered a wide range of activities. Through various webinars, tele-conferences, and prepared group training meetings, OHCS has worked with subrecipients developing monitoring and reporting procedures. OHCS continues to analyze subrecipient needs for equipment, vehicles, training and hiring, monitoring and reporting, and feasibility analysis for special projects. OHCS has evaluated at-risk and vulnerable agencies and continues to work with those subrecipients to develop action plans. OHCS continues its coordination with the Oregon Employment Department, Workforce Development, Oregon Energy Coordinators Association and Community Action Partnership of Oregon to develop training plans and the possibilities of leveraged ARRA funding sources. Davis Bacon certified wages were determined and provided to the agencies. Follow-up training for the subrecipients regarding certified payroll issues has been provided. A payroll specialist joined the staff of OHCS during the quarter to facilitate the collection and retention of payroll the certified payroll and to provide guidance to the subrecipients. The monitoring staff has begun scheduled site visits to the subrecipient agencies across the state, evaluating completed jobs and providing weatherization technique training and guidance. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 4,635 homes throughout the state will undergo weatherization activities; the estimated energy savings is 141,368 MBtu. COMMERCE, NORTH DAKOTA DEPT OF Weatherization of Low income homes Weatherization of low income clients in the state of North Dakota. It is planned to weatherized approximately 3267 homes. Weatherization will receive general heat waste measures, insulation measures, diagnostics, windows and doors, Health and Safety measures including furnace replacement and repair. Residiential, multi-family and mobile homes will be weatherized with all measures with a SIR of Greater than 1.5. 310 homes completed as weatherized. 330 homes in-progress. Place of performance - street address (optional field) Less Than 50% Completed Information GAO gathered to improve the description Each weatherization measure to be installed must have savings-to-investment ratio (SIR) equal to or greater than 1 in order to be included as a priority. The award will result in an estimated energy savings of 85,917 MBtu. DEVELOPMENT, OHIO DEPARTMENT OF COMMUNICATIONS Recovery ACT Weatherization Award for State of Ohio Weatherization program provides services to low-income households in Ohio to reduce energy costs. The Home Weatherization Assistance Program (HWAP) weatherized over 5,500 homes with ARRA funds in the state of Ohio since July 1st, 2009. Additional training courses have been added to the Corporation for Ohio Appalachian Development (COAD) training center to meet demand due to the considerable increase of crew and contractor based personnel hiring. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 32,180 homes throughout the state will undergo weatherization activities, including water heater insulation, air leakage repair, furnace tune-up, duct insulation in nonconditioned areas, duct sealing, and the installation of low-flow showerheads. SOCIAL SERVICES, CONNECTICUT DEPARTMENT OF ARRA Supplemental Funding for the Weatherization Assistance Program (WAP): To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. DSS has provided 2 Combustion Safety, 2 Lead Safe, and one OSHA 10 training for weatherization crews and subcontractors. DSS also sponsored 2 Davis Bacon trainings and hosted one statewide ARRA WAP meeting in early December. Through the CCTCs, 1 Building Analyst course was provided to 14 students. Through two workforce investment boards, 2 Weatherization Installer courses were provided to 36 students. To date, more than 125 people have received training for the ARRA WAP program. All DSS ARRA WAP durational project positions have been filled. DSS holds monthly weatherization directors meetings. Through an agreement with the OWC and CT's workforce investment boards, regional workplans have been developed for weatherization training and job creation/retention programs. In addition, the CCTC system is in the process of developing a statewide weatherization training curriculum and building training labs at the vocational and technical high schools. DECD began its pilot project in which 500 state financed elderly housing units will be weatherized in Northwest CT. The sub recipients have finalized their procurement processes and 98 contracts for services and materials have been executed. Total FTEs for the reporting period are 34.33; however, approximately 79 persons have worked for ARRA WAP during this quarter. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 7,500 homes throughout Connecticut will undergo weatherization activities, such as attic insulation, sidewall insulation, air-sealing/infiltration measures, basement/crawlspace ceiling insulation, pipe and duct insulation, and install storm windows/doors and primary windows/doors. HEALTH AND WELFARE, IDAHO DEPARTMENT OF Department of Energy - Weatherization The Department of Energy ARRA Weatherization Award will be used to weatherize an additional 3,198 low and moderate income (at or under 200% federal poverty income guidelines) homes by March 31, 2011. This will result in job creation, projected to at least double current staffing as well as increase the use of contractors, promoting retiention. Projections indicate that the material purchased to weatherize homes will at least triple during the project period. Less Than 50% Completed Information GAO gathered to improve the description The award includes weatherization activities such as attic, floor, and wall insulation, door/window replacement, furnace repair/replacement, refrigerator replacement, duct sealing and insulation, water pipe insulation, and water heater replacement. Weatherization Assistance Program for Low Income Persons Under the Recovery Act ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. Legislative Building 416 Sid Snyder Avenue S.W. Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 7,170 homes throughout the state will undergo weatherization services such as an energy audit, a complete visual assessment, assessment of electric base load measures, diagnostic tests, energy-related health and safety assessments, client education, appropriate low-cost measures, applicable weatherization-related repairs, and a thorough consideration of the client and residence. There is an estimated energy savings of 701,927 MBtu. BUSINESS AND INDUSTRY, NEVADA DEPARTMENT OF Weatherization Assistance for Low-Income Persons ARRA Supplemental Funding for Weatherization Assistance to Low-Income Persons; To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the energy efficiency of their homes while ensuring their health and safety. With $11,572,667.00 of grants awarded in the first cycle, NHD anticipates providing weatherization assistance to approximately 2,000 homes. Production began the first week of November due to state stipulations that had to be met, and work is now moving forward. Department of Employment, Training and Rehabilitation (DETR) is contracting with nonprofit collaboratives to provide weatherization worker training to approximately 300 individuals who we anticipate will be absorbed into the workforce by our current contractors. NHD has hired a compliance auditor/inspector, project specialist, and a Davis Bacon compliance specialist with additional staff to be added as needed. 1535 Old Hot Springs Road, Suite 50 Carson City, NV 89706-0679 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities by five service providers throughout Nevada. The activities include minor home repairs, floor and duct insulation, refrigerator replacement, and shell infiltration sealing. LEGISLATIVE OFFICE OF THE STATE OF WEST VIRGINIA To increase the energy efficiency of dwellings owned or occupied by low-income persons, reduce their total residential expenditures, and improve their health and safety, especially low- income persons who are particularly vulnerable such as the elderly, persons with disabilities, familes with children, high residential energy users, and households with a high energy burden. To weatherize low-income persons homes throughout the State of West Virginia according to the Department of Energy and West Virginia Weatherization Field Standards. 950 Kanawha Blvd. E., 3rd Floor Less Than 50% Completed Information GAO gathered to improve the description The award will support weatherization activities for 3,574 homes throughout West Virginia. These activities include cleaning and tuning heating systems; air sealing; duct, attic and floor insulation; and replacement of heating systems, doors, and windows. The award is expected to result in an energy savings of 57,269 MBtu. Recovery Act - Weatherization Formula Grants - Low-Income Households Second qtr activities included ramping up by increasing the number of state monitors, issuing grants to subrecipients, and providing training on American Recovery and Reinvestment Act of 2009 (ARRA) rules, the Davis Bacon Act, and other related regulations. Weatherization-related training opportunities have been provided to new State and Service Provider Weatherization Assistance Program staff. The MN Department of Commerce (DOC) hired additional weatherization field and fiscal monitoring staff. 1,392 homes have been weatherized using ARRA funds. 101 of these homes were monitored by ARRA DOC weatherization staff. These monitoring visits were also used to train new DOC weatherization staff. 85 Seventh Place East, Suite 500 Saint Paul, MN 55101-2198 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for about 16,850 homes in all Minnesota counties and 6 of the state's 11 Native American reservations. Weatherization activities include air leakage and infiltration reduction, attic insulation, wall insulation, health and safety repairs/replacement, duct sealing and room-by-room pressure balancing, cleaning and tuning heating systems, efficiency-based heating system replacements, and belly and duct repairs/sealing. ARRA Weatherization Assistance for Low Income Persons ARRA Weatherization Assistance Program for Low Income Persons provides funding for improving the energy efficiency of low-income dwellings to decrease energy consumption and thereby decrease the cost of energy for low-income families. ARRA Weatherization Assistance Program for Low Income Persons provides funding for the improvement of energy efficiency of dwellings to decrease energy consumption and thereby decrease the cost of energy for low-income families. This is accomplished through the state's network of Community Action Agencies and is headed by Community Action of Kentucky, the subrecipient of grant funds. Grants Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for 9,907 homes throughout Kentucky. These activities include attic, wall, and floor insulation; incidental repairs; infiltration reduction; and health and safety measures. The award is expected to result in an energy savings of 268,644 MBtu. COMMUNITY AFFAIRS, FLORIDA DEPARTMENT OF The U.S. Department of Energy (DOE) awarded $175,984,474 to Florida for the Weatherization Assistance Program (WAP) through the American Recovery and Reinvestment Act (ARRA). These funds are to help reduce the monthly energy burden of Florida's low-income population households by making those dwellings more energy efficient. To date, DOE has released 50% of the total award amount to the state. The funding, administered by the Florida Department of Community Affairs, will be passed through to the existing 27 provider agencies (community action agencies, non-profit entities and county governments) covering the 67 counties statewide. Each of these providers, along with the contractors and vendors participating in the program, have an integral role in job creation and retention by providing energy efficiency improvements on low-income dwellings. Weatherization activities may include: addressing air infiltration with weather stripping, caulking, thresholds, minor repairs to walls, ceiling and floors and window or door replacement; applying solar reflective coating to manufactured homes; adding ceiling and floor insulation; evaluating efficiency of heating and cooling systems, refrigerators, water heaters; and installing solar screens, low flow shower heads, compact fluorescent light bulbs, water heater and water line insulation. One hundred percent of the beneficiaries of the WAP are below the 200% federal income guidelines. During the first quarter, primary activities were focused on capacity-building and training at the local provider level. Local providers were required to complete specific benchmarks, prior to receipt of ARRA working weatherization grants. Benchmarks included: completion of one- week weatherization inspector training for existing and new employees with follow-up field testing, purchasing of additional equipment, and validation and eligibility verification of client waiting lists. During the second quarter, all but one of the 27 local providers completed the required benchmarks. Weatherization grant awards were executed with 26 agencies and those agencies began weatherizing dwellings. A new oversight measure of field monitoring was also implemented within the second quarter. Field monitors were trained by state Weatherization staff and in November the monitors began their ongoing responsibility of reviewing 100% of client files and inspecting 50% of the weatherized homes. Training on Davis Bacon requirements was also provided statewide by a representative of the U.S. Department of Labor. Statewide contractor training curriculum was developed and implementation begins in the third quarter. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for approximately 19,090 homes. HOUSING & COMMUNITY AFFAIRS, TEXAS DEPARTMENT OF Recovery Act-Weatherization Assistance Program for the State of Texas The Weatherization Assistance Program assists low-income households control energy costs to ensure an healthy and safe living environment. Qualified households may receive weatherization materials installed in their residences and/or energy conservation education. Continued administrative activities at the prime recipient level and weatherization work at the subrecipient level. $326,975,732.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for 33,908 homes across the state. Weatherization activities include measures to reduce air infiltration, such as replacement of doors and windows, repairing of holes and caulking; installation of ceiling, wall and floor insulation; replacement of energy inefficient appliances and heating and cooling units; and energy education to help families reduce their energy consumption. Subawardees will receive training that will include basic and advanced weatherization, weatherization program management, NEAT software, and Davis-Bacon administration. THE EXECUTIVE OFFIC OF THE COMMONWEALTH OF PUERTO RICO The Weatherization Assistance Program helps low-income families to attain a reduction of household energy expenditures, while securing and enhancing the health and safety of the home. Of particular concern to the program is to provide assistance to the elderly, families with children, persons with disabilities, and those with a high energy burden in their household. Due to the warm climate of the island, weatherization efforts will be directed at improving the efficiency of cooling systems, reduction in electrical energy demand of light fixtures and selected household appliances, and mitigate energy-related health and safety concerns. To maximize the benefits of the program, work will be performed by trained personnel, and the process will be monitored from initial client application to certification of completed weatherization work. The period of performance is estimated from 4-1-2009 to 3- 31-2012. The Evaluation Committee for the Call Center studied the proposals received and made their recommendations to subgrantee's, PRIFA, Board of Awards. The pre-bid meeting for the Refrigerator Replacement Services Bid was held. Refrigerator Replacement Services Bid Documents were prepared, and the newspaper bid announcement was published. The Evaluation Committee for the compact fluorescent lamps (CFLs) bid began evaluating the proposals received. Water Heater Replacement Services Bid Documents were prepared, and the newspaper bid announcement was published. Trainers (ECA) contract was signed and their first visit ocurred on December 29 and 30. The Evaluation Committee for the qualification of auditors and inspectors met and selected the inspectors to be invited for the training. Evaluation of auditors started this period. Probable intake locations were visited to evaluate the physical conditions and necessities to adjust the locations to the intake process. Evaluation of probable training facilities was finished and sent to PRIFA for their comments and final decision on which facility to use. Draft report on the Energy Audit Tool to be used by auditors in Puerto Rico WAP was prepared. After grantee's, EAA, revision, the agency will submit the document to the DOE. The document includes a brief description of the Puerto Rico housing stock, photos, climate description, explanation of audit tool for all the weatherization measures for which the Savings to Investment Ratio (SIR) needs to be calculated, samples of SIR calculations for each of the measures, and a priority list which describes SIR tendencies for the different weatherization measures. Weatherization Environmental Agencies Building Floor 8 Street 8868, PO BOX 41314 San Juan, PR 00940-0285 Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 5,500 homes throughout Puerto Rico will undergo weatherization activities such as installing reflective films; addressing air leakage in air-conditioned areas; installing solar water heaters; replacing refrigerators, water heaters, and air conditioners with Energy Star rated units; replacing incandescent lamps with compact fluorescent lamps (CFL); replacing shower heads; installing smart power strips to avoid phantom loads; and other work to mitigate energy-related health and safety concerns. GOVERNOR'S OFFICE OF ECONOMICS DEVELOPMENT Provide home weatherization services to eligible low-income households, includin furnace replacement, insulation, etc., with the goal of reducing energy usage, energy production and greenhouse gas output, as well as reducing utility bills. Weatherization staff has been hired at 9 local area agencies responsible for implementing the Weatherization Assistance Program. 558 homes have been completed and another 842 are in progress. 324 South State Street, Ste. 500, N/A Salt Lake City, UT 84111-2388 Less Than 50% Completed Information GAO gathered to improve the description Through the award, approximately 4,466 homes will undergo weatherization throughout the state. Weatherization of homes ultimately completes the plan to upgrade State Energy Infrastructure. As the primary focus being on lowering energy liabilities electricity providers are charging onto the costumers. Through education, trainning and audits/assessments the consumers can learn the benefits of using Energy Efficiency and Conservation measures in their homes. However, the State Plan wishes to initiate this program for the first time by focusing on replacing electricity appliances and other electricity devices with certified Energy Star units. Several deliverables applicable in the State plan include Solar Water Heater, Electric Stove, Refrigerator, Air Con, Microwave, Cloth Washers, and etc.. Home assessments are continued and an environmental regulatory issue needs be resolved prior to initiating any production to measures guided under the State Plan. This issue perhaps should be finalized before this quarter expires. American Samoa Government, Territorial Energy Office Pago Pago, AS 96799-0000 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for approximately 225 homes throughout American Samoa. PUBLIC HEALTH AND HUMAN SERVICES, MONTANA DEPARTMENT OF Recovery Act - Weatherization Assistance Program for Low Icome Persons ARRA - Supplemental Funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderlly, people with disabilities and children, by improving the energy efficiency of their homes while ensuring their health and safety. These funds will provide grants for local Human Resource Development Councils that apply to pay to weatherize homes with the oriiginal created and retained remaining active. . As with all weatherization projects, the applicants will be asked to provide planning and accountability documentation. The Weatherization Program’s mission is to increase the energy efficiency of homes occupied by low-income individuals, thereby reducing their energy costs. The program has reduced the annual heating costs of recipient households by an average of approximately 32 percent. It serves approximately 2,000 high energy burden households each year. ARRA funding will allow the Weatherization Program to serve at least 2,500 more families and to double the average labor and materials expenditure per dwelling for cost-effective energy conservation measures. As of November, 2009, 253 homes have been weatherized and audited in Montana with an additional 411 that are in the process of being weatherized. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for approximately 2,477 homes throughout Montana. These activities include stoppage of air infiltration; heating systems tune-ups; water heater, attic, floor, perimeter, and wall insulation; installation of storm windows, replacement doors, moisture controls, ventilation materials, pipes, and duct wrap. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. COMMUNITY SERVICES & DEVELOPMENT, CALIFORNIA DEPARTMENT OF Recovery Act - Weatherization Assistance Program Recovery Act - Weatherization Assistance Program Formual Block Grant - DOE WAP. The initial allocation is dedicated for CSD & Agency ramp up, this included training, new hires & vehicle purchases. The training also included creating a web based WX training ciriculum web site. 700 N 10th St Rm 258 Less Than 50% Completed Information GAO gathered to improve the description The award allows 42 subawardees to weatherize 43,400 eligible low-income dwellings in all California counties. In addition to start-up activities such as training, hiring, and vehicle purchases, this award supports weatherization activities, including the installation of ceiling insulation and carbon monoxide alarms. The award will result in an estimated energy savings of 1,742,370 MBtu. Weatherization Assistance for Low-Income Persons ARRA supplemental funding for Weatherization Assistance to Low-Income Persons: To reduce energy costs for low-income families, particularly for the elderly, people with disabilities, and children, by improving the envergy efficiency of their homes while ensuring their health and safety. As this is the first report for WAP ARRA funds, most activity has supported ramp up of workforce and infrastructure. Oklahoma City, OK 73104-3234 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for about 7,000 homes in all Oklahoma counties. These activities include cost-effective energy efficiency measures, including attic insulation, caulking, weather stripping, and air sealing. The award is expected to result in an estimated energy savings of 310,640 MBtu. HUMAN SERVICES, VERMONT DEPARTMNT OF The ARRA Weatherization Assistance Program mission in to reduce the energy burden of low income persons while ensuring their health & safety. Grants have been written to the 5 sub-awardees and training has begun. Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for approximately 1,612 homes in 15 counties in Vermont. Weatherization activities include heating system modifications; installation of cost-effective levels of attic, wall, floor, duct, and foundation insulation; and water heater and water pipe insulation and modifications. The award is expected to result in an energy savings of 60,588 MBtu. FAMILY SERVICES, WYOMING DEPARTMENT OF Recovery Act Weatherization Award for State of Wyoming (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description Through this award, approximately 900 units throughout the state will undergo weatherization activities such as installing insulation, sealing and balancing ducts, and mitigating heating loss through windows and door. HUMAN SERVICES, TENNESSEE DEPARTMENT OF Weatherization Assistance for Low-Income Persons Weatherization Assistance Program, Recovery Act Reduce energy costs for low-income families through increased energy efficiency. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award supports weatherization activities for 10,524 homes throughout Tennessee. These activities include attic, wall, floor, and duct insulation; air sealing; heat waste reduction measures; refrigerator replacement; and window and door repairs. The award is expected to result in an energy savings of 320,952 MBtu. GOVERNMENT OF GUAM - DEPARTMENT OF ADMINISTRATION MOU being established with Guam Energy Office and Guam Housing and Urban Renewal Authority, an agency which works closely with HUD and has the qualifications and the knowledge to assist in determing which dwelling qualifies and falls under the WAP guidlines as stipulated in the grant activity. 548 N Marine Corps Dr $1,119,297.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports weatherization activities for 204 homes throughout the territory of Guam. Weatherization activities include the replacement or repair of refrigerators, air conditioners, low-flow shower heads, and faucets, compact fluorescent lamp (CFL) fixtures, and water heaters. The award will result in an estimated energy savings of 3,060 MBtu. Within the Department of Energy, the Geothermal Technologies Program (geothermal program) provides grants, cooperative agreements, and contracts to support scientific research to find, access, and use geothermal energy in the United States. In fiscal year 2009, the geothermal program received $43.3 million in annual appropriations; the Department of Energy provided an additional $400 million in Recovery Act funds for geothermal activities and projects that should be completed within 3 years. According to program officials, the geothermal program received a tremendous and unprecedented response to its solicitations announcing Recovery Act funding opportunities. Specifically, the program office received 529 applications in response to the grant solicitations and over 50 applications in response to a solicitation for the department’s national laboratories. Out of these applications, the program office selected 151 projects—124 projects were submitted by private industry, academic institutions, tribal entities, and local governments, and 26 projects were submitted by 10 national labs. The program office also established an interagency agreement with the U.S. Geological Survey to work on 1 project. In terms of awarding grants and contracts for projects, program officials told us that a grant is equivalent to a project because the grant is awarded to one recipient and funds are provided directly to the recipient. However, this concept does not hold true for all contracts awarded to the national labs for a project. This is because a national lab can be involved in a collaborative project that includes one or more partner labs. In this case, individual “activities” from each national lab would be completed and contribute to the completion of the overall project. Unlike grants, funding from the program office is provided directly to the lab performing the work. Consequently, a national lab project can be equivalent to one contract or multiple contracts. The department selected the projects to receive grants under the Recovery Act in October 2009, but according to program officials, it had not finished awarding the grants until February 2010. The program officials told us that some lag time (e.g., 5 to 6 months) between project selection and award is typical. As of April 23, 2010, the program office had obligated almost $343 million of the $393 million in appropriations (about 87 percent); however, only 28 recipients had spent any funds, and they had only spent 2.6 percent (almost $9 million). Program officials told us that the expenditure rate was low because many projects were recently awarded and had not started. Almost 60 percent of the geothermal program obligations under the Recovery Act were split evenly between enhanced geothermal systems research and development projects and innovative exploration technologies projects. Specifically, over $101 million (30 percent) was obligated to 50 enhanced geothermal systems research and development projects, while about $98 million (29 percent) was obligated to 22 validation of innovative exploration technologies projects. (See fig. 1.) The rest of the obligations funded the following three project areas: almost $62 million (about 18 percent) was obligated to 37 ground source about $50 million (about 15 percent) was obligated to 14 geothermal about $31 million (about 9 percent) was obligated to 5 national geothermal data system projects. We assessed the transparency of the descriptive information for geothermal awards available on Recovery.gov. We found that an estimated 33 percent met our transparency criteria, 62 percent partially met our criteria, and 5 percent did not meet our criteria. For geothermal descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet our criteria. The geothermal descriptions of awards in our sample, whether they met our criteria, and information that we found to provide a fuller understanding of the award are provided at the end of this appendix. Although supplemental materials were available to assist with recipient reporting, recipients did not always follow the directions in these materials. Additionally, geothermal program officials did not review narrative description fields in Recovery.gov, which may have led to some reporting errors. Both the Department of Energy and the Office of Science provided supplemental materials that directed recipients to a source document (e.g., the award letter) where information can be found to complete a required field. In addition, the department provided training on the reporting requirements through webinars, while the geothermal program office held a video conference with recipients (i.e., the national labs). Furthermore, the department has a Recovery Act Clearinghouse available to answer questions from recipients, and it posts responses to frequently asked questions on its Recovery Act Web site. Moreover, geothermal program officials told us that they do not review these narrative description fields because information in these fields is available on the geothermal Web site. Likewise, department officials told us that they do not review these fields because the information is fully described in the award documents. However, we identified two issues with the fields that may have affected the transparency of some information reported by the national labs. First, information on the overall status of four national lab projects that involve multiple labs may not come across clearly in the narrative description fields. This is because Recovery.gov was set up to track Recovery Act spending at the recipient level and not at the project level. According to geothermal program officials, Recovery Act funds are provided directly to a lab to complete its activities on a project. Consequently, multiple labs working on the same project would report their individual activities in multiple records in Recovery.gov. For example, Lawrence Berkeley National Laboratory was the prime recipient for a project on enhanced geothermal systems using carbon dioxide as a heat transmission fluid, and the Idaho National Laboratory was identified as a partner lab. As required, both national labs reported their activities on this project in two separate records in Recovery.gov. Unless narrative information disclosed that this project involved more than one lab, the expectation might be that these were two different projects. Second, six national labs did not submit a separate report for each activity as specified in the supplemental materials provided by the department. The six labs combined two to four different activities into a single report. As a result, 18 separate activities were reported in just six records. When we spoke with program officials, they were unaware of the requirement that recipients report on projects separately. They told us that their preference for national labs reporting on multiple activities is explained in the annual program guidance letter. However, based on our review of a few program guidance letters, we believe that the preference of the program office is for the labs to report each activity separately because this is how the activities are presented in the letters. According to geothermal program officials, information on the geothermal projects funded by the Recovery Act is made available to the public using other means besides Recovery.gov. For example: The Geothermal Technologies Program Web site (http://apps1.eere.energy.gov/geothermal/projects/). This Web site provides detailed information on each project, including the technology type, recipient name, location, objectives, description, and targets/milestones. It provides a database that allows the public to search for a project by, among other things, funding source, location, and technology type. The Department of Energy Recovery Act Web site (http://www.energy.gov/recovery/). It provides weekly updates on departmental projects and programs funded by the Recovery Act, including data on appropriations, obligations, and outlays. Press releases. These provide information on major announcements, such as announcements on the availability of Recovery Act funding. (http://www.eereblogs.energy.gov/geothermaltechnologies/). This provides the public with the opportunity to learn about and discuss geothermal activities. Weekly Recovery Act success stories. These highlight the results of Recovery Act funding on recipients. If the department selects a geothermal story, then it appears on the department’s Recovery Act Web site. Program officials told us that the geothermal program has become more visible to the public during the past two years. Although the program office has not conducted any surveys to determine how consumers are becoming aware of the program, they believe that new articles and the Recovery.gov Web site could be contributing to the increased awareness. Program officials also told us that the public, the community, and reporters have provided positive feedback on the geothermal Web site, noting that the Web site is easy to navigate. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Geothermal Technologies Program Enhanced Geo Science R&D Task 1) Design, develop, and field test highly integrated, high temperature data loggers using silicon on insulator and silicon carbide technologies. Task 2) Develop a drilling system based upon pneumatic down the hole hammer bits and polycrystalline diamond compact bits. Task 3) Test supercritical fluids in a pilot-scale Brayton Cycle and evaluate the performance of the working fluids. Requirements: Task 1 Milestones: Field Dewarless 240C PTC Tool-9/30/10; Evaluate existing Dewar Technology-9/30/10; Design analog MCM-01/31//11; Status report-03/31/11. Deliverables: 1) Dewarless 240C PTC Tool; 2) Report evaluating existing Dewar technology; 3) Design of analog MCM; 4) Status report. Task 2 Milestones: Year 1: Complete Initial Field Trials-9/30/10; Year 2: Implement Design Changes from Initial Field Trials-9/30/11. Deliverables: Report evaluating existing Dewar technology. Task 3 Milestones: 1) Prediction of thermodynamic properties for a single component fluid through the critical point-10/1/10. 2) Obtain full vapor-liquid equilibrium envelopes & critical points for one set of mixtures-4/1/11. 2) Milestones 1: Verification complete mixing & thermodynamic equilibrium between components can be obtained so appearance of new phase can be reliably detected (Go/no- Go).; Deliverables 1) thermodynamic properties for several candidate working fluids; 2) computational toolbox for analysis of mixtures of fluids, turbine design & cooling needs; 3) experimental results from Brayton cycle rests; & 4) recommendations for new working fluids. (For Performance outcomes & measures see Work Authorization Plan) Thie original project has been separated into three separate projects; 1) ARRA Drilling Technology (145316) with $588,600, 2) ARRA Geo Thermal Turbines (146694) with $150,000; and 3) Base Technologies ARRA (144299) with $885,600. The budget total has remained the same. The scope, deliverables and milestones are being developed. AL85000 Develop a new type of biphasic working fluid for subcritical geothermal systems that utilizes microporous nanostructured metal-organic solids as the primary heat carrier and heat transfer medium to support an organic Rankine cycle. Provide information on temperature distribution, fracture spacing, and fracture surface area in EGS (Enhanced Geothermal Systems). Develop suites of tracers with different properties that can be injected into geothermal systems, extracting the desired information by interpreting the differences in transport behavior of these compounds in the reservoir. SA 56595 - Project team members from PNNL, LANL, and BNL participated in a meeting at the Energy and Geoscience Institute (EGI) at the University of Utah on December 8, 2009. The purpose of the meeting was to share information on the geothermal tracer programs at EGI and the four national labs the project team plus INL) and to explore ways that the programs can interact. Following this meeting, the project team discussed the next steps for 2004190- EGS R&D and agreed to begin laboratory testing of PFT compounds early next calendar year. A tentative schedule was developed that included a meeting in late winter at Los Alamos to further plan laboratory testing. In parallel with the laboratory effort, PNNL and LANL will develop a modeling approach, conduct predictive simulations to identify optimal thermal and surface adsorption properties for geothermal tracers, and examine the sensitivity of the model to a range of tracer properties. Results from this sensitivity analysis will be used to guide subsequent laboratory-scale testing of candidate tracers. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Less Than 50% Completed DE-AC05-76RL01830 BATTELLE ENERGY ALLIANCE, LLC Enhanced Geothermal Systems (EGS) Technology R&D ($1.953M). This scope of work includes four scopes of work. 1) Air-Cooled Condensers in Next-Generation Conversion Systems. The Idaho National Laboratory (INL) will identify and resolve issues that are associated with using air-cooled condensers in next-generation energy conversion systems, achieve the full benefits of using mixed working fluids in air cooled binary cycles, evaluate the benefits of using air-cooled condensers with flash steam cycles, and establish criteria for designing air-cooled binary plant turbines. 2) Enhanced Geothermal Systems with CO2 as Heat Transmission Fluid. The INL will conduct experiments for evaluating the effect of supercritical carbon dioxide, at elevated temperatures, on precipitation and dissolution of mineral phases that are typical of geomedia found in geothermal reservoirs. 3) Physics-Based Fracture Stimulation, Reservoir Flow and Heat Transport Simulator. The INL will develop a physics-based rock deformation and fracture propagation simulator by coupling a discrete element model for fracture generation with a continuum-based multiphase fluid flow and heat transport model. 4) Advancing Reactive Tracer Methods for Measuring Thermal Evolution in CO2 and Water-based Geothermal Reservoirs. The INL will develop a set of tracer test planning and analysis tools to define the parameters necessary for successful testing, identify new tracers suitable to a wide range of potential reservoir volumes and permeabilities, and demonstrate the utility of newly developed tracers in a system representative of Enhanced Geothermal Systems. Quarterly activities are listed below for the four scopes of work as mentioned above. 1) Personnel have been developing power plant (conversion system) models that will be used to assess the benefits of applying different equipment concepts having the potential to increase performance from air-cooled binary plants. Emphasis has been on plants to be used with EGS resources. Model development has been largely been completed. The reasonability of model performance estimates are being assessed by comparing estimates to operating data from existing plants. 2) Experimental design for batch experiments involving supercritical CO¨2/water/mineral reactions was planned. Reactor components were ordered and/or under construction. Initiated laboratory safety review and approval process. 3) Over the past quarter, significant progress was made in the development of advanced computer models for predicting the behavior of enhanced geothermal systems. 4) A high-performance liquid chromatograph was purchased and has been installed in the laboratory to perform tracer analyses. A computer program was developed to model the migration of thermally reactive tracers through a fractured geothermal system. This code was used to evaluate testing strategies for tracer experiments. Experiments were conducted to encapsulate reactive tracers. The experiments showed that encapsulsted tracers could be made and are stable at room temperature. All Other Professional, Scientific, and Technical Services Idaho Falls, ID 83415-0001 Less Than 50% Completed DE-AC07-05-ID14517 LOS ALAMOS NATIONAL SECURITY, LLC LANL?s project will develop a multipurpose (simultaneous multiple physical parameter determination) acoustic sensor for downhole fluid monitoring in EGS reservoirs over typical ranges of pressures and temperatures and then demonstrate the capabilities and performance of this sensor for conditions in different EGS systems (with a wide range of temp/pressure and geophysical/geological conditions). Specific technical challenges are finding the right material for the sensor that can withstand working temperatures of up to 374×C and pressures up to 22 MPa; developing the most efficient design/geometry for the sensor to sustain the high temperature ? high pressure conditions specific for a typical EGS system; and the fluid flow determination requires either high flow rates or turbulent flow (vortices or disturbances) and/or impurities/gas bubbles present in the fluid. The multipurpose sensor that LANL proposes is capable of accurately measuring temperature, pressure, and fluid composition at in situ conditions expected in geothermal environments and is needed in nearly every phase of an EGS project, including testing of injection and production wells, reservoir validation, inter-well connectivity, reservoir scale-up, and reservoir sustainability. The Swept Frequency Acoustic Interferometry (SFAI) technique was originally developed at LANL for noninvasive identification of chemical warfare compounds in a multitude of weapons and a wide range of containers for international treaty verification and counterterrorism purposes. Since then, the technique has been significantly refined and expanded, and LANL will adapt SFAI and combine new approaches to extract multiple fluid parameters from a single sensor. Although the underlying basis of the SFAI technique is proven, it has never been applied to geothermal exploration primarily because the requirements of high temperature and pressure were not needed in earlier applications; this application will require some novel adaptation and sensor development and associated physics. A thorough literature search was performed in order to identify the best choice of piezoelectric materials to be used. Curie temperature (TC) is an important factor in high-temperature applications, as the transducers lose their piezoelectric property completely at temperatures close to TC. Typically, it is best not to exceed half of Tc. Piezoelectric materials and their TC, in ½C: PZT (195-300), AlN (600), LiNbO3 (1150), Langasite (1000), Langatate (>1500). The langasites and langatates are piezoelectric materials discovered recently and are still under investigation by the scientific community. We are planning to investigate the material properties at high-temperatures and determine if there are advantages in using these new piezoelectric materials in the development of the multipurpose acoustic sensor. Several PZT and Lithium Niobate transducers with different center frequencies, ranging from 1 MHz to 6 MHz, were investigated above room temperature. Langasite and/or langatate piezoelectric material has to be acquired and machined into transducers. Milestone Status As planned. Significant Procurements Investigated and identified the equipment necessary: Parr Instrument Pressure Vessel, Model 4681; Air Pressure Amplifier, Haskel AAD-30; Thermocoax cables (high temperature coaxial cables); Bode 100 Vector Network Analyzer; Tektronix Arbitrary Function Generator; Tektronix Oscilloscope; Materials for transducers (Lithium Niobate, Langatate and or/Langasite). Hiring A postdoctoral job was posted on several web-sites targeting recently graduated PhD?s. From a pool of 30+ applicants, we narrowed the list to 2 potential postdocs, which we interviewed on site. Dr. Blake Sturtevant graduated in Dec 2009 form University of Maine, and is very experienced in the field of Acoustics, with extensive experience related to high-temperature piezoelectric materials. Dr. Sturtevant has accepted the job offer, and he is planning to start in middle of January 2010. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Los Alamos, NM 87544-1663 Less Than 50% Completed UNIVERSITY OF UTAH, THE ECONOMIC IMPACT ANALYSIS FOR EGS The proposed project is aimed at studying the economic development and impacts associated with electric power production resulting from Enhanced Geothermal Systems (EGS), conventional hydrothermal, low temperature geothermal, and coproduced fluid technologies. The project also involves analysis of these results to develop an impact assessment model that could be used across the Nation for impact assessments with an ability to quantify the potential employment, energy and other environmental impacts associated. Further to developing such a tool, we will also be carrying out a Utah region study to validate the GEC tool developed and will publish a detailed report on the economic impacts associated with Geothermal technologies considered for this study in the Utah State. The 24- month project is divided into three discrete phases: Phase 1: Data gathering ? collect the associated cost data for each of the different technologies Phase 2: Economic Impact Analysis ? design studies to understand all the impacts associated, and Phase 3: Outreach activities ? Communicate the findings to the industry and the research community to validate the studies used to roll out an impact assessment tool, the GEC tool. Research & Public Policy Analysis 75 S 2000 E RM 211 SALT LAKE CITY, UT 84112-8930 DE-EE0002744 LOS ALAMOS NATIONAL SECURITY, LLC Field tests (Fenton Hill, USA; Hijiori, Japan) strongly suggest that our ability to image fluid flow and temperature distribution in enhanced (engineered) geothermal reservoirs (EGS) needs to be dramatically improved to optimize the operation of injection and production wells and the placement of new wells. The objectives of this project are to (1) improve image resolution for fracture detection, (2) image the flow in the fractures with super-resolution imaging, and (3) quantify fluid flow and temperature changes during and after stimulation. This research will provide vastly improved, high-resolution images of pre-existing and created fractures and fluid flow in EGS reservoirs. Focusing on the data available from short term-stimulation treatments, while developing imaging and modeling technology of importance to the long-term operation of an EGS system, we will integrate LANL?s and NETL?s unique capabilities in seismic imaging, fluid flow modeling, and laboratory measurements. ? Develop a super-resolution, seismic imaging method for imaging fractures and fluid flow using time-lapse microearthquake (MEQ) and vertical seismic profiling data. ? Improve fracture and flow imaging using MEQ and double-difference tomography. ? Utilize imaging results, time-lapse seismic data and modified Gassmann equations to quantify fluid flow and temperature changes in EGS. ? Develop a reservoir-scale fully coupled thermal-hydrologic-mechanical (THM) model. ? Use NETL?s discrete fracture network modeling to scale up constitutive relationships for porosity and permeability needed for THM. This project is innovative in that the development of super-resolution seismic imaging for mapping features and imaging fluid flow is a novel extension of a ground-breaking technique recently developed in medical imaging, and offers great potential to break through seismic imaging resolution. Typically, the use of microseismic data has been restricted to mapping gross flow paths affected by stimulation. Our proposed high-resolution mapping will provide additional information about fracture network geometry and induced deformation. Combining this information with the active seismic images will enable a more complete conceptual model of the fracture networks and fluid flow/temperature distribution in the EGS, which is vitally needed for successful EGS operations. The ability to include stress-dependent fracture permeability in reservoir simulation models allows for (more) accurately predicting future reservoir performance and offers the possibility of help in managing thermal short-circuiting. Reservoir simulation software has evolved in the past decades to a point where complete reservoirs can be efficiently simulated with a single model. Thermal hydrologic mechanical (THM) software has also progressed to the point where large scale simulations including fluid flow, heat transfer, and stress changes can be made. This capability allows ground displacement measurements and micro earthquake (MEQ) analysis to be used to calibrate and constrain reservoir models and thereby help predict future field behavior. In the THM modeling of geothermal reservoirs, relating the fracture permeability to fracture aperture and fracture aperture to changes in stress or displacement is the key to realistic and efficient computations. We surveyed the literature and found several conceptualizations of permeability-aperture-stress relationships. We like a paper by Bai et. al. (Rock. Mech. Rock Engng., 32, 195-219, 1999) because it can represent compressive, tensile, and shear stresses. We converted this to a displacement formulation and added a thermal stress term. We are testing the model on grids we developed for this purpose. In addition, we met and discussed with our collaborators at Berkeley Lab, GeothermEx, and Ormat: one meeting at LBNL and another at San Francisco during the AGU meeting. We have obtained some geophysical well log data from GeothermEx/Ormat for building a reservoir model. Milestone Status: Programmed Initial Permeability-Aperture- Stress (PAS) models in FEHM Created 2D and 3D numerical grids to test the PAS models. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Los Alamos, NM 87544-1663 Less Than 50% Completed The United Technologies Research Center (UTRC) proposes to improve the utilization of available energy in geothermal resources and increase the energy conversion efficiency of systems employed by: a) tailoring the subcritical and/or supercritical glide of enhanced working fluids to best match thermal resources, and b) identifying appropriate thermal system and component designs for the down-selected working fluids. By implementing these technologies, the overall energy conversion of binary geothermal power plants is projected to increase by at least 40%. The technical approach is: 1. Screen, evaluate, and down-select working fluids and mixtures that efficiently match source and sink conditions, meet environmental and safety requirements (flammability, global warming potential, ozone depletion potential, toxicity, etc), and increase thermodynamic cycle performance. 2. Develop necessary models to identify and evaluate opportunities for energy conversion technology advancements in subcritical, supercritical and trilateral cycles. UTRC shall identify optimal cycle configurations and component designs to take full advantage of the attributes of down- selected working fluids. UTRC shall also define a two-phase expander to best match chosen fluids and cycles and conduct a proof-of-concept demonstration. 3. Conduct property measurements and develop validated thermophysical models for down-selected working fluids. 4. Characterize the heat transfer and pressure drop performance of down-selected working fluids and perform experiments to quantify and mitigate the impact of heat transfer degradation characteristic of supercritical fluids and non-azeotropic mixtures. The deliverables of the program are: 1. A comprehensive analytical study detailing the screening, evaluation, and down-selection of working fluids and identifying the appropriate technology advancements in subcritical, supercritical, and trilateral cycles 2. Improved heat exchanger and turbine designs for down-selected working fluids 3. Validated thermophysical models and experimental data for down-selected working fluids 4. Heat transfer and pressure drop data and validated correlations for down-selected working fluids over a representative operational envelope, plus an analytical study of and recommendations for the mitigation of heat transfer degradation 5. Definition and proof-of-concept demonstration of a two-phase expander Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE We propose mathematical modeling work, using both analytical and numerical methods, to design and analyze laboratory and field experiments that would (a) identify tracers with sorption properties favorable for enhanced geothermal systems (EGS) applications, (b) apply reversibly sorbing tracers to determine the fracture-matrix interface area available for heat transfer, and (c) explore the feasibility of obtaining fracture-matrix interface area from non- isothermal, single-well injection-backflow tests. 1. We performed a first series of design calculations for the laboratory heat extraction experiments with CO2 as heat transmission fluid. 2. An improved model for the specific enthalpy of the CO2-rich phase was implemented in the evolving ECO2H fluid property module for TOUGH2. 3. We started a literature survey of rock-fluid interactions in geologic systems that may serve as (partial) analogues of EGS with CO2. Reactive transport modeling studies have also been initiated. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Contracts Less Than 50% Completed Information GAO gathered to improve the description The award funds experiments on fluid flow, heat transfer, and rock-fluid chemical interactions conducted by the Lawrence Berkeley National Laboratory, in partnership with Idaho National Laboratory. The award supports an Enhanced Geothermal System (EGS) development project that seeks to achieve a rational, science-based design that tests and interrogates critical process elements of EGS with carbon dioxide. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE 1) develop a novel model and high performance code for analysis of coupled THMC processes in EGS, 2) determine quantitatively the permeability of sheared fractures and its long term changes through THMC processes, 3) refine and validate the models and codes to laboratory experiments. and 4) model couple THMC processes in near wellbore hydrofracture systems. Thermal-Hydrological-Mechanical-Chemical Code Development: An initial coupling of TOUGHREACT V2.0 to FLAC, based on the TOUGH-FLAC code has been done. This code will be used to benchmark problems handled by the fully coupled THMC code under development. Improvements in TOUGHREACT V2.0 have been made to increase efficiency and speed for strongly coupled problems encountered in EGS. Combinations of improved code and compiler capabilities have resulted in over 30% speed increases on test problems. Initial evaluation of thermal-hydrological-mechanical processes in ROCMAS was begun, that will form the basis of the fully coupled THMC code. Background investigation into chemical- mechanical processes in fractures under EGS conditions is continuing. Experimental Design and Setup: The experimental design for the rock shearing test inside a triaxial cell was updated. The new design is based upon double shearing of two axis-parallel fractures. These fractures will be induced by sequential Brasilian loading in two perpendicular directions along the core diameter A procurement request was placed for the test vessel, with the requisite operating requirements, to be used in the THMC experiments. Evaluation of potential EGS rock samples and their suitability for experimental studies was begun. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) $511,200.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports experiments at the Lawrence Berkeley National Laboratory related to Thermal-Hydrological-Mechanical-Chemical (THMC) processes with the outcome of model and code development for THMC processes, as well as optimization of enhanced geothermal system development and production. The experiments will cover four different purposes: (1) develop a novel model and high performance code for analysis of coupled THMC processes in Enhanced Geothermal Systems (EGS), (2) determine quantitatively the permeability of sheared fractures and its long-term changes through THMC processes, (3) refine and validate the models and codes to lab experiments, and (4) model couple THMC processes in near wellbore hydrofracture systems. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE Lawrence Berkeley National Laboratory will determine the feasibility of jointly using data from microseismic and electrical surveys to image the fluid distribution with Enhanced Geothermal Systems. (1) We conducted feasibility studies on using electromagnetic methods to monitor enhanced geothermal processes. The preferred approach is to use time lapse measurements to image fluids associated with the geophysical attribute of electrical conductivity. The modeling experiments were based upon the Desert Peak Geothermal field. Findings show that it is critical to isolate the fluid imaging volume for successful outcome. This volume can be provided by micro earthquake hypocenter locations, obtained through standard and double difference earthquake location algorithms. (2) We initiated evaluation of standard and double difference earthquake location and corresponding tomographic algorithms to reconstruct P and S wave seismic velocities. The double difference seismic tomography looks favorable in reconstructing velocity images of greatest resolution in the earthquake stimulated region. Our future plans will include coupling of these velocities to electrical conductivity to better image fluid stimulation. This is to be done using a common structural constraint between velocities and conductivity. (3)We have successfully implemented and tested a cross-gradient constraint in our electromagnetic imaging codes. We can now image subsurface electrical conductivity, which is associated with fluids, that is constrained by seismic velocity structural information obtained from seismic tomography. We have now just started this implementation in our seismic tomographic codes, where velocity will be constrained by electrical conductivity structural information. (4)The desert peak EGS experiment will not go forward as planned. We are now investigating two new field test sites to make measurements. Bardys Nevada or Raft River Idaho. Plans call for an earthquake monitoring networks to be installed at both sites, and we are evaluating logistics for making time lapses electromagnetic measurements. A contractor has been found that will make these measurements, pending final selection. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) BERKELEY, CA 94720-0000 Less Than 50% Completed Information GAO gathered to improve the description The award funds collection of data at an Enhanced Geothermal System (EGS) site to provide a baseline study and a large EGS injection to map fluid attributes. The project will determine the feasibility of jointly using data from micro earthquake and electrical surveys to image the fluid distribution within EGSs. REGENTS OF THE UNIVERSITY OF CALIFORNIA, THE Laboratory will conduct a series of laboratory experiments to quantify the reactivity of a suite of natural chemical and isotopic tracers as a function of fluid chemistry, temperature, surface area, and time; and incorporate the measured solute reactivities into a tracer analysis model. 1. Quantification of Bulk Reactivity and Surface Area: In collaboration with, EGI, University of Utah and PI on the Raft River EGS demonstration project, core samples from the Raft River site were examined and arrangements have been made for shipping core samples to LBNL. Preliminary assessment of potential core samples from the Desert Peak EGS demonstration site has been completed. Sample selection is underway. The core samples will be used in the surface area reactivity experiments. Arrangements have been made with rock prep lab at UC Berkeley's Department of Earth and Planetary Science for preparing the core samples for the surface reactivity tests. 2. Tracer Transport Simulation In this quarter, we have focused on Task 2.1 Tracer Transport Simulation for the modeling part of the project. Specifically, we have incorporated the analytical solution of Neretnieks (2002) into the framework of the channelized flow that is expected to occur in an EGS system. The work of Neretnieks (2002) deals with both conservative and reactive (simple kd-approach) tracers for one-dimensional flow conditions. We are also extending the analytical solution for steady-state isotopic compositions of fluids flowing through fractured rock (DePaolo, 2006) to transient conditions that are important for new fractures created in an EGS system. In addition, we are evaluating whether or not the TOUHREACT code (Xu et al., 2006) needs to be modified when bulk- reactivities for species, determined as part of the experimental phase of the project, are used in place of assumed reaction rates for specific species. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) $564,600.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports activities that will quantify the mineralogy of reservoir rocks and the chemical composition of fluids needed for an Enhanced Geothermal System (EGS) to incorporate into numerical models and evaluate the reactivity of different solutes as a function of surface area, temperature, fluid chemistry and time to develop the tracer-interpretation technique. The activities will develop an innovative approach for estimating the change in fracture surface area induced by well stimulation. EGS Technology R&D (Project code 2004190) consists of the following 3 subprojects: Enhanced Geothermal -- EGS R&D for Synchrotron X-Ray Studies In accordance with the approved EERE Geothermal Technologies Program, these funds are for synchrotron X-ray studies of supercritical carbon dioxide/reservoir rock interfaces. Argonne will use synchrotron x-ray measurements to monitor all aspects of atomic to nanoscale structural changes resulting from chemical interactions of scCO2-H2O binary fluids with rocks under enhanced geothermal systems conditions. EGS R&D for Utilization of Geothermal Energy In accordance with the approved EERE Geothermal Technologies Program, these funds are for the Utilization of Geothermal Energy. Argonne will develop chemical energy carrier processes to recover heat from enhanced geothermal systems as chemical energy. EGS R&D for Waveguide-based Ultrasonic and Far-Field Electromagnetic Sensors In accordance with the approved EERE Geothermal Technologies Program, these funds are for Waveguide based ultrasonic and far- field electromagnetic sensors for downhold reservoir characterization. Argonne National Laboratory will develop waveguide-based ultrasonic and far-field electromagnetic sensors to measure Enhanced Geothermal Systems reservoir parameters. Two sensor technologies to be examined are (1) microwave (MW) radiometer and (2) ultrasonic waveguide (UW) sensor. Major activities in FY2010 include: (1) Establish a laboratory hot-rock test facility, (2) Evaluate MW antenna performance under high temperature and humidity, and (3) Evaluate UW sensor performance under high temperature and humidity. Synchrotron X-Ray Studies: Silica surfaces were prepared for synchrotron x-ray reflectivity. The roughness of the surface was found less than 1 nm. X-ray reflectivity measurements of the silica surfaces under static scCO2-scH2O fluids showed no measurable dissolution and roughening as expected. The X-ray/pressure cell was modified to accommodate thinner windows (0.5~1 mm) of synthetic diamond, boron carbides, or silicon carbides. The boron carbide windows were ordered and tested. The synthetic diamond windows were ordered and yet to be delivered. Utilization of Geothermal Energy: Potential reversible reactions have been identified. Preliminary thermodynamic analyses were performed to match the temperature conditions of some of these reactions to temperatures potentially available from EGS. Aspen Plus analysis of the methane reforming /methanantion reaction cycle was conducted. Because the reforming reaction generally occurs at higher temperatures than what may be available from EGS reservoirs, a search was conducted to identify new catalysts that may enhance the performance of this reaction system at lower temperature. Waveguide-based Ultrasonic and Far-Field Electromagnetic Sensors: Completed the literature and commercial sensor/instrumentation search and a brief knowledge capture report was documented. Both literature search and commercial instrument survey show lack of high-temperature instruments and sensing techniques and development in this area is needed. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Less Than 50% Completed Information GAO gathered to improve the description The first project on synchrotron X-Ray measurements will consist of two phases: one studies rock and superconcentrated CO2 interface and the other performs measurements under variable component binary fluids with a new flow cell. The second project on chemical energy carriers (CEC) consists of six tasks for conducting tests, analysis, and development for the CEC systems. The third project on waveguide based ultrasonic includes three phases for developing and building the ultrawave sensor and microwave radiometer. BROOKHAVEN SCIENCE ASSOCIATES, LLC The Recovery Act funds received by Brookhaven National Laboratory for the Geothermal Technologies program will be used to fund (3) separate projects: $200.4k will be used for FWP#EST436NEDA and will enable BNL to elucidate the carbonation reaction mechanisms between the supercritical carbon dioxide and reservoir rocks in aqueous and non-aqueous environments, and to develop chemical modeling of CO2-reservoir rock interactions. $347.4k will be used to fund FWP#BCH139 and will allow BNL to develop and characterize field- applicable geopolymer sealing materials. $225k will fund FWP#EE632EEDA and will be used to fund the development and implementation of suites of tracers consisting of compounds with different chemicals and physical properties. Geothermal Technologies - On FWP#EST436NEDA, we are working with Alta Rock Energy for assistance in developing core samples and analysis for EGS sites. The key technical leader on this project will start at BNL the first week of January 2010. ON FWP#BCH139, work is continuing on lab setup and equipment requirements. On FWP#EE632EEDA, a specification has been written for a subcontract to develop methods of encapsulating PFTs in temperature sensitive microbeads. We expect the process to be completed in January. All Other Professional, Scientific, and Technical Services $772,800.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports three geothermal technologies projects at Brookhaven National Laboratory. Brookhaven will collaborate with four other labs on the projects. (1) The project on elucidating a carbonation reaction mechanism of reservoir rock will result in, among other things, a report on chemical analysis. (2) The project on developing and characterizing geopolymer sealing materials will, among other things, result in field demonstrations and validations. (3) The project on determining the temperature distribution and fracture/heat transfer surface area in geothermal reservoirs will result in tracer and model development, including field test design and execution. EGS Technology R&D: Geothermal Technologies Program Enhanced Geo: This award provides funding to four subprojects in support of Enhanced Geothermal Systems technology: 1) Feasibility and Design Studies for a High Temperature Downhole Tool--ORNL will perform feasibility and design studies for a high temperature downhole tool that can measure the porosity, lithology, and density profile of geothermal wells; 2) Wear-Resistant NanoComposite Stainless Steel Coatings and Bits for Geothermal Drilling--ORNL will develop ultra hard, wear resistant nanocomposite stainless steel coatings and bulk components to increase the lifetime of drill tooling in harsh geothermal environments; 3) Working Fluids and their Effects on Geothermal Turbines--ORNL will evaluate working fluids for a geothermal turbine cycle based on property measurements, molecular dynamics modeling, and thermodynamic modeling to increase the turbine cycle efficiency in binary power plants; and 4) Properties of CO2 Rich Pore Fluids and their Effect on Porosity Evolution in EGS Rocks--ORNL will characterize CO2 and water bulk and pore fluids by vibrating tube densimetry, determine changing pore and fluid structures using neutron scattering, and conduct real time imaging of the dissolution front and evolution of porosity using x-ray and neutron computed tomography. 1) High Temperature Downhole Tool--A furnace for detector testing has been ordered but not received. Several scintillator materials for testing purposes have been ordered. Design for test apparatus for temperature and vibrations tests is in progress. Preliminary modeling studies have been performed to determine the change in tool response with the change in temperature and surrounding formation environment. 2) NanoComposite Stainless Steel Coatings and Bits-- ORNL is working with Carpenter Powder Products to gas atomize a 500 pound melt of an alloy specifically designed to devitrify from an amorphous state into a corrosion resistant alloy with increased hardness for use as coating materials in geothermal applications. Carpenter has scheduled this run for late January 2010 and ORNL should receive powder in early February. ORNL is currently processing the same alloy using conventional casting techniques. A parametric study was developed to analyze the effect of various processing parameters on the laser/metal interaction. A preliminary conceptual design for an impact-abrasion testing apparatus has been developed. 3) Working Fluids--A review has been conducted on the properties of supercritical fluids to identify where there are needs for additional or corroborative data and where models need to be developed for physical properties. Work carried out during this quarter will allow us to focus both experimental and computation efforts to address gaps and deficiencies in the thermodynamic database for the heat transfer fluids selected for binary geothermal power plant operation. 4) Properties of CO2 Rich Pore Fluids--The high temperature vibrating tube flow densimeter (VTD) was tested and disassembled to make repairs and improvements needed to restore reliable operation. Proof of principle experiment was successfully conducted to synthesize low density silica mesoporous solid inside the vibrating tubes of different geometries. Oak Ridge, TN 37830-8050 Less Than 50% Completed Information GAO gathered to improve the description The award to the Oak Ridge National Laboratory consists of four projects. (1) The high temperature down-hole tool project will investigate the feasibility of developing components for enabling operation at higher temperatures, up to 400 degrees Celsius for use in geothermal wells. (2) The project on carbon dioxide fluids will use four complementary approaches to improve geochemical modeling. (3) The project on stainless steel coatings and bits will have two stages for analyzing a specific type of metal and then showing the possibility of using complex metal-boron carbides into stainless steel matrix for a type of alloy. (4) The project for working fluids will take advantage of expertise in prediction and measurement of thermodynamic properties, and accurate modeling of complex turbine cycles based on those properties. LOS ALAMOS NATIONAL SECURITY, LLC This ARRA-funded project addresses the research topic area: Tracers and Tracer Interpretation ? to adapt or develop reservoir tracers and/or tracer interpretation techniques that provide information beyond well-to-well connectivity such as fracture surface area or fracture spacing. Commercial development of geothermal energy requires quantitative characterization of temperature distributions and surface area available for heat transfer in engineered (enhanced) geothermal systems (EGS). This project will provide integrated tracer and tracer interpretation tools to facilitate this characterization by developing and implementing 1. Suites of tracers consisting of compounds with different chemical and physical properties that can be injected into wells and will interact in different and measurable ways with the fractured rock matrix. 2. Single- and inter-well test designs and corresponding interpretation methods to extract the temperature distribution and surface area information from differences in the tracer concentration-versus-time histories (breakthrough curves). We anticipate significantly advancing tracer-based methods available to geothermal operators by developing (1) tracers that can be reliably applied to provide quantitative information on temperature distribution and fracture surface area, (2) tracer test designs (both single well and interwell) to exploit the use of these tracers, and (3) interpretive methods to allow this information to be used to provide practical guidance to operators to improve heat extraction. The members of the research team participated in a meeting at the Energy and Geoscience Institute (EGI) at the University of Utah on December 8, 2009. The purpose of the meeting was to share information on the geothermal tracer programs at EGI and the four national labs and to explore ways that the programs can interact and share information. Pete Rose opened the meeting with introductions and an overview of the geothermal tracer programs at EGI. He described laboratory programs investigating the properties of different tracer candidates under geothermal conditions and field programs where fluorescent dies have been used in actual wells. Kevin Leecaster, also of EGI, described laboratory equipment and experiments used to characterize potential tracer compounds, discussed results, and presented plans for flow through reactor experiments. Paul Reimus of Los Alamos National Laboratory (LANL) discussed methods for modeling tracer behavior in geothermal applications and described the laboratory capabilities at LANL. Contact Paul Reimus or the LANL SPO office for additional details related to the meeting. The meeting finished with a discussion of how the three programs, EGI, INL, and the combined program of BNL, LANL, and PNNL, could establish working collaborations. We agreed to share information on field programs and to work towards incorporating tracers from all three programs in future field tests as well as share in design, operation, and results of laboratory experiments. On Dec. 9th, The LANL, PNNL, BNL team discussed the next steps for 2004190- EGS R&D and agreed to begin laboratory testing of PFT compounds early next year. We developed a tentative schedule and will have a meeting in late winter at Los Alamos to plan laboratory testing. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Los Alamos, NM 87544-1663 Less Than 50% Completed Information GAO gathered to improve the description The award has seven milestones, including identifying materials operable at high temperatures, developing a sensor model, and determining the optimum approach for flow measurements. Recovery Act: Decision Analysis for Enhanced Geothermal Systems, Project 2004190 Recovery Act: DECISION ANALYSIS FOR ENHANCED GEOTHERMAL SYSTEMS Project 2004190. Not started yet. Start date is Feb 1 2010 Research & Public Policy Analysis 77 Massachusetts Ave., E19-750 Information GAO gathered to improve the description The award supports the development of a decision analysis procedure to assess development of an Enhanced Geothermal System (EGS). Activities will include the development of several models: a cost/time estimation model, a simple circulation/heat transfer model, and a subsurface cost/time model. The models will be integrated to assess EGS development and made accessible to EGS stakeholders to provide feedback for improvements. Pressure Sensor and Telemetry Methods for Measurement While Drilling in Geothermal Wells The scope of the proposed project is to develop a pressure sensor system consisting of silicon on sapphire based sensor transducer and SiC-based electronics to operate at 300C in Measurement While Drilling (MWD) conditions that are expected to be found in a geothermal well. Performance and deliverables in accordance with the Grant Statement of Project Objectives. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) Information GAO gathered to improve the description The award will develop a pressure sensor system operating at 300 degrees Celsius and capable of surviving shock and vibration conditions similar to measurement while drilling (MWD) environments. Activities include integrating and testing a pressure sensor system and developing and testing a telemetry module and pressure system at 300 degrees Celsius. Both systems will be tested for shock and vibration conditions typically found in measurement while drilling environments. The technology can aid in the economic completion of (Enhanced Geothermal Systems) EGS wells. ALTAROCK ENERGY, INC. This project will demonstrate the development and operation of an Engineered Geothermal System, including site and resource investigation, well drilling and completion, stimulation of wells to create a geothermal reservoir, testing of well productivity and assessment of reservoir characteristics, construction of a well field and power plant, and extended operation and monitoring of the constructed facility with continuous power generation. AltaRock Energy has not commenced the project activities as described in Section 2.0 (Task Schedule) of the Project Management Plan submitted as part of its application. AltaRock is currently negotiating the award agreement with DOE and revising budget and project activities in relation to these negotiations. Power and Communication Line and Related Structures Construction Newberry Volcano, McKay Butte Road/NF-600 La Pine, OR 97739-0000 Information GAO gathered to improve the description The award funds the building of a power plant and production facility that will be capable of generating no less than 15 MWe and operating for 30 years. This will provide long-term power generation through Engineered Geothermal System (EGS) and the first source of indigenous geothermal power in Oregon. The award will allow geothermal experts to enhance geoscience and engineering techniques that are essential to the expansion of EGS throughout the country. BAKER HUGHES OILFIELD OPERATIONS, INC. RECOVERY ACT: high Temperature 300C Directional Drilling System The scope of work will be to develop a reliable drilling and steering system for the creation of Enhanced Geothermal Systems. The drilling and steering system will provide optimum performance in temperatures of up to 300×C (572×F) in hard rock formations, and under the high pressures encountered in boreholes at depths of up to 10,000 meters (33,000 feet). The drilling and steering system will be comprised of the following components: a drill bit to break up the rock formation, a downhole drive to rotate the bit, some steering means associated with the drive unit to steer the well in a pre-determined way, and a dedicated drilling fluid (mud) to serve several purposes including carrying the rock cuttings out of the wellbore. Project not started since award made very late in quarter: 12/29/2009 Information GAO gathered to improve the description The award has four phases and 26 tasks with activities including a concept review, designing equipment like drill bits and waste management equipment, conducting design reviews, manufacturing and assembling prototype equipment, and conducting integrated testing of the prototype drilling system under geothermal conditions. COLORADO MUSEUM OF NATURAL HISTORY, THE Recovery Act: Education and Collection Facilty Ground Source Heat Pumps Demonstration Project Recovery Act: Education and Collection Facility Ground Source Heat Pumps Demonstration Project No activity; start date was 12/29/09 Denver, CO 80205-5798 Information GAO gathered to improve the description The award funds installation of a commercial scale (100 ton) ground source heat pump (GSHP) heating/cooling system that will be operated and maintained for 2 to 3 years. The project is expected to significantly reduce traditional GSHP installation costs while boosting the efficiency of the GSHP system. Activities will include, among other things, developing a detailed engineering design, procuring and installing the proposed GSHP system, operating and maintaining the system for 2 to 3 years, and developing a national awareness campaign for GSHP systems. The successful design and installation of the system can drastically reduce building energy consumption, require less area and capital to install, and be economically implemented wherever access to recycled water is available. The following award description contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. ALLIANCE FOR SUSTAINABLE ENERGY, LLC Geothermal Demonstrations; Geothermal Analysis Literature search was conducted on the status of dry/wet cooling options for power plants. Interviews with candidates are scheduled. Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) $1,200,000.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports Enhanced Geothermal Systems (EGS) research and development in air cooling. The award will identify and analyze advanced cooling strategies that allow air-cooled geothermal power plants to maintain a high electric power output during periods of high air dry bulb temperatures while minimizing any water consumption. The research will include activities such as an hour-by-hour cost/performance simulation of a cost-optimized 50 MW binary-cycle geothermal power plant at resource temperatures of 125 and 175 degrees Celsius for three different heat rejection systems. Within the Department of Transportation, the Federal Railroad Administration’s (FRA) High-Speed Intercity Passenger Rail Program is working to build an efficient, high-speed passenger rail network of between 100- and 600-mile intercity corridors, as one element of a modernized transportation system. This relatively new program is based on two pieces of legislation: the Passenger Rail Investment and Improvement Act of 2008 and the Recovery Act. The 2008 investment act established new competitive grant programs for high-speed and intercity passenger rail capital improvements, and the Recovery Act provided $8 billion for these grant programs. In order to meet the goals of the Recovery Act, FRA proposed to advance the following funding tracks: Projects. Provide grants to complete individual projects that are “ready to go” with preliminary engineering and environmental work completed. Corridor Program. Enter into cooperative agreements to develop entire phases or geographic sections of corridor programs that not only have completed corridor plans and environmental documentation but also have a prioritized list of projects to meet the corridor objectives; this approach would involve additional federal oversight and support. On January 28, 2010, the administration announced the first recipients of grant funding for the high-speed rail program. In total, 70 projects were selected for funding, but no awards have been made. (See fig. 2.) FRA is working with the selected recipients to refine the projects’ scope and descriptions. The selected projects are focused on the following three key areas that may provide transportation, economic recovery, and other public benefits: Build new high-speed rail corridors that will fundamentally expand and improve passenger transportation in the geographic regions they serve. Upgrade existing intercity passenger rail services. Lay the groundwork for future high-speed passenger rail services through smaller projects and planning efforts. Although FRA has not made any awards for rail projects, it has entered into five contracts to assist the agency with program administration and architectural and engineering issues related to the evaluation of proposals and feasibility studies. For example, FRA can use the architectural and engineering contractors for site visits to specific locations to confirm engineering assessments in proposals and check calculations of various loads and capacities. We assessed the transparency of descriptive information for these five contracts: One met our transparency criteria. One partially met our criteria. Three did not meet our criteria. For the four descriptions that partially or did not meet our criteria, we collected information necessary to make the description meet our criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. Since the program is relatively new, FRA focused on selecting projects and getting awards out and did not issue any supplemental reporting guidance to eligible applicants. FRA officials considered the Office of Management and Budget’s (OMB) guidance sufficient to outline reporting requirements. While FRA has not yet issued supplemental guidance, it may in the future. The Department of Transportation and FRA make high-speed rail project information available to the public in several forms: The department’s recovery Web site (www.dot.gov/recovery). This agencywide map provides the location, cost, and a brief description for each award. FRA Web site and high-speed rail interactive project map (www.fra.dot.gov/Pages/2243.shtml). This provides information by region. Press releases. Also on its Web site, FRA provides press releases detailing the goals and plan for the high-speed rail program. FRA is also developing a more interactive recovery Web site for the general public. FRA officials told us they have not received much public feedback about the high-speed rail awards to date. However, FRA has received questions on its Web site from the public about job opportunities, and when it was soliciting grant applications, it received questions from industry officials about the application process. The following award description contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Provide assistance consisting of mission-oriented business consulting services in support of FRA's Office of Passenger and Freight Programs, with a specific focus on advising FRA in the establishment of a grants management program that is commensurate with the significant increase in discretionary grant activity resulting from ARRA. Program Support - Coordinate information and develop processes to administer ARRA grant program. Activities include: development of tools and databases to drive workflow and assist FRA in meeting statutory objectives and deadlines; support FRA in the capture, sorting and organization of all relevant grant and stakeholder information and utilize tools and processes to provide information to program leadership for analysis and presentation to relevant stakeholder audiences. Policy / Process - Assist with tasks such as project planning, grant administration process design and execution across the grants management lifecycle (Application and Approval, Award and Disbursement, Management and Monitoring, Closeout), stakeholder policy issues tracking, risk identification and mitigation. Communications and Resourcing - Assist program and FRA leadership in managing communications planning by monitoring, cataloging and coordinating responses to stakeholder inquiries submitted via program email account and docket; work with program and FRA leadership to conduct workforce analysis to identify core capabilities, organizational structure and resourcing requirements necessary to successfully administer agency programs at current stage and into the future. The following award description did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. BOOZ ALLEN HAMILTON INC. Booz Allen Hamilton will provide general technical support in environmental engineering, historic documentation, and financial analysis and organizational planning to assist RDV in reviewing ARRA high speed rail grant applications. There were no invoices submitted for this reporting period. Administrative Management and General Management Consulting Services Information GAO gathered to improve the description The award supports a contract for activities such as conducting site visits to specific locations to confirm engineering assessments in applications and conducting calculations of various loads and capacities. The activities that will occur under this contract will allow senior engineers from the Federal Railroad Administration (FRA) to do higher level assessment work on the various applications and interface with the prospective grantees. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Archiect and Engineering Support Services for Passenger Rail Programs Architect and Engeering Support Services for Passanger Rail Programs 3101 Wilson Boulevard, 4th Floor Information GAO gathered to improve the description The award supports a contract for assistance to the Federal Railroad Administration (FRA) as it evaluates and considers the feasibility of high-speed rail proposals. Activities under the contract include conducting site visits to specific locations to confirm engineering assessments in proposals and conducting calculations of various loads and capacities. These activities will allow senior engineers from the FRA to do higher level assessment work on the various proposals and interface with the prospective grantees. PB AMERICAS, INC. A/E contract for support services in areas of intercity passenger rail programs and high speed rail programs. 465 Spring Park Technology Center $99,000.00 Information GAO gathered to improve the description The award supports a contract for assistance to the Federal Railroad Administration (FRA) as it evaluates proposals and considers feasibility of high-speed rail proposals. Activities that can occur under the contract include conducting site visits to specific locations to confirm engineering assessments in proposals and conducting calculations of various loads and capacities. These activities will allow senior engineers from the FRA to do higher level assessment work on the various proposals and interface with the prospective grantees. Provide environmental engineering and historic documentation support and financial/organizational planning support for analysis of high speed rail systems. (Information not reported) Information GAO gathered to improve the description The award supports a contract for assistance to the Federal Railroad Administration (FRA) as it evaluates and considers the feasibility of high-speed rail proposals. Activities under the contract include conducting site visits to specific locations to confirm engineering assessments in proposals and calculations of various loads and capacities. These activities will allow senior engineers from the FRA to do higher level assessment work on the various proposals and interface with the prospective grantees. Within the Department of Transportation, the Federal Aviation Administration’s (FAA) Grants-in-Aid for Airports Program (airport improvement program) provides grants for the planning and development of public-use airports. The Recovery Act provides $1.1 billion for discretionary airport improvement program grants, with priority given to projects that can be completed within two years. FAA had obligated nearly $1.1 billion in recovery funds by April 22, 2010. As of April 22, 2010, about $650 million had been disbursed by FAA to airports. About two-thirds of obligations have been for runway and taxiway projects. Approximately $481 million (44 percent) is being used on runway construction and rehabilitation projects, while nearly $220 million (20 percent) is being used for taxiway construction and rehabilitation projects. (See fig. 3.) For example, the Denver International Airport’s taxiway project rehabilitated portions of Taxiway P by removing and replacing identified distressed concrete pavement panels. We assessed the transparency of descriptive information for aviation awards available on Recovery.gov, as described earlier in this report. An estimated 18 percent met our transparency criteria, 82 percent partially met our criteria, and zero percent did not meet our criteria. For descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet our criteria. The descriptions of awards in our sample, whether they met our criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. For recipient reporting, FAA provided technical assistance and other support to recipients but did not issue supplemental guidance. FAA officials told us they considered the Office of Management and Budget’s (OMB) guidance sufficient to outline reporting requirements, so the agency did not issue its own supplemental guidance. However, FAA distributed guidance and provided technical assistance to recipients through each airport’s division office. FAA officials said field offices have discretion in how to distribute OMB’s guidance. One field official, for example, said the division office hired a contractor to oversee Recovery Act efforts who distributed information and guidance to every airport in the division by e- mail. In addition, FAA annotated, for a few fields, the template that recipients used to enter information into FederalReporting.gov. These annotations direct recipients to use information on their grant agreement as entered into FAA’s internal grants database. Many of the recipients we spoke with indicated that they populated the award description field with the description that was on the original grant. For example, officials we spoke with for the Quad City International Airport located in Moline, Illinois, stated that they used the amount of the award, execution date, and award description from the grant award to populate fields on FederalReporting.gov. In addition, a number of recipients we spoke with stated that they received help from FAA division office officials to complete their reporting. According to FAA officials, only a small portion of airport improvement program grantees—10 percent, or about 300—received Recovery Act funds. Specifically, according to officials at the Midland-Bay City-Saginaw International Airport in Michigan, they received a tremendous amount of support from FAA’s division office with regard to identifying and explaining reporting requirements. However, several recipients we spoke with reported problems with FederalReporting.gov or OMB’s guidance. For example, officials at the John Murtha Johnstown-Cambria County Airport had difficulty determining the correct zip code to use to accurately identify the location of the project receiving Recovery Act funds. The FAA district official was able to identify the correct zip code to enter into FederalReporting.gov. Beyond Recovery.gov, the Department of Transportation and FAA make award information available to the public through various means, including the following: Department of Transportation interactive map of awards (www.dot.gov/recovery). This agencywide map, which includes aviation awards, provides the location, cost, and a brief description for each award. FAA web site (www.faa.gov/recovery). The Web site contains a spreadsheet that outlines each award’s location, cost, and name, among other things. In addition, the Web site provides a pie chart to display awards by category (i.e., runway, taxiway). In addition, airport improvement program recipients use Web sites and other tools to provide award information to the public. Several airport improvement program recipients we interviewed disseminate award information to the public on their Web sites. For example, the Web site for the Washington Metropolitan Airport Authority, recipient of the Dulles International Airport award includes, among other things, a narrative description of the project and the estimated cost of the investment. Another Web site, for the Midland-Bay City-Saginaw International Airport Authority, describes the ongoing construction project but does not mention that Recovery Act funds are being used. Dulles International Airport also erected a sign to alert the public that its runway project was funded by the Recovery Act. According to FAA headquarters officials, the public has provided little feedback on airport improvement program Recovery Act awards, but they were unsure if the regions had received any feedback. The airport improvement program recipients we interviewed generally reported the same experience. Officials from Los Angeles World Airports told us that they had not received many calls, but those calls were typically from construction companies or individuals looking for work. The Williamson- Sodus Airport in New York and the John Murtha Johnstown-Cambria County Airport in Pennsylvania received negative media attention because the media considered them smaller airports and maintained their funds could have been better spent at larger airports. However, recipients at both airports told us they received support from FAA and the local communities that they service. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Rehabilitate Taxiway D (+/- 3,000 feet by 50 feet) and Overlay This project consisted of the design, bid and award, and construction phases for the rehabilitation of Taxiway 'D' at the Bartow Municipal Airport. Taxiway 'D' and associated ttaxiway connectors are approximately 3000' in length and 50' wide and had severe cracking and spalling. The cracks were sealed and covered with a self-adhesive engineering fabric prior to the P-401 overlay. The project improved the quality of the pavement of our primary taxiway at the Bartow Airport. This project now provides a safer environment for aircraft by placement of the asphalt overlay on a poor pavement surface which was oxidized and raveling, creating a FOD situation. The overall purpose and expected results of this project is the project improved the quality of pavement of a primary taxiway at the Bartow Municipal Airport. The project provided a safer environment for aircraft by the placement of the asphalt overlay on a poor pavement surface which had oxidized and raveled, creating a FOD situation Highway, Street, and Bridge Construction Airport Improvement project to replace and rehabilitate runway and taxiway lighting and associated NAVAIDs. This project will bring the current airfield lighting system into compliance standards, prevent further failures and increase safety, and reduce associated maintenance and operational costs. Current system tests show that the megohm readings are out of acceptable range to by an excessive amount. The new system is designed to prevent pre-mature deterioration and reduce maintenance and operational costs while providing a more reliable and visable lighting system. An overall cost savings will be realized over the life of the new system. Contractor has run 1,137 ft of homerun conduits from the regulator station. Contractor has installed one pull box at the end of the 512 ft run. Contractor has completed 7 runs of homerun conduits to the junction box where the conduits split to the various runways and taxiways. Contractor trenched and ran conduits to Taxiways Alpha and Fox Trot. Contractor has completed the conduit runs to Taxiways Alpha and Fox Trot. Contractor started installation of the threshold lights on the north end of 12/30 and installed conduit for Taxiways Alpha and Fox Trot through the threshold. Contractor completed installation of the threshold cans on the north end of 12/30, ran 1800 feet of conduit along the north side of 12/30, and set runway light cans. Contractor completed installation of the conduit and cans on the northwest side of 12/30. Contractor installed ground rods in homerun junction boxes back to the regulator station. Contractor installed pull strings from the regulator station through the homerun conduits in prepartion for pulling wire. Contractor completed the work at the intersection of 12/30 and 18/36 and has cleared the runway safety area of 18/36. Contractor completed the installation of the cans and conduit on the west side of Runway 12/30 and is currently working on the REILs. Contractor pulled conductors on the west side of Runway 12/30 and completed the installation of the REILs on the north end. Contractor pulled the home run wiring on five active circuits. Contractor began installing lights on the northwest end of Runway 12/30. Contractor began installation of the lights and transformers on the northwest end of Runway 12/30. Contractor backfilled and grated around the newly installed cans. Contractor completed installation of the cans and lights on the west end of the runway. Contractor tied in the existing lights on the east end of the runway and tested the runway lighting. The runway was opened for air traffic. Less Than 50% Completed SIERRA VISTA, CITY OF Runway 12-30 Reconstruction and Taxiway J Realignment Design and reconstruct Runway 12-30 and construct Taxiway J realignment at the Sierra Vista Municipal Airport-Libby Army Airfield. The existing Taxiway J pavement was removed. All excavation and subgrade compaction was completed on Taxiway J. The pavement at the intersection of Runway 12-30 and Taxiway J was milled off and the existing base course was removed to finish grade. Approximately 17,042 square yards of subgrade at the intersection was repaired to eliminate unstable spots. Base Course materials have been placed and compacted on Taxiway J and Runway 12-30. Approximately 23,576 sy of concrete pavement was placed on Taxiway J and 14,445 sy concrete on Runway 12-30 that intersects with Taxiway J and D. Asphalt pavement was placed on the Taxiway J shoulders and a test strip has been placed for the P- 401 asphalt on Runway 12-30. Electrical conduit crossings and extensions have been installed, guidance signs were installed and the shoulder pavement has been cored for the new taxiway edge lights. The existing concrete storm drain pipe was extended 80 feet. Highway, Street, and Bridge Construction Sierra Vista, AZ 85635-6334 More than 50% Completed 373715-Rehabilitate Taxiway AND 377259-Runway Incursion Markings Airport Development - This project included the rehabilitation of T/W B and its adjacent apron, as well as constructing holding position markings for Runway 12-30. This project included rotomilling approximately 20,000SY of pavement, excavating and backfilling 13,000 CY of material, installing 2,300 LF of edge drain, 5000 Tons of bituminous surface course, 45,000SF of airfiled markings (including enhanced and surface painted holding position markings), and other miscellaneous airfield improvements to Taxiway Bravo. Construct new taxiway, apron, and safety markings on airport to maintain safe taxiway and airfield for commercial, jet, and general aviation fleet. Highway, Street, and Bridge Construction East Wenatchee, WA 98802-9233 More than 50% Completed 3-53-0084-030-2009 REDWOOD FALLS, CITY OF Rehabilitate Runway 12/30 and Taxiway Airport Development to include Runway 12/30 and adjacent taxiway pavement rehabilitation project at the Redwood Falls Municipal Airport (RWF). Project scope includes bituminous mill & overlay of the pavement, incidental grading, and pavement markings per FAA pavement management program requirements. Project will extend the useful life of the runway and taxiway pavement complying with the overall airport pavement management program at the Redwood Falls Municipal Airport. Project includes construction and engineering costs. Activities on this project include engineering and construction activities. Total project engineering includes preparation of engineering plans and specifications on the project, construction observation and administration, and grant assistance activities. Project construction tasks include completing a bituminous mill & pavement overlay, incidental grading, and pavement markings on Runway 12/30 and adjacent taxiway at the Redwood Falls Municipal Airport. Project plans and specifications were completed in April 2009. Construction and construction observation was completed September 25th, 2009 in the first reporting period. On-going grant administration was also completed. For this reporting period (October 1 ? December 31), construction administration, documentation, as-built plans were completed. Grant administration, reporting, and closeout procedures were also completed. Highway, Street, and Bridge Construction Redwood Falls, MN 56283-2827 WOOD COUNTY AIRPORT AUTHORITY (INC) Acquire Aircraft Rescue and Fire Fighting Vehicle Replace old worn out ARFF vehicle with new more capable and lower maintenance vehicle for this quarter all payments have been made to the engineering firm for developing bid specs and awarding the bid for construction of the new ARFF vehicle. This vehicle will be paid for in a lump sum upon delivery. The truck has been delivered, we are awaiting maintenance/operations training. Highway, Street, and Bridge Construction Grants More than 50% Completed Economic Recovery Program Construction to Remove Obstructions-Relocate Powerlines in the Runaway 30 Approach Zone at the North Las Vegas Airport. This grant is for removal and relocation of a high tension power line located beneath the final approach to runways 30L and 30R of the North Las Vegas Airport. The power line is located approximately 1,200 feet from the threshold of Runway 30L and 1,500 feet from the threshold of Runway30R. The lines are 45 feet tall (AGL) and are listed as an obstruction in the Airport Facilities Directory. The transmission and distribution ductbanks are now approximately 95% complete. Four of the six transmission vaults are in place. The next phase of construction involves the construction of the foundations for the six new towers, which will allow the transmission and distribution ductbanks to be completed. Cable installation is not expected to take place until the local power company can arrange for an outage on the existing lines. Electric Bulk Power Transmission and Control 2730 Airport Drive, Suite #101 North Las Vegas, NV 89032-0000 More than 50% Completed Airport Development: Rehabilitate runway 3/21 Survey, excavation, compacting, grinding existing asphalt, re-laying new asphalt, replace electrical lighting to insure safety of National Air Transportation System. Highway, Street, and Bridge Construction 9000 W Airport Dr, #204 More than 50% Completed Rehabilitate Taxiway E 4 from Sta.9-46.86 to Sta. 16-20.65, rehabilitate Taxiway E5 from Sta 9+46.29 to Sta 15+97.53 The objective of this grant is the rehabilitation of a portion Taxiway E-4 from the edge of the Runway 17L-35R pavement to just west of the runway hold-lines including the shoulders and electrical replacement, and rehabilitation of a portion of Taxiway E-5 from the edge of the Runway 17L-35R pavement to just west of the runway hold-line including shoulder and electrical replacement at the Colorado Springs Airport. This taxiway system supports the primary runway for passenger carriers and Peterson Air Force Base. The project includes the reconstruction of existing concrete, replacement of airfield lighting, and an upgrade of all associated drainage systems. The existing airfield pavements are deteriorating due to the existeance of Alkali-Silca Reactivity (ASR) and will experience failure if the pavement is not replaced. Project physically completed; final inspection completed in November Highway, Street, and Bridge Construction 7770 Milton E Proby Parkway Colorado Springs, CO 80916-4961 More than 50% Completed 3-08-0010-046-2009 METROPOLITAN KNOXVILLE AIRPORT AUTHORITY (THE) ( ) McGhee Tyson Airport (TYS) is the sole commercial service airport for the greater Knoxville and East Tennessee Areas. The airport has two parallel 9000 ft. runways with RWY 5L/23R being the primary instrument approach runway equipped with an Instrument Landing System (ILS). Funds provided by the ARRA are being executed on TWY Bravo to reconstruct sections B1 to B6; TWY Bravo is the taxiway network that services our primary instrument approach runway (RWY 5L/23R) that is used by both commercial and military aircraft. In essence, TWY Bravo is our second highest priority paved aircraft movement area with RWY 5L/23R being the first priority. TWY Bravo from B1 to B2 was constructed in 1976 and received a Portland Cement Concrete (PCC) maintenance overlay in 1986. This section of taxiway had received numerous spall repairs, crack repairs and full-depth slab repairs over the past 20 years and was becoming a revolving maintenance and FOD issue. As part of this project, an aggregate surfaced access roadway to the airfields Automated Weather Observation Station (AWOS) will be improved with a durable solid surface course (asphalt). The Runway Safety Action Team (RSAT) recommended paving this section of roadway thus greatly reducing the potential for FOD on the aircraft movement areas. The ARRA funds being spent on this TWY Bravo project have a direct impact on the safety and level of service to the traveling public at McGhee Tyson Airport. Significant deliverables will be concrete measured in square yards and asphalt measured in tons. Funds provided by the ARRA are being executed on TWY Bravo to reconstruct sections B1 to B6. As part of this project, an aggregate surfaced access roadway to the airfields Automated Weather Observation Station (AWOS) will be improved with a durable solid surface course (asphalt). Highway, Street, and Bridge Construction More than 50% Completed 3-47-0037-057-2009 MOSES LAKE, PORT OF Rehabilitate T-Hangar Taxilanes; Install Enhanced Taxiway Centerline Markings Taxiway Rehabilitation and Runway Incursion Markings. This project will replace the failed pavements of that T-Hangar areas, including the Taxiway leading into the area, and the taxilanes within. The project will also complete the enhanced Runway Markings. This project is designed to replace the failing asphalt and concrete in the T-Hangar area of the airport, and also includes the installation of enhanced markings for protection of Runway Incursions. The completion of this project will do two things: 1) opens up an area of T-Hangars that have not been previously usable and 2) create a safer environment for pilots. The use of the T-Hangars will increase the need for other airport employees to handle aircraft maintenance, fueling, tower operations, etc. Highway, Street, and Bridge Construction Grant County International Airport, 7810 Andrews Street, NE, Suite 200 Moses Lake, WA 98837-3204 More than 50% Completed Construct Aircraft Rescue and Fire Fighting (ARFF) Building - Phase IV Fitiuta Airport does not have an ARFF facility to comply with FAA Regulations Part 139 for this airport. Therefore to comply and satisfy this requirement, a certified complying ARFF facility is required to be built. This project is 18% complete. Preliminary items to start the project moving as in mobilization of equipment and personnel to Fitiuta Island is completed. Excavation of project site is currently in progress. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Final project checkout and reporting, Developing grant cloesout papers. Information GAO gathered to improve the description The award funds rehabilitation of the existing general aviation apron, which is the extensive paved part of an airport immediately adjacent to the terminal area or hangers, at the Upshur County Regional Airport. The rehabilitation activities will consist of removing the existing pavement section, lowering the profile grade of the existing subgrade, installing a new pavement section, apron markings, tie-downs, and lowering of the existing taxiway lights to accommodate the change in grade. Also the taxiway hold-short markings and the replacement of the runway light globes inside the “caution zone” will be enhanced to bring the airport into compliance with current Federal Aviation Administration (FAA) standards. Rehabilitation of Apron, South Field, OIA Quarterly activities include: project surveying and marking of project limit; installation of temporary pavement striping and marking; demolition of taxiway centerline line light and edge light fixtures. Procurement and installation of new centerline and edge light fixtures, demoliton of existing jet blast fence, utilities, and storm drains; installation of water line and fire hydrant; installation of miscellaneous asphalt pavement patches. Vendors: Manufacture and furnish electrical and general co Highway, Street, and Bridge Construction 530 Water Street, PO Box 2064 Less Than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of the apron--a surface where aircraft park and are serviced--adjacent to the port maintenance shop, Terminal 1 luggage area, and Terminal 2 tug ramp area at Oakland International Airport. The award will provide long-term pavement reliability to maintain airport air cargo, flight, and baggage operations. Rehabilitate Runway 14-32 Phase 3 Airport Development - Rehabilitate Runway 14-32 - Pittsburgh International Airport - Allegheny County Airport Authority Winter weather activities only. Highway, Street, and Bridge Construction Pittsburgh International Airport, Findlay and Moon Township P.O. Box 12370 $9,770,201.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of Runway 14-32 at Pittsburgh International Airport, including activities such as improving pavement and grading, and updating pavement markings, airfield signage and lighting systems. The rehabilitation is expected to maintain the airport's primary runway for night time arrivals and noise abatement procedures, thus enabling continued environmentally friendly and efficient operations for military and civilian aircraft. Rehabilitate Taxiways D,E,F & G Airport Development - Rehabilitate Taxiways D,E,F & G - Allegheny County Airport - Allegheny County Airport Authority Project 35% complete. Winter weather activities. Highway, Street, and Bridge Construction Allegheny County Airport, Lebanon Church Road West Mifflin, PA 15122-2605 Less Than 50% Completed Information GAO gathered to improve the description The award rehabilitates 75,000 square feet of new airfield asphalt pavement. Rehabilitation activities include the removal of deteriorated pavement and base materials, the rebuilding of the base and repaving of the taxiways, the rebuilding of any necessary storm water drainage infrastructure, and the remarking and relighting of the taxiways in accordance with Federal Aviation Administration (FAA) specifications. The rehabilitation will help maintain airfield safety and usefulness, preventing extensive maintenance costs, correcting an antiquated physical layout, and allowing for airport economic development. Airport Development rehabilitate Runway 17R/35L Highway, Street, and Bridge Construction Grants Less Than 50% Completed Information GAO gathered to improve the description This award completes a total rehabilitation project of Runway 17R/35L at Laredo International Airport that began roughly 7 to 10 years earlier. The rehabilitation work encompasses an area of approximately 5,900 feet long by 150 feet wide. Specific activities include engineering, surveying, and demolition of existing pavement; replacing underground drainage; compaction of the sub base, adding a 6- inch asphalt base and a 16-inch concrete pavement; and testing, grooving, cleaning, and repainting the new surface. The rehabilitation will provide a safer runway that is less costly to maintain by using a rigid Portland concrete that does not create foreign object debris (FOD) and does not require frequent sweeping. Rehabilitate Runway, Rehabilitate Taxiway The project is for Airport Development, specifically, the reconstruction/realignment of the taxiway and rehabilitation of the runway. The project will enhance safety, protect the federal investment and increase the life of the pavements. Mix designs and test strips are complete. Paving is underway. Project is 60% complete. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports airport development activities at Salinas Municipal Airport. These activities include rehabilitating runway 08/26, taxiway B, taxiway D, and converting runway 14/32 to a taxiway. DELAWARE RIVER & BAY AUTHORITY Construct Runway (design, Phase VI)-09/27 (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the design of a new runway and taxiway system at Delaware Airpark. The project will include a new Runway 9-27 (4,200 feet by 75 feet) and a parallel taxiway. The taxiway will incorporate the old runway pavement (3,582 feet by 60 feet) plus new pavement (1,300 feet by 35 feet). It also will include connector taxiways, a wetland mitigation site, lighting, signage and drainage. The award will result in a design for a new runway in accordance with the 2003 Airport Master Plan, which recommended a new runway to accommodate projected regional general aviation growth. PALM BEACH, COUNTY OF Airport development - The award purpose is to rehabilitate Runway 05/23. The overall purpose of this award is to rehabilitate runway 05/23. Highway, Street, and Bridge Construction Boca Raton, FL 33431-6409 More than 50% Completed Information GAO gathered to improve the description The award rehabilitates a runway in Boca Raton Airport in order to improve its quality. Rehabilitation activities include removing the asphalt, relaying it, and marking up the two ends of the runway. Rehabilitate Taxiways 'C'& 'L'; Rehabilitate Taxiways 'D' & 'M' This project can be described as the rehabilitation of pavements on Taxiways 'C' and 'L' and Taxilane 'K', including the replacement of existing taxiway edge lights with LED lights, the replacement of failed drainage pipes beneath affected airfield pavement areas, and re- shaping of taxiway shoulders. The project also includes the rehabilitation of pavements on Taxiways 'D' and 'M' (approximately 1,200 ft. x 50 ft.) and the adjacent Customs Apron (approximately 5,800 sf.) to include full depth pavement reconstruction, replacement of failed drainage pipes beneath affected airfield pavement areas, re-shaping of taxiway shoulders, and adjustment of existing edge lights. This project can be described as the rehabilitation of pavements on Taxiways 'C' and 'L' and Taxilane 'K', including the replacement of existing taxiway edge lights with LED lights, the replacement of failed drainage pipes beneath affected airfield pavement areas, and re- shaping of taxiway shoulders. The project also includes the rehabilitation of pavements on Taxiways 'D' and 'M' (approximately 1,200 ft. x 50 ft.) and the adjacent Customs Apron (approximately 5,800 sf.) to include full depth pavement reconstruction, replacement of failed drainage pipes beneath affected airfield pavement areas, re-shaping of taxiway shoulders, and adjustment of existing edge lights. Highway, Street, and Bridge Construction 8 Airport Rd. Information GAO gathered to improve the description The award is for rehabilitation at Morristown Municipal Airport. Upgrade Edge Lights, Taxiways A, B, C, D, and H; Upgrade Edge Light Base Housings Runway 17L/35R and Taxiway H. Upgrade airfield lighting and lighting equipment on select runway and taxiways. Electrical Contractors and Other Wiring Installation Contractors Will Rogers World Airport, 7100 Terminal Drive Oklahoma City, OK 73159-0937 Less Than 50% Completed Information GAO gathered to improve the description The award upgrades the 20-year-old lighting and lighting fixtures at Will Rogers Airport in Oklahoma City, Oklahoma, which will increase energy efficiency, improve safety, and make it easier to obtain replacement parts in the future. Saw cut groove (7400' X100'). Mark (7400'X100') & transition the connecting TWYS to overlay on RW 17-35 Stillwater Reginal Airport Rehabilitate runway to increase safety and decrease delays. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award rehabilitates the south 4,800 feet of existing Runway 17-35 to bring it to a level or quality equivalent to that of the north 2,600 feet of runway. Rehabilitation activities include a geotechnical investigation of soils analyses to determine optimum stabilization methods and parameters, as well as a field survey to determine appropriate grades and profiles for new pavement. Airport Development. Columbia Owens Downtown Airport Airfield Pavement Rehabilitation Project - Phase III (Taxiways, taxilanes, & partial apron) During the quarter ending December 31, 2009, the paving operation and pavement markings were completed. Crews began seal coating, but stopped due to weather issues. There were no hours completed during the month of December due to weather. The purpose of this project is to rehabilitate and resurface major portions of the aircraft parking ramp and active taxiway at the Jim Hamilton - L.B. Owens Airport. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award includes specific activities such as milling of old asphalt; application of asphalt overlay, pavement rejuvenator and temporary markings; quality control material testing; and application of permanent markings. The construction will improve safety, reliability, and general aviation service to the airport and surrounding area by improving the condition of the taxiway, taxi lanes, and apron pavements. (An apron is a surface where aircraft park and are serviced.) The airport provides facilities for general aviation traffic and flight training activities and serves as the reliever airport to Columbia Metropolitan Airport. The existing pavements were constructed in 1985 and were exhibiting signs of deterioration, including lane separation, block cracking, and loss of asphalt content due to aging and oxidation from sunlight exposure. This condition has the potential to contribute to Foreign Object Damage (FOD) to aircraft. COLUMBUS, CIVIL CITY OF RW RE LI Rehabilitate Runway LIghting Completed design & bid phases for project required to receive grant, substantially complete with site work. Highway, Street, and Bridge Construction 4770 Ray Boll Blvd. Columbus, IN 47203-4764 Less Than 50% Completed Information GAO gathered to improve the description The award supports the design, construction, inspection and testing of a new electrical vault at Columbus Municipal Airport. The award will ensure the safety of aircraft in the event of a power failure affecting airport lighting and communication systems. BOULDER CITY, CITY OF The project is for Airport Development, specifically, the rehabilitation of the primary runway. The project will enhance safety, protect the federal investment and increase the life of the pavements. Completed pavement mix designs , test strips and pavement preparation taking the runway project over 50% complete. Highway, Street, and Bridge Construction Boulder City, NV 89006-1350 More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for Runway 9R-27L at Boulder City Municipal Airport. Rehabilitation activities include leveling and covering the safety area around the runway in aggregate to provide a stable surface, sealing cracks, constructing a 2-inch overlay, grooving and repainting. AIRPORT AUTHORITY FOR THE CITY OF GREENVILLE & COUNTY OF PITT Terminal Building Addition (Lobby/Circulation-3500 sq ft and New Departure Lounge- 10,400 sf) Terminal building improvement; footings poured, commencement of steel erection Commercial and Institutional Building Construction Grants Less Than 50% Completed Information GAO gathered to improve the description The award supports the expansion of a terminal and improvement of the facade by incorporating green technologies such as solar panels and ground source (geothermal heat pumps). The expansion will allow the Pitt-Greenville Airport's capacity to better meet the community's air service needs due to increased air traffic. Acquire Mobile Aircraft Rescue and Fire Fighting Training Facility Acquire Mobile Aircraft Rescue & Fire Fighting Training Facility Approval of Configuration Drawings and Start of Fabrication for the acqisition of a Mobile Aircraft Rescue and Fire Fighting Training Facility Regulation and Administration of Transportation Programs Less Than 50% Completed Information GAO gathered to improve the description This award will support preparations for the facility, including installing electrical components, running propane lines to and from the facility, as well as fabrication (bending steel to specification) and engineering. The award will result in improved aviation safety, as this facility will provide training to firefighting departments throughout the entire state of Virginia for the next 15 years. Asphalt overlay and pavement markings Highway, Street, and Bridge Construction (Information not reported) Dauphin Island, AL 36528-0000 Information GAO gathered to improve the description The award supports activities to fix damaged pavement on Dauphin Island Airport's runway 12/30, the only runway at this airport. The activities included reconstruction of the pavement on the entire runway, which measures 3,000 feet long and 80 feet wide. The result of the award was to improve the quality of the runway. TRANSPORTATION AND PUBLIC FACILITIES, ALASKA DEPARTMENT OF Akiachak Airport Relocation-Stage 1. This project will construct a new airport facility approximately 1.5 miles northwest of the community, consisting of a new 60 ft by 3300 ft runway, 120ft by 3900ft runway safety area, a 35ft by 400ft taxiway with a 79ft wide safety area and a 200ft by 400ft apron. The project is approximately 6% complete. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award replaces the current airport with a new airport that meets current design standards. The result of this award will be an airport that improves safety and operational efficiency by reducing injuries, fatalities, and property damage, and by improving the mobility of people and goods. Rehabilitation of the center portion of Runway 6/24 - 960 feet long by 150 feet wide - bring the entire runway up to the same length, at Decatur Airport. Decatur, Illinois Engineering & Construction Services for Decatur Airport Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports reconstruction activities for 960 feet of Runway 6-24. These activities include pavement milling, paving, grooving, and marking. The award will result in a preserved runway with strengthened pavement that meets Federal Aviation Administration (FAA) requirements. Airport Development. The rehabilitation of the primary air carrier runway and the construction of runway shoulders and blast pads. Project has been beset with weather delays. No invoices received for reporting quarter Other Support Activities for Air Transportation $5,400,000.00 Less Than 50% Completed Information GAO gathered to improve the description The award rehabilitates the entire length of runway 13/31 in order to increase safety features and create a better landing surface. Additionally, two shoulders and blast pads will be added to the runway. Activities include milling, or stripping, the top layer of runway, putting down a new overlay, and repainting/restriping the runway. Reconstruct EFD Taxiways A, D, & F Airport Development -- Reconstruction of Taxiways A, D and F Taxiways A and D are complete The existing concrete on Taxiway F has been removed. The base is being laid. Anticipated completion is before March 31, 2010 More than 50% Completed Information GAO gathered to improve the description The award supports the reconstruction of around 42,000 square yards of pavement for taxiways A, F, and two portions of D at Ellington Airport. Reconstruction includes removing pavement that had been in place for over 20 years and replacing it with concrete pavement. Activities included construction phasing, sodding and seeding, pavement markings, and preservation of the existing electrical facilities along the taxiways, in order to meet new industry standards. A B WON PAT INTERNATIONAL AIRPORT AUTHORITY Rehabilitate 1000 feet of Runway 06L/24R to maintain and improve safety for aircraft operations Highway, Street, and Bridge Construction Grants Less Than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for Runway 06L-24R at A B Won Pat International Airport. These activities include removal of the existing blast pad, localizer concrete pads and steel posts, electrical conduits, wiring and signs; and construction of the runway extension subgrade and subbase, and base course. The activities also will include milling the existing asphalt pavement and construction of pavement surface pending resolution of Voids in Mineral Aggregate (VMA), a hot mix asphalt mixture property; restoration of Taxiway Julia; installation of runway lighting; runway grooving; and painting the runway and taxiway. Modify Aircraft Rescue and Fire Fighting (ARFF) Building Site work, drainage, foundation, structural steel, decking, finish exterior brick, electrical & plumbing rough-in Highway, Street, and Bridge Construction 9430 Jackie Cochran Blvd., Suite 300 Baton Rouge, LA 70807-8020 More than 50% Completed Information GAO gathered to improve the description The award supports the renovation and expansion of the existing Aircraft Rescue and Fire Fighting building. The award will result in a building that will accommodate airportwide training activities and facilitate the use of an emergency command center. ST MARY, PARISH OF Project completed/runway asphalt patched, rejuvenated, and restriped. Highway, Street, and Bridge Construction Harry P. Williams Memorial Airport Information GAO gathered to improve the description The award funds rehabilitation of a deteriorating runway, runway 06/24, which is approximately 5,400 feet long. The rehabilitation covers the entire surface of the runway, patching places where the concrete joints have come through the asphalt, and where lightning has taken out chunks. Additionally, the runway will be coated and restriped and the new runway will meet general aviation standards. WINDOM, CITY OF (INC) Windom Municipal Airport Runway Project Rehabilitate Runway 17/35 (approximately 75'x3,599') Rehabilitated runway - Concrete overlay of existing runway by placing 3 inches of gravel and 5 inches of concrete to replace runway asphalt surface. The shoulders were re-graded due to the raised concrete surface. Shoulders were filled with black dirt and seeded. Highway, Street, and Bridge Construction 48572 County Road 28, PO Box 38 $1,149,062.00 Information GAO gathered to improve the description This award replaces Runway 17-35, which was originally constructed in the late 1960s and is the only hard-surfaced runway available in Cottonwood County. The runway's condition was recently classified as "fair poor" in the Minnesota Department of Transportation annual survey of airport pavement. This award ensures continued access to aviation for business, medical, agricultural, and private use by re- constructing this runway and its taxiways. Rehabilitate Runway (Phase III)-09R/27L Survey and layout were performed, permits were obtained and contractor mobilization costs were incurred. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for runway 9R-27L, Philadelphia International Airport's longest runway. These activities include replacing the runway's pavement and lighting system. The award will result in extended life for this runway. Install Guidance Signs (Phase II) Install airfield signs. Demobilization. Highway, Street, and Bridge Construction 100 Terminal Drive More than 50% Completed Information GAO gathered to improve the description The award encompasses the signage for all of the airfield runways and taxiways. The award will update wiring for runway and taxiway edge lights installed prior to 1970 and signage last updated in 1991. PALM BEACH, COUNTY OF Airport development - The award purpose is to rehabilitate Runway 05/23. The overall purpose of this award is to rehabilitate runway 05/23. Highway, Street, and Bridge Construction Boca Raton, FL 33431-6409 More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for runway 5/23, Boca Raton Airport's only asphalt runway. These activities included removing the existing asphalt, overlaying the runway with new asphalt, and marking it up. The award improved the quality of the runway. The milling and asphalt pavement are 100% complete. The striping is 95% complete. The project is 98% complete. Grants More than 50% Completed Information GAO gathered to improve the description The award supports a rehabilitation project for Runway 18-36 (75 feet by 5,002 feet) at Orlando Sanford International Airport. A Pavement Management Program evaluation conducted by the Florida Department of Transportation in 2008 determined that Runway 18-36 was past due for routine maintenance, and therefore in poor condition, requiring total rehabilitation. Reconsturct Parallel Taxiway A, Station 9+20 to 22+50, including two connecting taxiways Airport Development - Reconstruct Parallel Taxiway A, Station 9+20 to 22+50, including two connecting taxiways. The existing taxiways have numerous large cracks and failures throughout the surface. A site investigation has shown that organic debris (tree stumps) was used as a fill material under the existing taxiways and apron. This organic debris is causing failures in the asphalt in several locations. Full depth reconstruction is required. Reconstruct Parallel Taxiway A, Station 9+20 to 22+50, including two connecting taxiways Highway, Street, and Bridge Construction Information GAO gathered to improve the description The award reconstructs approximately 1,330 lineal feet of parallel taxiway, including two connecting taxiways at Shoshone County Airport. Activities include removing existing pavement; constructing the parallel taxiway, including transitional pavement, shoulders, grading and reflectors; constructing connector taxiways; and relocating aircraft tie-downs. Reconstruction of the taxiway will help maintain a safe aircraft operational surface. Peoria International Airport - PIA-3912-ARRA Construction of a New Terminal Building (Phase 5 - Electrical, Doors & Windows & Site Preparation Divisions) at the Peoria International Airport, Peoria, Illinois. Architectural and Building Construction Services for an airport terminal expansion. Commercial and Institutional Building Construction 6100 W. Everett McKinley Dirksen Parkway Less Than 50% Completed Information GAO gathered to improve the description. The award supports work which will facilitate completion of the new terminal building at the Peoria International Airport, which replaces the original terminal building built in 1959. Acquire Aircraft Rescue and Fire Fighting (ARFF) Vehicle Construction of the vehicle began in December 2009, currently 19% complete. 99 Sinclair Drive, c/o Muskegon County Airport Less Than 50% Completed Information GAO gathered to improve the description This vehicle will provide necessary fire fighting capabilities as required by the Federal Aviation Regulation Part 139. Crack route and seal, 2' asphalt overlay on Runway 4/22 Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of all of runway 4/22, which is 75 feet wide by 4,000 feet long, at Mankato Regional Airport. Rehabilitation activities include obtaining materials and services to prepare the area, removing old runway pavement, laying new pavement, and repainting the runway. The rehabilitation will improve the pavement condition and extend the useful life of the runway by sealing the surface to prevent water damage. Dixon Municipal Airport C73-3914-ARRA; Waukegan Regional Airport UGN-3908-ARRA Airport Development under the State Block Grant Program, including: Dixon Municipal Airport (C73) - Rehabilitate Apron; Waukegan Regional Airport (UGN) - Rehabilitate Runway 14/32. Engineering Services for Waukegan Regional Airport and Dixon Municipal Airport. Power and Communication Line and Related Structures Construction 3580 N. McAcree Rd. $2,155,560.00 Less Than 50% Completed Information GAO gathered to improve the description The award rehabilitates the apron--a surface where aircraft park and are serviced--at Dixon Municipal Airport; specific activities include 11,000 linear feet of cleaning and sealing cracks and 3,450 square feet of pavement marking. The award also rehabilitates a runway at Waukegan Regional Airport; specific activities include approximately 14,000 square feet of pavement marking, 8,200 square yards of pavement milling, and 4,100 feet of cleaning and sealing cracks. The rehabilitation at both airports will strengthen the pavement to Federal Aviation Administration (FAA) requirements and preserve the existing investments. ALBERT LEA, CITY OF Airport Development: Construct new Runway 16/34 Work this quarter involved site grading, draintile, and subbase. Highway, Street, and Bridge Construction Albert Lea, MN 56007-2081 Less Than 50% Completed Information GAO gathered to improve the description The award funds construction of a new, asphalt runway that is 5,000 feet long, reconstruction of the existing runway (as a 35-foot wide parallel taxiway), and rehabilitation of the crosswind runway that is 2,899 feet long at Albert Lea Municipal Airport. The activities will include grading, drainage and paving work for the relocated runway; new edge lighting for the runway and taxiway; new navigational aides for the runway; new airfield signage; and rehabilitation of a runway involving milling, asphalt overlay, and painting. These activities will assist in accommodation of the airport’s current and projected aircraft fleet. Rehabilitate Apron to extend life Highway, Street, and Bridge Construction Grants More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for the existing south paved asphalt apron--a surface where aircraft park and are serviced-- and taxiways leading to this apron at the Somerset Airport in Bedminster, New Jersey. These activities include an excavation to remove deteriorated asphalt surface and sub-base soils for placement of a geotextile stabilization fabric, new sub-base course, and asphalt pavement and pavement markings. The award is expected to result in improved surface drainage. TW ST CO Construct Taxiway Relocate Taxiway A (Construction Phase 3 - 5000' x 100') Construction substantially completed in 4th quarter. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award will improve the safety of the airfield geometry and correct the pavement condition of Runway 18-36 at Findlay Airport to be within the recommended Federal Aviation Administration (FAA) standards. The runway will be relocated to 400 feet from the runway centerline north of Runway 7-25. Along with relocating the runway, activities include construction of connector taxiways as appropriate, and the completion of construction of a second taxiway to access the apron (a surface where aircraft park and are serviced) from the south. TRANSPORTATION, WISCONSIN DEPARTMENT OF Construct Runway Safety Area- 01L/19R The grant to General Mitchell International Airport improves the airport's infrastructure by constructing Phase II of Runway Safety Area Improvements to runway 01L/19R. The outcome of this project will be to enhance the safety and efficiency of the airport. Power and Communication Line and Related Structures Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the second phase of a project that will construct a tunnel to provide a clear runway safety area. Airport Development. Rehabilitate Runway - 09/27. Paving, Pavement Marking Applications and Grading Highway, Street, and Bridge Construction 41771 Highway 77, P.O. Box 187 More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of a runway at Ashland/Lineville Airport. Rehabilitation activities will preserve airport infrastructure by removing old runway pavement, preparing the area, laying new pavement, and repainting the runway. SAN DIEGO COUNTY REGIONAL AIRPORT AUTHORITY Install airfield guidance signs and elevated runway guard lights Airport Development. Project mobilization including construction trailer; review of product submittals; beginning of construction of electrical dutc bank, laying conduit and surveying for location of trenches, pull boxes, and new lights and signs. Highway, Street, and Bridge Construction San Diego, CA 92101-1045 Less Than 50% Completed Information GAO gathered to improve the description The award will replace aging lights and signs throughout the San Diego International Airport with new LED lights and directional signs that meet Federal Aviation Administration (FAA) standards and improve safety. The new LED lights also will be more energy efficient, thereby reducing the cost of their operation. SAN FRANCISCO, CITY & COUNTY OF Reconstruction of a Runway (28R-10L) Airport Development. This project will overlay and reconstruct Runway 28R-10L to repair deteriorating pavement, improve the surrounding drainage system, upgrade the electrical runway and taxiway lighting system, and repaint runway markings to increase visibility and improve safety for aircraft on the airfield. Additionally, this project consists of pavement grinding, excavating, paving, runway marking, and installing of runway and taxiway lights. Activities included pavement grinding, asphalt paving, shoulders grading and watering; demolition of existing steel conduits; and installation of runway centerline light extensions, edge lights installation, wiring, transformers, and steel conduits on runway 28R-10L. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports work at San Francisco International Airport. This overall program consists of increasing the height of the existing perimeter fence to 10' in height and the installation of underground wildlife deterrent. Highway, Street, and Bridge Construction $845,698.00 Less Than 50% Completed Information GAO gathered to improve the description The award supports increasing the height of the perimeter fence to 10 feet and installing wildlife deterrent measures. The award will result in securing the airport property from wildlife. IOWA CITY, CITY OF Rehabilitate Runway 12/30 (Phase 2) Construction, Engineering Design and Construction Observation. Highway, Street, and Bridge Construction Iowa City Municipal Airport, 1801 South Riverside Drive Iowa City, IA 52246-5704 More than 50% Completed Information GAO gathered to improve the description The award supports rehabilitation activities for approximately 2,500 feet of runway 12/30 at Iowa Municipal Airport. This runway is 60 years old and the award will result in improved safety. MADISONVILLE, CITY OF (INC) Other Heavy and Civil Engineering Construction Madisonville, KY 42431-0000 More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of the ramp and apron--a surface where aircraft park and are serviced--at Madisonville Municipal Airport. The apron is 272 feet wide and 385 feet long. This award will allow the airport to continue its mission of catering to military, corporate, private, and recreational flyers. In addition, the award will provide more space to aircraft when they are parked and tied down overnight. TRANSPORTATION, WISCONSIN DEPARTMENT OF The grant to Rhinelander-Oneida County Airport improves the airport's infrastructure by rehabilitating taxiways A, B, and D. The outcome of this project will be to enhance the safety and efficiency of the airport. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports taxiway rehabilitation activities, including removing old taxiway pavement, laying new pavement, and preparing the new taxiways for use. TRANSPORTATION AND PUBLIC FACILITIES, ALASKA DEPARTMENT OF Allakaket Airport Improvements. Repair and stabilize the runway embankment, taxiway and apron to correct areas that have experienced serious differential settlement, side slope failures and erosion. Highway, Street, and Bridge Construction Grants (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports activities to improve taxiways A-E and aprons--surfaces where aircraft park and are serviced--including resurfacing and installing new lighting. BURBANK GLENDALE PASADENA AIRPORT AUTHORITY Rehabilitation of Taxiways C, D & G Rehabilitation of Taxiways C, D & G to improve pavement Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description Taxiways C, D, and G at Bob Hope Airport are deteriorating and reaching the end of their life spans. This award funds the rehabilitation of these runways to bring them up to Federal Aviation Administration requirements and give them life spans of approximately 10 years. Activities include removing the existing pavement by milling and replacing with new asphalt pavement, installing new striping, and applying creak seal and seal coat. DENVER, CITY & COUNTY OF Rehabilitate a portion of Runway 17L/35R from Station 494+57 to Station 583+62 Rehabilitate a portion of Runway 17L/35R from Station 494 + 57 to Station 583 + 62. Pavement rehabilitation of portions runway 17L/35R complex including runway 17L/35R by removing and replacing identified distressed PCCP pavement panels and portions of asphalt shoulders. Benefits include replacement of distressed aircraft pavement to improve safety, increase overall runway and taxiway pavement life, and reduce FOD and possible aircraft damage FOD can cause. All work was completed September 3, 2009. Pavement Rehabilitation of portions Runway 17L/35R by removing and replacing identified distressed PCCP pavement panels and portions of asphalt shoulders. Benefits include replacement of distressed aircraft pavement to improve safety, increase overall runway and taxiway pavement life, and reduce FOD and possible aircraft damage FOD can cause. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award funds the removal and replacement of deteriorated concrete panels on portions of the east runway at Denver International Airport to, among other things, reduce foreign object debris (FOD). GULFPORT BILOXI REGIONALL AIRPORT AUTHORITY( INC) Mill and Overlay Runway 18/36 Overlay and groove Runway 18/36 (4,93'5 +- x 150') Completed and closed out related contract on time and under budget. Highway, Street, and Bridge Construction $1,828,988.00 Information GAO gathered to improve the description The overlay covers holes that develop in the runway concrete. The grooving reduces the slick nature of the runway to meet Federal Aviation Administration (FAA) friction requirements. The result of the award enhances the safety of landing aircraft and will help attract more general aviation aircrafts to use the airport. Airport Development - Runway 15-33 is in need of improvement to reconstruct pavement to reconstruct pavement, upgrade the lighting system, and provide better airfield drainage. Purchase construction materials & project administration. Highway, Street, and Bridge Construction Less Than 50% Completed Information GAO gathered to improve the description The award supports the reconstruction of Runway 15-33 at Harry Stern Airport. Reconstruction of this runway is a state priority because the North Dakota Aeronautics Commission determined that the runway was in poor condition. TRANSPORTATION, TEXAS DEPARTMENT OF Rehabilitate and mark Runway 17/35 and reconstruct 17/35 end in PCC Runway improvements to increase and sustain economic activity for the airport and its local community Primary runway reconstruction at the Curtis Field/Brady Municipal Airport Highway, Street, and Bridge Construction 3821 N US Hwy 377 More than 50% Completed Information GAO gathered to improve the description The reconstruction of 500 feet of runway 17/35 involves pouring Portland Cement Concrete (PCC) to fix the failures in the pavement. The rehabilitation of 4,104 feet of the runway includes resurfacing with asphalt and remarking of the runway. Demo of existing asphalt apron, add de-icing catchment and pave the area with concrete. PO Box 1677, 1801 Roeder Avenue More than 50% Completed Information GAO gathered to improve the description The award reconstructs the portion of Taxiway D at the intersection of Taxiway E and A at Bellingham International Airport. Since the runway is currently experiencing rapid pavement failures, the reconstruction will improve the pavement and add drainage to ensure the runway has a longer life. Rehabilitate Emergency Generator and Acquire Index B Air Rescue and Fire Fighting Vehicle The project involves the cosntruction of a new backup generator that will serve the airport terminal, airfield lights,FBO and ARFF building. The project also involves the purchase of a new ARFF vehicle. The generator is installed. The punchlist will be completed next week. The ARFF vehicle has been delivered. Waiting on the training which should be later this month. Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award funds a backup generator at North Central West Virginia Airport, including construction of two different facilities to house the generator and installation of the generator. The award also funds the acquisition of the new Air Rescue and Fire Fighting (ARFF) vehicle including designing the specification of the ARFF and the purchase itself. TRANSPORTATION, GEORGIA DEPARTMENT OF Federal Aviation Administration-Grants-in-aid for Airports, Recovery Act FAA Airport Improvement Program Grant for Non-primary development projects in the State Block Grant Program. This grant provides 100% federal funding for five general aviation airport construction projects in Georgia. This grant provides 100% federal funding for five general aviation airport construction projects in Georgia. All five of Georgia's aviation projects received notice to proceed with construction in June 2009. All projects to be funded with this grant are under construction.: Adel-Cook County Airport: Construct Parallel Taxiway for $656,000 Alma-Bacon County Airport: Construct Parallel Taxiway for $734,000 Brunswick-McKinnon-St. Simons Airport: Rehabilitation of Terminal Area Apron for $5,864,000 McRae-Telfair-Wheeler County Airport: Rehabilitate Runway 3/21 for $890,000 Peachtree City-Falcon Field Airport: Construct Area 'C' Aircraft Parking Apron-Phase II for $2,000,000 Other Heavy and Civil Engineering Construction 600 West Peachtree Street, NW Less Than 50% Completed Information GAO gathered to improve the description This award funds projects at five Airports that not only were (1) previously delayed due to lack of funds and (2) part of the state's respective Airport Layout Plan and Airport Improvement Programs, but which (3) could begin construction within 45 days. Airport Development - design and construction of a building to house fire fighting equipment site work, framing, roofing, siding, plumbing, electrical installation Highway, Street, and Bridge Construction 143 Caruso Drive, Suite 1 More than 50% Completed Information GAO gathered to improve the description The award provides adequate space at the Hancock County-Bar Harbor Airport for fire fighting personnel, vehicle, equipment and their related functions. The Recovery Act provides funding to states for restoration, repair, and construction of highways and other eligible surface transportation activities under the Federal Highway Administration’s (FHWA) Federal-Aid Highway Surface Transportation Program and for other eligible surface transportation projects. FHWA apportioned $26.7 billion in highway funds to states and the District of Columbia through existing federal-aid highway program mechanisms, and states must follow existing program requirements and Recovery Act requirements in the use of funds. FHWA has obligated $26 billion in Recovery Act Highway Infrastructure Investment funding. (See fig. 4.) As of May 3, 2010, FHWA had reimbursed states for about $7.6 billion (29 percent). Almost two-thirds of Recovery Act highway obligations nationally have been for pavement projects, including reconstruction, resurfacing, and widening projects. In addition, $1.6 billion (6 percent) is being used on new roadway construction projects. Transportation enhancements account for about $1 billion (4 percent) of highway obligations. Of this $1 billion for transportation enhancements, the largest portion—71 percent—went to facilities for pedestrians and bicycles, while an additional 18 percent went for landscaping and other scenic beautification projects. (See table 7.) We assessed the transparency of descriptive information for highway awards available on Recovery.gov, as described earlier in this report. We found that an estimated 25 percent met our transparency criteria, 69 percent partially met our criteria, and 6 percent did not meet our criteria. For highway descriptions that partially met or did not meet our criteria, we collected information necessary to make the descriptions meet our transparency criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. FHWA established a new data system and guidance to support recipient reporting, which may have affected the transparency of reported information. For the Recovery Act, FHWA created a new database called the Recovery Act Data System (RADS) to help fulfill Recovery Act reporting requirements. In addition to oversight and agency reporting requirements, highway recipients—state highway departments—can use RADS to complete their recipient reports. RADS information, including descriptive information, can be uploaded by recipients into FederalReporting.gov. FHWA officials told us that highway recipients can also use RADS information to check the accuracy of their own state highway award data before submitting the data as part of their recipient reports. Several highway recipients we interviewed said they relied heavily on FWHA guidance, specifically RADS guidance, to fulfill their recipient reporting requirements. RADS includes several data fields to describe highway awards, including one specifically designed to provide descriptions more understandable to the public. After a state certifies a highway project, the highway recipient submits descriptive information to the database. FHWA’s guidance for RADS provides specific instructions on this information; for example, the project name data field in RADS should be consistent with the name used in state planning documents. In fall 2009, FHWA added a narrative field to RADS to describe awards in plain terms to facilitate public understanding. FHWA division offices in each state were tasked with submitting this information to RADS. In several cases, state highway department officials we spoke to helped division offices generate this information. Colorado and Ohio state highway officials, for example, told us they generated the information from various sources, such as state databases and project managers. In some cases, the addition of this plain-language description field in RADS may have improved the narrative information in recipient reports to make it more understandable for the second reporting round. For state highway recipients that used RADS data to complete recipient reports, the new RADS description field was reported on Recovery.gov. The Ohio highway department submits RADS data to fulfill its reporting requirement, and for one pavement improvement project in Ohio, the narrative information changed between reporting rounds as follows: First round project description: “It is proposed to widen SR104 from US35 to the new relocated SR207 by adding additional thru traffic lanes and a center turn lane. PE Only-100% LPA Funds.” Second round project description: “State Route 104 is currently a two- lane highway between U.S. Route 35 and the new state Route 207 extension to U.S. Route 23, and it serves as the northwest bypass of Chillicothe. The project consists of widening approximately three miles of roadway from two to four lanes. It also provides for adding traffic signals at two intersections, the rerouting of Pleasant Valley Road and the upgrading of entrances to the two state prisons located on the route. One of the signals will serve Moundsville Road, a main artery for Union Scioto Schools and one of the largest districts in the county; the other signal will serve Gateway Industrial Park.” As state highway recipients can choose whether to use RADS data for recipient reporting, the addition of this plain-language description field will not affect all highway recipient reports. Moreover, FHWA is still working to gather plain-language descriptions in all states. FHWA officials told us they regularly check that the new field in RADS contains information for each award and subsequently work with FHWA division officials in each state to get the necessary information when it is missing. Because of the fluid nature of the Office of Management and Budget’s (OMB) guidance, FHWA officials told us that aligning their agency’s supplemental guidance with OMB’s has been a challenging process. However, FHWA officials said communication with OMB has improved over time. During the first two reporting rounds, FHWA worked with OMB to revise its guidance in response to concerns over the agency’s definitions for the award amount fields, including amounts received and expended. However, OMB did not provide formal approval of this guidance. For the third reporting round, FHWA officials told us they did receive written approval for FHWA’s supplemental guidance, after again working with OMB to address problems with the award amount fields, though it took 2 to 3 months to finalize and gain approval of this guidance. In addition to the RADS database and guidance, FHWA provided other reporting assistance to recipients. First, FHWA held webconferences for recipients prior to the second reporting round. FHWA also provided targeted assistance to state highway recipients to discuss specific problems or concerns with recipient reporting. Some state-specific factors may also have affected the transparency of recipient-reported information. For the state’s transparency Web site, the Massachusetts Recovery and Reinvestment Office required the state highway department to write detailed descriptions understandable to the public. Massachusetts highway officials told us that creating these descriptions was time-consuming for the first round of reporting but that descriptions did not change for second round of reporting. In Georgia, the state highway department typically develops both a short and an extended description for a highway project. According to Georgia highway officials, the extended descriptions are written in nontechnical terms and include details beyond the project’s name and location. Georgia officials told us they used these extended descriptions in FHWA’s RADS database and used them to fulfill recipient reporting requirements. Regarding award location, several recipients we interviewed said they experienced problems entering information into FederalReporting.gov. Recipients faced difficulty entering zip code and congressional district information for awards. While highway projects can occur in more than one locality or congressional district, FederalReporting.gov allows only one zip code and congressional district per award. In these cases, highway officials in Colorado and Pennsylvania told us that multiple entries for location would be useful. In Pennsylvania, for example, a project to construct curb ramps compliant with the Americans with Disabilities Act in Chester County spanned two congressional districts, forcing the state department of transportation to select a single zip code—the geocenter of the county—and one congressional district—the lowest number—to report for the award. The Department of Transportation and FHWA make highway award information available to the public in several forms. For example: Department of Transportation interactive map of awards (www.dot.gov/recovery). This agencywide map, which includes highway awards, provides the location, cost, and a brief description for each award. FHWA online map (fhwaapps.fhwa.dot.gov/rap/). The map provides, among other things, the cost, type (e.g., bridge improvement), and a brief description of each award. FHWA weekly summary of projects (http://www.fhwa.dot.gov/economicrecovery/index.htm). On its Recovery Act Web site, FHWA publishes location, cost, and descriptive information on awards in three stages—awarded, in construction, and completed. FHWA also provides a weekly summary of obligation and status information by state. At the state and local level, recipients provide various types and amounts of award information to the public. The six state highway departments we interviewed posted descriptive information on Recovery Act awards on their Web sites. Several state Web sites provided a list of awards, while some state highway departments provided award information in alternative formats. In Massachusetts, for example, the state highway Web site made award information available through an interactive map. Other state highway departments provided more extensive award information. For most Recovery Act awards to the state, the Ohio highway department provides cost, location, and status information, as well as a description and photos. For highway awards administered at the local level, some localities also used Web sites and other tools to promote award information. The City of Olmsted Falls in Ohio used the city Web site and newsletter to share information on the construction of a new bridge on State Road 252 to improve safety by eliminating a railroad crossing. FHWA officials and recipients we interviewed said they had not received much feedback from citizens on Recovery Act highway awards. As they have no data for comparison, FHWA officials told us that they could not determine whether Recovery Act awards received more public feedback than regular awards. Based on their experience, public feedback on the Recovery Act often involves requests for a definition of a transportation enhancement and an explanation for why it is included in a highway program. At the recipient level, state highway departments experienced varying levels of feedback from the public and the media. Massachusetts highway officials told us they were surprised at the level of inquiry received on the Recovery Act. By contrast, New Jersey and Colorado highway officials said they had received little public feedback on Recovery Act awards. According to Colorado officials, the state highway department has not had to respond to many inquiries, since award information is available on the department’s Web site. At the local level, officials from the City of Olmsted Falls in Ohio told us that they had received both positive and negative comments on the bridge project. In addition, officials told us that the availability of award information has kept public interest alive and created an outlet to publicize volunteer opportunities to landscape the project area after the new bridge is completed. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. US 6 CHANNAHON RD RAILROAD ST Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will extend the pavement life by resurfacing 3.0 miles on US Route 6 in Channahon and Rockdale (Northeast Illinois). Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION, MARYLAND DEPARTMENT OF Resurfacing Pegg Road from Forest Run Drive to Westbury Boulevard Highway Infrastructure Investment Grant: Available for Use in Any Area (Flexible) To have projects underway that will preserve our existing highway infrastructure and thereby prevent further decay, improve conditions, extend the overall life of roadways and bridges, and further other associated highway improvements. In some cases, the projects will improve safety and environmental conditions for the motoring public and/or pedestrians. Highway, Street, and Bridge Construction (Information not reported) 0003129 RESURFACING AND RELATED WORK ON ROUTE 2 HARVARD LITTLETON - RESURFACING & RELATED WORK ON ROUTE 2 Resurface Route 2 from the vicinity of the Littleton Road Bridge to the Boxborough town line, a distance of approximately 4.4 miles. Work includes minor box widening to extend existing sub- standard acceleration and deceleration lanes. Contract has been awarded and project advanced to 91% of scheduled construction before winter weather forced paving work to shut down. The project will resume in the Spring. Highway, Street, and Bridge Construction 10 Main St. More than 50% Completed TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K Replace deficient bridge carrying NC 73 over Long Creek in Stanly County. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed 0073019 Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will extend the bridge life by replacing the bridge deck and making other roadway improvements on 112th Place over I-57 in Chicago in Cook County. (Northeastern Illinois). Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements This project provides for the acquisition of right-of-way to construct trailhead parking area to access the Lake Brandt Greenway on US 220 North of Strawberry Road in Guildofrd County. This is a locally administered project bu the Town of Summerfield. Highway, Street, and Bridge Construction (Information not reported) 0729002 TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements This project adds sidewalks along SR 1149 (Lee Street/Old NC 11) in Ayden from West Barwick Street to Allen Drive in Pitt County to improve pedestrian safety. Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION, NEW YORK DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible), Rural Areas with Population under 5K Replace two culverts on NY Route 242 in the towns of Ellicottville and Little Valley, Cattaraugus County. This project will eliminate culvert deficiencies and ensure good structural condition. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed 5017283 HIGHWAY AND TRANSPORTATION, ARKANSAS DEPARTMENT OF I-40 OFF RAMP-ON RAMP (CONWAY) (REHAB) Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) THE PURPOSE OF THIS PROJECT IS TO REHABILITATE 0.37 MILE OF HIGHWAY 65 BETWEEN THE INTERSTATE 40 OFF AND ON RAMPS IN THE CITY OF CONWAY, FAULKNER COUNTY. WORK INCLUDES PAVEMENT REHABILITATION, COLD MILLING, MAINTENANCE OF TRAFFIC, PAVEMENT MARKING AND MISCELLANEOUS ITEMS. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed TRANSPORTATION, GEORGIA DEPARTMENT OF SR 9 FROM CHATTAHOOCHEE RIVER TO MARIETTA HWY Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This is a maintenance construction project in Fulton County. This project is the milling and resurfacing of SR 9 from the Chattahoochee River to Marietta Highway. This section of SR 9 needs resurfacing because the existing pavement is deteriorating. SR 9 was last resurfaced in 2000. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed M003942 Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This project will extend the pavement life by resurfacing on Wondermere Rd from Greenwood Rd to Thompson Rd in the Village of Greenwood (Northeastern Illinois) Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed TRANSPORTATION, GEORGIA DEPARTMENT OF CR 41/GREEN TOP RD @ CSX RAILROAD 2 MI NE OF NEWNAN Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project is the replacement of a structurally deficient bridge in Coweta County. This project will replace the bridge on County Road 41 over the CSX Railroad, 2.0 miles northeast of Newnan, Georgia. The existing bridge, constructed in 1950, is a 92-f x 21.33-f steel truss structure with a sufficiency rating of 21. County Road 41 at this location is a rural two lane roadway with 10-f lanes with variable 3-f to 8-f grass shoulders with a posted speed of 45 MPH. County Road 41 is an east-west roadway classified as an urban local road. The project will construct a new 170-f x 40-f concrete bridge over CSX Railroad at the existing bridge site. The approaches will consist of two 12-f lanes with 8-f rural shoulders. The existing bridge will be closed to traffic during construction. Traffic will be detoured using an offsite detour. Highway, Street, and Bridge Construction (Information not reported) 0006956 WEST VIRGINIA DIVISION OF HIGHWAYS Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will improve safety for motorists by replacing the McBee Bridge due to condition. The bridge is located on County Route 17 at approximately milepoint 3.68 in Wetzel County. Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION , MISSISSIPPI DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K The city of Pontotoc will resurface Industrial Drive/South Industrial Circle east of First National Bank on Hwy 15 to intersection of Bolton Street. This project will make the road smoother and extend the life of the pavement. Highway, Street, and Bridge Construction (Information not reported) 0102008 TRANSPORTATION, IOWA DEPT OF US 52 From Just S. Of NCL Garnavillo N. to Just S. of IA 13 This project includes performing cracking and seating of the existing portland cement concrete pavement and then applying a hot-mix asphalt overlay on approximately 9.0 miles of US Highway 52 from just north of the northern coprporate limits of Garnavillo north to just south of Iowa Highway 13 in Clayton County. Improvements will also include the addition of 4- ft paved shoulders. The project will result in an improved driving surface and enhance safety. US 52 From Just S. Of NCL Garnavillo N. to Just S. of IA 13 Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This project will improve the surface and rebuild sections of the bridge on SR 912 over I-80 in Lake County. Highway, Street, and Bridge Construction (Information not reported) 0900336 TRANSPORTATION, INDIANA DEPARTMENT OF HMA Overlay, Preventive Maintenance Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will improve sections and extend the life of Walnut Street from Center Street to Wayne Street in Dekalb County with a pavement surface overlay. Highway, Street, and Bridge Construction (Information not reported) TRANSPORTATION, FLORIDA DEPARTMENT OF CR 491 (LECANTO HWY) FROM N OF PINE RIDGE BLVD TO SR 200 RESURFACING - This award was reported 3rd Quarter 2009 as 4261501ARRA091 In Citrus County, due to the poor condition of the road, this project resurfaces 6.8 miles of County Road 491 from Pine Ridge Boulevard to State Road 200. Highway, Street, and Bridge Construction (Information not reported) CITRUS (COUNTY), FL 34434-8125 Less Than 50% Completed ARRA091 TRANSPORTATION, FLORIDA DEPARTMENT OF CITRUS WAY FM CR484 (FT DADE AVE) TO KENSINGTON RD WIDEN/RESURFACE EXIST LANES - This award was reported 3rd Quarter 2009 as 4261271ARRA107 In Hernando County, due to the poor condition of the road, this project resurfaces 3.8 miles of Citrus Way and widens the 11-foot lanes to 12-foot lanes from Ft. Dade Avenue to south of Centralia Road. Highway, Street, and Bridge Construction (Information not reported) HERNANDO (COUNTY), FL 34601-8659 Less Than 50% Completed TRANSPORTATION, FLORIDA DEPARTMENT OF SW 72 ST/SUNSET DR. FROM S.W. 65 AVENUE TO S.W. 63 AVENUE RESURFACING - This award was reported 3rd Quarter 2009 as 4264161ARRA409 The City of South Miami will enhance sections of Sunset Drive by resurfacing, reconstructing sidewalks, upgrading drainage, and installing median landscaping and irrigation. This project will create a pedestrian-friendly corridor. Highway, Street, and Bridge Construction (Information not reported) MIAMI-FT LAUDERDALE-WPALM BCH, FL 33143-3242 Less Than 50% Completed ARRA409 TRANSPORTATION, IOWA DEPT OF S23 Highway: G24 Highway to IA Hwy 5 Warren County will resurface 3.2 miles of County Road S-23 with new asphalt between County Road G-24 and Iowa Highway 5 west of the City of Hartford. This project will improve driving quality by providing a more smooth riding surface. S23 Highway: G24 Highway to IA Hwy 5 Pave Highway, Street, and Bridge Construction (Information not reported) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. TRANSPORTATION, MARYLAND DEPARTMENT OF Updating Existing Traffic Barrier and Design New Median Barrier - District 4 Highway Infrastructure Investment Grant: Available for Use in Any Area (Flexible) To have projects underway that will preserve our existing highway infrastructure and thereby prevent further decay, improve conditions, extend the overall life of roadways and bridges, and further other associated highway improvements. In some cases, the projects will improve safety and environmental conditions for the motoring public and/or pedestrians. Highway, Street, and Bridge Construction (Information not reported) Bel Air, MD 21014-9999 More than 50% Completed Information GAO gathered to improve the description The award supports the as-needed replacement of guardrails along US 40, MD 41, I-83, and MD 151, located in Baltimore and Harford counties in Maryland. The award will result in increased safety for the traveling public. TRANSPORTATION, ALABAMA DEPT OF STMAA-0010(520) Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project involves the repaving of 2 miles of State Highway 10 (Camden Bypass) from State Highway 28 to State Highway 28 in Camden. Wilcox County Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports resurfacing of the road, which is needed for safety reasons and to prolong the life of the road. Based on current traffic patterns, the repaved road may last up to 12 years. Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will extend the pavement life by milling, patching and resurfacing various locations throughout Kane County (Northeastern Illinois). Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports the repair of roads which had significant pavement damage from winter weather conditions. The project repaired the following locations: IL 19 (Shales Pkwy. to Barrington Rd.); IL 25 (I-88 to Banbury Rd.); IL 31 (Huntley Rd. to Miller Rd.); IL 31 (IL 64 to Indian Mound Rd.); IL 38 (IL 47 to east side of Anderson Rd.); IL 38 (Peck Rd. to West Ave.); IL 58 (IL 47 to I-88); IL 64 (IL 47 to Peck Rd.); and IL 72 (west of I-90 bridge to IL 31). TRANSPORTATION, COLORADO DEPARTMENT OF I 25 - COMMERCIAL TO MAIN ? SB (STIMULUS Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Constructs the Purgatoire River Pedestrian Trail, adds street lights, parking lot paving, curb and gutter, drainage inlets, landscaping and sidewalk along I-25 in Trinidad. Highway, Street, and Bridge Construction (Information not reported) $7,044,806.00 Less Than 50% Completed Information GAO gathered to improve the description The award funds reconstruction of I-25 for both northbound and southbound lanes from Goddard Ave. to Van Buren St., which will replace aging infrastructure and provide a safe transportation system to and from the city of Trinidad, Colorado. This award includes construction of a multi-use/pedestrian trail along the Purgatoire River, under and adjacent to the Main St. exit and entrance ramps. These activities will extend the city of Trinidad’s planned trail to Van Buren St., a distance of 2500 feet. Construction includes earthwork, pre- cast panel retaining walls, riprap, trail/path paving, and pedestrian guardrail. TRANSPORTATION , MISSISSIPPI DEPARTMENT OF UPGRADE ROADS IN SHARKEY COUNTY-STREETS IN THE TOWN OF ANGUILLA - VARIOUS STREETS Highway Infrastructure Investment Grant: Rural Areas with Population under 5K This project will resurface various roads in the town of Anguilla, Sharkey county. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award resurfaces 3.85 miles of 20 roads to improve rideability of the roads. Hot asphalt will be laid over the old road, and new grass will be planted along the shoulders. Once construction is completed, roads will be restriped and new signs will be placed along the roads. Highway Infrastructure Investment Grant: Rural Areas with Population under 5K This project will extend the pavement life by resurfacing a section of Shady Rest Road approximately 15 miles west of Champaign (East-Central Illinois) Highway, Street, and Bridge Construction Grants (Information not reported) Information GAO gathered to improve the description The award supports road resurfacing from FAS (Federal Aid Secondary) Highway 1532 to IL10. TRANSPORTATION, MISSOURI DEPARTMENT OF Jackson County, Route 150 Widen from two lanes to four lanes from Horridge Road to Route 291 Highway, Street, and Bridge Construction (Information not reported) Kansas City, MO 64106-2706 Less Than 50% Completed Information GAO gathered to improve the description The award funds the change of the original rural section of Route 150 to a narrower urban/suburban section to reflect the community's future development and changing land uses. ROADS, NEBRASKA DEPARTMENT OF Highway N-116, Concord Southwest Highway Infrastructure Investment - Bridge replacement - From funding for use in any Area (flexible) This bridge replacement project brings this roadway to a state of good repair. It replaced a 52-year old structure with a new quintuple 10' x 8' box culvert. As of December 31, 2009, project is substantially complete. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The bridge is on Highway N-116 southwest of the town of Concord in Dixon County. TRANSPORTATION, ARIZONA DEPT OF US-95 (16th St) @ I-8 ( MP 24.2 to MP 24.8) in YUMA Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) The Arizona Department of Transportation proposes to construct a widening project in Yuma County along US 95 (16th Street), I-8 to Palms Ave. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports widening of the road in order to reduce traffic congestion. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Live Oak. The project is described as: Rehabilitate Apricot St: N St-Broadway Highway, Street, and Bridge Construction 703 'B' Street More than 50% Completed Information GAO gathered to improve the description The award repaves 0.2 miles of Apricot St. from North St. to Broadway. The resurfaced road will result in a smoother driving surface. TRANSPORTATION, WISCONSIN DEPARTMENT OF This is a reconstruction project in Dodge County on County Highway G, Beaver Dam - Randolph. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports pavement improvement activities on 2.1 miles of County Highway G in Dodge County to provide two 12-foot travel lanes and two 6-foot shoulders (including 3 feet paved). The activities will include pulverizing, injecting and relaying existing asphalt pavement, spot grading, culvert replacements, base aggregate dense, concrete curb and gutter, pavement, pavement marking and all incidental items necessary to complete work. The award will improve rideability of the road and increase safety of the road's intersections due to grading to meet current standards. TRANSPORTATION, MISSOURI DEPARTMENT OF City of Washington Resurfacing of Various Streets Resurfacing of various streets within the city of Washington. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award funds asphalt resurfacing on approximately 3.1 miles. The activities include sealing of cracks, providing an asphalt level course and a 2-inch surface course, and Americans with Disabilities Act (ADA) compliant curb access ramps. The streets include W. Eighth St., W. Main St., Grand Ave., Pottery Rd., Old Route 100, and Route 47 to Stafford St. These activities are a cost-effective method to extend the life of the pavement, provide a smoother riding surface, increase the structural capabilities of the pavement, and postpone a costly reconstruction project. TRANSPORTATION, OKLAHOMA DEPARTMENT OF USDOT - FHWA Transportation Infrastructure Project in partnership with the Oklahoma Department of Transportation Transportation Infrastructure Project for the Oklahoma Department of Transportation identified as RESURFACE OKC ARRA: MULTIPLE LOCATIONS ON MACARTHUR, MERIDIAN, MAY &NW 10TH Highway, Street, and Bridge Construction (Information not reported) Oklahoma City, OK 73102-3457 $2,202,725.00 More than 50% Completed Information GAO gathered to improve the description The award supports resurfacing 6 miles of road in Oklahoma City and installing new curb ramps in order to improve ride quality and extend the life of the pavement. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Gilroy. The project is described as: Rehabilitate local street Highway, Street, and Bridge Construction Information GAO gathered to improve the description This award repairs 11 street sections that are roadway corridors for arterial and collector streets and repairs sidewalks that lead to schools. The sidewalk construction project will improve the sidewalks for safety on the following streets: Welburn Ave. from Santa Teresa Blvd. to Wayland Ln.; Murray Ave. from Lincoln Ct. to Lewis St.; Sixth St. from Wren Ave. to Eigleberry St.; Princevalle St. from Sixth St. to Luchessa Ave.; Westwood Dr. from First St. to Third St.; Eighth St. from Uvas Park Dr. to Monterey St.; Forest St. from I.O.O.F Ave. to Sixth St.; Wren Ave. from First St. to Mantelli Dr.; Miller Ave./Wayland Ln. from Arnold Dr. to Eighth St.; Mantelli Dr. from Santa Teresa to Lions Creek Dr.; Church St. from First St. to Las Animas Ave. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Pedestrian and Class 1 Bike Path Highway Infrastructure Investment Grant: Transportation Enhancements This is a Facilities for Pedestrians and Bicycles project by a local agency in the City of Orange. The project is described as: Construction of a Class I bike trail along the Santiago Creek from Tustin Street to Collins Avenue and other amenities Highway, Street, and Bridge Construction Grants 3347 Michelson Dr Ste 100 Information GAO gathered to improve the description The award will result in a grade separated and safe Class I bikeway from central Orange to Main Place Mall and the Discovery Science Center. TRANSPORTATION, MONTANA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements Installation of accessible curb ramps on existing sidewalks at multiple locations within the City of Missoula. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award will install between 100 to 200 sidewalk curb ramps in Missoula, Montana to make sidewalks Americans with Disabilities Act (ADA) accessible, install and repair sidewalks where the need is greatest, and upgrade existing sidewalks. The award will improve walkability in Missoula by providing a continuous sidewalk system throughout the community, provide safe and efficient pedestrian movement and meet the standards of the ADA, as well as identify pedestrian corridors for creating preferred routing for schools, children, disabled residents, elderly, community and neighborhood trips. TRANSPORTATION, RHODE ISLAND DEPARTMENT OF State CCVE/RVD Installation for Incident Detection and Data Collection Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project involves the installation of radar-based vehicle detectors, at the same location as existing traffic cameras, to collect data on traffic volume and speeds. The new detectors provide alerts to Traffic Management Center operators to announce increasing traffic congestion. Technology will allow RIDOT to post travel time on electronic message signs (40 locations). Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports the installation of radar detectors at 43 stations, including Narragansett, Warwick, North Smithfield, Lincoln, Richmond and Middletown. TRANSPORTATION, PENNSYLVANIA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Bridge deck replacements for various structures in Bedford County Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award supports bridge rehabilitation activities on two structurally deficient bridges in Bloomfield and Monroe Townships on State Route 2029. Rehabilitation activities include removing the existing overlay, placing a new concrete deck, and paving the new deck with asphalt. The award will extend the life of these bridges and improve safety by replacing the existing deteriorated bridge decks. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This is a Pavement Restoration and Rehabilitation project by a local agency in the County of Marin. The project is described as: Rehabilitate local street Highway, Street, and Bridge Construction More than 50% Completed Information GAO gathered to improve the description The award supports the construction of a High-Occupancy Vehicle (HOV) lane and bike path along US 101 in San Rafael from 0.8 km south of Coleman Pedestrian Overcrossing to North San Pedro. The current HOV lane stops and starts at various locations in Marin County. This project, called the Gap Closure Project, will provide an uninterrupted HOV lane through the most densely populated section of Marin County. The award will result in an alternative to single-occupancy commuting. Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will substantially improve the roadway by reconstructing a section of Armour Road in the city of Bourbonnais (East-Central Illinois). Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award improves pavement and safety by resurfacing 1.23 miles of Armour Rd. between US 45/52 and IL 50. TRANSPORTATION, IDAHO DEPARTMENT OF STC-6762, MAIN ST; BRIDGE ST TO 6TH E, ST ANTHONY Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will repair and overlay 0.5 mile of pavement on Main Street in City of St.Anthony, Fremont County and will include minor drainage improvements, replacement of traffic signal detection loops, and adjustments to manholes and valves. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description This award will repair the road, as it was in a state of disrepair. HIGHWAY AND TRANSPORTATION, ARKANSAS DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) THE PURPOSE OF THIS PROJECT IS TO WIDEN 4.91 MILES OF HIGHWAY 167 BETWEEN THE SALINE RIVER AND NORTH MILLERVILLE IN GRANT COUNTY. WORK WILL INCLUDE WIDENING THE EXISTING ROADWAY TO 4-LANES WITH AN 11' PAINTED MEDIAN AND 8' SHOULDERS, TWO BRIDGES, DRAINAGE IMPROVEMENTS, EROSION CONTROL AND MISCELLANEOUS ITEMS. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the widening of the road which goes to the growing town of El Dorado. This widened road, which will be 4 lanes, will connect El Dorado to the highway system. The award will result in reduced congestion and help spur economic development. TRANSPORTATION, CALIFORNIA DEPARTMENT OF RESURFACE, REPAIR, RESTRIPE AND CONCRETE REPAIRS Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K and Available for Use in Any Area (flexible) This is a Pavement Restoration and Rehabilitation project by a local agency in the City of San Buena Ventura. The project is described as: Steet Rehab. Olive Street Phase I Highway, Street, and Bridge Construction Los Angeles, CA 90012-3712 Information GAO gathered to improve the description The award provides a new roadway surface on Olive St., from Stanley to Main St., because the road was in a state of disrepair. TRANSPORTATION, CALIFORNIA DEPARTMENT OF PAVEMENT REHABILITATION- 2009 ON SYSTEM ROADS. Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population This is a Pavement Restoration and Rehabilitation project by a local agency in the County of Ventura. The project is described as: On system roads - Phase A various locations Highway, Street, and Bridge Construction Los Angeles, CA 90012-3712 More than 50% Completed Information GAO gathered to improve the description The award rehabilitates roads which were in a state of disrepair; the rehabilitation will result in new roadway surface pavement. The locations of the rehabilitation are Mission Dr., Beardsley Rd., Corsicana Dr., Simon Way, West Petrero Rd., Center School Rd., Tico Rd. and Spring Rd. TRANSPORTATION, MISSOURI DEPARTMENT OF North Sarah Street Belle To Page Preliminary engineering associated with resurfacing and sidewalk improvements from north Sarah Street to Belle. Highway, Street, and Bridge Construction (Information not reported) Saint Louis, MO 63101-1371 Information GAO gathered to improve the description The award supports widening sidewalks, improving pavement, and replacing street lights and traffic signals to improve safety. TRANSPORTATION, WYOMING DEPARTMENT OF Federal project I801176, involving microsurfacing and miscellaneous work on 23.20 miles of I-80 at various locations between Carter and LaBarge, in Sweetwater and Uinta counties. 100% of funds are under contract. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award will support preventive maintenance, including microsurfacing, to improve the pavement and safety of the road. TRANSPORTATION, OKLAHOMA DEPARTMENT OF USDOT - FHWA Transportation Infrastructure Project in partnership with the Oklahoma Department of Transportation Transportation Infrastructure Project for the Oklahoma Department of Transportation identified as BRIDGE & APPROACHES CO BR: OVER SPRING CREEK, 1.0 MI WEST & 0.7 MI SOUTH OFUS-177/SH-66 JCT. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award replaces a structurally deficient bridge that was scheduled for replacement in the next couple of years. The award provided the county with the necessary funding to accelerate the construction process. The new bridge will be approximately 1/4 mile in length and will provide improved safety and enhanced capacity for the Lincoln County road system. TRANSPORTATION, OHIO DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population Resurface a portion of the Reed Hartman Hwy. Also, perform pavement repair, curb & gutter repair, replace signal loops with video detection, replacing pavement striping, place new RPMs, and where ap Highway, Street, and Bridge Construction (Information not reported) $799,432.86 Information GAO gathered to improve the description The award supports rehabilitation activities for the Reed Hartman roadway from Cooper to Glendale-Milford Roads. These activities include removing the existing deteriorated asphalt surface and replacing it with a stress membrane and a new surface course of asphalt. In addition, ramps will be constructed at all intersections within the project area to comply with the Americans with Disabilities Act (ADA). Video vehicle detection cameras will also be installed at intersections instead of wire "loops" in the pavement to improve intersection performance. TRANSPORTATION, TEXAS DEPARTMENT OF ADD SHOULDERS : FM 372 ; Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award widens 8.58 miles of highway FM 2071, from FM 372 to FM 922, by adding shoulders to the north and southbound lanes to improve road safety. EXECUTIVE OFFICE OF THE COMMONWEALTH OF KENTUCKY Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) GRIND PAVEMENT AND REHABILITATION OF PAVEMENT ON I-264 IN LOUISVILLE, KENTUCKY FROM NEWBURG ROAD AT MILEPOINT 13.710 TO BRECKINRIDGE LANE AT MILEPOINT 18.410 IN JEFFERSON COUNTY. Highway, Street, and Bridge Construction Grants (Information not reported) Louisville Urban Service Area, KY 40207-1112 Less Than 50% Completed Information GAO gathered to improve the description The award is for a section of road that is in poor condition and will help to improve pavement of the road. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Baldwin Park. The project is described as: RAMONA BOULEVARD ROADWAY PRESERVATION AND REHABILITATION (A)- INTERSTATE 605 TO FRANCISQUITO. THIS PROJECT CONSISTS Highway, Street, and Bridge Construction Los Angeles, CA 90012-3712 Less Than 50% Completed Information GAO gathered to improve the description The award supports repaving the roadway to make a smoother driving surface. TRANSPORTATION, OHIO DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Replace existing box beam bridge on SR 154, located approximately one mile east of SR 7 at Rogers, with a steel beam superstructure. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award supports the replacement and modernization of a bridge in Columbiana County, near Rogers, Ohio. The award will increase the bridge's life expectancy to up to 75 years. TRANSPORTATION, UTAH DEPARTMENT OF ADA PED ACCESS REGION ONE - PACKAGE 1 Highway Infrastructure Investment Grant: Transportation Enhancements This project constructed safe sidewalks and installed pedestrian ramps in various locations in Region 1(Northern Utah). Highway, Street, and Bridge Construction (Information not reported) Salt Lake City, UT 84119-5977 Information GAO gathered to improve the description The award funds construction of 43 pedestrian access ramps, 38 of which are at primary need locations--those locations that had existing curb, gutter, and sidewalk, but no curb cuts. The ramps will improve safety and compliance with Americans with Disabilities Act (ADA) standards and are located in the counties of Davis, Weber, Morgan, Box Elder, Cache and Rich. TRANSPORTATION, PENNSYLVANIA DEPARTMENT OF Hawthorn Bridge No. 4 Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Replacement of PA 28 Hawthorn Bridge over Pine Creek in Redbank Township Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award will replace a bridge that was built in 1931. TRANSPORTATION, MARYLAND DEPARTMENT OF Safety and Resurfacing from Garrett County Line to East of Tisdale Street Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K To have projects underway that will preserve our existing highway infrastructure and thereby prevent further decay, improve conditions, extend the overall life of roadways and bridges, and further other associated highway improvements. In some cases, the projects will improve safety and environmental conditions for the motoring public and/or pedestrians. Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award improves pavement along 0.79 miles of US 40 Alt. The resurfacing will fix a deteriorating roadway and improve ride conditions. TRANSPORTATION, WASHINGTON DEPT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K Reconstruct approximately 0.7 miles of Speyers Road, from the west City limits to Fremont Avenue, including curb and gutter, sidewalk, stormwater drainage system, and street lighting. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The activities under this award will improve pedestrian safety. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements This is a Facilities for Pedestrians and Bicycles project by a local agency in the City of San Francisco. The project is described as: Pedestrian Enhancements Highway, Street, and Bridge Construction Less Than 50% Completed Information GAO gathered to improve the description The award covers an area in San Francisco bounded by 4th Ave., Moraga St., 9th Ave. and Lincoln Way. The sidewalk bulb-outs will encourage people to use alternative forms of transportation by improving pedestrian safety and comfort while also improving the connections between new cultural attractions in Golden Gate Park, the commercial corridor, the University of California Medical School, schools, a dense residential area, and several transit lines. TRANSPORTATION, NEW YORK DEPARTMENT OF SFY 09/10 PMI PAVING; ORANGE AND ULSTER COUNTIES Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Repave approximately 22 miles of state roadway in Orange and Ulster counties. The top layer of worn, deteriorated pavement will be removed and replaced with new asphalt and fresh pavement markings to extend the service life of pavement. Highway, Street, and Bridge Construction (Information not reported) PINE BUSH, NY 12566-0000 More than 50% Completed Information GAO gathered to improve the description The award supports repaving of short sections and intersections along state routes 10, 104, 104a, 109, 115, 116, 117, 118, 119, 120, 120a, and 121. TRANSPORTATION, TENNESSEE DEPARTMENT OF Highway Infrastructure Investment: Urbanized Areas over 200K Population This project is for improvements to the intersection of SR-8 (Ringgold Road) at Camp Jordan Parkway and including traffic signals Highway, Street, and Bridge Construction (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award funds the installation of 10 traffic signals and 4 pedestrian signals at the intersection of Ringgold Rd. and Camp Jordan Pkwy. in order to help reduce congestion and improve pedestrian safety. TRANSPORTATION, GEORGIA DEPARTMENT OF CR 415/PHILLIP CAUSEY ROAD FROM SR 33 TO CR 412/SUMNER ROAD Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project is a roadway maintenance repaving project in Worth County. This project is the milling and resurfacing of County Road 415/PHILLIP CAUSEY ROAD from SR 33 to County Road 412/SUMNER ROAD for a total project length of 5.48 miles. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The pavement had deteriorated, and the resurfacing will bring the roadway into a state of good repair. TRANSPORTATION, CONNECTICUT DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) Installation of epoxy pavement marking lines and intersections Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award enhances safety for both the motoring public and pedestrians in District 2 by replacing crosswalks, stop bars, and lane arrows at 396 intersections. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will improve drainage by replacing the structure on US 41 over Jane Feddeler Ditch in Lake County. Highway, Street, and Bridge Construction (Information not reported) Saint John, IN 46373-0000 More than 50% Completed Information GAO gathered to improve the description The drainage structure, called a "culvert," is located on US 41 over Jane Feddeler Ditch, 0.08 KM North of US 231. The new structure is a four-sided box culvert with a 10-foot span and 9-foot rise, and is 88 feet in length. The new structure is a sound structure satisfying contemporary design standards and has an estimated functional life of 60 to 80 years. Due to its age, overall structural condition, and, more specifically, deterioration at the widening joints, the structure is being replaced. SOUTH DAKOTA, STATE OF US18 - From the east junction with SD50 to the east junction with US281; US281 - From the east junction with US18 to the south city limits of Armour.; US18 - From the east junction with US281 to the junction with SD37; SD50 - from the East US18 Junction Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K Highway, Street, and Bridge Construction (Information not reported) $6,323,010.95 Information GAO gathered to improve the description The award supports the milling and paving of sections of US Highways 18 and 281 and South Dakota Highway 50 in Charles Mix, Douglas, and Hutchinson Counties. These sections of highway were rated by the South Dakota Department of Transportation as being in "fair" condition, the project would take little time to begin, and the area that these roads are located in was economically distressed at the time of project proposal. The total length of roadway to be milled and paved is 30.2 miles and has a life span of about 15 to 18 years. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) SR 39 - 1.25 miles N of E jct of SR 10 Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The purpose of the award was to correct existing structural deficiencies and safety hazards by lining the existing pipe. The award supports lining for a corrugated metal pipe 5 feet in diameter and 58 feet in length. An High Density Polyethylene (HDPE) liner is placed in a pipe when an existing pipe is structurally deficient. A pipe liner is more cost effective in many cases than a full pipe replacement. The award will result in a newly lined pipe with an estimated functional life of 80 years. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This project will restore the pavement on Madison County Road 600 W with a new surface course. Highway, Street, and Bridge Construction Grants (Information not reported) Information GAO gathered to improve the description The award supports the resurfacing of County Road 600 West from County Road 400 North to State Route 128 in Madison County. TRANSPORTATION, INDIANA DEPARTMENT OF Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population, Available for Use in Any Area (flexible) This project will improve the traffic signals on Market Street from State St to Vincennes Street. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award supports a traffic signal modernization project. This project includes the replacement of existing mast arms (with span mounted signals), controllers, signal indications (vehicular and pedestrian), and the installation of new vehicle detection at the following six intersections: three signals on East Market St. at Pearl St., Bank St., and East 7th St., and three signals on East Spring St. at Pearl St., Bank St. and East 7th St. The vehicle detection system being installed is wireless, which eliminates issues typical to wired loop detection systems such as broken loop wire. The pedestrian signal indications will visibly countdown the remaining crossing time. New controllers and antennae will be installed where State St. intersects East Market St. and East Spring St. to create a coordinated traffic signal system. Signal heads will be LED lights which are brighter, last longer, and much more energy-efficient. TRANSPORTATION, MICHIGAN DEPARTMENT OF Hot mix asphalt base crushing and shaping, resurfacing, trenching and aggregate shoulders. To improve the transportation infrastructure and the economic development capacity of the state of Michigan. Power and Communication Line and Related Structures Construction Less Than 50% Completed Information GAO gathered to improve the description The award provides resurfacing for 1.37 miles of West Holt Rd. from Heatherton Dr. to Thornburn St. in Ingham County to improve rideability and make the roadway smoother. TRANSPORTATION, MICHIGAN DEPARTMENT OF Cold mill, HMA resurfacing Hot mix asphalt base crushing, shaping, cold milling, resurfacing, ramp realignment, misc safety and drainage To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction Less Than 50% Completed Information GAO gathered to improve the description In order to make the road smoother and improve driving quality, the award resurfaces 2 miles of US-10 from the west county line of Osceola to the US-131 interchange in the vicinity of Reed City. TRANSPORTATION, MICHIGAN DEPARTMENT OF Pavement remremoval, hot mix asphalt pavement, concrete curb and gutter and earth work To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction More than 50% Completed Information GAO gathered to improve the description The award provides resurfacing for 0.5 mile to maintain the pavement condition and improve the ride quality of Riverside Dr. in Port Huron. TRANSPORTATION, CALIFORNIA DEPARTMENT OF Resurfacing from Austin Rd to Airport Way Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) This is a Pavement Restoration and Rehabilitation project by a local agency in the City of Ripon. The project is described as: Rehabilitate roadway between Airport Way and Austin Road Highway, Street, and Bridge Construction Information GAO gathered to improve the description The award funds the resurfacing of West Ripon Rd., which is in a state of disrepair. The resurfacing will result in a smoother driving surface. TRANSPORTATION , MISSISSIPPI DEPARTMENT OF North St/Court St. (8035/8032) Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K The city of Cleveland will construct sidewalks along Court Street and North Street. This project will improve pedestrian access along these roads. Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award will cover 0.55 miles. TRANSPORTATION, NEW YORK DEPARTMENT OF HUDSON VALLEY RAIL TRAIL: HAVILAND ROAD TO COMERCIAL AVENUE Highway Infrastructure Investment Grant: Available for Use in Any Area (flexible) A project for a new/improved bicycle facility on the Hudson Valley Rail Trail from Haviland Road to Commercial Avenue in the town of Lloyd. All Other Specialty Trade Contractors (Information not reported) Information GAO gathered to improve the description This award converts 1.36 miles of abandoned rail corridor into a continuous multi-use trail facility for bicycles by constructing the missing links in a publicly owned bicycle/pedestrian facility. The trail will increase accessibility and mobility options, enhance the integration and connectivity of the transportation system, and preserve and improve existing transportation systems. TRANSPORTATION, IDAHO DEPARTMENT OF STP-7181, GOULD ST BR, POCATELLO Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will remove and replace existing bridge joints on Gould Street Bridge in the City of Pocatello and improve pavement markings along the roadway. Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award funds the repair of the bridge deck joint seals and associated concrete work in order to seal the bridge expansion joint system and protect the structural components below the joint. Recent bridge inspections indicated deteriorated elements of the Gould Street Bridge, including the deck expansion joint seals, deck wearing surface, and girder bearings. Failed deck joints can cause extensive damage to bearings, abutment back walls, and diaphragms, resulting in improper movement of the bridge, diminished structural integrity of the structure, and further deterioration of the deck. TRANSPORTATION, NEW JERSEY DEPT OF Chester Branch RR Rehabilitation - Morris County Highway Infrastructure Investment Grant: Urbanized Areas over 200K Population Rehab of existing Rail Road Highway, Street, and Bridge Construction (Information not reported) $5,800,000.00 Information GAO gathered to improve the description The award supports the rehabilitation of 4 miles of rail track alignment including five rail spurs, bridge and steel structures, and grade crossings, as well as rehabilitation of the rail right of way to include the following: change out the rails; remove and replace tie; lay new ballasts; new switches and switch timbers; surface the entire right of way; new runarounds and turnouts; and brush cutting and wood chipping. TRANSPORTATION, NEW MEXICO DEPARTMENT OF Highway Infrastructure Investment Grant: Areas with Population equal to or less than 200K This project will include grinding down existing old pavement and replacing with new pavement on 12th Street from Gold Street to Mississippi Street. In addition, it will include inspection and oversight. On Silver Street from US 180 to 32nd Street, new pavement will be placed. Highway, Street, and Bridge Construction (Information not reported) Silver City, NM 88062-0000 Information GAO gathered to improve the description The award supports pavement improvements to ensure that the road complies with the Americans with Disabilities Act (ADA). TRANSPORTATION, KANSAS DEPARTMENT OF GREENWOOD HOTEL BUS DEPOT @ 300 N MAIN IN EUREKA Highway Infrastructure Investment Grant: Transportation Enhancements Restore part of the interior and exterior and establish a transportation museum/welcome center in the former bus depot of the Greenwood Hotel at 300 N Main Highway, Street, and Bridge Construction Grants (Information not reported) Information GAO gathered to improve the description The award supports the renovation of the first floor and exterior restoration of the Greenwood Hotel. TRANSPORTATION, ALABAMA DEPT OF STMTE-TE09(927) Highway Infrastructure Investment Grant: Transportation Enhancements 'This project involves a Historic Downtown Sidewalk and Canopy Restoration for Hartselle Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description This award supports the reconstruction of .24 miles of sidewalks and the canopy above the sidewalks in the historic downtown area of Hartsell, Alabama. This reconstruction is being done so that the sidewalks meet Americans with Disabilities Act (ADA) standards and the canopy meets historical preservation standards. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF Highway Infrastructure Investment Grant: Transportation Enhancements Highway, Street, and Bridge Construction (Information not reported) Information GAO gathered to improve the description The award funds one shelter, four trash containers, two tables, and one bike rack at the Bayview Beach ferry terminal in Beaufort County, which will increase pedestrian access and safety. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction More than 50% Completed Information GAO gathered to improve the description The award supports pavement improvement activities by the Clinton County Road Commission. The Commission will improve 4 miles of pavement on West Colony Rd. from the West Clinton County Line to Tallman Rd. The award will result in improved safety and extend the service life of the roadway. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction More than 50% Completed Information GAO gathered to improve the description In order to improve road safety, the award resurfaces 2.282 miles of shoulder on County Road 498 in Schoolcraft County from Newborn Rd. to the County line. The resurfacing defines the inside edge of the shoulder, adds additional gravel material and grade shoulder to proposed slope, removes excess material, and compacts the shoulder with a roller. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction Information GAO gathered to improve the description The award supports pavement improvement activities to resurface 7.8 miles of Featherstone Rd. from M-66 to Engle Rd. north of Sturgis. The award will result in improved driving quality by making the road smoother. TRANSPORTATION, MICHIGAN DEPARTMENT OF To improve the transportation infrastructure and the economic development capacity of the State Power and Communication Line and Related Structures Construction Information GAO gathered to improve the description The award supports the resurfacing of .1 miles of Shook Rd. in Romulus, Michigan. The award will result in improved driving quality and increase the service life of the road. The Recovery Act appropriated $1.5 billion to the Supplemental Discretionary Grants for a National Surface Transportation System—which the Department of Transportation termed “TIGER grants.” The purpose of the program is to make capital investments in surface transportation that will have a significant impact on the nation, a metropolitan area, or a region. The act required the selection of awards on a competitive basis. Although grant agreements have yet to be signed, the department announced the selection of 51 awards on February 17, 2010. Department officials said they received over 1,400 applications from all 50 states, territories, and the District of Columbia for projects totaling nearly $60 billion. With $1.5 billion available, about 3 percent of the projects will be awarded grant funds. The projects selected include a range of efforts to improve highways, bridges, rail, port, transit, and intermodal facilities. As shown in figure 5, transit projects totaled about $383 million (26 percent), and rail projects totaled about $374 million (25 percent). These were the largest transportation categories for projects to improve the movement of people and freight. These projects are geographically dispersed throughout the United States. Highways were the next largest category at $338 million (23 percent). Most of these projects are located in the West and South. According to the department, these projects were selected because they demonstrated the potential to meet all of the selection criteria, which included such key components as the ability to have a significant impact on desirable near- and long-term transportation outcomes of the nation, a metropolitan area, or a region and the creation of jobs, and the ability to apply innovation and partnership to achieve long-term transportation outcomes or new approaches to financing, contracting, or project delivery. As no TIGER grants have been awarded, the department has not issued any reporting guidance or other assistance to date. Therefore, for this program, we could not perform our transparency assessment. According to an official, the administrative oversight and reporting requirements for these awards will be similar to those for other Department of Transportation Recovery Act awards. Each TIGER grant will be administered by the modal administration responsible for the majority of the activities within the award. For example, an award for public transportation activities will be administered by the Federal Transit Administration. The modal administration will also oversee recipient reporting for these grants. Department officials have implemented steps to inform the public about the TIGER grants and selected projects: Department of Transportation Web site (www.dot.gov/recovery/ost/.) A Web site was established to provide information about the TIGER grants and to address general questions. In announcing the grant awards, the department issued a press release along with a report listing the grant amounts. The report also included for each project a brief summary that describes the project and its benefits. (See table 8.) The press release and report are also available on the Web site. Department of Transportation interactive map of awards (www.dot.gov/recovery). This interactive map will include the TIGER awards and provide the location, cost, and a brief description for each award. According to an agency official, there has been little public feedback regarding the announced grants or the information that is available on the agency’s Web site. To date, most of the public comments on TIGER grants are not from the general public but from unsuccessful applicants—that is, the 97 percent of applicants that were not selected. Under the $6.9 billion Transit Capital Assistance program, the Federal Transit Administration (FTA) apportioned Recovery Act funds to recipients through existing program formulas. Recipients of funds include both large and medium urbanized areas, as well as states, which administer transit awards for small urbanized and nonurbanized areas. These funds can be used for activities such as vehicle replacements, facilities renovation or construction, preventive maintenance, and paratransit services. The Transit Capital Assistance program also includes a new discretionary grant program to support transit projects that reduce greenhouse gas emissions or energy use. FTA had obligated nearly all the Recovery Act Transit Capital Assistance program funding as of April 5, 2010. Of the amount obligated, $1.6 billion had been reimbursed by FTA. Almost half of Recovery Act transit obligations have been for transit construction and non-vehicle infrastructure activities. This includes about $1.2 billion for station stops and terminals and about $1.1 billion for support facilities and equipment. In addition, 30 percent is being used for purchasing or rehabilitating buses; a majority of these funds are being used to replace or rehabilitate buses. (See fig. 6.) We assessed the transparency of descriptive information for transit awards available on Recovery.gov, as described in the report. We found that an estimated 50 percent met our transparency criteria, 50 percent partially met our criteria, and zero percent did not meet our criteria. For transit descriptions that partially met our transparency criteria, we collected information necessary to make the descriptions meet our criteria. The descriptions of awards in our sample, whether they met our transparency criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. For the first two reporting rounds, FTA created detailed assistance documents for recipients that may have affected transparency results. FTA annotated the Office of Management and Budget’s (OMB) guidance— specifically, the data reporting model—by adding a transit-specific comment and example for each reporting field. For some data fields, such as project name, FTA directed recipients to use information from FTA’s grants database, Transportation Electronic Award Management. In the award description field, FTA outlined items that recipients should include in their narrative. (See table 9.) According to FTA officials, OMB’s guidance is open to different interpretations and does not provide enough information to guide recipients to provide descriptions understandable to the public. In its reporting model, therefore, FTA provided clarification to help recipients do so. Several recipients we interviewed told us this annotated reporting model was very useful in crafting their recipient reports. Chicago Transit Authority officials, for example, told us that FTA’s annotated reporting model helped them interpret the ambiguous parts of OMB’s guidance. For many of the transit awards we reviewed in detail, the Recovery.gov reports directly reflected FTA’s annotated reporting model. Specifically, recipients included the introductory language and other conventions suggested by FTA in the award description field. For the third reporting round (for the quarter ending March 31, 2010), FTA updated its annotated reporting model. However, officials told us they called this updated reporting model and all other reporting resources “technical and training assistance” for this round. They did so because OMB’s March guidance directs agencies to not call any of their materials “guidance” unless they have been formally approved by OMB. In general, FTA officials said that the agency has had to adjust its plans and processes for recipient reporting because of the fluid nature and late release of OMB’s guidance. In addition, FTA conducted webinars for each reporting round to support transit recipients. For the second reporting round, FTA’s webinar provided tips on completing narrative fields that advised recipients to use plain language and avoid acronyms and jargon, imagine that you are writing for your mother, who will have to explain what is written to someone else, and think about the public, reporters, and auditors reading published reports. According to several recipients we interviewed, FTA’s webinars were helpful in completing reports. Officials from the Port Authority of Allegheny County told us that the FTA webinars were the main source of assistance used to complete their recipient reporting. FTA also held a webinar with recipients after the first reporting period to identify concerns and collect lessons learned for use in future reporting rounds. Other FTA efforts may have affected the transit transparency results. First, FTA produced a tip sheet to help recipients avoid and resolve problems when reporting. A few recipients we interviewed also said that FTA regional office staff helped clarify reporting guidance and solve problems. Officials from the Greater Attleboro-Taunton Regional Transit Authority in Massachusetts told us they worked closely with FTA regional staff to initially develop a description for the Recovery Act award, as it required more detail than normal. In addition, Massachusetts Bay Transportation Authority officials told us that FTA regional staff were helpful in answering questions that arose during the reporting process. Finally, FTA regional officials reviewed narrative descriptions to ensure that they were understandable and accurate, though the volume of descriptions prevented them from doing a thorough review. While FTA’s transparency results were generally positive, a few recipients we interviewed told us that space limitations in the narrative reporting fields affected their ability to fully convey award information on Recovery.gov. For example, officials from the Greater Attleboro-Taunton Regional Transit Authority said that they wanted additional space to explain activity details and status information. Massachusetts Bay Transportation Authority did not face space limitations; however, officials told us that the multiple activities under their grant, from purchasing paratransit vans to repairing fencing systemwide, did not lend themselves to a single description, as is the convention in FederalReporting.gov. Beyond Recovery.gov, the Department of Transportation and FTA make award information available to the public through various means, including the following: Department of Transportation interactive map of awards (www.dot.gov/recovery). This agencywide map, which includes transit awards, provides the location, cost, and a brief description for each award. FTA grants digest (www.fta.dot.gov/index_9440.html). Published on FTA’s Recovery Act Web site, this searchable digest provides a short summary of each grant including location, cost, and an overview of activities. FTA spreadsheet of awards. Also on FTA’s Web site, the spreadsheet outlines information on each award like the grant number and a short, descriptive title. This spreadsheet does not include detailed descriptions of the activities within each award. The source of the data—FTA’s Transportation Electronic Award Management database—limits the length of the descriptive field. FTA fact sheets. For a limited number of awards, FTA posted on its Web site detailed fact sheets that describe the purpose and nature of the award. In addition, transit recipients use Web sites, newsletters, and other tools to provide award information to the public. Several transit recipients we interviewed disseminate Recovery Act award information to the public on their Web sites. In California, the Orange County Transportation Authority created a dedicated Web site for the county’s Recovery Act transportation awards (www.octa.net/rtw_response.aspx). This Web site includes, among other things, information on the transit activities in the authority’s transit award, including bus preventative maintenance and facility repairs in Irvine, California. On its Web site, the Chicago Transit Authority posted press releases to announce plans and progress on activities. Press releases covered the delivery of the first hybrid bus purchased under the award and a status update on the replacement of 7 miles of subway track. Similarly, the Northeast Illinois Regional Commuter Railroad Corporation—Metra— used its monthly newsletter to announce Recovery Act activities, including the construction of a new station on the Rock Island Line. A few recipients also used social media like Facebook and Twitter to make award information available to the public. The Metropolitan Transportation Authority in New York, for example, maintains a Facebook page that contains a video explaining the Long Island Rail Road Atlantic Avenue viaduct span replacement project. According to FTA officials, most of the feedback on transit Recovery Act awards has been positive. The press also reported on the use of funds for specific projects at the local level, but press coverage has decreased over time as the Recovery Act has become more routine. Many of the transit recipients we interviewed said that, in general, they had not received much public feedback. Pennsylvania state transit officials told us they had not received any public comments on the state’s rural transit award, which involved transit activities like building an intermodal transit center and replacing buses in various locations in the state. The Port Authority of Allegheny County used its transit award to pay for a portion of the ongoing construction of its light rail system from downtown Pittsburgh into the developing North Shore area of the city, which involves tunneling under the Allegheny River. While the project received some negative feedback early on, Port Authority officials told us that those remarks have faded as the benefits of using public transportation to support development of the North Shore have become evident. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Purchase of 17 replacement buses. Rehabilitaion of maintenance garage. Purchase of bus washer and vacuum cleaning system. Purchase of diagnostic equipment and tools. Invest in public transportation by purchasing 17 new compressed natural gas buses and related tools for repair, rehabilitating a bus maintenance garage, and replacing a bus wash and vacuum cleaning system. This grant has allowed the Birmingham-Jefferson County Transit Authority to begin the administrative and soliciatation process to acquire 17 compressed natural gas buses and related diagnostic equipment and tools. This grant sill also provide for the rehabilitation of a maintenance garage and replacement of a buswash and vacuum cleaning system at the same location within the next year. Bus and Other Motor Vehicle Transit Systems Preventive Maintenance and ADA Complementary Paratransit Service Sustain mass transit service by funding Alameda Contra Costa Transit's (AC Transit) Preventive Maintenance ($23,165,013), and AC Transit/Bay Area Rapid Transit jointly funded Complementary Paratransit Service (East Bay Paratransit): ($2,573,890), financed by American Recovery and Reinvestment Act Funds appropriated through the Federal Transit Administration Urbanized Area Program (Section 5307; 49 CFR). The purpose of this program is to sustain mass transit and paratransit operations in the AC Transit service area and to preserve critical jobs to ensure service can be maintained at existing levels. Purpose of grant activities is to provide regular and ongoing bus maintenance and rehabilitation, including associated administrative costs, to sustain fixed-route transit service and paratransit service. As one of the largest bus transit systems in the country, AC Transit currently provides bus service to approximately 67 Million passengers per year, in addition to nearly 500,000 paratransit riders annually . This service covers a 364-square mile service area in Alameda and Contra Costa Counties, with over 100 bus lines providing bus transportation to 13 cities and 9 unicorporated areas, as well as to the City of San Francisco via the San Francisco-Oakland Bay Bridge, and San Mateo and Santa Clara Counties via the Hayward-San Mateo and Dumbarton Bridges. American Recovery and Reinvestment Act funds allowed transit service to be sustained for nine (9) months. These funds were committed to fund jobs critical to maintain fixed-route mass transit and paratransit services. Without the American Recovery and Reinvestment Act funds, AC Transit woul dhave been forced to make mandatory layoffs in all areas and draconian service cuts would have gone into affect last year. Bus and Other Motor Vehicle Transit Systems AC Transit, 1600 Franklin Street SIMI VALLEY, CITY OF Shelters, Buses, Garage Modernization, Wheelchair Scale, Operating Assistance and Non Fixed-Route ADA Paratransit Service Fiscal Year 2009 Transportation Enhancement projects eligible for funding under the Federal American Recovery and Reinvestment Act (ARRA) for the City of Simi Valley/Simi Valley Transit include funding for the following: 1) TRANSIT SHELTER PROGRAM ($484,000) - Like-kind replacement and upgrade of 26 deteriorated bus shelters, 72 concrete benches, and other amenities at bus stops throughout the City. 2) PURCHASE OF THREE REPLACEMENT 40-FT BUSES ($1,380,000) - Like-kind replacements for Compressed Natural Gas (CNG) buses that have met their useful service life by accumulating in excess of 568,000 miles each. The replacement vehicles will be low-floor, 40-ft New Flyer buses that will have an expected service life of 12 years or an accumulation of at least 500,000 miles. These buses will meet the Clean Air Act Standards (CAA) and the Americans with Disabilities Act (ADA) requirements. 3) TRANSIT GARAGE MODERNIZATION ($563,949) - Project to include work on electrical, ventilation and mechanical systems; retrofitting the mechanic work bays; upgrading the hydraulic lifts; increased storage area and like-kind replacement of the bus washer. 4) WHEELCHAIR SCALE ($5,000) - Purchase of one scale to be used during the ADA application process to weigh wheelchairs. 5) OPERATING ASSISTANCE ($303,400) - 10% of total allocation to provide for operating assistance for the City's fixed-route and non- ADA paratransit service. 6) NON FIXED-ROUTE ADA PARATRANSIT SERVICE ($303,400) - 10% of total allocation to assist with ADA/DAR paratransit operating costs. Have entered into a cooperative purchasing agreement with Orange County Transportation Authority (OCTA) for the replacement of three (3) New Flyer of America buses. The design and locations for transit shelters is complete. Staff will be seeking authorization from City Council to solicit bids by March 2010. Architectural services on the garage modernization project have been approved. Staff will be seeking authorization from the City Council by February 2010 to solicit bids. Purchase of the wheelchair scale has not been completed. Bus and Other Motor Vehicle Transit Systems 490 West Los Angeles Ave Simi Valley, CA 93065-1646 Less Than 50% Completed LOS ANGELES, CITY OF This grant applies the 2009 ARRA Formula allocation of $8,022,665 to bus replacement. The City of Los Angeles Department of Transportation will purchase approximately sixteen 40-foot over-the-road type coaches that will have an expected useful life of 12 years or 500,000 miles. The vehicles that will be replaced have either met or exceeded their useful life of 12 years. A Federal ratio of 100/0 will apply. The buses purchased through this grant will comply with both the Clean Air Act (CAA) standards as well as with the requirements of the Americans with Disabilities Act (ADA). The goal of this project is replace approximately 16 existing buses. The new buses will have a useful life of 12 years or 500,000 miles. The new buses will also comply with current environmental standards as well as with the ADA. The City of Los Angeles initially anticipated that this project would be completed no later than June 30, 2010. During the 4th quarter of calendar year 2009, the project experienced slippage. The City currently anticipates that the project will be completed by the second quarter of 2011. Completion means that the buses will be assembled, delivered, placed into the service, and the grant closed out. During the most recent quarter (October 1, 2009 to December 31, 2009) arrangements were made with the proposed vendor to provide a sample bus for testing. The sample bus is currently being shipped to Altoona, Pennsylvania. If the sample bus performs as expected, production of the 16 buses are scheduled to begin in the summer of 2010. The City anticipates to begin taking delivery of these buses in the summer of 2010. To date, no funds have been expended nor obligated. 100 S. Main Street-10th Floor Los Angeles, CA 90012-3712 Less Than 50% Completed Transit Capital - Bus Replacement Transit Capital - Bus Replacement of 6 Hybrid Gasoline-Electric buses. Contract awarded on 8/11/09 to purchase 6 hybrid gasoline-electric buses from New Flyer. Bus and Other Motor Vehicle Transit Systems CA-96-X051 NAPA COUNTY TRANSPORTATION & PLANNING AGENCY Purchase 4 hybrid buses and construct multi-modal Park and Ride Facility Invest in Public Transportation- Replace four 15+ yeal old diesel buses with new, clean air, gasoline/electirc hybrid buses. In addition, funds will be used to construct a multi-modal Park and Ride facility featuring: commuter parking, transit hub, bicycle accomodations, and a potential future rail platform. Green building elements (such as solar power) will be incorporated into the design. This grant will allow for the modernization of the transit fleet with the purchase of 4 gasoline/electric hybrid vehicles. In addition, once the multi-modal Park and Ride lot is constructed, hundreds of residents/commuters a day will be able to make more efficient, safe and timely transit connections. Bus and Other Motor Vehicle Transit Systems (Information not reported) Preventative Maintenance, Capital Cost of Contracting, and Paratransit Offset This project invests the American Recovery and Reinvestment funds to preserve public transportation service by funding vehicle maintenance, providing fixed-route service, and help fund local transit services for the disabled community for 2010. The funds applied in this application will help reduce the potential reduction of these services as a direct result of declining local sales tax revenues. Due to declining sales tax revenues, Mountain Metropolitan Transit is facing up to a 50% reduction in local fixed route services and up to a 10% reduction in paratransit services for 2010. This ARRA grant will allow Mountain Metropolitan Transit to fund 3rd Party Captial Cost of Contracting for its fixed route service for 2010; fund a portion of the ADA Paratransit services for 2010; and fund building and vehicle Preventative Maintenance for 2010. As a result of these investments, the local match , annually budgeted for these grant funded capital expenditures, has been freed up to help preserve portions of the local fixed-route and paratransit services in 2010. Bus and Other Motor Vehicle Transit Systems Grants (Information not reported) Colorado Springs, CO 80901-1575 SANTA ROSA, CITY OF Invest in public transportation. These funds will partially finance the purchase of one replacement bus. The bus to be replaced is a 1998 40’ diesel fixed route urban public transit bus. This bus will have met the end of its 12 year useful life by 2010. The 1998 bus will be replaced with a 40-foot, low floor Gasoline Hybrid Electric Bus (GHEB) fixed route, urban public transit bus. This bus will be procured in accordance with FTA’s Procurement Requirements. The bus will meet the Clean Air Act (CAA) standards and the Americans with Disabilities Act (ADA) requirements. These funds will partially finance the purchase of one replacement bus. The bus to be replaced is a 1998 40’ diesel fixed route urban public transit bus. This bus will have met the end of its 12 year useful life by 2010. The 1998 bus will be replaced with a 40-foot, low floor Gasoline Hybrid Electric Bus (GHEB) fixed route, urban public transit bus through the exercising of options on an existing contract. This bus will be procured in accordance with FTA’s Procurement Requirements. The bus will meet the Clean Air Act (CAA) standards and the Americans with Disabilities Act (ADA) requirements. Expected contract award by March 2009. Bus and Other Motor Vehicle Transit Systems 1101 College Avenue, Suite 200 Santa Rosa, CA 95404-3940 Less Than 50% Completed CA-66-X010 TRACY, CITY OF (INC) Invest in public transportation by imrpovement of bus stop including, but not limited to, installation of bus shelters, benches, and trash recepticles at over 50 locations. The City of Tracy currently operates 5 fixed bus routes serving over 90,000 passengers annually. Additionally, the City operates a Paratransit system which services over 24,000 passengers annually. The addition of bus shelters and benches will provide a safer environment for passengers to wait for the bus. The City of Tracy has not yet started its ARRA project this quarter. Bus and Other Motor Vehicle Transit Systems (Information not reported) SAN FRANCISCO, CITY & COUNTY OF Infrastructure Enhancement and Maintenance Projects Invest in public transportation by restoring the door and step components on light rail vehicles; engaging in preventive maintenance activities to preserve/extend the functionality of the SFMTA's assets; rehabilitating articulated motor coaches; upgrading the SFMTA’s mileage and fuel tracking system for diesel and trolley coaches; equipping an interim Operations Control Center to support dispatching and rerouting of vehicles, incident detection and response, and voice communications with transit operators; replacing the inductive loop cable in the subway; procuring a customized software application for capital planning and grant management; procuring new personal computers for the bus yards; replacing sales kiosks for cable car fares; replacing change machines in the subway system; replacing track switches for light rail vehicles; replacing the SFMTA's existing subway fare collection system with a new fare collection system; and engaging in rehabilitation and upgrade activities at various sites, facilities, and right-of-way locations. This grant will allow the SFMTA to restore the worn out door and step components of approximately 143 light rail vehicles; engage in preventive maintenance activities to preserve/extend the functionality of the SFMTA's assets; rehabilitate about 35 standard and 27 articulated motor coaches; upgrade the SFMTA’s obsolete mileage and fuel tracking system for diesel and trolley coaches; equip an interim Operations Control Center to support dispatching and rerouting of vehicles, incident detection and response, and voice communications with transit operators; replace the worn out inductive loop cable in the subway; procure a customized software application for capital planning and grant management; procure about 70 new PCs for the bus yards; replace up to 2 outdated sales kiosks for cable car fares; replace obsolete change machines in the subway system; replace approximately 19 worn out track switches for light rail vehicles; obtain a new automatic fare collection system for the subway; and engage in rehabilitation and upgrade activities at various sites, facilities, and right-of-way locations, including the SFMTA's Presido and Burke facilities and right-of-way locations including 19th Avenue, Carl and Cole Streets, and Duboce Portal. All applicable projects are under contract, with the SFMTA actively working on performing preventive maintenance on its vehicles, implementing automatic fare collection equipment in the subway, rehabilitating the doors and steps of light rail vehicles, installing new workstations at bus yards, implementing various infrastructure and facility enhancements, and establishing the Central Control Interim Line Management Center. The SFMTA has completed the installation of change machines in the subway station. (Information not reported) San Francisco, CA 94103-5417 Less Than 50% Completed Lease (46) 40-Ft Buses Monterey-Salinas Transit Capitalized Preventive Maintenance;Lease (46) 40-Ft Buses, Acquire Mobile Fare Coll Equip. The project consists of the purchase up to forty (40)buses from Gillig Corp. and six (6) trolleys from Optima Bus Corp. to replace 38 buses in current fleet and expand by 8 buses. This will fund the remaining payments on bus financing payments 17, 18, 19, and 20. Buses have been paid off. Bus and Other Motor Vehicle Transit Systems 1 Ryan Ranch Road Purchase of 2 replacement paratransit vehicles. Invest in public transportation by purchasing new replacement paratransit vehicles. This grant will allow the purchase of two paratransit vehicles to replace old vehicles that are currently in the fleet. As a result of these investments, the agency will be able to continue to offer public transportation service that is safer, more reliable, and accessible for people with disabilities. (Information not reported) REDONDO BEACH, CITY OF (INC) 30' and 35' Bus Replacement and Bus Stop Improvements Invest in public transportation by purchasing replacement transit vehicles and implementing bus stop improvements. The fund will be utilized to 1) purchase up to three 18 passenger, 30', CNG-powered cut-away buses that have an expected useful life of five years or 150,000 miles; 2) purchase one 29-passenger, 32', CNG-powered bus that has an expected useful life of 10 years or 350,000 miles; and 3) to implement bus stop improvements throughout the City of Redondo Beach, which will include replacing the old concrete and terracotta bus benches with new, more durable and aesthetically pleasing corrosion resistant steel construction benches, replacing pre-existing bus stop sign poles with new standard rail poles, replacing bus stop signs with new high-visibility reflective signs, and replacing old and deteriorated or missing trash receptacles with new metal vandal resistant receptacles. This grant allows the City of Redondo Beach to move forward with the purchasing of three, up to 27', CNG powered cutaway buses and procuring of bus stop improvements. Bus and Other Motor Vehicle Transit Systems Redondo Beach, CA 90277-2836 More than 50% Completed TRANSPORTATION, FLORIDA DEPARTMENT OF FY 09 (4) ARRA Locomotives Invest the 2009 ARRA Formula allocation of $13,431,438 to purchase up to four (4) locomotives # 802,803,804 and 805. The original locomotives were manufactured in the mid 1960's and were last remanufactured in 1988. They lack any fuel efficient technology and are not required to meet any EPA emission standards. Due to the design of the HEP unit, these locomotives consume excessive fuel. The locomotives have an approximate expected useful life of 25 years. A Federal ratio of 100/100 will apply. The new locomotives wll meet the Clean Air Act (CAA) standards and the American with Disabilites Act (ADA) requirements. This grant also includes transit enhancements ($135,670) that will fund various station beautification improvements such as landscaping, painting, etc. SFRTA issued the Notice to Proceed to the Consultants on September 22, 2009. At this time the solicitation package is being prepared and is due to be advertised by the end of Januar, 2010. It is estimated that the procurement period will be sixty (60) days. The estimated Notice of Award to the manufacturer will be in late April early May. All activities are in complaince with ARRA regulations. Pompano Beach, FL 33064-2046 Less Than 50% Completed FL-96-X015-00 Purchase of 4 replacement buses; 3 replacement Trolley buses; Enhancements replacement and security equipment installation. Invest in public transportation by purchasing new 35 Ft Low Floor Clean Diesel Transit Buses, installing security cameras and annunciation systems on buses and replacing worn out transit enhancements to include, bus stops signs, bus shelters, benches and trash cans. This grant allowed the transit agency to purchase 4 low-floor clean diesel and 3 trolley clean diesel buses, replace worn out bus shelters, trash cans, benches, install security cameras on 8 existing buses and install automatic stop announcements systems on 5 buses. As a result of these investments, the transit agency will be able to offer public transportation service that is safer, more reliable, and more enviromentally friendly. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed SIOUX CITY, CITY OF 1 Medium Duty Bus - Flex Funds Purchase one (1) 31 Ft low-floor Medium Duty (MD) expansion bus. The vehicle will help to expand the spare ratio for the fleet and provide much needed reliable service backup for the aging fleet. These are flex funds through Nebraska. The vehicle will be procured via State of Minnesota consortium. One (1) 31 ft. medium duty (MD) low-floor bus. The MD bus is an expansion vehicle for enhancement of the transit service primarily for disabled passengers and to provide backup for fixed route service. This unit will increase the spare ratio to 4 units. With 21 units in peak service, the 4 spares will increase the ratio to 16% once the vehicle is acquired. 2505 East 4th Street, PO Box 447 Sioux City, IA 51102-0447 Purchase 15 biodiesel replacement buses. Invest in public transportation by purchasing new biodiesel buses. The purchase of 15 low-floor, biodiesel, replacement buses allows Madison County Transit District to continue providing safe and reliable public transportation services in a more environmentally friendly manner. Bus and Other Motor Vehicle Transit Systems Granite City, IL 62040-2868 Less Than 50% Completed PACE, THE SUBURBAN BUS DIVISION OF THE REGIONAL TRANSPORTATION AUTHORITY Purchase 58 replacement fixed route 30' buses, Puchase 190 replacement paratransit vehicles, and purchase 76 replacement support vehicles for maintenance and supervisory personnel as well as staff at Headquarters. Invest in public transportation by purchasing 58 30' transit buses, 190 paratransit vehicles and a minimum of 76 support vehicles for maintenance and supervisory personnel as well as staff at Headquarters. This grant allows Pace to purchase 58 30' replacement fixed route buses, 190 replacement paratransit vehicles, and 76 replacement support vehicles for maintenance and supervisory personnel as well as staff at Headquarters. As a result of these investments, Pace will be able to provide public transportation service that is safer and more reliable. In this quarter, we have awarded a contract for inspection services. We received delivery of 10 trucks with plows for maintenance/supervisory personnel and 6 paratransit buses. Production will continue for the paratransit buses next quarter. Production will begin in February for the fixed route buses. Bus and Other Motor Vehicle Transit Systems Arlington Heights, IL 60005-4412 Less Than 50% Completed Capital Projects: Buses, vans and facility improvements. Investing in public transportation by purchasing four new 35' buses to replace four 1993 35' buses, by purchasing two new wheelchair lift vans to replace two 1999 wheelchair vans, by repairing and remodeling the bus storage building built in 1980, by installing a water recycling system in the existing bus washer to reduce the amount of water used, and by repairing and seal coating the existing asphalt parking lot and driving lanes around the Transit Administration Building. Although no jobs were created and no funds were paid out this quarter, the City of Decatur has already awarded purchase orders for 4 buses ($1,500,000) and for 2 wheelchair lift vans ($104,202). The buses are tentatively scheduled to be built by Gillig Corp. about July 15, 2010, and the 2 vans were tentatively scheduled for delivery around January 1, 2010. Staff advertised nationally for bids for the installation of a water recycling system. Since only one bid was submitted by the Dec. 3 deadline and that bid was significantly higher than the pre- bid estimate, this project will be re-bid. Staff has been preparing to advertise for bids for the other facility improvement projects. Those projects are expected to be under contract this quarter, or as soon as the weather permits. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed IL-96-X014 ARRA Funds for Buses, Lift, Generator OTS is investing in public transportation by purchasing three new transit busses, installing a commercial generator at the Transit Office, and rehabilitating the bus garage by installing a new hydraulic bus lift to assist with maintenance operations. This grant will allow the transit agency to purchase three low-floor transit busses to replace busses which have exceeded their useful life. The transit agency is also purchasing a hydraulic bus lift for the maintenance garage to assist with repairs and maintenance of the new busses. The transit agency is also installing a commercial generator at the main Transit Office, so that transit operations can continue through times when the city is without power. January 2010 Update: Three transit busses are on order from Gillig. The hydraulic lift will be installed in January 2010. The commercial generator has been ordered. Bus and Other Motor Vehicle Transit Systems Owensboro Transit Sytem, 430 Allen Street Less Than 50% Completed SHREVEPORT TRANSIT MANAGEMENT, INC Purchase buses, renovate facility, preventive maintenance, purchase miscellaneous equipment. Invest in public transportation by purchase of new compressed natural gas (CNG) buses; constructiopn of a CNG fuel station; conversion of existing maintenance facility to CNG fueling; rehabilitate/upgrade 22 year old bus terminal; acquire maintenance support ewuipment, mobile surgeillance/security equipment, and upgrade of maintenance record system; and perform preventive maintenance on existing buses. This Grnt allowd the transit agency to purchase a new computer and map software for the teminal information booth, purchase the first bus bike racks, select a bus vendor from which to purchase the first 5 CNG buses, and issue reqest for bids for an architect to design and manage consturction of a CNG fuel station and upgrade of maintenance facility. As a result of these activities the agency's customers will be able to optain accurate information on best bus route to a sepcific destination, have a means to combine bus/bike transportation and prepare to purchase the first environmentally friendly buses and their support system. Bus and Other Motor Vehicle Transit Systems Grants Less Than 50% Completed Purchase of two new vehicles and provide preventative maintenance on existing buses. Invest inpublic transportation by purchasing new wheelchair lift buses and performing preventative maintenance on existing buses. This grant will allow the transit agency to purchase two new wheelchair lift equipped vehicles to expand its fleet and to conduct preventative maintenance on 4 existing vehicles. As a result of these investments the the transit agency will be able to continue offering the public a safe, reliable and accessible service. Bus and Other Motor Vehicle Transit Systems LA-96-X013-00 This grant will allow MART to invest in public transportation by allowing us to purchase new vehicles and equipment and to construct a vehicle storage facility to protect our investment. A budget of $750,000 is allocated to the purchase of 3 new hybrid buses to replace existing diesel buses for use on our fixed route service within the Fitchburg/ Leominster/Gardner service area. This investment will allow us to bring down the maintenance costs by reducing fuel quantities and the disposal of olders buses which have higher maintenance costs than a new vehicle under warranty. A budget allocation of $2.1 million is for construction of a vehicle storage facility at 840 N. Main Street in Leominster, MA. The A&E is complete and was funded through grant MA-04-0004 for $1,485,000. The ARRA funds will pay for the actual construction. MART, at this time, has a large number of vehicles which are stored outside. The construction of this vehicle storage facility will allow us to get these vehicles out of the elements - which include a harsh New England winter. This again will drive down overall maintenance and repair costs. The remainder of the allocated funds will purchase bus maintenance equipment including a new bus washer for the Fitchburg Maintenance facility and related peripheral equipment. The existing bus maintenance equipment is old and in need of replacement. . This grant allowed MART to order the three Hybrid buses, but delivery is not expected until February 2010. One bus has been completed and sent for Altoona testing (1 of 3 tests are complete). The other 2 buses are complete but will not be delivered until the 1st bus is finished testing. The funds for these buses has been obligated but remains unliquidated at this time (no expenditures have been made). Construction of the Storage Facility started on October 1st and is progressing. The remaining items have not been ordered yet and are unobligated as of this reporting period. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed MA-96-X003-00 GREATER ATTLEBORO-TAUNTON REGIONAL TRANSIT AUTHORITY Purchase bus, minibus, vans; construct improvements at train station, bus terminal, walkway, prev. maint., scheduling software, ADA service; SmartCard & software Invest in public transportation by purchasing low-floor buses, minibuses and vans; purchase scheduling software; construction of renovations to commuter rail station; construction of improvements to bus facility; construction of accessible walkway at commuter rail station; preventative maintenance; provision of ADA paratransit service; purchase smartcard equipment and software. This grant allowed GATRA to purchase 4 transit buses, 12 minibuses, and 10 vans (all on order with delivery shortly), improvements to Attleboro Commuter Rail Station (one project completed and ongoing), improvements to Taunton Terminal and Maintenance facility (2 projects completed and ongoing), construction of ADA accessible walkway (design at 80%), preventative maintenance, provision of ADA service, purchase of dispatch/scheduling equipment and purchase of SmartCard Equipment and software. All of the above will enable GATRA to offer public transportation service that's safer, more reliable and more accessible for people with disabilities. All activities are less than 50% complete. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed ARRA Bus replacement & Bus Wash Rehab Invest in public transportation by rehabilitating a Bus Wash Facility and replacing two high maintenance low-floor buses that have exceeded their useful life of twelve years. This grant allowed recipient (City of Billings MET Transit) to rehabilitate the Bus Wash Facility, which was built in 1983, and to replace two low-floor buses that have incurred more frequent and higher than normal maintenance costs. As a result of these investments, recipient will be able to continue to offer economical public transportation service that is safer, more reliable and more environmentally friendly. Bus and Other Motor Vehicle Transit Systems 1705 Monad Road, P.O. Box 1178 Less Than 50% Completed Invest in public transportation by supporting a portion of the construction activities (30.2%) for a new Transit Maintenance and Operations Facility and Administrative Offices for the Greensboro Transit Authority. This 'LEED Gold Designed' facility is being built to address current and future service delivery needs for maintenance and operations of GTA transit vehicles and administrative functions. Phase 1 consists of the programming and schematic design of the facility, site design, permitting and the site work construction phase. Phase 2 will include a 64,000 SF facility building design and construction. Over the past five years, GTA's ridership has doubled (2M to 4M passenger trips) with the implementation of improved services and vehicles. Therefore, a new transit facility is desperately needed to replace an aging facilty that no longer meets GTA's needs. This project is one of the city's priority facility projects that will significantly enhance the GTA's service delivery, efficiency and the quality of transit services to current and future transit riders (over 200,000 population) in the Greensboro community. Completed Phase 1 project activities. Efforts to comlete the final punch list. Specifically, checking the soil bearing pressure to make ready work for the building pad for Phase 2. In addition, initiated Phase 2 of the project, which includes the 69,254 SF facility building design and construction. A ground breaking ceremony was conducted on 11/19/09. This project was initially advertised for bids on 1018/09 and bids were opened from all eight prequalified bidders on 11/19/09. All bidders had minimal DBE participation. Following discussions with FTA, NCDOT and GDOT-Public Transportation Division, it was determined that the project would need to be rebid due to the fact that the need to apply GS 143-28 and rebidding will provide an opportunity to improve DBE participation and Buy America compliance. Efforts have been continued to ensure full compliance with the applicable federal requirements. A conference call was held (December 2009) with FTA Region IV officials to discuss the DBE and Buy America compliance requirements. FTA concurrence was provided regarding the city's decision to rebid the project. On 12/15/09 City Council authorized the rebidding of the GTA Maintenance/Operations Transit Facility and Administrative Offices Phase 2 project. The Pre-Bid meeting will be held on January 7, 2010, with the Bid Opening scheduled for January 26, 2010. Bus and Other Motor Vehicle Transit Systems Greensboro, NC 27406-3607 More than 50% Completed AVL/GPS, Fareboxes, Vans, Furnishings 2009 Transit Capital Assistance Grants - This grant applies the 2009 ARRA Formula allocation of $700,000 an AVL/GPS system for complete tracking of 12 buses. This includes hardware, software, and training for a total of $700,000. This grant applies the 2009 ARRA Formula allocation of $320,000 for Automated electronic fareboxes for 10 Gillig buses, 2 LTV and 1 spare. This includes additional vaults and docking/communication systems. This project will have an estimated useful life of 12 years. This grant applies the 2009 ARRA Formula allocation of $145,000 for 2 non-revenue LTV service vans. These will be used to augment late buses and missed stops as well as serving as driver relief vehicles. These support vehicles will meet the Clean Air Act standards (CAA) and the American with Disabilities Act (ADA) requirements. They will have a useful life of 4 years. This grant applies the 2009 ARRA Formula allocation of $100,000 for furnishings and equipment for the new transit center to include cubicles, desks, chairs, passenger seating, computers, printers, copier, base station radio, antenna, phones. (1) AVL System project is 40% complete. Installation for 10 buses complete with modems, base station, software, database, AVM. Also mapping services for area. (2) Automated Farebox System is on order. (3) Light Transit Vehicles on order. (4) Transit Center Furnishings RFP to go out in January. Bus and Other Motor Vehicle Transit Systems 850 Warren C. Coleman Blvd. Less Than 50% Completed NC-96-X011-00 ARRA TOR ands TZx Buses Invest in Public Transportation by procuring two (2) 35 FT hybrid-electric buses, two (2) 40 FT hybrid-electric buses for Transport of Rockland (TOR), the County's inter-county bus system. We will also procure three (3) 45 FT hybrid-electric over-the road coach buses for the Tappan ZEExpress (TZx) service, the County's commuter coach service over the Tappan Zee Bridge to Westchester County to meet connecting Metro-North trains into New York City. This grant will allow Rockland County Public Transportation to purchase seven (7) environmentally friendly hybrid-electic replacement buses. These buses will replace older buses that have reached their useful life and have become too costly to maintain and are no longer environmentally friendly. As a result of these investments, Rockland County Public Transportation will be able to offer the riding public service that is safer, more reliable, more environmentally friendly and more accessible for people with disabilities. There were no building activities this quarter. We have reviewed our commuter coach bid and expect our County Legislature to make an award in 1st quarter 2010. Bus and Other Motor Vehicle Transit Systems New City, NY 10956-3664 NEW YORK, CITY OF Staten Island Ferry System Asset Maintenance NYCDOT operates the Staten Island Ferry (SIF) system that operates from St. George Ferry terminal in Staten Island and Whitehall ferry terminal in Manhattan, New York. It is the largest ferry system nationwide carrying 70,000 on weekdays or approximately 21 million passengers annually. It is the principal means of transportation for Staten Island residents traveling to Manhattan?s central business district and other activity centers. The major assets of Staten Island Ferry system consist of a fleet of eight passenger ferries, the St. George Ferry Terminal in Staten Island and the Whitehall Ferry Terminal in Manhattan, New York, several support floating stock, bridges, slips, ramps, a ferry maintenance facility with auxiliary buildings. This project will invest in public transportation by carrying out preventive maintenance activities of the Staten Island Ferry system assets, for two different projects: 1) Dry-docking services for ferry vessels through a third-party contract ($37,747,237) 2) Personnel costs for in-house maintenance on ferry vessels ($9,000,000) In the past quarter, the shipyard dry-docking third party contractor completed all maintenance activities for the Marchi ferry vessel including underwater hull repair, propulsion system repairs, and sea valve repairs. The in-house maintenance personnel has maintained Staten Island ferry assets in a state of good repair by executing daily maintenance work. Staten Island, NY 10301-2510 Less Than 50% Completed BUTLER, COUNTY OF OHIO Purchase of Vehicles, Equipment, Facility Improvments and Preventitive Maintenance To invest in public transportation by purchasing five replacement small buses (14 passenger), purchasing eight small vans, and purchasing four service vehicles (one service truck and three four-wheel drive vehicles to provide essential services during bad weather and to back up daily operations). All vehicles being replaced are several years past their normal useful life cycle and the new vehicles will be more fuel efficient and help reduce routine operating costs. In additon we will be replacing shop and office equipment which is past it normal useful life. This grant will also allow for some facility improvements including a covered parking area to better protect the buses and extend their useful lives. Finally this grant will allow us to do necessary maintenace on our vehicle fleet and facilty to ensure all assets are maintained to the highest standards, thus helping to reduce operating cost in the future. This grant allowed BCRTA to order and receive eight replacement transit vehicles which are being used to expand service. This investment will allow BCRTA to offer public transportation service that is safer, more reliable, environmentally friendly, and more accessible for customers with disabilities. Funds from this grant are also allowing us to replace outdated equipment, make much need facility improvements, and do preventitive maintenance on the existing fleet of vehicels and facility. All of which will result in reduced operating costs and ensure that all assets are in prime condition. Bus and Other Motor Vehicle Transit Systems Hamilton, OH 45011-5373 More than 50% Completed GREATER DAYTON REGIONAL TRANSIT AUTHORITY Preventive Maintenance, purchase of twenty five replacement 40ft diesel buses and purchase of twenty two replacement <30ft medium duty buses. To invest in Public Transit by purchasing twenty five replacement 40' low floor public transit buses. These buses meet or exceed current Clean Air Act (CAA) standards and the American with Disabilities Act (ADA) requirements and will have a service life of at least 12 years or 500,000 miles. GDRTA will also purchase twenty two replacement smaller transit buses (less than 30' long) for use with our Project Mobility service to the disabled community. In additon GDRTA is also using funds to perform preventive maintenance on existing buses, facilities and equipment to ensure that all assets are properly maintained. Both of these projects will improve customer comfort and operating efficiencies. It is anticipated that both projects will also help retain jobs in the public transit / vehicle production industries. Since the award of funds GDRTA has completed the preventitive maintenance project which has resulted in both the retention on jobs and the proper upkeep of federally funded assets. This will lead to greater operational efficiencies and passenger comfort. We have received the order of smaller buses being used for our Project Mobilty service and these buses are being placed in service. In addtion we exercised an existing option from our vehicle manufacturer and the 40' replacement buses being funded with this grant are on order. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed OH-96-X005 Renovate two separate facilities in addition to the purchase of three replacement buses and vehicle GPS/AVL systems Invest in public transportation by restoring and preserving a historic New York Central Train Station to become the Lorain County Transportation Center. The Transportation Center will be a transportation hub for Lorain County Transit, Greyhound and Amtrak as well as housing Lorain County Transit administrative offices. Renovations of an existing building to be a maintenance facility, performing preventative maintenance on buses. The maintenance facility will include office space, restrooms, parts storage and a mechanics shop. Purchase of 3- 30 Ft. buses replacing vehicles that have met their useful life of seven years. Purchase/install intelligent transportation systems technology on vehicles. This grant allowed the transit agency to renovate a historic train station and make it a transportation hub for Lorain County Transit, Greyhound and Amtrak as well as a community space available to the public for rent. The transit agency was able to renovate a building as a maintenance facility to maintain Lorain County Transit's vehicles and will include office space, restrooms, parts storage and a mechanics shop, this project is about 95% complete. The grant also gave the ability to purchase 3- 30-Ft. buses, replacing an aging fleet, the purchase of the vehicles has been completed. The vehicles were delivered the week of December 14. This grant will also give the ability to purchase/install intelligent transportation systems technology on vehicles. As a result of these investments, the transit agency will be able to offer public transportation service that is safer, more reliable, more environmentally friendly, and more accessible for people with disabilities. Bus and Other Motor Vehicle Transit Systems (Information not reported) More than 50% Completed OH-96-X023 SALEM AREA MASS TRANSIT DISTRICT 09 ARRA 5307 Buses (8);Rehab Tran Ctr Salem Area Mass Transit District is making an investment in public transportation through the following projects: purchase of three (3) 35-foot fixed route buses (the Transit District initially applied to purchase four (4) buses, but the number was decreased to three to allow funding for operational assistance), the purchase of four replacement buses and one bus for the expansion of the fleet to serve Americans with Disabilities (ADA), replacement fareboxes for fixed route buses, Performance Management Software will be purchased to maximize the gathering of information about services provided, the surface of the Transit Center Mall in downtown Salem will be re-done to provide for greater pedestrian safety, work will take place for the installation of a Transit Center in Keizer at the north-end of transit services provided in the community, and funds are designated in support of operational assistance to support tasks required to complete the above stated projects. During the October-December 2009 Quarter, Salem Area Mass Transit District paid for the shipping of Fareboxes that were purchased in the preceding quarter. The Transit District received the delivery of four replacement buses and one bus to expand the fleet of buses that serve Americans with Disabilities (ADA). The environmental study was completed on the site selected for the Keizer Transit Center. Bus and Other Motor Vehicle Transit Systems 555 Court Street NE, Suite 5230 Less Than 50% Completed This project uses a portion of the federal funds to finalize a bus driver break area and public rest room building at the new SMART Central at Wilsonville Station multi-modal facility located adjacent to the WES Commuter Rail Station in Wilsonville, Oregon. In addition the federal funds will allow SMART to construct an artistic clock tower, passenger shelters and pedestrian safety enhancements located at SMART Central station. Finally, the funds will conduct preliminary engineering/design and site plan preparation for the construction of a new SMART administrative building located adjacent to the SMART Central at Wilsonville Station multi-modal facility. All projects have been designed to ensure increased access for all users of the multi-modal facility and the design has taken into consideration eco-friendly storm water management elements and building materials. Further each element is designed to deter crime and ensure public safety at the station through the placement of security cameras, lighting and the increase of SMART personnel at the Station. This grant is funding the design and construction of an artistic clock tower, passenger shelters and pedestrian crosswalks as well as the site planning for an administrative and maintenance facility. In addition, this grant will supplement grant X003 funds for the construction of the operator breakroom. All of these projects are being completed at SMART Central at Wilsonville Station. This quarter, activities included engineering and design of the clock tower and passenger amenities. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed BERKS AREA READING TRANSPORTATION AUTHORITY Purchase 11 buses, security equipment and facility improvements. Invest in public transportation by purchasing four new hybrid-electric buses, four new hybrid- electric paratransit vans, three new diesel paratransit vans, installation of surveillance and security equipment on 25 transit vehicles, and renovation of BARTA's Intermodal Transportation Complex. This grant has allowed BARTA to purchase four hybrid-electric 40ft transit buses, which will be delivered in June 2010, in order to expand service on its fixed routes. With this grant, BARTA is also purchasing seven paratransit vans (four hybrid-electric and three diesel) to replace paratransit vans that have met the minimum 5 year useful life requirement for this size vehicle as set forth in FTA Circular 9030.1C. The three diesel paratransit vans will be delivered in November, 2009. Also, these funds will allow BARTA to purchase and install security and surveillance cameras on 25 transit vehicles that are not equipped with safety and security cameras. Furthermore, this grant will also allow BARTA to upgrade and repair its Intermodal Transportation Complex. The maintaining of this facility is critical to the overall efficiency of the operations of BARTA. Bids for the upgrade of the transportation complex will be accepted on October 30, 2009. Moreover, as a result of these investments, BARTA will be able to offer public transportation service that is safer, more reliable, more environmentally friendly, and more accessible for people with disabilities. Bus and Other Motor Vehicle Transit Systems (Information not reported) Less Than 50% Completed ARRA - Acquisition of 40 hybrid replacement units Investment in public transportation by purchasing 40 replacement hybrid units, 40-foot length, heavy duty low floor buses for fixed route service in the San Juan Metropolitan Area. As a result of this investment, the Metropolitan Bus Authority will be able to offer public transportation service that is safer, more reliable, more environmentally friendly and more accesible to people with disabilities. Contract was awarded to Daimler Buses North America on October 2009. Advance payment was isssued by December 2009 for 41 (40 plus one spare) Cummins engines delivered to Daimler Buses North America as part of the purchase order to deliver 40 buses by Summer 2010. This transaction was authorized as per FTA letter of October 20, 2009. Jobs to be created will contribute to preserve and maintain jobs in the manufacturing industry and will be reported as units are delivered and invoices paid. Bus and Other Motor Vehicle Transit Systems #37, Ave De Diego, San Fransisco, Monacillo Ward San Juan, PR 00919-0000 Less Than 50% Completed PR-96-X011-00 Acquisition of Two Minibuses and Maintenece Improvements to Public Transportation Terminals Use of ARRA funds to purchase two minibuses, make deferred maintenance improvements to Public Transportation Terminal and administration of grant program. The project includes: 1. Purchase of two cut-away small buses with a five year duty cycle, ADA access complaint to provide demand response service to areas not currently served by the Public system under ALI 11.13.04 in the amount of $138,000 of ARRA funds. 2. Renovation of the Public transportation Terminal to improve illumination, provide surveillance, repair roof and bathrooms, and install wheelstops under ALI 11.34.01 in the amount of $56,000 of ARRA funds. 3. Administration costs to comply with FTA regulations such as publication of bids and submittal of quaterly reports, under ALI 11.79.00 with $2,850 of ARRA funds. Bus and Other Motor Vehicle Transit Systems (Information not reported) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. TRANSPORTATION, ALABAMA DEPT OF This is a FY 2009 American Recovery and Reinvestment Act (ARRA) Section 5307 application in the amount of $4,033,530.00 for the State of Alabama. This application incorporates ARRA Governor Apportioned Section 5307 funds in the amount of $3,834,718.00 and Columbus, GA MPO ARRA Apportioned Section 5307 funding in the amount of $198,812.00. This application includes the purchase of 33 replacement vehicles and 6 expansion vehicles ($2,439,834), bus facilities ($25,000), equipment ($988,634), signal and communications ($4,900), and additional capital program items ($575,162). The funds will be used to fund small urban transportation programs for the following six (6) subrecipients: Auburn-Opelika, Phenix City, Anniston, Florence, Decatur, and Dothan. None for quarter ending 12/31/2009. Bus and Other Motor Vehicle Transit Systems Information GAO gathered to improve the description The award supports transit improvements at six small urban public transit systems selected by the State of Alabama. These improvements include replacing old vehicles, expanding fleets, and installing bicycle racks and signal systems. These activities assisted in keeping transit systems running at current levels and enhancing public transit. Capital Assistance for Transit Projects Pre-audit completed on bus order for eight replacement buses, four replacement paratransit vans received, bus parts, shop equipment ordered and received. Replaced surveillance system, purchased 75 bus and streetcar fare boxes, waiting delivery, A&E completed for Trolley Barn expansion, construction has begun, A&E contract in place for platform stop addition, work to begin shortly. Bus and Other Motor Vehicle Transit Systems 901 Maple Street North Little Rock, AR 72114-4647 More than 50% Completed Information GAO gathered to improve the description The award will result in residents and visitors to Central Arkansas traveling more safely and easily through Little Rock and the surrounding areas. HIGHWAY AND TRANSPORTATION, ARKANSAS DEPARTMENT OF ARRA funds will be used to purchase 126 replacement buses for transit providers throughout the State of Arkansas. In addition, transit providers will receive funding for ADP hardware and software; support vehicles and equipment; construction or rehabilitation of maintenance facilities, administrative facilities, and park and ride lots; and for the performance of preventive maintenance. Our expectations are that the above mentioned expenditures will enhance public transportation, retain existing jobs for Arkansas providers, enable contractors to retain and maybe create new jobs within their companies, in the state of Arkansas. To invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits. Bus and Other Motor Vehicle Transit Systems Little Rock, AR 72209-4206 Less Than 50% Completed Information GAO gathered to improve the description The award supports activities in several Arkansas counties, including Pulaski, Randolph, Carroll, Benton, Saline, Boone, Jefferson, and Phillips counties. FORT SMITH, CITY OF Investment in public transportation by completing the transfer station facility at 200 Wheeler Avenue in Fort Smith, AR, purchase four demand response buses, purchase and install approximately 30 bus shelters, purchase and install security cameras/surveillance equpment for transit buildings and buses, purchase mobile data terminals and renovate the administrative and maintenance buildings. Completed projects within this ARRA grant include the purchase of 4 demand response buses, purchase of 4 automatic electronic defibrillators, replacement of 5 garage doors in the maintenance building, heaters for the maintenance shop and the purchase and installation of a bus hoist. Ongoing projects include the renovations of the administrative and maintenance facilities. An architect has been selected for the renovations and coordination will begin soon. Specifications are being completed by our Information Technology Service (ITS) Department for the purchase and installation of security cameras for the facilities and buses. Bus shelter sites are currently being selected for the placement of passenger shelters. The onboard computers to be used as mobile data terminals are being reviewed by the ITS Department at this time. The mobile data terminal software will be a one vendor source that will work in conjunction with the already existing scheduling software. Projects currently not underway at this time include the addition of the underground fuel tank and associated software as well as the fare counting equipment. These two projects will begin once the renovations to the administrative and maintenance facilities are nearing completion. Bus and Other Motor Vehicle Transit Systems 6821 Jenny Lind, PO Box 1908 Fort Smith, AR 72902-1908 Less Than 50% Completed Information GAO gathered to improve the description The activities funded by the award will improve safety and security for both passengers and staff, improve transit performance and communication, and provide cost savings. ARRA - (10) Replacement; (2) Expansion; equipment REPLACEMENT/EXPANSION OF ROLLING STOCK, ACQUISITION OF BUS SHELTER AND ACQUISITION OF RADIOS. Replacement of 12 fixed route buses; construction of bus shelter located in Bienville Square and purchase of a digital and analog 800 Mhz radio system Bus and Other Motor Vehicle Transit Systems 1224 W. I-65 Service Road S. Less Than 50% Completed Information GAO gathered to improve the description The award supported the replacement of old buses with 10 buses and 2 transit vans. The award also constructed a bus shelter in downtown Mobile to connect various bus routes. The award also replaced the obsolete radio system for the buses with a new analog and digital radio system, which aids in Mobile's emergency preparedness plans. 1.) COP Debt Service, 2.) Capital Cost of Contracting, 3.) Preventive Maintenance, 4.) Non Fixed Route ADA Paratransit Service, 5.) Transit Enhancements Invest in public transportation by providing assistance to the following projects: COP debt service payment, capital cost of contracting, capitalized preventive maintenance, non-fixed ADA paratransit service operations and transit enhancements. 1.) Semi-annual COP debt service payment processed in September 2009 for purchase of (55) 40-foot CNG buses. 2.) Contracted transit operations and maintenance to support ongoing fixed route and demand response (ADA) paratransit service. 3.) Preventive Maintenance of the agency's vehicle fleet and facilities to support the ongoing operation. 4.) Contracted transit operations and maintenance to support ongoing demand response (ADA) paratransit service. ARRA 5307 funded portion of this service completed as of September 2009. 5.) Transit Enhancement project not started. Bus and Other Motor Vehicle Transit Systems 1825 Third Street Less Than 50% Completed Information GAO gathered to improve the description The award supports transit operations in Riverside County through the purchase of items including benches, shelters, light poles and extensions, signs, and trash receptacles. The award will result in enhanced safety and security of the bus stops and transit facilities. TRANSPORTATION, COLORADO DEPARTMENT OF ARRA Summit County - Statewide Rolling stock Invest in public transportation by building a fleet maintenance facility, purchasing new buses, and providing some operating assistance This grant allowed the county to build a new 42,000 sq. foot bus maintenance facility. As a result of this project, the county will be more efficient in maintaining and servicing its fleet buses in a high altitude environment. Commercial and Institutional Building Construction 0222 County Road 1003, PO Box 2179 Less Than 50% Completed Information GAO gathered to improve the description The award supports the construction of a fleet transit and vehicle maintenance garage facility as well as a 3,147 square foot stand-alone wash bay, a diesel/unleaded multi-use fuel island, and a bulk fuel storage area in the city of Frisco, Colorado. Services at the facility will be available for Summit Stage transit buses and other vehicles providing public transit services. TRANSPORTATION, CALIFORNIA DEPARTMENT OF 5311 Transit Improvements in non-urban areas. The grant will fund a variety of transit capital projects in all 58 California counties. Projects include vehicles, bus and intermodal terminals, fare collection systems, security equipment, information signage, construction and renovation of maintenance and storage facilities, park- and-ride lots, bus shelters and signal and communications equipment, including radios. The grant will also support preventive maintenance programs and provide a source of operating assistance for ADA-required paratransit. A grant to modernize transit fleets through vehicle replacement and expansion, to modernize and upgrade physical facillities, such as bus terminals, stops, maintenance and storage facilities and park-and-ride lot, to improve fare collection, security, information and communications systems and to support preventive maintenance programs and ADA-required paratransit operation. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed Information GAO gathered to improve the description This award supports transit upgrades in rural communities. The award will be used to purchase 105 buses, 2 vans, 11 automobiles, 7 trolleys and 1 commuter vehicle. The award also will be used to build and renovate facilities and bus station terminals, as well as to purchase and install bus fare collection systems, computer hardware and software, signal and communications equipment, bus route signs and bus shelters; to upgrade safety and surveillance security equipment; and to perform preventive maintenance. The award will result in promoting and enhancing public transportation in rural areas through capital infrastructure investments and stimulate local economies. SAN FRANCISCO BAY AREA RAPID TRANSIT DISTRICT Replacement of Train Auxiliary Power Equipment, Cables on Transbay Tube, and Coverboards, Improve walkway safey at a station, Car Interior Modifications, and Wheel Truing Machine Study. The overall purpose of the grant is to invest in public transportation to improve the safety and reliablity of the transit system and to improve the passenger comfort in the modified revenue vehicles. Therefore, the BART passengers should have a safer and better riding experience. Activities include soliciting bids and awarding contracts to initiate work on the projects. Less Than 50% Completed Information GAO gathered to improve the description The award supports capital improvements, including construction of a new walkway at the Balboa park station; installation of new auxiliary power supply equipment on 30 railcars; new coverboards over the electric third rail; replacement of cables in the Transbay Tube; replacement of worn-out vehicle interiors and reconfiguration of interiors for improved passenger circulation; installation of between-car safety barriers; and preliminary work on a wheel truing machine. Information GAO gathered to improve the description This award funds the purchase of nine buses. SANTA ROSA, CITY OF Transit Operations, Americans with Disabilities Act Paratransit Operations, Preventative Maintenance, Transit Enhancements Invest in public transportation by providing funds for assistance to transit operating, preventative maintenance of buses, Americans with Disabilities Act paratransit service operations, and transit enhancements, including solar bus shelters, benches and map display cases. These funds will support transit operations for Santa Rosa CityBus, which is housed in the City of Santa Rosa's Transit Department and is the municipal transit provider for the City of Santa Rosa. In addition to providing fixed route bus service, the agency is responsible for the provision of complimentary Paratransit services (required by the Federal Americans with Disabilities Act), the management of the City’s Transportation Demand Management (TDM) Program, as well as bicycle and pedestrian planning efforts. CityBus operates seventeen fixed routes within the City of Santa Rosa and Roseland and carries approximately 2.8 million passengers annually. For the provision of paratransit service, the agency contracts with MV Transportation to provide approximately 50,000 trips annually for disabled patrons that are not able to take fixed route transit. Additionally, through the TDM Program, CityBus reduces approximately 100,000 car trips and an average of 200,000 car miles annually. This grant funds fixed route transit operations (with the completion of the first amendment to this grant, due in the second quarter of Federal Fiscal Year 2010) , ADA paratransit operations (contract awarded November 17, 2009), preventative maintenance expenses ($2,182,095.78 expended and drawn down through the end of Federal Fiscal Year 2009), and Transit Enhancements (in the form of a bus stop amenity purchase order executed November 18,2009). Bus and Other Motor Vehicle Transit Systems 1101 College Avenue, Suite 200 Santa Rosa, CA 95404-3940 More than 50% Completed Information GAO gathered to improve the description The award supports the maintenance of all 500 bus stops and shelters, trash receptacles at all stops, and display cases. Maintenance includes power-washing. The award also supports preventive maintenance and upkeep of the entire fleet of 35 buses and 11 paratransit buses to Federal Transit Administration (FTA) standards, paying driver salaries, and maintaining transit facilities. The award does not support capital improvements or gains, only day-to-day operations. SAN JOAQUIN REGIONAL TRANSIT DISTRICT RTD This grant, CA-96-X045, will provide funds for preventive maintenance for upkeep of San Joaquin Regional Transit District’s buses and paratransit vehicles. Funds will also be used for the following projects: Construction of the Mall Transfer Station; Design/engineering of the Regional Operations Center; Associated capital maintenance items; Computer/communications equipment and software; Capital tire lease; Passenger amenities and transit enhancements; Development of the BRT Phase II- Airport Way Corridor that include environmental and preliminary eng/design; and, Safety and security equipment related to bus and bus facilities. This grant has allowed the San Joaquin Regional Transit District to conduct preventative maintenance on its 134 existing buses; construction of the Mall Transfer Station; design/engineering of the Regional Operations Center; purchase associated capital maintenance items; purchase computer/communications equipment and software; contract for a capital tire lease; purchase and install passenger amenities and transit enhancements; development of the BRT Phase II- Airport Way Corridor that include environmental and preliminary eng/design; and, purchase of safety and security equipment related to bus and bus facilities. Bus and Other Motor Vehicle Transit Systems More than 50% Completed Information GAO gathered to improve the description The Channel St. amenities improvement project in the downtown area provides passenger amenities and transit enhancements such as adding benches for additional seating in the boarding area, new landscaping to provide shade, and trash receptacles. Construction of the Mall Transfer Station will improve customer comfort and boarding area aesthetics at the station on Pacific Ave. near Sherwood Mall, which gives passengers easy access to the downtown area. The improvements include: construction of bus shelters; installation of passenger information kiosks, benches, and trash receptacles; reinforcing the pavement; and installation of crosswalks for increased safety of passengers. Development of the Bus Rapid Transit system design will allow the transit agency to increase capacity by extending the current system to a new corridor. The Regional Operations Center will allow the transit agency to expand and house all the buses and maintenance activities in one facility. Currently, the transit agency has three facilities that are at maximum capacity and are no longer suitable for their operations. The Center will include a service station, bus wash, and fueling center for public transit buses as well as private buses. The award also funds an extension of a transit hopper service in the Stockton Metropolitan area. Specifically, this includes activities such as branding the buses, installing bus stop signs, and rehabilitation of some buses. The hopper service is designed for elderly and disabled passengers. SOUTHERN CALIFORNIA REGIONAL RAIL AUTHORITY Track Rehab, Positive Train Control Invest in public transportation for 1) Track Rehabilitation/renovation on San Bernardino Line; 2) System Communication Improvements on SCRRA's Metrolink commuter train system in Riverside County; 3) partial funding for Positive Train Control system (PTC) on the Southern California Regional Rail Authority's (SCRRA) Metrolink commuter train system, in Los Angeles, Orange, Riverside, San Bernardino, and San Diego Counties. 1/14/10 update: 1) Project #510046 Track Rehabilitation on San Bernardino Line contracts awarded is $1,864,144. Rail Frogs, plates, ties, and turnouts ordered 10/26/09 and delivery expected 2/2010. Project completion expected 6/2010. ARRA Funds received on this project $4,909. 2) Project #510095 System Communication Improvements contracts awarded is $0. A System-Communication feasibility study to determine how to best link and integrate Riverside County Service will be completed first. Project completion expected 9/2015. ARRA Funds received on this project $49. 3)Positive Train Control (PTC) contracts awarded is $1,187,000; ARRA grant #CA-05-0007-00 also funds PTC. PTC is 10% completed. Work is progressing on Map & Validate Existing Assets/Rules; Validate Existing Locomotive Cab Systems; Validate New Locomotive/ Cab Systems; Validate Passive Braking algorithm; Initial Evaluation for General Electric Transportation Signals Systems (GETS) Module Upgrade; Map & Validate Signal Assets on San Gabriel Sub, Valley Sub, Ventura Sub, Olive Sub, and Orange Sub; Relocate & Reconfigure Signals; Operational Study; Validate System Safety Plans; Map & Validate Communications System; Validate Network Systems; finalizing Scope and Requisition Documents to our Procurement Dept; Disadvantaged Business Enterprise (DBE) Consultant Review; Agency Project Manager Review of Draft Evaluation Criteria; Prepare Development Plans; Prepare Draft Implementation Plan; Prepare Draft Development Plan; Prepare Safety Plan; Procure Spectrum in 220 MHZ Band; Prepare Interoperability Agreement with the following Railroads UP, BNSF, and NC; Re-Design Main Operation Center (MOC) backroom to accommodate for PTC. Tasks finished: Validate Train Dispatch System; NEPA-Compliant Categorical Exclusion. Substantial completion expected 12/31/12. We are using up funds first from grants that expire before the ARRA grants. 700 S Flower St, Suite 2600 Los Angeles, CA 90017-4104 Less Than 50% Completed Information GAO gathered to improve the description The award supports safety and capacity upgrades and improvements such as the replacement of approximately 5,000 feet of rail on the San Bernardino Line as well as the rehabilitation of two grade crossings on the Metrolink system in the Los Angeles area. Invest in public transportation by expansion of the commuter fleet with the purchase of three 57 passenger clean diesel buses. Awarded contract for the purchase of three 57 passenger commuter buses on November 3, 2009. Bus and Other Motor Vehicle Transit Systems Yuba-Sutter Transit Authority, 2100 B Street Information GAO gathered to improve the description The award supports fleet expansion for the Yuba Sutter Transit Authority, which provides transit services in and around Yuba City, Marysville, Linda, and Olivehurst. The commuter bus fleet will be expanded from 14 to 16 and one bus from 1997 will be replaced. The award will result in new buses which will help control air pollution. Capital equipment and security improvements Purchase 1 replacement coach for Clean Air Express, 2 ADA vans, 4 replacement buses for local service, 6 particulate safety traps for existing buses, 6 replacement bike racks and bus security cameras for all rolling stock. Bus and Other Motor Vehicle Transit Systems (Information not reported) $1,342,268.00 Information GAO gathered to improve the description The multiple activities under this award will improve security and safety equipment. The purchase of vehicles allows the agency to replace the rolling stock of buses that have reached their lifespan. The new Americans with Disabilities Act (ADA) compliant vans will have a higher ceiling and provide more head room. Security cameras for all buses will help with problems on buses, prevent problems, and respond to complaints. Bike racks are being replaced because the current racks are deteriorated due to increased use by residents. Safety traps will secure buses at night, and prevent vandalism or theft. INDIAN RIVER, COUNTY OF Invest in public transportation by constructing a new transporatation administration/bus parking facility. An RFP for architectural & engineering services for the design of the new transit administration facility has been issued. Upon completion of project design, a general contractor will be selected by a bidding process. Bus and Other Motor Vehicle Transit Systems Vero Beach, FL 32960-0000 Less Than 50% Completed Information GAO gathered to improve the description The new facility is approximately 5,000 square feet and approximately 2 acres of secured parking for the door-to-door and fixed-route transit vehicle fleet. The new building and parking area will reduce non-revenue mileage by shortening the travel distance of the transit fleet from the old depot to refueling and maintenance areas, improve safety and security, improve office efficiency--including dispatching, communications, and response times--and improve disaster planning, since the new facilities will be built to exceed current hurricane standards. Transit Vehicles, Preventive Maintenance, Surveillance equipment to enhance the operations and functionality of Transit Property in Ocala, FL, SunTran. No activities completed to date. Getting project underway. Bus and Other Motor Vehicle Transit Systems Information GAO gathered to improve the description The award supports maintenance activities for the passenger bus fleet of the city of Ocala. Activities include replacing transmissions and overhauling engines to keep all nine buses running properly. The award also supports the purchase of surveillance equipment for the buses. This equipment, which includes cameras and monitoring devices, will improve safety. TRANSPORTATION, GEORGIA DEPARTMENT OF Georgia Statewide Rural Transit Grant: 182 vehicles, ITS, facilities, software Invest in public transportation in rural areas of Georgia by purchasing new vehicles, upgrading rural bus facilities, procuring scheduling software and installing intelligent transportations systems technology on vehicles. This quarter contracts have been executed with sub-recipients; however most sub-recipients will begin work in the next quarter. This grant will allow Georgia to assist rural transit agencies to purchase 182 vehicles, upgrade ITS equipment, upgrade transit facilities and purchase scheduling software. Regulation and Administration of Transportation Programs 600 West Peachtree Street, NW Less Than 50% Completed Information GAO gathered to improve the description The award funds various transit activities in 30 counties throughout Georgia. Activities include the following: installing intelligent transportations systems technology on vehicles in order to dispatch and schedule information from many transportation providers and allow the public to visit the transportation provider's Web site to schedule necessary trips on line; replacement of aged equipment in order to maintain Georgia's rural paratransit fleet in a state of good repair; purchasing scheduling and dispatching software that will allow for computer-based dispatch, integration with GPS and GIS mapping, and automated route planning, among other things; and upgrading rural bus facilities or purchasing buildings that will serve as rural transit agencies that will also house equipment for the dispatching and scheduling of trips. CAT ARRA 7 replace bus/Trans Enhancement This grant is for FY 2009 ARRA Economic Stimulus Funds. The funds will be used to purchase seven(7) 30-foot replacement vehicles. The buses will be hybrid electric/diesel buses. These vehicles have a useful life of seven(7) years/350,000 miles. CAT will acquire a security system for the facility, monitoring, security guard, and razor wire for fencing. Included in the Project Administration will be the RFP, Advertising and Procurement Cost. Chatham Area Transit Authority will follow all third party procurement policies as defined in C4220.1F. Chatham Area Transit Authority will check the Federal Excluded Parties List System (EPLS), and DOT regulations, 'Non-procurement Suspension and Debarment' 2 CFR Parts 180 and 1200 as one step in the process of determining only 'responsible' contractors that possesses the ability, willingness, and integrity to perform successfully under the terms and conditions (See 49 U.S.C. Section 5325) are awarded contracts. We understand and will follow the proper procurements procedures. 7 new buses have been ordered from the manufacturer. Manufacturing is expected to begin mid year 2010. New radios have been ordered and delivery is expected in January 2010. Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed Information GAO gathered to improve the description The new buses replace those past their expected life and will increase energy efficiency for the agency. The security system and cameras will cover the entire facility and increase safety measures. HONOLULU, CITY & COUNTY OF Bus and Handi-Van Acquisition Program, Pearl City Bus Transit Facility Parking Expansion Program, Wahiawa Transit Center, Middle-Street Inter-Modal Center,Bus Stop Pad Improvements Rehabilitation/Renovation, Preliminary Engineering for New Starts Honolulu- High Capacity Transit Cooridor Project. STIP #OC16, Amount budgeted this grant: $19,345,207, Bus and Handi-Van Acquisition Program - Contract for purchase of 19 buses under review by City. Funds to be used with $254,793 from ARRA HI-56-0001-00. STIP #OC17, Amount budgeted this grant: $4,000,000, Honolulu-High Capacity Transit Corridor Project - Consultant contract documents for planning and engineering work under review by City. STIP #OC19, Amount budgeted this grant: $3,104,793, (includes security and transit enhancement activities)Middle Street Inter-modal Center - Construction contract documents under review by City. STIP #OC31, Amount budgeted this grant: $2,000,000, Bus Stop Pad Improvements Rehabilitation/Renovation -Construction contract documents under review by City. STIP #OC32, Amount budgeted this grant: $7,899,148, Pearl City Bus Facility - Bus Parking Expansion - Construction contract documents under review by City. STIP #OC33, Amount budgeted this grant: $4,300,000, Wahiawa Transit Center - Letter from Mayor Mufi Hannemann to Hawaii Governor Linda Lingle was sent during the 3rd quarter of 2009 requesting release of State of Hawaii funds budgeted for this joint development project. No response from Governor's office. The City will continue its efforts to resolve the matter. New radio communication units will be installed in the replacement buses. 1% transit enhancement requirement totaling $377,398 will be met through artwork at the Wahiawa Transit Center ($200,000) and at the Middle Street Inter-modal Center ($200,000). The 1% transit security requirement of $406,491 will be met through security fencing elements at the Middle Street Inter-modal Center ($400,000) and the Wahiawa Transit Center ($16,938). 650 South King Street; 3rd Floor Information GAO gathered to improve the description The award funds multiple transit activities including construction of an interim parking facility with 100 stalls at the Middle Street Intermodal Center and completing construction of the Transit Center and the Park and Ride Facility at the Wahiawa Transit Center. Activities funded by this award will result in reducing fuel usage by replacing old buses and purchasing hybrid buses, increasing capacity at the Pearl City Bus Transit Facility by increasing the number of parking spaces for buses, and allowing the city and county of Honolulu to move forward with its bus stop pad improvements at a more rapid pace by installing 32 bus pads this year. ARRA grant to purchase three medium duty buses Purchase three medium duty buses and security cameras. Let RFP to purchase buses by 12-30-2009. We have negotiated bus purchase price with the sucessful bidder for RFP#BET2009 (Intermountain Coach Leasing Inc.)to build 3 M.D. low flooor buses. Intermountain has offered their best and final price of $179,832 for each bus for a total of $539,467.00 for three buses. The City is currently considering the bid and will make a decision to accept the offer, of to re-negotiate. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the replacement of old buses that have exceeded their lifespan according to Federal Transit Administration (FTA) standards. Buses will also be equipped with security cameras to monitor passengers, drivers, and any incidents inside or accidents outside the bus. 09 ARRA 5307 Buses (8) and Oper Vendor has delivered 6 of the 8 buses that were award, and final 2 buses are in production. Bus and Other Motor Vehicle Transit Systems More than 50% Completed Information GAO gathered to improve the description The award will support the purchase of new buses for the transit service area that includes the cities of Pocatello and Chubbuck. TERRE HAUTE, CITY OF Replacement buses and remodeling of maintenance facility Have started working on this project to improve and remodel the bus maintenance garage. Engineering cost and replacement estimate design work has been received and invoiced to the Terre Haute Transit Utility. Vendor has started estimating the replacement cost for several pieces of equipment that will be replace in bus maintenance garage. Bus and Other Motor Vehicle Transit Systems Terre Haute, IN 47807-4923 Less Than 50% Completed Information GAO gathered to improve the description This award funds the purchase of 5 30-foot replacement buses, 5 passenger shelters, 14 fare boxes, and 14 radios. Funds will also be used to renovate the transit maintenance and storage facility. These activities will renew the fleet and modernize its system. Replace 6 35' buses, rehabilitate maintenance facility, provide transit enhancements Invest in public transportation by purchasing replacement transit buses, rehabilitating a maintenance facility, installing a disaster recovery system, and providing various transit enhancements to system riders. The main objective of GPTC's service provision is to enhance the ability of Lake County, Indiana citizens to access shopping, education, recreation, public services, and employment by adequately developing, improving, and maintaining a regional passenger bus system. This award will allow GPTC the capacity to realize these objectives, which also include creating and maintaining jobs associated with funded projects. Bus and Other Motor Vehicle Transit Systems Information GAO gathered to improve the description The award funds the replacement of buses because the vehicles were beyond their useful life. The new buses will allow the transit agency to provide better service to transit riders. Transit enhancements at the University Park Transit Center, a transfer center for bus routes, near Indiana University, include beautification of the center with trees and landscaping. This transfer center will improve connectivity between bus routes and improve safety for transit users. Rehabilitation of the maintenance facility includes installing new garage doors and repaving the staging area due to deteriorating pavement. This rehabilitation will extend the life of the maintenance facility. These funds will be used to purchase replacement public transit vehicles which will invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits. We are currently in the process of securing contract opportunities for the purchase of vehicles. Bus and Other Motor Vehicle Transit Systems PO Box 708, 6 East 6th Street Information GAO gathered to improve the description The award supports the replacement of up to four 40-foot buses that comply with the Americans with Disabilities Act (ADA). LAFAYETTE CITY PARISH CONSOLIDATED GOVERNMENT Pur. 1 Bus,Shelters,Security,PM,Signage Invest in public transportation by completeing funding of the final phase of the multimodal center, complete funding for one additional bus, fund bus shelters, fund safety and security equipment, fund new bus stop signs, fund bus stop ADA improvements and fund preventative maintence on the bus fleet. 1. Lafayette Multi-Modal Facility Final Phase: Went to bid and bid awarded. 2. Bus purchase: Went to bid and bid awarded. 3. Bus stop shelters: preliminary site selection. 4. Safety and security equipment: Developing specifications. 5. Bus stop signs: Selecting design and deciding on options. 6. ADA bus stops: preliminary site selection. 7. Preventive maintenance on buses: preparing for bid or option selection. Bus and Other Motor Vehicle Transit Systems (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description This award supports public transportation improvements in the City of Lafayette, Louisiana. These improvements include the purchase of one 35-foot bus, approximately 20 bus shelters, and bus stop signs. The award also supports preventive maintenance, including oil changes and bus engine inspections, as well as renovations of a small number of bus stops to make them accessible, per the Americans with Disabilities Act (ADA). The improvements also include purchasing and installing video cameras on the new bus and replacing damaged cameras on the other buses so that all buses are connected to the security system. The award also provides partial financing for the Rosa Parks Transportation Center. The center is a two-story, 41,000 square foot building which will house a U.S. Post Office and Traffic and Transportation Department offices, as well as Lafayette’s Intelligent Transportation System (ITS) center. Purchase of four replacement buses. Invest in public transportation by purchasing four new thirty-foot buses for replacement This grant allowed the transit agency to purchase four thirty foot replacement buses. Bus and Other Motor Vehicle Transit Systems More than 50% Completed Information GAO gathered to improve the description The award replaces older buses with new buses that meet the standards of the Clean Air Act and the Americans with Disabilities Act. Notification was received from FTA on July 10, 2009 that the City of Charlotte's ARRA Grant had been approved by FTA's Regional Office, the Department of Labor, and Washington's Special Committee. The City of Charlotte was, therefore, given official approval to execute the grant application in FTA's TEAM System. Relocation activities are in progress. Construction contract was awarded to Clancy & Theys Construction Company and a Notice-To-Proceed was issued November 25, 2009. Procurement activities include the selection process for Inspection Services and Safety & Security Certification. Expenditures include project administration, plans review fee, construction management services toward 3rd Party Contracts, advertisements, and relocation expenses along with pre-award expenditures eligible within the grant. (Information not reported) $20,766,306.00 Less Than 50% Completed Information GAO gathered to improve the description The award funds improvements for the North Davidson Bus Facility. Activities include updating facility conditions; upgrading mechanical, electrical, and plumbing systems; replacing original bus maintenance equipment; and constructing a new parking garage. These improvements will delay the need for a third bus facility, allow Special Transportation Services to relocate to the North Davidson Bus Facility, and provide sufficient space and support for up to 200 buses. ROCKY MOUNT, (INC) CITY OF ARRA 2 BUS, PM, EQUIP, RE, SHELTERS Purchase of new buses to expand existing urban transit routes; purchase of equipment to upgrade vehicles and maintenance operations; and facility improvements to operational facilities utilized by riders, including transfer stations and shelters. Activity in the 4th Quarter of 2009 comprised of purchasing an existing building for relocation of TRT driver opearations, along with the preparation of bids for the purchase of vehicles, equipment, and services to be funded with additional grant funds. Tar River Transit (TRT), the urban public transportation provider for the City of Rocky Mount, will utilize ARRA Transit Urban Capital Assistance funds to expand and improve transit operations through the purchase of vehicles and equipment, along with improvements to distribution and maintenance facilities. 100 Coastline St. Rocky Mount, NC 27804-5849 Less Than 50% Completed Information GAO gathered to improve the description The award funds the purchase of two 25-foot light transit vehicles; seven replacement engines; and equipment, real estate, and shelters for Tar River Transit. Work on the transfer and administrative facility includes purchasing the facility and landscaping the transit center. The transit garage improvements include work on the paint, lights, heaters, and transmission stand. Other activities include painting the bus station and renovating the taxi shelter. RUTGERS, THE STATE UNIVERSITY FTA project and construction management training To provide training for transit systems through the delivery of 34 Project Management for Transit Professionals and 6 Management of Transit Construction Projects sessions. Planning course deliveries began in September and courses will commence in the next quarter. All Other Support Activities for Transportation (Information not reported) New Brunswick, NJ 08901-8559 Less Than 50% Completed Information GAO gathered to improve the description Federal transit laws require a grant applicant for a major capital investment project to prepare and carry out a Project Management Plan (PMP) approved by the Federal Transit Administration (FTA). The award supports project and construction management training for transit management professionals so that they can prepare and carry out a PMP. The training teaches good project management skills to transit management professional and builds capacity at transit organizations. The training also includes specific emphasis on the requirements that are presented in the report Project and Construction Management Guidelines 2003 Update. PORTAGE AREA REGIONAL TRANSPORTATION AUTHORITY ARRA Maint. Facility Rehab./ Preventative Maintenance Invest in public transportation by replacing the roof of a bus storage/maintenance facility, performing preventative maintenance on existing buses, and completing preliminary engineering and design for facility projects on PARTA's property located at 2000 Summit Road, Kent, OH 44240. During the CY 4th quarter, PARTA continued to perform preventative maintenance on its 73 vehicles. The labor for the roof renovation is substantially complete and we are now in the contract close out period. PARTA has continued to complete preliminary engineering and design for facility projects on PARTA's property located at 2000 Summit Road, Kent, OH 44240. Bus and Other Motor Vehicle Transit Systems 2000 Summit Road More than 50% Completed Information GAO gathered to improve the description The award supports preventive maintenance activities to extend the life of the buses, including safety inspection, oil change, fluid change, brakes, labor for mechanics, and replacement parts if needed. The award also supports replacement of the facility’s roof. The roof was deteriorating and leaking water, which caused damage to equipment inside the building. The new roof is expected to last for 15 years. TRANSPORTATION, OKLAHOMA DEPARTMENT OF Purchase of 241 replacement buses and five over-the-road intercity buses. Invest in public transportation by replacing the nonurbanized and rural transit provider's aging fleet with efficient and reliable vehicles. A total of 246 vehicles will be purchased. The purchase will include 241 replacement buses of which 17 will be configured with Compressed Natural Gas. Also, five over-the-road buses are programmed for purchase. Awarded 19 contracts to subrecipients. Request for Bids for nine vehicle types were solicited. Awards were made for eight types of vehicles. One vehicle type was canceled due to ambiguous bid specifications. A total of 37 purchase orders were awarded during this report period. Interurban and Rural Bus Transportation (Information not reported) Information GAO gathered to improve the description The award serves 18 counties throughout the state. TRI-COUNTY METROPOLITAN TRANSPORTATION DISTRICT OR Street Maint Improve; Milwaukie Park&Ride; Foster Road Layover Concrete Bus Pads; Lighting along Multi-Use Path adjacent to I-205 Light Rail Tracks; Morrison/Yamhill Intersect Repairs; Portland Streetcar Signals; Rail Preventive Maintenance. Invest in public transportation by initiating Bus Priority Street Maintenance Improvements; Milwaukie Park & Ride; Foster Road Layover Concrete Bus Pads; Lighting along Multi-Use Path adjacent to the I-205 Light Rail Tracks; Morrison/Yamhill Intersection Repairs; Portland Streetcar Signals, Ramps, ITS; and performing rail Preventive Maintenance on existing light rail vehicles. Bus Priority Street Maintenance Improvements; Milwaukie Park & Ride; Foster Road Layover Concrete Bus Pads; Lighting along Multi-Use Path adjacent to the I-205 Light Rail Tracks; Morrison/Yamhill Intersection Repairs; Preventive Maintenance. More than 50% Completed Information GAO gathered to improve the description The award supports various improvement activities including (1) repaving two deteriorating major bus transit streets and adding concrete bus pads at stops in order to reduce ongoing preventive maintenance at these locations and improve the rider experience; (2) replacing the shoulder on Foster Rd. with a concrete pad and base to accommodate buses, minimize future maintenance costs, and address the degradation of the standard roadway surface and base; (3) replacing infrastructure beneath the light rail tracks at 10 corridor intersections in the Morrison and Yamhill corridors to maintain safe and reliable service; (4) extending lighting along the I-205 multi-use path from the Lents Town Center Station to Gladstone to enhance safety along the corridor and encourage more people to ride bikes and walk to transit; (5) constructing a new 315-space Milwaukie Park & Ride facility at the intersection of SE Milport Rd. and SE Main St. for the heavily traveled McLoughlin corridor, enabling more commuters to use bus lines. WEST FLORIDA REGIONAL PLANNING COUNCIL Invest in public transportation by constructing new transit facility and security fencing, performing preventive maintenance on existing revenue fleet, installing automatic passenger counters on existing revenue vehicles, installing automated fareboxes on existing revenue vehicles, installing stop annunciators on existing revenue vehicles, purchasing and installing passenger shelters, purchasing a service vehicle, for a total of $2,377,250. Received and installed automatic stop announcement (annunciator) systems in all (17) buses, received and installed automatic passenger counting system (APC) in 8 buses, received (have not installed) automated fare boxes for all (17) buses. Performed preventive maintenance for fleet vehciles. Annunciators and APCs will be configured in January. Automated fareboxes will be installed in February. Bus and Other Motor Vehicle Transit Systems Panama City, FL 32401-3485 Less Than 50% Completed Information GAO gathered to improve the description The new transit facility being constructed will house the administrative functions of the transit agency, maintenance facilities, and response system, as well as store buses. The new facility will be located in unincorporated Bay County, outside of Panama City limits on Sherman Ln. and Douglas Rd. The current transit facility in Panama City is no longer big enough to house buses, and has inadequate office and maintenance space. Invest in public transportation. Cherokee County will use the 2009 ARRA funds to purchase a 5307 fixed route expansion vehicle. The 30' passenger vehicle will provide the opportunity to increase ridership and expand fixed route service to Cherokee County residents. Preventive Maintenance vehicle surveillance, and other communications and fleet maintenance miscellaneous support equipment, and bus shelters, will be purchased. Transit enhancements, including transit technology, MDCs and AVLs, will also be purchased. We plan to add one (1) expansion vehicle with a useful life of 6-8 years. The bus will meet CAA and ADA requirements. The fleet status section of TEAM has been updated to reflect this fleet addition. We are able to operate and maintain the vehicle expansion. The County is aware of FTA C 4220.1F regarding third-party procurement and will follow federal, state and local procurement policies. County will ensure that contractors are not on the debarment and suspension list. Will adhere to any/all special conditions of this award. (4th Quarter) The Project Description has not changed, however, the activities this quarter have. Expenditures for the 4th Quarter include $188,705.06 for Miscellaneous Support Equipment (11.42.20); $12,123.80 for Landscaping under Scenic Beautification (119.00 Transit Enhancements; $11,533.00 for Preventive Maintenance (117-00 Other Capital Items). ___________________________________________ (3rd Quarter) The Cherokee County Board of Commissioners has received 15 bids relevant to the ARRA Capital expenditure to date. $20,037 for Communications Equipment (11.62.02); $20,642 for Control/Signal Equipment (11.62.01) and $151,975.59 obligated to Misc. Support Equipment (11.42.20), as well as $12,000 obligated to Scenic Beautification adn property security (11.92.03 - 11.42.09) Bus and Other Motor Vehicle Transit Systems Less Than 50% Completed Information GAO gathered to improve the description The award funds the purchase of 14 technology units (Automatic Vehicle Locators and Mobile Data Computers), 3 bus shelters in the city of Canton, and 1 set of 4 portable lifts to help perform bus maintenance. The intelligence technology system software and hardware will help map and coordinate routes and ultimately save money by providing for more efficient pick-up/delivery. The new equipment is expected to save on tire wear and outsourcing costs. ARRA Aug 3 repl bus/1 van/1 truck/misc expense Invest in public transportation by purchasing additional buses including a hybrid and replacing a totally depreciated bus. Also fund maintenance costs including mechanics salaries and additional training. Also fund ADA expenses,salaries,training, fuel maintenance costs. Invest in public transportation by purchasing additional buses including a hybrid and replacing a totally depreciated bus. Also fund maintenance costs including mechanics salaries and additional training. Also fund ADA expenses,salaries,training, fuel maintenance costs. Bus and Other Motor Vehicle Transit Systems 530 Greene Street, Room 207 Less Than 50% Completed Information GAO gathered to improve the description The award supports the transit department of the County of Augusta-Richmond in replacing buses that were scheduled to be replaced and upgrading their fleet, funding salaries and maintenance work on vehicles, and replacing an old supervisor van and maintenance truck. The award allows the transit department to maintain service levels. Renewable Energy/Retrofit-Solar Lgt&Sec Invest in public transportation by replacing conventional petroleum dependent energy/security lighting system with a photovoltaic solar system in FTA funded vehicle maintenance and storage facilities. Bus and Other Motor Vehicle Transit Systems PR-172, 2nd Floor Public Transportation Terminal $1,000,000.00 Information GAO gathered to improve the description The award supports the conversion of the Cidro Public Transportation Center from a gas-powered to a solar-powered facility. The solar system will rely on inverters for power rather than batteries. The energy backup will be the electric company. The award will lower pollution by producing clean energy. The Recovery Act appropriated $5.55 billion for the Federal Buildings Fund, which provides money for measures necessary to convert federal buildings into high-performance green buildings, renovate and construct federal buildings and courthouses, and renovate and construct land ports of entry. This fund is administered by the General Services Administration (GSA), which selects projects for funding (such as the construction of a new building), and contracts with construction and engineering professionals to complete the project. Generally, GSA issues a number of contracts for each project. Nature and Type of Projects GSA had obligated just over $4 billion as of April 23, 2010. Of this amount, GSA has spent about $315 million. This spending represents the total value of payments made to contractors for work they have already completed. Of the $5.55 billion in Recovery Act funds, about $4.3 billion was made available for measures necessary to convert GSA facilities to high- performance green buildings, $750 million was made available for federal buildings and U.S. courthouses, and $300 million was made available for border stations and land ports of entry. Overall, GSA selected 263 projects in all 50 states, the District of Columbia, and two U.S. territories. As shown in table 10, GSA’s Recovery Act projects fall into four main categories: (1) new federal construction, (2) full and partial building modernizations, (3) limited scope projects, and (4) small projects. We assessed the transparency of descriptive information for Federal Building Fund awards available on Recovery.gov, as described in the report. We found that an estimated 29 percent met our transparency criteria, 64 percent partially met our criteria, and 7 percent did not meet our criteria. For the descriptions that did not fully meet our transparency criteria, we collected additional information necessary to make the descriptions meet our criteria. The descriptions of awards, whether they met our criteria, and additional information that we found to complete the narrative descriptions are provided at the end of this appendix. GSA has provided additional guidance to Federal Buildings Fund contract recipients, established an Outreach Call Center to help recipients fulfill reporting requirements, and reviewed the recipient reports before the reports were made public on Recovery.gov. According to GSA officials, these efforts were designed to ensure that recipients followed reporting requirements and provided information on awards that the public can understand. GSA provided technical assistance to recipients that was designed to augment the Office of Management and Budget’s (OMB) guidance on recipient reporting. GSA made this guidance available on its Web site and also mailed a copy of the guidance to each recipient. This guidance, first issued in September 2009 and updated in October 2009, December 2009, and March 2010, describes the time frames for reporting and specific data element instructions, among other things. GSA’s guidance did not supply any information that supplemented OMB’s guidance on describing projects, including how funds are being used and expected outcomes. According to GSA officials, this guidance was meant to be a synopsis of OMB’s guidance; they did not think supplemental guidance was needed to describe how funds are being used and what outcomes are expected because they considered OMB’s guidance sufficient. GSA’s Outreach Call Center has provided both outreach and support to contract recipients. Specifically, prior to each reporting quarter, staff at the center have contacted recipients to update contact information and remind recipients of the reporting deadlines. In addition, staff at the center are available to answer questions from recipients and provide technical support to recipients as they complete their reporting requirements. For the second round of recipient reporting, GSA staff also developed data quality reviews that compared the financial data in recipient reports with financial data in GSA’s financial management systems. GSA staff contacted the recipients and clarified any information that was not consistent with GSA data. In addition, GSA staff reviewed the narrative information in the “award description” and “project description” fields to ensure that the information was accurate and to clarify any technical jargon or acronyms. According to GSA officials, GSA staff did not attempt to provide additional information; instead, GSA officials clarified the information that was already in the description. GSA officials have worked with members of the media to inform the public about GSA’s work under the Recovery Act. In addition, GSA issues press releases on major project milestones and informs national and local media when GSA awards a project. However, according to GSA officials, GSA cannot communicate all of its available information to the public because of the large volume of information available on GSA projects. In addition, some information is procurement-sensitive and cannot be released to the public. In addition to information on Recovery.gov, GSA has published information on its Recovery Act program on its own Recovery Act Web site. This information includes the following: A Federal Buildings Fund Program Plan. This plan contains a summary of the objectives and activities that GSA’s Public Buildings Service plans to implement with the $5.55 billion in Recovery Act funds. The plan also includes information on the projects’ selection, delivery schedule, and performance measures. Additionally, the plan contains information on how GSA will address issues such as monitoring and evaluation, transparency, and accountability for its Recovery Act program. A Public Building Service Project Plan. This plan details how GSA will spend its $5.55 billion in Recovery Act funds; lists all the GSA building projects that will receive Recovery Act funds; and, for each project, includes the name, location (city and state), and estimated cost of the project. A Federal Buildings Fund Investments Map. This interactive map shows where GSA is spending its Recovery Act funds and provides information on spending to date, measured in obligations and outlays, for individual projects or states. According to GSA officials, they have received positive comments about GSA’s role in helping to revive the construction sector in numerous communities. GSA has also received negative comments about the pace of its spending. According to GSA officials, the pace of spending lags behind the amount of work and number of jobs that GSA projects are generating because GSA pays for work on a reimbursable basis after the work has been completed. As a result, work can be ongoing at a GSA project, even though GSA has not spent any money on the project. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. GRUZEN SAMTON ARCHITECTS PLANNERS & INTERIOR DESIGNERS LLP This contract is a for A/E services for the design of a federal employee parking garage and a master plan for the San Juan, PR FBI Field Office Consolidation project. The project as a whole will result in the design and construction of a new approx. 240,000 GSF Federal Building, on existing government property (a 27 acre site) for the Hato Rey area, San Juan FBI field offices. Design and construction of the FBI facility wil be procured under a separate contract. Delivered Final Master Plan and Final Concept Design for the Garage. (Information not reported) SAN JUAN, PR 00918-1700 More than 50% Completed GS-02P-06-DTD-0054 WESTLAKE, REED, LESKOSKY, LTD. The objective of this work order is to achieve the re-commissioning and retro-commissioning goals set forth in the ARRA for the Howard M. Metzenbaum USCH by creating bid and construction documents that describe all construction phase project work required by the NRPC identified projects and support the NRPC with project identification and definition. The design shall consist of but is not limited to the following: Mechanical Systems Upgrade/Replacement: Chillers, cooling towers, air conditioning units, boilers, hot water converters, steam pressure reducing stations, condensate return systems, primary and secondary pumping systems, domestic hot water heaters, heat exchangers, air handling units, terminal or variable air volume (VAV) boxes, heat recovery units, motors, steam traps, dampers, pumps and air ducts. Energy conservation and renewable energy projects ? Water Quarterly Activities/Project Description: During the final Quarter of 2009, WRL held an on-site kick off meeting with the GSA Project Manager, at the Metzenbaum Federal Courthouse. Field investigation was performed, and base drawings of the building were developed. WRL participated in reviews of the Commissioning agent?s reports prior to producing documents based on their Recommisioning recommendations. WRL produced 30% and 75% Documents which were used to solicit proposals from a Construction Manager. WRL participated in pre-proposal conferences with GSA and the potential Offerors for the role of Construction Manager. (Information not reported) Less Than 50% Completed PDG, INC. Wind Tunnel Testing Structural Study for the Micky Leland FOB (TX0298ZZ located at 1919 Smith Street, Houston, TX 77002). Provide engineering testing and analysis services for the site, as well as, to determine building cladding design loads. Attended meeting with Leland FOB building manager and COTR to verify existing conditions & establish working schedule. Reviewed existing architectural and engineering plans & technical reports. Verify Bldg. site climatology & develop wind speeds. Perform wind tunnel testing for the FOB that simulates the natural wind environment for the building site. Document all findings, conclusions & recommendations into a report. MESSER CONSTRUCTION CO. The Project Award includes $35,500,000 for Construction Phase Services for the GS-05P-08- GBC-0005 Fire/Life Safety and HVAC Modernization for the Minton Capehart Federal Building in Indianapolis, IN. It also includes Estimated Additional Scope Items of $4,304,513; and GSA Contingency of $2,805,739.21; M&I Services of $500,000. The base project scope (Fire/Life Safety and HVAC Modernization) includes replacement of: air handlers, fiberglass branch distribution ductwork, stair pressurization fans, temperature controls, fire alarm system, fire pump and jockey pump, fire protection system, ceilings and lighting. Electrical systems and emergency generator system are to also be upgraded as necessary to support the project scope of work. The project scope should also include LEED Silver certification. We are working to complete preconstruction services funded prior to the ARRA funding. Preconstruction services are proceeding as scheduled. We anticipate major subcontract awards to take place in first quarter of Calendar Year 2010. We are also working on M&I services, including forensic testing to verify condition of building piping systems prior to completion of design. Commercial and Institutional Building Construction Less Than 50% Completed GS-05P-08-GBC-0005 HEERY INTERNATIONAL, INC. Provide engineering and commissioning expertise to conduct recommissioning / retro- commissioning planning, identify energy conservation measures, scoping, testing, investigation, evaluation, analysis, calculations, recommendations, and report writing services for the following GSA federal buildings: (1) TX, Houston, Bob Casey US Courthouse, (2) TX, Houston, Alliance Tower, (3) TX, Houston, LaBranch Federal Building, (4) TX, Corpus Christi, US Courthouse and (5) TX, Victoria, ML King, Jr. Federal Building. Responsed to government's comments on the Draft Report (submitted last quarter) and completed Final report for submission by end of the year. (Information not reported) FORT WORTH, TX 76102-6105 More than 50% Completed GOSHOW ARCHITECTS, L.L.P. A/E Services for Bridging Documents for the high-performance, green, building modernization and other alteration work Clement Ruiz Nazario Courthouse and Federico Degetau Federal Office Building in Hato Rey, Puerto Rico. Review and evaluate site conditions, existing studies, surveys, analyses and reports, and identify additional services and tests that are required to fully document the project. Included in this phase were Courthouse/FOB Tours; Systems Upgrade Analysis; Fire Protection/Life Safety Analysis; Enviromental Hazards report; Conveyance System Study, Structural Analysis Study; Accessibility Study; Thermographic Imaging Study; Energy Model and Existing Building Analysis. Hato Rey, PR 00918-0000 More than 50% Completed Purpose is to investigate and provide recommendations for optimizing building performance through identifying energy improvements and demand reduction strategies. A feasibility study is being generated to include the following information: 1) The integration of geothermal heat pumps in the facility to offset the cost of cooling and heating the building. 2) Determine the feasibility of installing PV panels on the roof. 3) Provide suggestions for the most methods of retrofitting the roof to accept PV panels where existing roof can not supoort PV panel installation. 4) Provide conceptual renderings and drawings depicting vehicle canopies and covered walkways that use PV panels as protection from weather. 5) Provide any other suggestions for reducing the electrical load of the building. 6) Provide a fully developed Lifecycle costing, pay back period, and energy savings. The Architect/Engineer are to develop a Design-Build scope of work to implement the findings of the Retro-Commissioning Study that can be executed within the available funding. The Architects and Engineers took the findings from the Retro-Commissioning Study and began preparing a Design-Build scope of work specification report. A draft copy of the report was submitted to the agency for review and comments. More than 50% Completed GS-03P-03-CDD-0028 HEERY INTERNATIONAL, INC. Initial scope is for pre-design services for the design and construction of new office space for the Army Corp of Engineers on the Federal Center South campus in Seattle, WA. Design and construction will be procured under a design-build procurement methodology using a two- step best value competitive award. The deliverables include an update Program of Requirements, a design-build performance specification, a comprehensive bidding procurement document. The design-build contractor is expected to be under contract in early March 2010. Developed and refined concept estimate for the DB scope of work.Completed Owner Project Requirements (OPR) document. Completed development of the DB competition bid document. Participated in DB Q&A meetings with GSA and USACE. (Information not reported) More than 50% Completed JACOBS FACILITIES INC. Construction Management Services for Judges' Swing Space at Samuel M. Gibbons Federal Courthouse The purpose of this scope of work is to provide GSA guidance and direction as the Construction Manager as Advisor (CMa) Contractor who will be the government's on-site manager responsible for the successful renovation of Space Alterations at the Samuel M. Gibbons Federal CourthouseThe goal of the project is to construct the project on schedule and within budget while addressing minimum criteria for integrated design, energy and water usage, indoor environmental quality and materials usage.Major deliverables include Cost Estimating, Communications Plan, Detailed Project Schedule Development and Maintenance, Project Progress Meetings and Presentations, Meeting Minutes and Correspondence, General Progress Reports, Record Keeping, Construction Submittal and RFI Processing, Project Photography, Inspections and Testing Reports, Punch-List and Final Inspection, and Closeout Documentation. Interior buildout wall framing completed, wall rough-in of electrical completed, walls insulated and drywall has been installed and finished complete. Overhead electrical rough-in nearly complete and HVAC rough is nearly complete. All walls are painted and ceiling grid installation started.Project is ahead of schedule and going well. Commercial and Institutional Building Construction (Information not reported) More than 50% Completed The restoration project will replace the waterproofing membrane and increase the insulation of the plaza, replace the lighting systems in the below grade Post Office workroom levels with more energy efficient lighting, repair damages caused by water leaks and upgrade sidewalk access ramps to meet current ADA requirements. Further, the granite pavers will be cleaned, restored and reset at the Federal Plaza. The mnain goals are as follows: ?? Replace the waterproofing system. ?? Increase insulation of the Plaza. ?? Replace the lighting and/or lighting controls in the below grade Post Office workroom levels with more energy efficient lighting. ?? Repair structural damage. ?? Repair damages to interior structural elements and finishes caused by water leaks. ?? Ensure ease and efficiency of long term operation and cost effective maintenance. ?? Complete the design and construction per GSA P-100. ?? Develop 3D Building Information Model (BIM) for the Post Office space and Plaza. ?? Complete a project that satisfies the requirements of the existing building tenants and GSA. ?? Maintain the visual integrity and historic nature of the Plaza and all its elements after the project is complete. ?? Complete the design and construction within established schedules. ?? Complete the project within the budget by maintaining fiscal responsibility, communicating that responsibility to all parties involved, and by constantly updating and tracking project cost estimates. ?? Develop a high performance green complex. ?? Adhere to all elements and guiding principles of the LEED program where practical. ?? Per the Energy Policy Act of 2005, GSA’s targeted maximum annual energy consumption level for this project is 87,571 BTU's per gross square foot. ?? Promote and demand excellence in design and construction to produce a final project/building that reflects the dignity and significance of the United States Government. Pre-Construction Phase Services: 1) Review of the Architects design 2) Review of the Architects schedule. 3) Conduct a design review charette 4) Conduct bi-weekly meetings for the project team and maintain meeting minutes/ project directory and the distribution list. 5) Track Progress via monthly report. 230 South Dearborn Less Than 50% Completed Owner's Construction Representative services for the Modernization of the 10W. Jackson, 18 W. Jackson, and 230 S. State Street Project, located in Chicago, IL. The contract award is for the Base Services-Design/Pre-Construction Phase, Construction Year One of Option 1, and Options 2 and 3: Cost Estimating and Project Scheduling. The purpose of this project is to modernize and renovate the three buildings to create a safe and functional environement for the federal government and the public that will use the building. Owner's Construction Representative, project Kick-Off, run and organize weekly meetings, meeting minute documentation, review of existing and new documents, review drawings, site visits, project organization, tenant meetings attendnace, notes, review of plans, peer reviews, HVAC report review, schedule review, design review, final concept design review, scheduling, GMP cost estimating reconciliation, conduct value engineering work shops. (Information not reported) Less Than 50% Completed GS-05P-08-GBD-0023 The award is for Architectural/Engineering Briding Design services including, but not limited to, Pre-Design Services, Design Concepts, Briding Design-Build Services, and Contract Close our Services for th eBan Buren Land Port of Entry. The project is a new Land Port of Entry (LPOE) for the town of Van Buren, Maine, located on the St. John River approximately 320 miles north of Portland, 40 miles north of Presque Isle, and 25 miles southeast of Madawaska. The existing Border Station was damaged when the St. John River flooded in late April and early May of 2008. Rather than merely repair the undersized and outdated 40- year old facility, the GSA and the Department of Homeland Security’s Customs and Border Protection (CBP) felt that this would be an excellent opportunity to build a new port that would meet CBP’s needs for the future. This new port will be a gateway to our country and will replace a flood-damaged and obsolete border facility with a state-of-the-art commercial port of entry. It should make a distinct architectural statement that is responsive to the local community, the efficient movement of trade and commerce, the security requirements of law enforcement agencies, and the welcoming of visitors and citizens to the United States of America. Design Concepts services, including: space planning, space efficiency reporting, model building, systems life cycle assessments, design, review, and presentation of three conceptual project alternatives, cost estimating. 2400 Rand Tower, 527 Marquette Avenue Less Than 50% Completed CH2M HILL, INC. The Denver Federal center has antiquated utilities in need of repair or rehabilitation. CH2M HILL has been working with the GSA over the past three years to design a new water distribution system to replace the antiquated one, design rehabilitation and replacement of the sewer system that has been in place since the 1940's, and upgrades to the existing stormwater and electrical systems. The ARRA funding allowed this much needed project to be constructed and also allows for further design and construction to improve the Gulch that runs through the DFC to provide channel stabilization, replace the main electrical conductors, repair parking lots and provide a sewer upgrade. Provided engineering construction services for the construction of Phases I through III of the Utilities Infrastructure Project at the Denver Federal Center. Completed 30% design of Phase IV and began 60% design of Phase IV. (Information not reported) Less Than 50% Completed JACOBS FACILITIES INC. The New Custom House in Denver, CO, is an 8-story office building containing 172,502 usable square feet with 47 outdoor parking spaces on a 2.4 acre site. This 8-story stone building was constructed in 1931 and has 5 floors above grade plus a basement, sub- basement, and a partial floor below the sub-basement. In 1979, the building as listed on the National Register of Historic Places and is now designated as a level 2 historic asset. The building is primarily used as office space, the building also contains a child care center, as food service area, and provides space for US Bankruptcy court proceedings. Tenants include: the Small Business Administration, the US Bankruptcy Courts, the Military Entrance Processing Station, Department of the Army, Department of Justice, Department of Labor, Department of the Treasury, the Railroad Retirement Board, and the Department of Homeland Security.The proposed capital project will protect this 78-year old historic asset and improve the energy efficiency by upgrading air handling units, updating/replacing . Induction units and condensate piping, updating lighting and controls, updating mechanical controls, air intakes, installing isolation valves, updating/replacing domestic and mechanical plumbing, replacing ceilings and flooring, site work and new dock, updating restrooms, upgrading life safety system, and updating interior and exterior finishes. The project will also include replacement of all the windows with blast resistant construction. The amount of swing space is estimated at approximately 10,000 square feet. Construction is anticipated to begin in the summer of 2010 and the project duration is estimated at 24 - 30 months. The project is required to meet all American Recovery and Reinvestment Act (ARRA) regulations and applicable environmental and energy requirements.The contract scope of services includes Pre Design Phase Services to assist, review and provide technical support during the procurement process. Specifically, the Construction Manager will compile and/or develop the Design/Build criteria package and review offeror proposals for adequacy and completeness. After award, during the Design/Build design phase, services include review of the Design/Builders design submittals to confirm that the design meets the Solicitation for Offers, budget, and special requirements. The Construction Management team will also perform code compliance reviews; constructability reviews;conduct/participate in Value Engineering workshops; analyze Value Engineering proposals; prepare independent cost estimates, scheduling and design problem resolution. Project Construction Phase Services include monitoring/observation services and attending onsite construction coordination meetings that occur among the Government, General Contractor, and Architect. Pre-Design services have initiated with review and analysis of existing documentation. The first deliverable for the CM team is in progress. The deliverable is augmentation of the DB study, the DB specifications, the bid form, consultation on the technical proposal and DB SOW. Products from this analysis will be included in the DB RFP which will be issued to the shortlisted offerors in mid-December. Subcontracting and scheduling of geotech subconsultant is in progress. Commercial and Institutional Building Construction (Information not reported) Less Than 50% Completed This project is to study options and make recommendations for a photovoltaic system to be located at the terry Sanford Federal Building in Raleigh, NC. The complex consists of a courtroom tower and a large postal annex. The proposed PV system will be mounted on the roof of the annex, which is estimated to have 116,140 square feet of useable roof area. The project is initiated to use solar energy to generate power and reduce dependency on grid power. The overall goal of the project is to provide an alternative energy source that will provide supplemental power to the Terry Sanford Federal Building. The goal for this award is to provide a pre-project study and to develop a requirements package for construction. Project Management, Structural Engineering, Architecural Services, & Electrical Engineering Raleigh, NC 27601-1483 More than 50% Completed ENVIROSERVICES & TRAINING CENTERS LLC Ensure safe work conditions and prevent release of asbestos and lead during renovation activities at the Federal Building and US Post Office, 154 Waianuenue Ave, Hilo, Hawaii. Mobilized to the island of Hawaii. Provided oversight of asbestos related work for the 3rd Floor, rooms 302 to 305, including air monitoring and asbestos clearance testing. Asbestos clearance testing failed criteria and additional follow-up cleaning and testing is expected. Performed sampling and analysis of soil and thermal system insulation debris on bare soil to determine asbestos content. Debris contained regulated levels of asbestos. Soil in 2 of 4 sections contained detectable levels of asbestos less than 1 percent which is considered contaminated by Hawaii Dept of Health. Will provide design specifications for asbestos abatement if required. Further oversight activites are expected for lead related work and in different areas of the site. Mobilized to the island of Hawaii. Provided oversight of asbestos and lead related work for the 3rd Floor, rooms 302 to 305, including air monitoring and asbestos clearance testing. Asbestos clearance testing failed criteria and additional follow-up cleaning and testing is expected. Performed sampling and analysis of soil and thermal system insulation debris on bare soil to determine asbestos content. Debris contained regulated levels of asbestos. Soil in 2 of 4 sections contained detectable levels of asbestos less than 1 percent which is considered contaminated by Hawaii Dept of Health. (Information not reported) Less Than 50% Completed GS10F0173U KEY ENGINEERING GROUP, LTD. Overall purpose of this study was to comply with the National Environmental Policy Act (NEPA). NEPA study for the Chicago Federal Plaza restoration project. Project deliverables included preparation of an agenda (complete), meeting minutes and action items (complete), roster of team members (complete), Class I Cultural Resource Review - Section 106 Compliance (complete), preparation of a draft documented Categorical Exclusion (CATEX) checklist (complete), final checklist (complete). Significant services performed included agenda (complete), meeting minutes and action items (complete), roster of team members (complete), Class I Cultural Resource Review - Section 106 Compliance (complete), preparation of a draft documented Categorical Exclusion (CATEX) checklist (complete), final checklist (complete). In accordance with the scope of work, this project has been invoiced to 90% of completion. The remaining 10% will be invoiced after GSA public notice is completed. CHICAGO HEIGHTS, IL 60411-1001 More than 50% Completed CORNERSTONE ARCHITECTURAL GROUP, PS Provide a study to determine the condition of the Federal Center South Building's roof structural system and address potential roofing material alternatives while meeting the ARRA requirements, initial capital, sustainability, life cycle costs, good stewardship, historic preservation and performance. A cool roof, a vegetative roof, a building integrated photovoltaic or photovoltaic ballasted roof were to be considered and a recommendation provided. The study will be used to provide guidance for a future roofing construction project. The entire work under this award was completed in this quarter. Site visits, inspections, meetings, draft reports, reviews and the final report was submitted and approved. 6161 NE 175th Street JACOBS TECHNOLOGY INC. Data collection services to determine the feasibility of Project Labor Agreements in two areas and the risk associated with each (San Francisco, CA and Honolulu, HI). The report will look at the utilization of Project Labor Agreements in high union density states (such as California and Hawaii) and will determine if large-scale construction projects to be built in predominantly unionized areas would benefit from the use of a Project Labor Agreement. The report will look at the utilization of Project Labor Agreements in high union density states (such as California and Hawaii) and will determine if large-scale construction projects to be built in predominantly unionized areas would benefit from the use of a Project Labor Agreement. Research and study continued for Honolulu and San Francisco. Contract modification forthcoming to perform similar Project Labor Agreement studies on additional cities. (Information not reported) Less Than 50% Completed GS03P09DXA0025 HEERY INTERNATIONAL, INC. Heery International is providing Construction Manager as Agent (CMa) services for the San Juan FBI Consolidation Project for the Master Plan & Garage Design. The services include; attending design meetings and preparing agendas and minutes. Heery is also providing design reviews and estimates at each phase of the design. All of these services are being performed to provide quality assurance and project management oversight. Also, include in the scope of services are the design phase commissioning services required to obtain LEED Silver Certification. The expected outcome of these services is to provide a project that is completed on time, within budget, and in accordance with the contract requirements. October - Attended the kick-off meeting and prepared the 35% DD Estimate and performed the 35% DD Design Review. November - Attended periodic design meetings and prepared the 50% CD Estimate and performed the 50% CD Design Review. December - Attended periodic design meetings and prepared the 95% CD Estimate and performed the 95% CD Design Review. (Information not reported) San Juan, PR 00918-1700 Less Than 50% Completed JACOBS TECHNOLOGY INC. CM services for Clemente Ruiz Nazario Courthouse and Federico Degetau Federal Office Building The project is a High Performance Green Building Modernization. The scope of the work for the building includes the following: Redesign and replacement of HVAC system; upgrade of electrical panels and distribution system; implementation of energy conservation program; installation of photovoltaic panels; improve interior finishes; renovation of restrooms; compliance to ADA requirements; upgrade of fire protection and life safety system and partial site improvement. This quarter 100% Bridging documents were submitted by the Architect and have been reviewed and construction cost estimates prepared by Jacobs for reconciliation prior to bid. The initial phase of a two phase solicitation for a design build contractor has been completed. Jacobs was issued a modification on Dec 28, 2009 to provide design phase services in connection with the buildout of a new courtroom and ancillary space in the Jose Toledo Courthouse, Old San Juan,PR to be used as swing space during the modernization project in Hato Rey. (Information not reported) The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our assessment: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases, only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. STL ARCHITECTS, INC. Study to investigate three existing 300 ton chillers with one that will be more fuel efficient. Preparation and presentation of a Pre-Design Report determining methods of altering existing chiller systems in order to increase energy efficiency. (Information not reported) $17,821.76 Information GAO gathered to improve the description The study of energy-efficient chiller options is part of a planning and designing effort for the recommissioning and retro-commissioning of the existing Metcalfe Federal Building in order to improve the energy efficiency and minimize the environmental impact of the existing building. The study will lead to preparation and presentation of a pre-design report highlighting areas of the subject property that may be altered or added to in order to increase energy efficiency. This particular report will focus on the chiller system. A/E Desgin Services for Land Port of Entry at Columbus, New Mexico Corpus Christi, TX 78401-3025 Less Than 50% Completed Information GAO gathered to improve the description The award was originally for expansion of the facility in its current location, but recent flooding along the border requires relocation of the facility away from the flood zone. This award will allow completion of design to incorporate flood protection and compliance with new statutory energy requirements. The facility will replace the existing, functionally obsolete facility with a new, energy-efficient facility that will meet the Customs and Border Protection (CBP) mission requirements. PARSONS INFRASTRUCTURE & TECHNOLOGY GROUP INC. Construction Management (CM) Services for the Mondernization & Expansion of the Otay Mesa Land Port of Enty (LPOE) in San Diego California. This Delivery Order covers services A-B as indicated in the contractor's proposal date 7/17/2009. Parsons has not yet received a Notice to Proceed from the Government concerning this Task Order. Commercial and Institutional Building Construction Contracts Otay Mesa Land Port of Entry San Diego, CA 92101-2058 Information GAO gathered to improve the description The award provides the funding required to complete the design, provide construction management and inspection services, and acquire the site necessary to expand the port. The port is a multi-modal (commercial, non-commercial, and pedestrian) port of entry and is one of the 10 busiest land ports in the country. The current facility is obsolete, inefficient, and causes severe traffic congestion. The proposed project will reconfigure and expand the existing port through the purchase of adjacent properties to meet Customs and Border Protection's (CBP) mission needs while meeting General Services Administration's (GSA) energy reduction and green building requirements. Cotter Federal Building Located at 135 High Street Hartford CT, Roofing And PV Project: Will consist of a Intergraded PV & TPO Roofing system: TPO will be a fully adhered Cool Roof with the Photo Voltaic panels intergraded in the field sheet. The TPO roof will be heat welded using robotic field sheet welders and Lyister- Triack hand-held welders for detail and penetration welds. All electrical components will also be intergraded into the TPO roofing system and insulation. The project includes ongoing monitoring and support.. Asphalt Shingle and Coating Materials Manufacturing Information GAO gathered to improve the description The award modernizes the Cotter Federal Building and makes it more energy efficient by improving roofing and adding photovoltaic (PV) panels. The scope of work is focused on building systems affecting energy use and indoor environment, including shell infiltration and heat loss for the Moakley Federal Courthouse loacted in Boston, MA. Site Survey; System Review; Design Review; Energy Modeling; Functional Performance Tests, energy conservation measures, life cycle cost calculations, construction estimates. 153 Milk Street, Suite 200 Information GAO gathered to improve the description The award will result in a study that includes information on energy conservation measures. The Thurgood Marshall Courthouse infrastructure upgrade. During the period of October 1, 2009 thru December 31, 2009 Cauldwell Wingate has continued to work on the shop drawing and coordination of the MEPS Systems through out the project. In addition to this we have fabricated and installed the ductwork, sprinkler piping and electrical distribution on 7 tower floors and 2 base floors. The Main Electrical Distribution Switchboards have been fabricated and set in place with the installation of the conduit and wire throughout the electrical closets. The Basement underground plumbing was installed in the parking garage was completed. Commercial and Institutional Building Construction NEW YORK, NY 10007-1502 $64,000,000.00 Less Than 50% Completed Information GAO gathered to improve the description The award upgrades the infrastructure and addresses life safety and accessibility issues of the building and will extend the useful life of the building. The award includes coordination of mechanical, electrical, and plumbing (MEP) systems throughout the project. JACOBS ENGINEERING GROUP INC. Provide Pre-Design and Design Review Servicesfor the building system modifications to meet NARA 2009 requirements for the VA file storage space located in Building 104 of Goodfellow Federal Complex. ARRA VA AT BLDG. 104, 4300 GOODFELLOW, ST. LOUIS, MO No project activities from Jacobs, waiting on design. (Information not reported) St. Louis, MO 63120-1703 Less Than 50% Completed Information GAO gathered to improve the description The award provides pre-design and design services for the building system modifications to meet National Archives and Records Administration (NARA) 2009 requirements for the VA file storage space. The VA file storage space does not currently have any HVAC or humidification, which is a requirement from the NARA 2009 standards for file storage. These activities will include new high efficiency chillers, new high efficiency chilled water, condenser water and hot water pumps, new high efficiency cooling tower(s), new high efficiency air-handling units and distribution ductwork, chilled and heating hot water pipe, and a humidification system for approximately 130,000 square feet of file storage. Construction management services for the design phase include, but are not limited to the following: (1) Attend the 35 percent, 65 percent, and 95 percent design review meetings; (2) Review drawings and specifications at 35 percent, 65 percent, and 95 percent; (3) Attend design kick-off meeting; (4) Attend three additional design development meetings; and (5) Evaluate construction cost estimate and attend three reconciliation meetings. PARSONS INFRASTRUCTURE & TECHNOLOGY GROUP INC. Prepare an Environmental Impact Statment to determine whether the proposed action warrant a finding of no significant impact or the preparation of the record of decision to improve, through modernization and new construction, the functionality, operational capacity and security of the Otay Mesa (OTM) Land Port of Entry (LPOE). Conducted project kick-off meetings and site inspections, provided Environmental Impact Statement (EIS) notice of intent (NOI),provided draft and final versions of public scoping EIS fact sheet,provided draft and final versions of public scoping meeting display and project information posters, conducted public scoping meeting, provided draft and final versions of scoping report, completed a Phase I environmental site assessment (ESA) of the LPOE and submitted both draft and final versions of the Phase I, completed internal draft threatened and dangered species biological assessment(BA) for the LPOE site and surrounding area, completed cultural resources evaluation for the LPOE site and surrounding area and submitted draft and final versions of the cultural resources report, with the final version submitted, provided draft endangered and threatened species consultation letters to GSA for submittal to US Fish and Wildlife Service and California Department of Fish and Game. Otay Mesa Land Port of Entry San Diego, CA 92101-4433 Less Than 50% Completed Information GAO gathered to improve the description The Environmental Impact Statement prepared from this award will allow the agency to determine if the proposed action would significantly affect the environment. GARLAND COMPANY INC, THE Remove and replace approximately 4,950 square feet of bituminous built-up roofing, add new insulation to create an R-50 insulation value when complete, and install architectural metal at all parapet and coping locations. The project shall include all low slope or flat levels of the roof Since the project has not started, Since the last report, manufacturing had manufactured and shipped roofing materials to the site. Contracts (Information not reported) FERGUS FALLS, MN 56537-2576 Less Than 50% Completed Information GAO gathered to improve the description The award replaces the roof of the United States Postal Service Building and Courthouse located at 118 S. Mill Street in Fergus Falls, Minnesota. Replacing the roof will reduce the repair and alteration liability of the building and help reduce energy consumption. SMITHGROUP, INC. Window replacement - FaÁade Thermal Performance Improvement for the John F kenedy Federal Building in Boston, Massachusetts. The work to be performed under the Contract includes updating the existing window and curtain wall replacement documents for code compliance and energy efficiency. Typical window design was revised as an additional bidding option. The revised design is to be installed from the exterior as opposed to the interior. Additional bidding options were added for sealant joint replacement and concrete repair. 500 Griswold Street, Suite 1700 More than 50% Completed Information GAO gathered to improve the description The award supports design services for window and curtain wall replacement for the entire John F. Kennedy Federal Building in Boston, Massachusetts. HOF CONSTRUCTION, INC. The Robert A. Young Building is a high rise historic brick strucutre approximately 1 million square foot in size, housing 3000 tenants. The existing cafeteria kitchen, dish room, servery, and dining area have become outdated, and much of the equipment is aging with high energy consumption. This work is being performed under the 'Building Tune-up, Lighting Replacement, Building HVAC Systems and Energy Saving' categories as defined in the ARRA descriptions of High Performance Building Improvements. This field is not applicable yet since we haven't started work yet and no funds have been received. Commercial and Institutional Building Construction 1222 Spruce St. St. Louis, MO 63102 SAINT LOUIS, MO 63103-2818 Less Than 50% Completed Information GAO gathered to improve the description The award supports construction to upgrade the cafeteria at the Robert A. Young Federal Building. The nature of the activities is renovations to the cafeteria, including coordination and phasing to minimize disruptions to cafeteria service, building operations, and tenants. The activities under this award include construction of a new dish room with an accumulating conveyor; reconfiguring the servery with new food service equipment and all associated rough-ins; renovating the servery with new finishes on the walls, floors, and ceilings with down lighting and accent lighting; replacing the existing equipment and hoods in the kitchen with higher efficiency equipment; constructing two conference rooms at the north end in the dining room; and installing new pendant lighting, diffusers, and finishes throughout the dining room, including ceiling, wall and floor finishes. Billings, MT Federal Courthouse: ALTA/ACSM survey with boundary amendments; Amended Subdivision Plats; topographic survey; exhibit preparation 4th Quarter: topographic survey Other Activities Related to Real Estate 26th Street West More than 50% Completed Information GAO gathered to improve the description The award funds an American Land Title Association (ALTA) survey of property to be acquired in Billings, Montana for the construction of a new Federal courthouse. In addition to the ALTA survey, additional site survey work includes adjacent parking lots, land, and streets, and a topographic and power pole survey. This work is intended to survey the property and provide data for the next steps in the construction of the courthouse. STANGER INDUSTRIES INC. This award was for the ARRA-Wichita Air Handler Replacement - U.S. Courthouse - replacement of air handling units in the Wichita Courthouse.Install new high-efficiency hot water boilers, new off-hours chiller, VAV's and direct digital control upgrades. * Air handling unit replacement; * Variable frequency drive installation; * New hot water piping and mechancial insulation; * New Sheet Metal,distribution ductwork and grilles; * Accoustical ceilling removal/replacement; * Building Automation Upgrades. * Removal and replacement of three (3) air handling units; * Misc. Electrical power for the air handling units; * Minor lighting modifications; * General project clean-up; * Building Automation Engineering; * Pre- Construction Services and drawing coordination; * Value Engineering; * Quality Control; & Solicit Sub-Contracting pricing. Commercial and Institutional Building Construction Less Than 50% Completed Information GAO gathered to improve the description The award will result in decreased energy consumption and operational costs. CONSTRUCTORS HAWAII INC. Repair, alteration, and seismic upgrade to the Federal Building and U.S. Post Office at 154 Waianuenue Avenue, Hilo, Hawaii. The work includes asbestos removal work, installation of new concrete shear walls in the two wings, reconstruction of architectural concrete elements, renovations of existing toilet rooms, custom doors, windows and millwork, installation of fire sprinkler and other fire protection systems, plumbing, new electrical systems, natural stone, quarry tile, ceramic tile, and other finishes. First Quarter: Furnished payment and performance bond, mobilized on site, started erecting temporary barriers, started demolition work. Second Quarter: Constructed new concrete shear wall at West Wing from basement thru the third floor, new stairs at loading dock, new stairs and curbs at courtyard, new ramp at basement. Work is ongoing at the West Wing first floor restroom and the finishes in the West Wing first, second, and third floors. Commercial and Institutional Building Construction Less Than 50% Completed Information GAO gathered to improve the description The activities funded by the award will modernize the buildings and are part of General Services Administration's (GSA) overall effort to improve federal buildings. Install VFD on Chiller # 3 at the Federal Bldg Install new VFD or the chiller for energy efficiency Commercial and Institutional Building Construction (Information not reported) LOS ANGELES, CA 90024-3602 $72,807.65 Information GAO gathered to improve the description The award funds the installation of a variable frequency driver for a chiller at the Federal Building in Los Angeles, California. JACOBS TECHNOLOGY INC. Requirements and Estimating Sevices for facilities in GSA Region 10 Prepare performance based requirements packages for solicitation of Design/Build contracts for various projects. This is to include high performance Green buildings. The intent is to gather project data and performancerequirmentstoprepareperformance based Statement of Objectives. Deliverables include budget estimating, initial schedule development and solicitation phase services. Prepare performance based requirements packages for solicitation of Design/Build contracts for various projects. This is to include high performance Green buildings. The intent is to gather project data and performancerequirmentstoprepareperformance based Statement of Objectives. Deliverables include budget estimating, initial schedule development and solicitation phase services. Prepare performance based requirements packages for solicitation of Design/Build contracts for various projects - completed 3 of 4 locations. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award provides plans for energy-efficient buildings at several sites in General Services Adminstration (GSA) Region 10, including the GSA Region 10 headquarters in Auburn, Washington; the federal Building in Baker City, Oregon; a historical building project in Spokane, Washington; and the federal building in Anchorage, Alaska. This contractor’s place of performance will be at the Jacobs office in Bellevue, Washington. URS GROUP, INC. TAS::47 4543::TAS - RECOVERY - CONSTRUCTION MANAGEMENT SERVICES IN SUPPORT OF JACKSON FEDERAL BUILDING MODERNIZATION PROJECT. SERVICES INCLUDE PRE-DESIGN AND DESIGN PHASE. Construction Management Assist services for the Jackson Federal Building Modernization Project from inception through June 20, 2011 (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The construction management services provided by this award are in support of an effort that will improve the building shell and repair or replace the building’s HVAC/electrical systems. The modernization of the building will result in the facility being an economically and operationally efficient high-performance green building. The services also include additional energy conservation measures in support of LEED Existing Building designation. BOVIS LEND LEASE LMB, INC. Moderization and facade reclad of Peter W. Rodino Federal Building in Newark, NJ 100% Bridging design and Final Report Commercial and Institutional Building Construction $542,023.00 More than 50% Completed Information GAO gathered to improve the description The award is part of a larger modernization project of the building consisting of exterior cladding for the entire building, upgrading fire egress for entire building, asbestos abatement and build out of 6 floors, upgrading HVAC for 9 floors, replacing 32 AHU’s, and a new cafeteria. This award includes repair/replacement of the HVAC system, domestic water distribution system, fire protection system, lighting and electrical systems, interior restoration, infrastructure work, exterior façade repairs, and hazardous materials remediation. Telephone, data networks, and security systems will also be upgraded and the restrooms will be modernized in compliance with Americans with Disabilities Act (ADA) and Uniform Federal Accessibility Standards (UFAS) regulations. The modernization will improve the building’s façade, which, due to the age of the building, is showing signs of significant deterioration, and replace or modernize various aging original systems. NICHOLSON & GALLOWAY, INC Façade Repair and Slate Roof Replacement at the U.S. Post Office and Courthouse located at 271 Cadman Plaza East, Brooklyn, NY 11201 Continuation of Security Clearance with the Department of Homeland Security / Mobilization of Job Site / Installation of Pipe Scaffold / Installation of Sidewalk Bridge / Temporary Electric Installed Commercial and Institutional Building Construction 271 Cadman Plaza, East Less Than 50% Completed Information GAO gathered to improve the description The award updates the original structure built in 1892 and the expansion built in 1933, including replacement of nearly all of the existing deteriorated terra cotta cladding; retention, repair, restoration, re-pointing, and cleaning of existing terra cotta and granite cladding on the facades of both structures; replacement of the entire slate roofing system on both structures, to match the appearance and character of the existing slate roof; installation of an access and fall protection/prevention system in compliance with all applicable Occupational Safety and Health Administration (OSHA) regulations at the slate mansard roof on both structures to facilitate periodic maintenance of perimeter gutters and drains; and hazardous materials investigation and abatement associated with the above work items. These activities will correct the deficiencies in the exterior envelope of the building and preclude further façade deterioration and damage to the structure and the recently renovated historic interior. NORTHERN MANAGEMENT SERVICES, INC. Northern Management Services Inc shall supply and install four cartons of polardam form in the Data Center. Based on the revised scope of work, Northern Management has received a credit for not using the special order brushed grommets. Thus adjusting the original project from $20,383.00 to $16,228.00. Sub contractor has completed approximately 100% of the work. The Airflow panels have been relocated, the installation of the 126lf of Plenum Divider is finished and the floor work has been completed. None of the completed work has been invoiced in this quarter. GSA requirement of payment after 100% completion with inspection of work and release for payment documented. Commercial and Institutional Building Construction (Information not reported) Information GAO gathered to improve the description The award provides repair work at the data center of the Bureau of Alcohol, Tobacco and Firearms (ATF) facility in Martinsburg, West Virginia. The air flow handlers in the data center--which houses many computers--were not distributing air properly. The handlers were moved to the racks at the front of the room and now work properly. The contract was reduced from $20,383 to $16,000 because they did not need to use special order grommets that were originally thought needed for installation. The award will result in air flow handlers that cool the data center to appropriate temperatures needed for computer functionality. NORTHERN MANAGEMENT SERVICES, INC. Perform testing of the EMS systems at the Giaimo building in New Haven, CT and the McMahon CH/FB in Bridgeport, CT, in support of the energy audits at these locations. The Subcontractor had been contracted and the EMS systems testings have been completed at both buildings as per the notice to proceed by General Services Administration. Northern Management Services' Project Manager and Chief Engineer oversaw the work by the Subcontractor was completed in a timely manner. This project is 100% completed.The General Services Administration has been billed in the amount of $6,437.52. Contracts Information GAO gathered to improve the description The award supports testing of the energy management systems (EMS) to improve energy efficiency. Wissahickon Building in Philadelphia, PA - PV Roof, CM Services Task#1-Design & Shop Drawings/Submittal Reviews/Meetings Commercial and Institutional Building Construction 1120 Connecticut Ave NW, Suite 310 More than 50% Completed Information GAO gathered to improve the description The award supports electrical inspection services for the roof replacement and photovoltaic (PV) array installation project at the Veteran's Affairs Center at 5000 Wissahickon Ave. in Philadelphia, Pennsylvania. The design and construction of a new modified built-up roofing system is intended to replace the existing roof, which is 10 years old and currently in poor condition, with some portions of the roof leaking. Additionally, the PV array will reduce the environmental impact of the building. SQUARE D COMPANY (INC) Energy retrofit of the ATF Facility in Martinsburg, WV. Provide and install two utility meters and all associated hardware. Provide associated monitoring services. No activity- project not started yet Commercial and Institutional Building Construction (Information not reported) Information GAO gathered to improve the description The award supports the installation of two utility meters in support of a larger effort to retrofit the Alcohol, Tobacco and Firearms (ATF) facility with a ground source heat pump system, a photovoltaic (PV) solar array and replacement of the building’s chillers and adjustments to the HVAC system in the building. The retrofit effort will provide heating and cooling and reduce the amount of energy consumed by the building. W. G. YATES & SONS CONSTRUCTION COMPANY The purpose of this award was to incorporate field changes and add VE option back into the scope work. The major options added back were the Blue fins, Pavers at the Rotunda and Granite steps at the entrance The work performed during this calendar quarter included reworking the sprinkler heads at holding cells, update walls and doors with the revised life safety drawings, revising the dimming board locations, adding blue fins on the performance mockup, changing the floor framing plan @ elevator 5, 6 & 11; adjustments to the steel framing in the field, relocating masonry walls for the Judges mantrap and elevator, relocation of the floodgate and pneumatic tube system, adding additional security conduit, revising the courtroom millwork and revising the locations of the Sally port sprinklers Commercial and Institutional Building Construction More than 50% Completed Information GAO gathered to improve the description The award allowed the contractor to incorporate value engineering (VE) into the construction of a new Federal Courthouse at 555 South President Street in Jackson, Mississippi. VE is an organized effort to analyze the functions of systems, equipment, facilities, services, and supplies to achieve essential functions at the lowest lifecycle cost, consistent with the required performance, reliability, quality, and safety. COMMUNITY SERVICES AGENCY OF THE METROPOLITAN WASHINGTON COUNCIL, AFL-CIO Pre-apprenticeship training job and placement services all staff hired, 6-week training completed for 20 individuals, job placement activities underway, recruitment for next adult and youth classes underway 888 16th Street NW, Suite 520 Less Than 50% Completed Information GAO gathered to improve the description This award provides pre-apprenticeship training and placement services to low-income area residents through September 2010. Graduates of the program will be placed at registered apprenticeship programs at construction sites to gain on-the-job experience and industry-recognized credentials. The award is expected to result in 150 individuals trained and placed in jobs by September 2010. PLATINUM ONE CONTRACTING, INC. Design and install roof replacements and improvements of the Wilke D Ferguson Federal Building. Design and install roof replacements and improvements of the Brickell Plaza Federal Office Building Mobilization : Design in process, submittals, bonding, insurance Wilkie D Ferguson Federal CH, Brickell Plaza Federal Office Building $1,377,500.00 Information GAO gathered to improve the description This award supports the evaluation and installation of new rooftops at both federal buildings. The evaluation phase of this project will test whether the current roof structures can sustain the weight associated with green roofs. After testing, the construction phase of the project will be subcontracted to local builders. The expected outcome is greater energy efficiency at both buildings. NATIONAL BUILDING CONTRACTORS, INC. ARRA-funded replacement of penthouse and stair enclosure roofs with vegetated roofs. The field survey of the roof replacement project has been completed, the asbestos testing has been performed, the 35% design submittal has been prepared and submitted, the project staging has been completed, and the demolition phase has begun. 401 West Peachtree St. Less Than 50% Completed Information GAO gathered to improve the description This award funds the design and installation of roof replacement and improvements at the Peachtree Summit Federal Office Building at 401 West Peachtree St. in Atlanta, Georgia. Architect-Engineer Services, Milwaukee, Wisconsin High Performance Green Building at the Federal Building & U.S. Courthouse 517 E. Wisconsin Avenue Less Than 50% Completed Information GAO gathered to improve the description The award provides architect-engineering design services in support of high performance green building work at the Milwaukee United States Courthouse and Federal Building in Milwaukee, Wisconsin. These services will create scopes of work for building system improvements based on the findings of a Recovery Act-funded retro-commissioning study and support the implementation of building features to increase energy efficiency. ALLIED BUILDING SERVICE COMPANY OF DETROIT, INC. Installing light sensors through out the building. Installing an A/C unit on the roof for Computer room Haven't started. NO Detais Yet Commercial and Institutional Building Construction 333 Mt. Elliot Avenue, Rosa Parks Federal Building Information GAO gathered to improve the description The award supports energy conservation activities at the Rosa Parks Federal Building in Detroit, Michigan. These activities include replacing water-cooled air conditioning unit with air-cooled air conditioning unit, replacing weather stripping at the front entrance, and installing occupancy lighting sensors throughout the facility. The award will result in reduced energy consumption. FREDERICK CONSTRUCTION, INC. Modernization Project at the Federal Building & US Courthouse. This project is in a Design Phase as a Construction Manager project. No subcontracts have been awarded as of 12-31- 09. Bids for subcontracted work will be reviewed and contracts awarded at a future date. No services have been performed in this quarter. Commercial and Institutional Building Construction ANN ARBOR, MI 48104-2129 Information GAO gathered to improve the description The award provides upgrades to the lighting and building automation systems at the Federal Building and U.S. Courthouse in Ann Arbor, Michigan. The upgrades to the HVAC and lighting controls will increase cost efficiency and energy conservation. FREDERICK CONSTRUCTION, INC. This project was awarded to conduct building automation system upgrades at the Theodore Levin US Courthouse. This project is in a Design Phase as a Construction Manager project. No subcontracts have been awarded as of 12-31-09. Bids for subcontracted work will be reviewed and contracts awarded at a future date. This project is in the final design phase and the pre-bid phase no work has been performed on site in this quarter. Commercial and Institutional Building Construction $801,980.18 Information GAO gathered to improve the description The award funds activities to modernize the building automation systems at the Theodore Levin Courthouse in Detroit, Michigan in order to make the building more energy efficient. SAINT LOUIS, MO 63103-2818 More than 50% Completed Information GAO gathered to improve the description The award funds design services for the renovation and upgrade of the cafeteria at the Robert A. Young Federal Building in St. Louis, Missouri. The work being done under this award includes: design services for the cafeteria project, completing necessary technical updates, revising the project numbers and titles on all drawings, revising the specifications to require Energy Star equipment (where available), and updating projected construction schedules. The larger renovation and upgrade project includes an upgrade to air handlers, exhaust hoods, replacement of existing water-cooled appliances, and replacing existing kitchen equipment with Energy Star or LEED certified equipment. GARLAND COMPANY INC, THE 1. Test for asbestos in or under roof (current roof may have been laid over an older roofing system). DUE: Two weeks after award of contract. 2. Specifications and schematic design for roof replacement. Documents must be sufficient to fully describe requirements for a design- build contractor, to include the design-build contractor’s requirements for design completion, but need not be stamped by a PE (although work must be by competent professional engineers as applicable). DUE: 30 calendar days after award of contract. 3. Recommendations for a PV system to be coordinated with roof replacement. DUE: two weeks after award of contract. 4. Upon GSA approval of recommended PV system, provide specifications and schematic design for the PV system. The schematic design should be flexible enough to permit competition among PV equipment manufacturers. The design must carefully avoid compromising historic aspects of the building, and must consider any other tenant impacts (e.g., glare reflected into windows). Documents must be sufficient to fully describe requirements for a design-build contractor, to include the design-build contractors requirements for design completion, but with the exception of the structural calculations need not be stamped by a PE (although work must be by competent professional engineers as applicable). DUE: Two weeks after GSA approval of PV system recommendations. 5. Provide structural calculations with the specifications and schematic design for the PV system. Structural calculations must be stamped by a PE. Since the project has not started, their have not been any significant service performed or supplies delivered. To date, project set-up service and security badging administration has been delivered. (Information not reported) Information GAO gathered to improve the description The award supports an engineering assessment and plans for roof replacement and photovoltaic (PV) system installation to be performed at the United States Courthouse in Pasadena, California. SAMUEL ENGINEERING, INC. Compile exisitng as-built drawings and site plans to display the ground areas being proposed for ground mounted PV panels. Also display the parking areas being proposed for ground mounted PV panels. Also display the parking areas of Buildings 25, 53, and 810 for the installation of carport PV s. Indicate existing electrical system on-lines at both the building 480V and/or 13.8 kV for PV tie-in. This information will be utilized to effectively portray the level of effort and existing conditions for a design-build contractor. Greenwood Village, CO 80111-2816 More than 50% Completed Information GAO gathered to improve the description The award supports the development of preliminary design build documents, including one-line diagrams, plan drawings, tie-in locations, and general design notes for potential new construction projects of photovoltaic (PV) panel systems at the Denver Federal Center in Lakewood, Colorado. The award recipient also developed cost estimates for electrical tie in at each proposed PV panel system location. The award will result in increased solar power capacity through new ground-mounted and carport PV panel systems. Parking lot lighting. Completed site survey and 90 percent of design $48,284.00 More than 50% Completed Information GAO gathered to improve the description The award provides a design draft for LED parking lot lighting installation at the Laguna Niguel Federal Building. The new lighting will provide energy-efficient lighting and reduce energy costs at the federal building. This is a Design Build Project which requires General Contractor to furnish and install two (2) new centrifugal chiller variable frequency drives at the Phillip Barton Federal Buiding and Court House located in San Francisco, California. No services have been performed as of yet, as the project has not started. We attended a pre-construction meeting on Thursday, January 14, 2009. We are now awaiting a Notice To Proceed Letter from GSA, as to when we will physically be able to start the Project. Electrical Contractors and Other Wiring Installation Contractors SAN FRANCISCO, CA 94102-3434 Information GAO gathered to improve the description The award supports activities to improve the energy efficiency of the Phillip Burton Federal Building and United States Courthouse. These activities include installing variable frequency drives, which control electronic motor speeds to modulate the power being delivered to a motor to reduce energy costs and equipment maintenance. Design and construction services as required for design build construction of a New US Federal Courthouse Selection of Winning was made and under contract Commercial and Institutional Building Construction Contracts (Information not reported) SAN JOSE, CA 95110-1347 Information GAO gathered to improve the description The award is part of a larger effort to construct a new U.S. federal courthouse in Bakersfield, California, which will meet the 10-year requirements of the courts and will satisfy federal energy standards. BPA Call is for Project Management services associated with GSA's Public Building Services. Building enevelope, including curtain wall, windows and roofing, Lighting-day lighting and energy efficient electric with sophisticated controls, HVAC energy retrofit and replacement, including boilers, chillers, cooling towers, piping, pumps and air distribution, building systems controls, including HVAC and lighting and acoustics, renewable energy generation, including photovoltaic. Administrative Management and General Management Consulting Services (Information not reported) Fort Worth, TX 76102-0181 Less Than 50% Completed Information GAO gathered to improve the description The award supports 2 people in the operations branch to provide project management support services for General Services Administration (GSA) Recovery Act construction projects. The individuals will provide project management support for all phases of ongoing construction projects from conception to commission. The location is the GSA office at 819 Taylor St., Fort Worth, Texas. The award will enable GSA to complete its Recovery Act-related construction workload. CORNERSTONE ARCHITECTURAL GROUP, PS PROVIDE LIGHTING REQUIREMENTS AS PART OF A FUTURE RELIGHTING PROJECT AT TWO FEDERAL FACILITIES. Information GAO gathered to improve the description The award will result in professional engineering and lighting services for the federal building in Fairbanks, Alaska and the General Services Administration (GSA) Region 10 headquarters in Auburn, Washington. The award will result in increased energy efficiency and cost savings. Design and construction services to include all labor, installation, tools, equipment and design-build services for new boiler system for Eugene Federal Building, Eugene, Oregon and replacement boiler system for James A. Redden Courthouse in Medford, Oregon. Administrative Co-ordination activities. Commercial and Institutional Building Construction (Information not reported) Information GAO gathered to improve the description The new boiler system for the Eugene Federal Building is an energy-efficient system. The boiler system for the James A. Redden Courthouse is being replaced because it is old and the replacement system is energy-efficient. TISHMAN/AECOM, A JOINT VENTURE Construction Management Services for the Daycare Facility, Central Utility Plant, Phase 1 B Adaptive Reuse. Construction Management Services for Security and IT upgrades Design review, Meetings, Construction Review/Coordination 2700 Martin Luther King Jr, SE Washington, DC, DC 20032-0000 Less Than 50% Completed Information GAO gathered to improve the description The award will support construction management services for the renovation of multiple buildings on St. Elizabeth's West Campus. These services include design and cost estimate review, schedule control, construction progress reporting, safety and inspecting reporting, claims prevention, and close-out services. In addition, the award will ensure that the renovation project complies with the Recovery Act and historical and environmental considerations. The award will result in renovations to the St. Elizabeth's West Campus buildings for use by the U.S. Department of Homeland Security (DHS). Provide Procurement Analyst Support Services in support of DHS Consolidation Program at St Elizabeths, SE, Washington, DC Performed procurement analyst in support of the DHS consolidation at St. Elizabeths. Services included monitoring, managing, planning, organizing, and documenting all procurement of services/construction/AE contracts, including administrative duties. Commercial and Institutional Building Construction (Information not reported) $175,400.00 Less Than 50% Completed Information GAO gathered to improve the description The award is part of a larger three-phase Department of Homeland Security (DHS) project to consolidate and develop St. Elizabeths Campus in Washington, DC. The phase of this project that is funded with Recovery Act funds incorporates the design and construction costs of: 1) U.S. Coast Guard Command; 2) U.S. Coast Guard Parking Structure; and 3) Amenity spaces for U.S. Coast Guard. The award will also fund the remaining design work (which was not completed in a previous project phase): 1) The new DHS and Federal Emergency Management Agency (FEMA) Headquarters; 2) Historical preservation of St Elizabeths buildings; 3) Design of DHS National Operations Center (NOC), and 4) DHS parking structures. ProCon Consulting, LLC will be involved in design and construction management support services. The project will help move DHS closer to completing its effort to consolidate and develop its headquarters in the National Capital Region, though it will not complete the project. The remaining work will cost an estimated $1 billion. JACOBS TECHNOLOGY INC. Provide Intergrated Planning Sessions with GSA staff managing the 17 High-Efficiency Limited Scope Projects in the New England Region (1). Identify key objectives, critical scheduling requirements, opportunities and constraints posed by the Region's 17 Limited Scope Projects. Lead interactive planning sessions that will yield defined schedules and management plans for each Limited Scope Project. Interactive planning sessions held with GSA Regional staff managing the 17 Limited Scope Projects. All significant project details and activities reviewed and scheduled through completion. Management plans for each project prepared and distributed to Regional leadership. Administrative Management and General Management Consulting Services (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports integrated planning sessions with representatives from each of the General Services Administration's (GSA) 11 regions as well as representatives from the Office of Chief Architect and other related program offices. These limited-scope projects are system upgrades--such as upgrades to lighting or cooling systems--that are discrete and do not require major space re-design or architectural changes. JACOBS TECHNOLOGY INC. Construction Management (Agency) Services for Modernization ofU.S. Department of Interior Headquarters ARRA - DOI MODERIZATION CM SVS ARRA - DOI MODERIZATION CM SVS Project has not started. Plan to start the first quarter of 2010. (Information not reported) Information GAO gathered to improve the description This award supports the renovation of the Department of Interior building in Washington, DC to make the building more energy efficient. PROJECT SUPPORT SERVICES, INC. Project management support to the office of Portfolio Management Division facilities management & services program division; providing operational, technical, and management support to the region in areas such as safety and health, concessions, childcare facilities, maintenance, energy efficiency, and accessibility. Provided project management to the GSA Budget Program, ARRA Budget Team for support of GSA Manager P. Johnson, Portfolio Management Division. (Information not reported) $216,617.84 Less Than 50% Completed Information GAO gathered to improve the description This award provides one subject matter expert to support the Office of Portfolio Management Division, Facilities Management & Services Program Division for the General Services Administration's (GSA) National Capital Region in Washington DC. Specifically, the individual provides consultation for resolving Americans with Disabilities Act (ADA) and Architectural Barriers Act (ABA) cases at GSA facilities and review of ADA/ABA construction drawings submitted by third-party architects. The award will result in assistance for GSA in approving ADA/ABA-related facility changes and reviewing specification drawings. The Project Information Portal (PIP) tracks/reports on prospectus level projects for project managers, customers and PBS executives. In an effort to support the ARRA, a host of enhancement will need to be made to the PIP. These ehancements will provide transparency and accountability over the recovery dollars applied to GSA capital projects. These enhancements will also provide PBS managers access to real time reporting tools to provide validity and consistency to the data reported to bother internal and external stakeholders. Develop field level and form anhancements for recovery tracking to expand what has already been produced in PIP. Update integrations and connections with BI to support OMB reporting requirments. 1800 West Street, NW Less Than 50% Completed Information GAO gathered to improve the description The Project Information Portal (PIP) is a Web-based tool created for project teams to share information on prospectus and non- prospectus level projects with stakeholders. General Services Administration (GSA) uses the centralized system for tracking the more than 5,000 projects throughout its 11 regions for over 14,000 users. The award will develop field level and form enhancements to allow GSA to track Recovery Act spending. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken. directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. GASTINGER AND WALKER ARCHITECTS INC Construction Management, Site Visits Commercial and Institutional Building Construction More than 50% Completed Information GAO gathered to improve the description The award provides construction management services for roof replacement at the Roman L. Hruska, United States Federal Building/Courthouse in Omaha, Nebraska. Despite being a relatively new building, the condition of the roof was poor. This roof replacement is part of a larger project to replace the roof, upgrade energy controls so that energy use can be reported back to General Services Administration (GSA), and then install photovoltaic cells (PV). A contractor will perform all construction management services from construction to commissioning. The award will result in a more energy-efficient facility and facility sustainability. Assist with Functional Perforance Testing at the Rosa Parks Federal Bulding. Other Services to Buildings and Dwellings Ann Arbor, MI 48104-2129 Information GAO gathered to improve the description The award supports the testing of a cooling system at the Rosa Parks Federal Building in Detroit, Michigan, in order to ensure that the system is working efficiently. KPH CONSTRUCTION, CORP. RECOVERY - Light Court Roof Replacement RECOVERY - Light Court Roof Replacement (Information not reported) Information GAO gathered to improve the description The award supports installation of a high performance green building light court roof located in the south building of the United States Courthouse and Federal Building in Milwaukee, Wisconsin. The activities under this award include all management, supervision, labor, materials, supplies, and equipment necessary to replace the Light Court Roof. The work will consist of removing and replacing approximately 10,000 square feet of roofing covering a first floor space at the base of the light court. The award is in the amount of $997,358.00. SAINT LOUIS, MO 63108-2208 More than 50% Completed Information GAO gathered to improve the description The award funds design services for the mechanical upgrade to the building automation system, HVAC upgrades, energy-efficient lighting, and new occupancy sensors at the Robert A. Young Federal Building in St. Louis, Missouri. NORTHSTAR PROJECT MANAGEMENT, LLC Administrative Management and General Management Consulting Services Information GAO gathered to improve the description The award supports design-build consulting services for renovation of the Byron Rogers Federal Office Building in Denver, Colorado. The proposed renovation capital project will address all major building components including the following: structural, mechanical, electrical, plumbing, fire protection, and elevators. In addition, hazardous materials such as asbestos and PCBs will be abated. The Recovery Act provides $4.6 billion to the U.S. Army Corps of Engineers’ (Corps) Civil Works program to accomplish the goals of the act through the development and restoration of the nation’s water and related resources. Funding is also provided to support the Corps’ permitting activities for protection of the nation’s regulated waters and wetlands and cleanup of sites contaminated as a result of the nation’s early efforts to develop atomic weapons. The Corps is an executive branch agency within the Department of Defense (Defense) and a direct reporting unit within the U.S. Army. Headquartered in Washington, D.C., the Corps has eight regional divisions and 38 districts that carry out its domestic civil works responsibilities. Corps headquarters primarily develops policies, based on administration guidance, and plans the direction of the organization; divisions coordinate the districts’ projects; and the districts plan and implement the projects. The Corps is the world’s largest public engineering, design, and construction management agency and leverages its expertise primarily through contracts with civilian companies for all construction work and much of its design work. Civil Works projects are generally authorized by various Water Resources Development Acts and funded by annual appropriations for energy and water development. The Civil Works program includes efforts to provide safe and reliable waterways; reduce risk to people, homes and communities from flooding and coastal storms; restore and protect the environment; provide hydroelectric power to homes and communities; provide educational and recreational opportunities; prepare for natural disasters and act when disaster strikes; and address water resource challenges. The Operations and Maintenance account focuses on preserving, operating, and maintaining river and harbor projects that have already been constructed. The Construction account funds construction and major rehabilitation projects related to navigation, flood control, water supply, hydroelectric power, and environmental restoration. The Mississippi River and Tributaries account funds planning, construction, and operation and maintenance activities associated with projects on the Mississippi River and its tributaries that reduce flood damage. The Formerly Utilized Sites Remedial Action Program account is for cleanup of contaminated sites throughout the United States where work was performed as part of the nation’s early atomic energy program. The Investigations account funds studies to determine the necessity, feasibility, and returns to the nation for potential solutions to water resource problems, as well as design, engineering, and other work. The Regulatory account funds efforts to protect the aquatic environment by regulating dredge and fill materials and other construction-related activities in jurisdictional waters of the United States. Through April 23, 2010, $3.5 billion (about 76 percent) of the $4.6 billion in Recovery Act Civil Works program funds had been obligated by the Corps. (See table 11.) Of the $3.5 billion in obligated funds, the Corps had outlayed about $1.3 billion. Of the obligated funds, the Corps obligated about 49 percent ($1.7 billion) for Operations and Maintenance and 37 percent ($1.3 billion) for Construction. As of April 23, 2010, the Corps had identified 830 Civil Works projects to receive Recovery Act funding. These included 533 Operations and Maintenance projects, 175 Construction projects, 45 Mississippi River and Tributaries projects, 10 Remedial Action Program projects, 66 Investigations projects, and funding for the Regulatory program. contracts and not for projects. According to Corps headquarters officials, and as discussed later in this appendix, it is not easy to associate individual contracts with Recovery Act projects. We assessed the transparency of descriptive information for Civil Works awards available on Recovery.gov, as described in this report. We found that an estimated 14 percent met our transparency criteria, 70 percent partially met our criteria, and 16 percent did not meet our criteria. For descriptions that partially met or did not meet our transparency criteria, we collected additional information to complete the award descriptions for the elements of transparency that we believed were missing. The descriptions of awards in our sample, whether they met our criteria, and additional information that we found to complete the narrative descriptions, are provided at the end of this appendix. In order to assist the public in better understanding how a particular contract fits into a larger project context, the Corps issued supplementary material to its district offices, directing them to instruct recipients to include the project name—information that districts would need to provide to recipients—in the award description. According to Corps headquarters officials, the Corps districts were to provide this information to recipients in a quick reference sheet that contained key award information, including the project name, which recipients were to use to report contract information. The Corps headquarters instructed the districts to provide this information to the recipients. We identified three factors that may have affected the transparency of reported information. First, because the Corps awarded multiple contracts to support its projects, depending on the nature of a contract, a recipient may not know which Corps project the contract supports. For example, a Corps district awarded a contract to purchase a boat that will be used to perform maintenance at a dam and reservoir project; however, the recipient was not aware of the intended use of the boat sold under the contract. Moreover, according to Corps headquarters officials, without receiving information from the Corps, a recipient may not know which Corps project the recipient’s contract supports and would not be able to report this information. In addition, even if the project name associated with each contract was provided to the recipient, the nature of Corps contracts may make it difficult for the recipient to report information, particularly with regard to location. For example, engineering services provided for a construction project in Texas may be provided by a recipient located in another state. Second, according to Corps headquarters officials, the Corps awarded about three-fourths of its Recovery Act contracts to small businesses that may not have experience with this type of reporting and may have limited administrative capacity. Finally, Corps headquarters officials told us that the Recovery.gov system was designed for reporting on grants and loans and was adapted for contracts; therefore, it may have been difficult for recipients to report certain information. For example, certain contract actions such as modifications to existing contracts or task orders—which can include multiple activities across multiple locations—are reported in the system as a single award, and recipients may have been unsure how to indicate this information when reporting. As a result, a single award description may appear in Recovery.gov for work involving multiple activities and locations and this information may not be explained in the award description. projects and identify some descriptive information about the projects. The information available on the Web site is specifically related to Recovery Act projects; however, detailed information about individual contracts that support these projects is not available through the Web site. Prior to awarding Recovery Act contracts, the Corps also provides information about contracts through solicitations it posts on the Federal Business Opportunities Web site. According to Corps headquarters officials, the comments they have received on the Corps’ Recovery Act awards were mainly from recipients requesting technical assistance and from reporters requesting information about a specific contract they were researching. The following award descriptions contained sufficient information on general purpose, scope and nature of activities, location, and expected outcomes to meet our transparency criteria. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Appendix XI Civil Works Program TETRA TECH, INC. Contractor must review as-built information and collect supplemental data to meet the certification requirements outlines in 44 CFR 65.10 and detailed in National Flood Insurance Program for the massillon Levee, located in Massillon, Stark County, Ohio. The contractor will be responsible for determining that interaction among the companents will not result in possible failure. Responsible for producing these supporting engineering analyses and reporting the component condition and certification recommendation. Contractor will be responsible for performing the certification determination. Certification engineering analysis shall consist of Hydrology and Hydraulics, Geotechnical, Structural, Electrical, and Mechanical evaluation. Major factors to be considered in the technical evaluation include: O&M plans, levee certification field inspection, characterizing the flood hazard, capacity exceedence/failure criteria, freeboard, closure devices, embankment protection, seepage analysis, embankment and foundation stability, settlement, construction records and control testing, performance records, major maintenance and rehabilitation, interior drainage, and residual risk and public safety. A Levee Certification Report shall be prepared to document and describe the basis for the certification recommendation of the Massillon levee system. The LCR shall be sufficient to support the execution of the Independent Technical Review process described in paragraph 10.c of NFIP ETL (draft)_1110-2-570. Five copies of the draft submittals shall be submitted . Upon completion five (5) copies of the final report shall be submitted and properly bound. The report shall include all text tables, figures, and exhibits to support the findings, results, and recommendations. In addition to hardcopies, all computer files generated shall be submitted on CD rom formatted in Microsoft Word. To insure all work submitted is technically accurate the Contractor shall develop and execute an Independent Technical Review Plan. This plan shall be submitted for review and approval by the government. The Contractor is responsible for Quality Control. The Contractor is responsible for the formulation and preparation of all work required in this Statement of Work. All final reports, figures, drawings, calculation, and report cover letters will be sealed or stamped by the responsible engineer. The intermediate reports and final report will be submitted for Quality Assurance review and shall be complete and free of spelling, typographic, and grammatical errors. The 50% and 90% drafts reports will be submitted for QA review and comments by Corps of Engineers personnel. The 50% draft report shall be submitted within 5 month of the notice to proceed and the 90% draft report shall be submitted within 7 month of the notice to proceed. Task 1 - Data Collection and Review. Completed data collection and review. Reviewed readily available materials and Identified additional resources referenced Task 2 - Topographic Mapping. Obtained topographic Mapping in GIS format. Task 3 - Site reconnaissance Visit. Performed post-processing of GPS data. Prepared draft inspection log/report. Task 4 - Geotechnical Assessment. Performed review of past design data and geotechnical information. Prepared drilling plan. Performed field exploration. Task 5 - Engineering Assessment. Performed Hydrologic Evaluation. Performed Hydraulic Evaluation. Performed Initial Scour/Aggradation Analysis (Pending Internal Review) Task 7 - Levee Certification Report. Prepared Hydrologic section of the Levee System Report. Performed hydraulic section of the Levee System Report. Task 8 - Independent Technical Review. Performed review of Hydrologic section of the Levee System Report. Performed review of Hydraulic section of the Levee System Report. Task 9 - Meetings and Coordination. Coordination with City of Massillon and USACE. Task 10 - Project Management. Invoicing and reporting. Engineering Services Appendix XI Civil Works Program (Information not reported) Less Than 50% Completed DAVID FORD CONSULTING ENGINEERS INC The accelerated CWMS deployment campaign (hereinafter referred to as the project) is a component of the American Recovery and Reinvestment Act (ARRA) of 2009. The objectives of the project are as follows: 1. To enhance the capability of the Corps of Engineers offices nationwide to make well informed decisions for managing reservoirs and water control systems. This will be achieved by expanding, at an accelerated pace, the availability of advanced information technology resources for hydrometeorological data management, display, and dissemination; watershed runoff forecasting; flood stage prediction; reservoir operation analysis; and flood impact analysis. 2. To create and maintain jobs for US citizens, in keeping with the goal of the ARRA. This will be achieved by using HEC?s BPA contractors to undertake the work and manage its successful completion. Those contractors, in turn, may use local consulting resources if appropriate and useful to the project. The intended deliverable of the overall project is, for critical Corps of Engineers watersheds, a fully functional CWMS decision support system that will enhance water management. The CWMS decision support system includes HEC-HMS, HEC-RAS, HECResSim, and HEC-FIA. For each watershed, software will be installed as needed and configured by a contractor, with cooperation of HEC and Division or District staff. Contractors will configure and calibrate the models, using data and information collected from District and Division staff. Contractors will test the software under simulated real time high flow conditions, demonstrating the deployment under a stress test. Contractors will document actions taken to deploy the decision support system. Finally, contractors will transfer the technology to Corps staff in the appropriate District or Division offices. This task order is for a ?lead contractor? (LC) to assist HEC in managing rapid deployment of CWMS at Corps districts and coordinate the day-to- day activities of the blanket purchase agreement (BPA) contractors contributing to this effort. This role includes working with HEC on selecting watersheds to be implemented, identifying what models and tasks are necessary for each implementation, developing management plans, and performance work statements. The LC will recommend assignments of tasks to other BPA contractors through the Corps PM. The LC will facilitate the work of the BPA contractors, clarifying statements of work, deliverables, and schedules with the PM. The LC will monitor the progress of the BPA contractors, reporting to the PM and supply the weekly reporting information to meet ARRA requirements. The LC will take all necessary actions to ensure the project objective is met. Appendix XI Civil Works Program Task 1: Worked with HEC project manager (PM) to identify priority basins and locations for accelerated CWMS deployment, and prepare list of candidate sites for deployment. Contacted technical representative (TR) at each candidate site to confirm selection and to gather relevant information about sites. Coordinated with PM to develop a detailed project management plan (PMP). Obtained buy-in and signatures from relevant BPA contractors, Corps District staff, and HEC. Task 2: Coordinated with PM to develop detailed work plan and work statement for each deployment site (8) for initial effort by BPA contractors. Task 3: Reviewed initial Site Assessment reports submitted to HEC from BPA contractors. Advised PM on any technical or administrative issues. Wrote a summary report of the site assessments with LC recommendations. Coordinated with PM on selecting additional candidate watersheds for the second round or on deleting candidate watersheds from first round if funding is not available for all sites. Task 4: Prepared performance work statements (PWS) for each of the 8 candidate watersheds. Task 5: Reviewed work plans and schedules submitted by BPA contractors. Wrote a summary report of the work plans with LC recommendations. (Information not reported) Less Than 50% Completed FURNISH ALL DRAWINGS, LABOR, MATERIALS AND EQUIPMENT NECESSARY TO FABRICATE, DELIVER AND INSTALL ONE (1) COMPLETE NEW BOAT DOCK SYSTEM WITH THREE (3) 8-FOOT WIDE X 20-FOOT LONG ALUMINUM DOCK SECTOPMS AND ONE (1) 4-FOOT WIDE X 20-FOOT LONG ALUMINUM TAPERED GANGWAY. DOCK SYSTEM MUST BE ABLE TO USE EXISTING ANCHORING SYSTEM. FABRICATION, DELIVERY AND INSTALLATION HAS BEEN COMPLETED. ACCOUNTING COMPLETED BILLING AND OFFICE ASSISTANT IS COMPLETING FEDERAL REPORTING. SMARTSVILLE, CA 95977-0006 Appendix XI Civil Works Program Furnish all equipment, labor, layouts of work features, and supervision necessary to obtain sufficient subsurface information, perform analysis, and provide the government recommendations to help alleviate seepage at left abutment of Winfield Locks and Dam, Red House, WV. Drilling, Lab Evaluations, and Initiated Study More than 50% Completed Original Contract was awarded August 30, 2007: Contract was for the completion of foundation drilling and grouting at the Clearwater Dam in Piedmont, Missouri. This work is a continuation of Phase I which was completed Oct 15, 2007. The scope of this contract was to complete the foundation rock treatment down to elevation 325, 250 ft below the working platform, prior to the installation of the proposed cutoff wall. The lower 50 ft of the grout curtain is to be grouted to a value of 3 lugeons or less and the upper rock mass to a value of 10 lugeons or less. This type of work is highly technical in nature and will provide enormous amounts of valuable data to be used in the design and construction of the proposed cutoff wall (Phase II). Beginning with Modification P00012 executed May 6, 2009, ARRA funds were incorporated into the contract in order to provide for adjustments in quantity and scope of work required in order to meet the project objectives. The project was successfully completed, final reports have been submitted and the contractor is demobilized. In excess of 25,000 LF of drilling; over 500,000 CF of grout materials placed; over 1117 LF of borehole stage imaging; relocation of water lines in preparation of Phase II work. Appendix XI Civil Works Program Poured Concrete Foundation and Structure Contractors JACOBS/SEH, A JOINT VENTURE Main Lock Culvert Valve Machinery Study Phase I, Melvin Price Locks and Dam, Mississippi River, Preliminary Engineering report, per attached Scope of Work and proposal dated 18- Jun-09. DJ04 - MEL PRICE MAIN LOCK CULVERT This task involves static and kinematic measurement, disassembly, material inspection and testing, evaluation and reporting as part of an investigation of failures that have occurred in the culvert valve machinery components of the main lock, Illinois-side emptying valve at Mel Price Locks and Dam on the Mississippi River. All field activities are complete. The draft report was submitted this quarter. We are awaiting comments before submission of the final report. (Information not reported) St. Louis, MO 63102-2131 More than 50% Completed W912EK-09-D-0006 Appendix XI Civil Works Program In support of fish studies, perform adult Coho salmon and steelhead radio telemetry monitoring, green river Seattle, Washington. The contractor must: analyze and report on radio telemetry monitoring of adult Coho salmon released above Howard Hanson Dam, WA, (HHD) into the upper Green River in fall 2008; monitor the movement and distribution of adult Coho released above HHD into the upper green river in fall 2009; analyze and report on 2009 results incorporating information from 2008 study. Work for this project has not begun. (Information not reported) Regulatory document imaging and digital conversion to search able format. Approximately 800,000 documents. Grace Hill (Prime) has converted approximately 50% of the microfiche to digital format. We are now in the process of converting the documents to a searchable (OCR) format. We expect to be 50% complete by end of January 2010. Data Processing, Hosting, and Related Services Less Than 50% Completed W912ES-10-P-0015 Appendix XI Civil Works Program Provide all transportation, parts, materials, equipment and laborer to provide and install a complete security camera monitoring system (SCMS) designed for marine environment on board the US Army Dredge Ship Wheeler. Removed antiqated security system and installed three PTX (Pan, Tilt, Zoom) Cameras and 11 fixed cameras at various locations throughout the ship. All work was completed; however, two of the fixed cameras are working intermittantly during the first cruise and will be replaced as soon as the ship returns to port. Electrical Contractors and Other Wiring Installation Contractors New Orleans, LA 70118-3651 More than 50% Completed DIAZ CONSULTANTS, INC. PROJECT SYNOPSES: Conduct field and laboratory investigations to characterize the nature and level of contamination of sediments deposited behind three dams (Carbon Canyon Dam, Lopez Dam, and Prado Dam) and prepare a report and logs summarizing those investigations. Carbon Canyon has been awarded as the base contract; Lopez and Prado may be awarded as options to be executed at a later date. Completed Field Invetigation and Laboratory Testing. Completed and submitted draft report for review. (Information not reported) Santa Ana, CA 92701-0810 More than 50% Completed W912PL06D0004 Appendix XI Civil Works Program SECURITY CONSTRUCTION SERVICES, INC. Replace roofs at Knightville Gatehouse, Littleville Gatehouse and Intake Tower and Birch Hill Dam Gatehouse. The following award descriptions did not contain sufficient details on one or more of the following pieces of information necessary to facilitate general understanding of the award, based on our criteria: general purpose, scope and nature of activities, location, and/or expected outcomes. In some cases only a small amount of additional information was needed, while in other cases, many pieces of information were needed to make the description more transparent. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Appendix XI Civil Works Program MANSON CONSTRUCTION CO. Capital (deepening) dredging at the Port of Anchorage Other Heavy and Civil Engineering Construction Less Than 50% Completed Information GAO gathered to improve the description The award funds dredging, which will support the port's ongoing intermodal expansion project, planned to allow larger ships to call and offer more room for commercial cargo handling, a cruise ship terminal, and to support rapid deployment from Alaska's military bases. ROMERO GENERAL CONSTRUCTION CORP. REPAIR BADLY DETERIORATED ROADS, SUCCESS LAKE CA Highway, Street, and Bridge Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award funds road repair to multiple areas including the entryway to Success Lake, the South Tule Recreation Area, and the South Tule parking lot. The repairs included replacement and repaving of roads, which involved digging up the asphalt, cement treating, and paving. Success Lake is located just east of Porterville in Tulare County, California. Appendix XI Civil Works Program ROSS LABORATORIES, INC. MFG AND DELIVERED SIDESCAN SONAR SYSTEM (MODEL 4900) INCL SUB BOTTOM, PROFILING SYSTEM MFG AND DELIVERED SIDESCAN SONAR SYSTEM (MODEL 4900) INCLUDING A SUB BOTTOM, PROFILING SYSTEM. ALSO DELIVERED A VESSEL MOTION SENSING SYS AND HYDROGRAPHIC SURVEY SOFTWARE. Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing Information GAO gathered to improve the description The award supports the manufacture and delivery of a sidescan sonar system (model 4900) including a sub bottom profiling system. This award also includes the delivery of a vessel motion sensing system and hydrographic survey software. This equipment and software is for maintaining shipping/navigation channels in the New York Harbor area. BIOHABITATS, INC. Schukylkill River, Wissahickon Creek Feasibility Study Field assessment, analysis, and report preparation for restoration actions. Other Scientific and Technical Consulting Services More than 50% Completed Information GAO gathered to improve the description The award supports the completion of Feasibility Study Scoping documentation for ecosystem restoration within the Wissahickon watershed. Based on a previous study, it was determined that the primary problems within the Wissahickon watershed include stream flow variability, poor quality aquatic habitat, aquatic habitat degradation, flooding, and overall ecosystem imbalances. Various solutions exist to address these problems and will be considered in depth during feasibility investigations. This documentation will include definition of the existing conditions, the "without project" conditions, and the site selection screening process to continue the feasibility study of this critical urban watershed for ecosystem quality improvements. COMPLETE THE REHABILITATION OF THE ADA CAMPSITES AT SOUTH ABUTMENT, DUB PATTON, AND HERNANDO POINT RECREATION AREAS AT ARKABUTLA LAKE IN ACCORDANCE WITH THE ATTACHED SCOPE OF WORK - (PROJECT #1) completed installation of concrete pads, grading of disturbed areas and installing of latern hangers, picnic tables and service tables. Facilities Support Services Appendix XI Civil Works Program More than 50% Completed Information GAO gathered to improve the description The award supports the rehabilitation of campground sites to make them Americans with Disabilities Act (ADA) accessible, allowing persons with disabilities to safely utilize the campground areas. Rehabilitation included procurement and installation of ADA-compliant items including tables, lantern holders, and grill services tables. Work also included installation of concrete pads and grading of areas to make them ADA compliant. The award provided rehabilitation of 56 campground sites at 3 recreation areas, including 18 sites at South Abutment, 14 sites at Dub Patton, and 24 sites at Hernando Point. T & C MOBILE HOME & CONSTRUCTION SERVICES, LLC Remove and replace furnaces and fuel tanks in the gate house at Whitney Point Lake, NY. The sub-contractor provided all labor, equipment, tools, and materials necessary for removing and replacing two furnaces and two 275 gallon fuel oil tanks in the gate house at Whitney Point Lake, NY. Plumbing, Heating, and Air-Conditioning Contractors Whitney Point, NY 13862-0706 Information GAO gathered to improve the description Replacing the furnaces will permit a much more efficient use of energy and replacing the fuel tanks will permit operation of flood control gates during a power outage. WILSON & COMPANY, INC., ENGINEERS & ARCHITECTS CEPD Compliance Surveys. Appendix XI Civil Works Program Land surveying, geodetic. Surveying and Mapping (except Geophysical) Services Less Than 50% Completed Information GAO gathered to improve the description The award supports surveys for Comprehensive Evaluation of Vertical Datums that will establish new vertical control, based on the North American Vertical Datum of 1988 (NAVD 88), for each of 70 projects located in New Mexico, Colorado, and Texas, within the U.S. Army Corps of Engineers Albuquerque District. This work will ensure that all of the flood control projects within the Albuquerque District are referenced to at least three vertical control benchmarks. This will take the district one step further in ensuring that all of its flood control projects are referenced to NAVD 88. This effort is needed to meet requirements of an executive order that calls for the standardization of the use of the most current vertical datum, which is NAVD 88. Vertical datums are used to reference protection elevations on flood control structures or excavated depths in navigation projects. TAS::96 3134::TAS DESIGN AND CONSTRUCT LAND PORT OF ENTRY AT SHERWOOD NORTH DAKOTA FOR CUSTOMS AND BORDER PROTECTION Commercial and Institutional Building Construction (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports construction of a new land port of entry (LPOE) building in Renville County, North Dakota for use by Customs and Border Patrol (CBP) personnel. The award also supports interim repair and alterations activities to address immediate and emerging needs of the existing LPOE until new construction is completed. Appendix XI Civil Works Program Lower Willamette River Ecosystem Restoration General Investigation Feasibilty Study/Draft PEIS We completed the field surveys for HTRW, topography, cultural resources, and utilities. We also completed the hydraulic modeling, cross sections, and refined the preliminary drawings. at the beginning of October. We submitted the draft Notice of Intent. We got about haflway through the geotechnical section, and completed the writeup for soils and geology. Less Than 50% Completed Information GAO gathered to improve the description The award funds a study that will assess the feasibility of ecosystem restoration, including remediation of contaminated sediments over a portion of a 25-mile reach of the Willamette River in Portland, Oregon. The feasibility study will be used to examine and prioritize ecosystem restoration opportunities in the study area. The purpose of the study is (1) to identify and evaluate substantial ecosystem degradation problems in the Lower Willamette River Basin; (2) to formulate, evaluate, and screen potential solutions to these problems; and (3) to recommend solutions that are in the federal interest and are supported by a local entity willing to provide the items of local cooperation (i.e., a cost-sharing sponsor). The recommended plan will contribute to the identified restoration objectives of restoring fish and wildlife habitat and natural processes of the basin. The Lower Willamette River Ecosystem Restoration project is from Willamette Falls to its confluence with the Columbia River. ATLANTIC MARINE CONSTRUCTION COMPANY, INC. Furinsh all labor, material, equipment, incidentals, supervision and transportation for work necessary to provide security, road, and parking improvements. Job duration is 90 days from NTP. Project is in design at this time?..billed for Bond cost of $18,770.00 Commercial and Institutional Building Construction Elberton, GA 30635-5420 Appendix XI Civil Works Program Less Than 50% Completed Information GAO gathered to improve the description The award provides security, road and parking improvements to the access road at the Richard B. Russell Dam and Lake Project in Elberton, Georgia. Tidal Datum Determinations for Small Boat Harbors in southeast Alaska. The scope of work is to do a tidal determination to establish a new vertical datum and tie existing control of each harbor to its new vertical datum at Hoonah Small Boat Harbor, Hoonah, Alaska, the Kake Small Boat Harbor, Kake, Alaska, the Metlakatla New Harbor & Metlakatla Old Harbor (one station), Metlakatla, Alaska, and the Pelican Small Boat Harbor, Pelican, Alaska and re- establish the horizontal control at Hoonah Small Boat Harbor for the US Army corps of Engineers, Alaska District. Field work is complete. Installed tide gauges at the villages of Hoonah, Kake, Pelican, and Metlakatla in Southeast Alaska. Gauges collected water level information for a period of 35 days, then removed from the water. Installed new tidal bench marks at each location. Determined bench mark positions with GPS and updated positions for other historical bench marks and survey monuments at each harbor. Determined bench mark elevations by differential leveling and updated elevations for other historical bench marks and survey monuments at each harbor. Iniated data processing. Surveying and Mapping (except Geophysical) Services More than 50% Completed Information GAO gathered to improve the description The award supports the collection of tidal data published by the National Oceanic and Atmospheric Administration (NOAA) at specific locations known as tide stations. Commercial and private boats use these data to safely navigate waters and in the long run, these tidal data will help establish four tide stations at these harbors as well as inform harbor improvements. Appendix XI Civil Works Program DAVID FORD CONSULTING ENGINEERS INC This project is for HEC-RAS steady and unsteady model development for the Red River of the North (RRN) from the Canadian border to Halstad, MN. Scope tasks include review of the existing HEC-RAS steady models, consolidation to one model, cross section expansion and refinement, and calibration to the flood of record. Both steady flow HEC-RAS and unsteady flow HEC-RAS models will be completed. The completed unsteady flow model is intended to be used by the National Weather Service (NWS) North Central River Forecast Center. A brief report should also be prepared to discuss model construction and simulation results. Quarterly activities: Task 1. Completed kickoff phone conference call and began meeting coordination. Task 2. Began to review existing HEC-RAS models and data and began to complete a Memorandum for the Record (MFR). Task 9. Provided required monthly status reports. (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award supports the development of a Hydrologic Engineering Centers River Analysis System (HEC-RAS) hydraulic model for the entire Red River. The model will be used for project planning and flood forecasting. Provide labor, equipment and materials required to perform the work at the Lake Washington Ship Canal Spalling Concrete Repairs, including placement of concrete/epoxy repair system. Erection of scaffolding, cleaning of application area, application of epoxy based concrete patch material, final cleanup and gridning of finished areas, disassembly of scaffolding. Appendix XI Civil Works Program More than 50% Completed Information GAO gathered to improve the description The award supports the repair of spalling concrete on the sides of lock chambers. Spalling is the minor failure of the concrete lock sidewalls that occurs due to age. The spalling concrete is a safety issue because it could fall on boats and/or presents a hazard for boaters and employees. GUSTIN, COTHERN, & TUCKER, INC. Survey #09-079, Perform all A_E services for topographic, geodetic, property/boundary, and construction surveys for EDEN(WCS) Benchmark Monumentation ; counties of Broward, Miami-Dade, Monroe and Palm Beach GPS Sessions for completion of required benchmark monumentation Surveying and Mapping (except Geophysical) Services (Information not reported) West Palm Beach, FL 33401-0001 More than 50% Completed Information GAO gathered to improve the description The award supports benchmark documentation activities in Florida's Water Conservation Areas as part of the Comprehensive Everglades Restoration Plan, Adaptive Assessment, and Management program. These activities will provide necessary data for scientists and engineers to restore America's Everglades. BLACK & VEATCH SPECIAL PROJECTS CORP Black & Veatch is performing structural engineer anlaysis and design of mass concrete structures for the new upstream monoliths for Kentucky Lock. We are producing construction plans and specifications. The work has required structural, civil and electrical engineering, as well as, construction cost estimating and scheduling. CADD Technicians put together the construction plans. Completed final plans and specifications for New Upstream Lock Monoliths. Included foundation design and other miscellaneous features. Appendix XI Civil Works Program (Information not reported) Grand Rivers, KY 42045-0001 More than 50% Completed Information GAO gathered to improve the description This design work supported by the award is part of the Kentucky Lock Addition project to construct nine partial height monoliths--the 60- foot wide by 60-foot deep by 100-foot tall concrete blocks that hold back the water--for the upstream one-third of the new lock; this will create a more stable configuration for the existing lock. MIKE HOOKS, INC. CIN-007: Disposal Area Maintenance & CIN-008: New Spill Boxes - Calcasieu Parish, Louisiana CIN-007: Disposal Area Maintenance Work consists of ditching in the Disposal Areas. The depth and width of the ditching will be site specific. The linear footages for each disposal area are: D/A 2 = 2,300 ft., D/A = 25,450 ft., D/A 9 = 22,900 ft., D/A 10 = 16,050 ft., & D/A 11 = 16,800 ft. CIN-008: Install new spill box weirs in Disposal Areas #2, #8, #9, #10, & #11. The existing spill boxes in each disposal area shall be removed from the site. Surveys of the disposal areas to determine the location of the new spill boxes. Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The work performed under this award will extend the life of the levees in Calcasieu Parish. Appendix XI Civil Works Program URS GROUP, INC. TAS::96 3135::TAS - MASTER PLANNING SERVICES FOR ALUM CREEK LAKE, LEWIS CENTER, OH. Prepared URS Project Execution Plan (PXP), performed project administrative start-up activities. Master Plan (MP) Task 1- Project Start-up: Prepared and submitted draft Plan of Study (POS). MP Task 1- Project Start-up: Participated in Kick-off Meeting. MP Task 2 - Develop Geographic Database: Began GIS setup and data acquisition. All Other Professional, Scientific, and Technical Services (Information not reported) GREAT LAKES DREDGE & DOCK COMPANY, LLC This project entails dredging of 1.2 million cubic yards of maintenance material in the Oregon Inlet Spit Channel and the Ocean Bar. Dredging is to be to -15 feet. Dredged material is to be placed on the beach at Pea Island. The only non-ARRA funding is a portion of the mobilization and demobilization ($2.5 million out of $3.6 million). Approximately 268,000 cubic yards of material were placed at the disposal site during the fourth quarter of 2009 by the Hydraulic Cutter Suction Dredge Alaska. Equipment was demobilized in the fourth quarter. Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The award funds maintenance dredging operations to provide a safe, reliable navigable channel. The dredging material was then used to re-nourish the beach. W. M. SMITH & ASSOCIATES, INC. Cleaning and Janitorial Services for Alum Creek Lake, Ohio Cleaning and Janitorial Services for Alum Creek Lake, Ohio (Information not reported) Information GAO gathered to improve the description The award supports additional janitorial services for Alum Creek. These services include cleaning the Recreation Office at Alum Creek as well as grounds pick-up for half the facility, including the picnic area. The award will result in a clean recreation office and clean grounds. JENTREE FOREST PRODUCTS, INC. Landscaping Services Appendix XI Civil Works Program (Information not reported) Information GAO gathered to improve the description The award supports maintenance work being done at Sutton Lake recreational facilities. The award is a task order for mowing services for Hillside Areas 1 and 2. Hillside Area 1 covers 25 acres and includes the Downstream, Bee Run, and Bug Ridge Recreation Areas. Hillside Area 2 covers 4 acres and includes office access and dam abutments. JENTREE FOREST PRODUCTS, INC. (Information not reported) Information GAO gathered to improve the description The award supports maintenance work at Sutton Lake recreational facilities. The award is a task order for mowing services at several areas at Sutton Lake; specifically, mowing services were provided at Lower Gerald R. Freeman Campground covering 18 acres; Upper Gerald R. Freeman Campground covering 12 acres; Middle Gerald R. Freeman Campground covering 9 acres; the Downstream Day Use Area covering 10 acres; and the South Abutment Day Use Area covering 5 acres. MAINTENANCE SERVICES AT DEER CREEK LAKE, MT STERLING, OH Appendix XI Civil Works Program RESTROOM AND RECREATION AREA CLEANING (Information not reported) MT STERLING, OH 43143-9505 Information GAO gathered to improve the description The award supports trash pick-up along the river, cleaning of public restrooms below the dam, and cleaning the picnic shelters in the recreational area. The award also provides cleaning and janitorial supplies. The award will result in clean areas along the river, a clean recreational area, and a clean picnic area. W-P CONSTRUCTION SERVICES, INC. Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia 105 Centennial Heights Road, PO Box 105 Information GAO gathered to improve the description The award supports the removal of pea gravel and timber over 10 acres at the Crane's Nest Playground in the J.W. Flannagan Dam Recreation Area. The award also includes installation of pipe in the mulch to improve drainage in the area. These activities will help maintain the recreational facilities. Appendix XI Civil Works Program W-P CONSTRUCTION SERVICES, INC. Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia Maintenance Services for J.W. Flanagan Dam Recreation Area, Haysi, Virginia 105 Centennial Heights Road, PO Box 105 Information GAO gathered to improve the description The award supports work at North Fork Pound Lake, which is a U.S. Army Corps of Engineers-operated Big Sandy flood protection system project. Award activities include mowing at the Dam Access Road, overlook area, and office, which covered 2.5 acres. Construction 96-3135 TAS Demolish and Rebuild Summersville Lake Battle Run restrooms located at the campground, beach and boat launch areas. Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The new restroom facility provides a healthier and safer environment for the visiting public. Appendix XI Civil Works Program ALLEN, J. F. COMPANY (INC) as part of U.S. Army Corps of Engineers - civil program financing only-Operation and Maintenance, Recovery Act on Bulltown Campground project Delivered stone to Bulltown Campground project Brick, Stone, and Related Construction Material Merchant Wholesalers (Information not reported) More than 50% Completed Information GAO gathered to improve the description This award funds 1717.72 tons of 3/4-inch crush-and-run limestone to Burnsville Lake to resurface a gravel parking area. UNITED PROCUREMENT, L.P. CAN STYLE BUOYS DELIVERED TO EAST LYNN LAKE PART DESCRIPTION: 45101 BUOY RB 962 W/ LETTERING & SYMBOL 6-MODEL B961RC H.D. RED NUN BUOY 6- MODEL B961GC H.D. GREEN CHANNEL MARKER 5-MODEL B961R H.D. BUOY 'SLOW NO WAKE' W/ CONTROL SYMBOL 3-MODEL B961R H.D. BUOY 'ROCKS' W/HAZARD SYSMBOL 2-MODEL 96R1R H.D. BUOY 'BOATS KEEP OUT' W/RESTRICTED SYMBOL DELIVERED TO EAST LYNN LAKE, EAST LYNN WV. THE JOB HAS BEEN COMPLETED AND ALL PAYMENTS HAVE BEEN RECIEVED. All Other Plastics Product Manufacturing EAST LYNN, WV 25512-9746 Information GAO gathered to improve the description The award funds the procurement of 22 buoys to the U.S. Army Corps of Engineers in order to enhance water safety for boaters and swimmers at East Lynn Lake in West Virginia. Appendix XI Civil Works Program READY TO HAUL - COLUMBUS, LLC Supply of bulk engineered wood fiber for use at Sutton Lake playground. Delivery of engineered wood fiber for playground at Sutton Lake. Engineered Wood Member (except Truss) Manufacturing Information GAO gathered to improve the description The wood supplied through this award supports the overall maintenance, including the purchase and installation of playground equipment to meet playground safety standards and provide Americans with Disabilities Act (ADA) accessibility at Gerald R. Freeman Campground. KINGSBOROUGH ATLAS TREE SURGERY, INC (Information not reported) Information GAO gathered to improve the description The award supports trimming hazardous trees and tree limbs in recreation areas near New Melones Lake, California (downstream channel) and New Hogan Lake, California. Appendix XI Civil Works Program PARAGON INDUSTRIAL APPLICATIONS, INC. Design Build Boat Storage building Information GAO gathered to improve the description This award supports the design and construction of a boat storage building that will replace the inadequate boat storage building at the Piney Woods Regional Office. This is part of a larger project to improve the health and safety of the public at Ferrells Bridge Dam, Lake O’ the Pines, Texas. WISS, JANNEY, ELSTNER ASSOCIATES, INC. RIP RAP - embankment repair recovery Aggregate testing including Loas Angeles abrasion, Magnesium soundness,unit weight, specific gravity, absorption and petrographic analysis of rip rap materials 13581 Pond Springs Road, Suite 107 Less Than 50% Completed Information GAO gathered to improve the description This award supports the testing of rip rap materials from Miller Springs Quarry in Belton, Texas to be used for embankment repair at Navarro Mills, Belton and Granger Lakes. Appendix XI Civil Works Program ENGINEERING DESIGN TECHNOLOGIES, INC. As part of construction on the Atlanta environmental infrastructure projects-Mark Ave stormwater structure in Cobb County, GA (Information not reported) Information GAO gathered to improve the description The award supports engineering design services. This structure is part of a priority storm water sewer capacity relief project in this region. MITCHELL INDUSTRIAL CONTRACTORS, INC. Millers Ferry Renovation HVAC System Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing (Information not reported) Information GAO gathered to improve the description The award supports replacement and renovation of the HVAC system at Millers Ferry powerhouse, which houses hydroelectric generators for the production of electricity. The powerhouse is located in Wilcox County, Alabama near Camden Lake. Award activities will include renovating the HVAC system by replacing air handlers, chillers, and ductwork, and performing electrical upgrades. The award will result in a more efficient and maintenance-friendly HVAC system. Appendix XI Civil Works Program ADVANCED CRANE TECHNOLOGIES, LLC Rehabilitation of the Overhead Powerhouse Bridge Cranes at the USACE Powerhouses, located in West Point, GA, Cartersville, GA & Basset, VA Rehab Powerhouse cranes, various locations Overhead Traveling Crane, Hoist, and Monorail System Manufacturing (Information not reported) Information GAO gathered to improve the description Rehabilitation activities under the award include modernizing crane controls; replacing wiring; and replacing the operators’ cabs. The rehabilitation will restore full capacity to the cranes, including critical lift capabilities; allow for safer operations; and reduce future maintenance costs. The state-of-the-art-controls will improve how the cranes operate. An overhead powerhouse bridge crane runs along the ceiling of the powerhouse and is used to set and maintain equipment in the powerhouse. Manufacture of four gearboxes. Manufacture of the gearboxes. Speed Changer, Industrial High-Speed Drive, and Gear Manufacturing (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award funds the purchase of secondary gearboxes at Dardanelle Lock & Dam in Russellville, Arkansas, to replace the existing gearboxes that power gates in the powerhouse. A failed gearbox renders the gate inoperable and replacement of the gearboxes reduces the risk of failure. Appendix XI Civil Works Program ADH TECHNICAL SERVICES, INC. As a part of the maintenance for the installation of a strong motion seismic instrument on the Cottonwood Springs Dam Project. None yet. Project will begin in 2010. Geophysical Surveying and Mapping Services (Information not reported) Cottonwood Springs, SD 57747-0664 Information GAO gathered to improve the description This award supports the installation of a new seismic instrument to monitor the area for the magnitude of earthquake activity, which will allow for the assessment of potential impacts to the dam and foundation. This work will ensure that dam safety instruments are installed and operating satisfactorily, thus increasing the safety of the dam and downstream residents. BRUNSWICK COMMERCIAL & GOVERNMENT PRODUCTS, INC. Small Craft (17' Guardian Boat) CB9039- Shipment date Oct 28, 2009 Information GAO gathered to improve the description The award supports the purchase of a boat for Beltzville Lake to maintain project grounds and facilities at this 4,200-foot long dam and reservoir project. The boat replaced a 30-year-old vessel, and can be used for, among other things, conducting sampling for water quality, video surveillance of the dam, bridge inspections, debris removal, and reservoir inspection to determine erosion of the rim of the reservoir. Appendix XI Civil Works Program INSTALLED MOTION GATE AT MILFORD PROJECT OFFICE All Other Specialty Trade Contractors JUNCTION CITY, KS 66441-8342 Information GAO gathered to improve the description The award supports installation of one motion gate at the Milford Lake Project Office in Junction City, Kansas. The installation activities will include removing the existing gate and fence, installing a 24-foot motion gate with accompanying accessories such as a photo eye, gate edge for safety, and additional fencing. The award will result in enhanced security at the office's equipment lot. PRUDENT TECHNOLOGIES, INC. Removal of Underground Staorage Tanks and installation of above ground storage tanks at Hillsdale Lake and Clinton Lake Sites in Kansas The underground tanks were removed and disposed. The above ground tanks were installed. Other Heavy and Civil Engineering Construction Information GAO gathered to improve the description The award supports the removal of four underground tanks (two from Clinton Lake and two from Hillsdale) and the addition of six above ground tanks (four in Clinton Lake and two in Hillsdale). The award will result in tanks which are easier to access and obtain gas for government vehicles, and easier to maintain. Appendix XI Civil Works Program UTILITIES FORESTRY SERVICES, INC. Provide all labor,material, supplies and equipment to remove all trees and stumps from Penn St to College Ave along top of Embankment At Indian Rock Dam, York County, York, PA . Operations and Maintenance-Army, the removal of all trees and stumps from the area between College Ave to Penn St. Along the top of an embankment at Indian Rock Dam, York County, York, PA was awarded utilizing ARRA funds. Information GAO gathered to improve the description The award supports the removal of trees from the York levee. The trees' rooting system was beginning to degrade the structural integrity of the Cordours River Levee. The award will ensure compliance with new U.S. Army Corps of Engineers levee safety criteria. GEO-TECHNOLOGY ASSOCIATES, INC. Preventative Maintenance of 34 relief wells No work performed - releif well inspection and rehabilitation services. Support Activities for Oil and Gas Operations (Information not reported) Information GAO gathered to improve the description The award provides funds for preventive maintenance and well inspections at Curwensville Dam in Curwensville, Pennsylvania. There are 34 relief wells located along the downstream toe of Curwensville Dam for the purpose of relieving hydrostatic pressures within the dam. Preventive maintenance of the wells will assure the project continues to operate in a safe manner. Appendix XI Civil Works Program ANDERSON PERRY & ASSOCIATES, INC. No activity this period. Job completed. Walla Walla, WA 99362-1876 Information GAO gathered to improve the description The award supports the attendance of two Anderson-Perry employees to attend levee inspection training in Portland, Oregon, for 3-4 days. The U.S. Army Corps of Engineers requires completion of this course, which includes software training, for all levee inspectors. Upon completion of the workshop, attendees acquired certification to inspect levees managed by the Corps. SEALS UNLIMITED, INC. MOOREHAVEN LOCK & DAM LOWER SECTOR GATE SEAL SETS Gasket, Packing, and Sealing Device Manufacturing 525 Ridgelawn RD. Information GAO gathered to improve the description The award supports the purchase of rubber fabricated lock and dam gate seals for use at Moore Haven Lock and Dam. Moore Haven Lock is located in Clewiston, Florida and is part of the Okeechobee Waterway Project. Purchase of these seals is part of a larger project to complete major maintenance of all four sector gates at Moore Haven Lock. The larger project provides for the continuation of operations significantly reducing the likelihood of failure for this highly utilized recreation site. Appendix XI Civil Works Program Periodic Inspection of Levees per list in the Statement of Work Conducted levee inspections and submitted activity reports 1210 Pemier Drive, Suite 200- Less Than 50% Completed Information GAO gathered to improve the description This award is for the inspection of two levee systems in the Memphis District to determine their condition and assess if repairs or additional maintenance is required. One levee system encompasses 67 miles, 6 segments, and 3 drainage structures and the other one encompasses 34 miles, 5 segments, and 5 drainage structures. Both the East Bank St. Francis Floodway System and the Big Lake Floodway West Levee System are located in Arkansas and Missouri near Rivervale, Arkansas. SCIPAR, INC. Deliver Powerplant Protective Relays per specifications. inspected, packaged, and delivered all relays per the contract requirements. A pending modification is needed for shipment of last required relay. Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers $185,265.00 Appendix XI Civil Works Program More than 50% Completed Information GAO gathered to improve the description The award supports the purchase of new protective relays, which are digital electronic equipment used to support transmission of electrical power. The U.S. Army Corps of Engineers Fort Randall Project Office, in Pickstown, South Dakota, purchased 65 protective relays of various types as well as related components and two communication processors and software. New relays are needed to support the operational system for transmitting electrical power to the customer, which enables the hydroelectric plant to continue to produce electrical power. BOWEN ENGINEERING & SURVEY INC Hydrographic Surveys, Mile 28.0 to 35.5, Kaskaskia River, Illinois Project is 100% Complete Surveying and Mapping (except Geophysical) Services 1078 Wolverine Lane, Suite J Cape Girardeau, MO 63701-9002 Information GAO gathered to improve the description The award supports the verification of older surveys and existing depths. These efforts were a precursor to the St. Louis Army Corps of Engineers performing dredging and other related work on the Kaskaskia River. ELITE ROOFING CO. - GENERAL CONTRACTOR To install Shoreline power at six lock sites along the Tennessee River including Guntersvills, AL, Chickamauga, TN, Nickajack, TN, Watts Bar, TN, Fort Loudon, TN and Grand Rivers Kentucky Lock, KY. We have completed the Guntersville project and the Chickamauga project. As of 12/29/09 we were 82% complete with the Nickajack project. Appendix XI Civil Works Program (Information not reported) Less Than 50% Completed Information GAO gathered to improve the description The award funds the electrical wiring for the installation of shoreline power at six locks, which comprise a heavily used lock system along the Tennessee River. Power was not accessible along the shoreline of the lock system prior to this shoreline installation. Installation of electrical wiring is needed along the lock system for a variety of reasons, including powering tools needed to perform routine maintenance along the lock system. Recover-To provide labor, supplies and materials to furnish 76 pieces Hollaender 2' HD base flange mill finish fittings, 48 pieces 2' Hollaender #5-9 tees, 36 pieces 2' Hollaender #7-9 cross, 24 pieces #11-9 Hollaender side outlet tees, 20 pieces Hollaender #9-9 side outlet 90 ells, 40 pieces #3-9 Hollaender 90 ells, 408 pieces 4' toeplate bevels, 100 pieces TB brackets 3x2 angle hardware, 8 pieces Hollaender gate 2' hinge assm & pin latch hardware, and 1152 pieces 2' S40 pipe. Recover-To provide labor, supplies and materials to furnish 76 pieces Hollaender 2' HD base flange mill finish fittings, 48 pieces 2' Hollaender #5-9 tees, 36 pieces 2' Hollaender #7-9 cross, 24 pieces #11-9 Hollaender side outlet tees, 20 pieces Hollaender #9-9 side outlet 90 ells, 40 pieces #3-9 Hollaender 90 ells, 408 pieces 4' toeplate bevels, 100 pieces TB brackets 3x2 angle hardware, 8 pieces Hollaender gate 2' hinge assm & pin latch hardware, and 1152 pieces 2' S40 pipe. Plumbing and Heating Equipment and Supplies (Hydronics) Merchant Wholesalers 1850 Gravers Road, #100 Plymouth Meeting, PA 19462-2837 Information GAO gathered to improve the description The award funds the purchase of handrail components (2-inch aluminum handrails and various 2-inch aluminum handrail fittings to be placed around valve and gate pits) for Guntersville Lock, Alabama, located at Tennessee River mile 349 in Grant, Alabama. These purchases will allow the Nashville District’s Tennessee River project to address a backlog of infrastructure maintenance. Appendix XI Civil Works Program NEWLAND ENTITIES, INC. Construct and install new waste water lift station Awarded but NTP was not issued until January 2010 Other Heavy and Civil Engineering Construction Information GAO gathered to improve the description The award supports wastewater facility upgrades at Lake Mendocino's Coyote Valley Dam in Ukiah, California. The upgrades include positioning a new wastewater lift station, repairing wastewater plant tanks, and replacing leach fields. The award upgrades Lake Mendocino's 50-year-old recreational facilities for visitor health and safety. Rental of equipment to be used at the Carlyle Lake/Kaskaskia Nav Project IAW the contract specs, clauses,and provisions. CTI AND ASSOCIATES, INC. St. Louis flood protection Reach 3 pilot holes for new relief wells Geotechnical investigations, soil/laboratory soil sampling, monitoring well design, installation and documentation (Information not reported) St. Louis, MO 63108-2833 Less Than 50% Completed Information GAO gathered to improve the description This award is for drill machine borings at 13 locations landside of the St. Louis flood protection district in Reach 3 and 20 locations landside of the St. Louis flood protection district in Reach 4. These activities are part of a larger flood protection project that protects approximately 3,160 acres of industrial and commercial development from Mississippi River flooding. The flood protection system was constructed with inadequate closure structures and underseepage protection. These design deficiencies are being corrected to ensure that the system provides its authorized level of service. Appendix XI Civil Works Program HOWARD W. PENCE, INC. Provide all labor, materials and equipment for Port Oliver Phase II Project, including; 0017, Weigh in Shelter; 0018, Weigh In Area; 0019, Amphitheater; 0020, Amphitheater Restroom; 0021, ADA Sidewalk; 0022, Boat Ramp Extension; 0023, Western Boardwalk; 0024, Picnic Areas; 0025, ADA Sidewalk; 0026, Eastern Boardwalk. Project was started in November as of 12/31/09 the following progress is reported: Primary electric is 67% complete, Boat ramp restrooms are 66% complete, Western Boardwalk is 51% complete, Boat Ramp extension is 37% complete, Eastern Boardwalk is 31% complete, Picnic Area restroom is 25% complete, Amphitheater ADA Sidewalk is 22% complete, Picnic Area is 20% complete, Amphitheater restroom is 18% complete, Gravel overflow parking lot is 17% complete, Weigh-in shelter is 15% complete, Overlook is 15% complete, Picnic Loop road is 14% complete, Weigh in Area is 12% complete, Boat ramp ADA loading ramp is 10% complete, Picnic Loop Road Parking Lot is 10% complete, Amphitheater is 8% complete, Sewage treatment plant is 7% complete, Water Line (Main) is 7% complete, Picnic Area Playground is 6% complete, ADA Sidewalk is 5% complete,Picnic Area Shelter is 5% complete, Port Oliver Road Paving is 3% complete, Boat Ramp Parking Lot Paving is 1% complete, Courtesy Dock 1 & 2 are unstarted. Appendix XI Civil Works Program north springfield, VT 05150-0001 Information GAO gathered to improve the description The stairs being repaired include 3 flights and 2 landings. The work was needed to replace a 30-year-old set of stairs that were rotting and unsafe to use. The stairs allow safe access to the swimming beach and picnic area from the recreation parking lot. The Stoughton Pond Recreation Area is part of the North Springfield Lake project. North Springfield Lake is part of the system of reservoirs and local protection works for the control of floodwaters in the Connecticut River Basin. Sewer Connection from Cape Cod Canal Field Office to Town, Buzzards Bay, MA Commercial and Institutional Building Construction 42 Academy Dr. More than 50% Completed Information GAO gathered to improve the description The award connects the project office to the town sewer system in order to improve office environmental conditions and reduce future maintenance costs. The following award descriptions contained little or no information that allowed readers to understand the general purpose, scope and nature of activities, location, and expected outcomes. The award description information is taken directly from Recovery.gov. We did not edit it in any way, such as to correct typographical or grammatical errors. Appendix XI Civil Works Program This modification is issued to add CLIN 7001 in the funded amount of $5,000. Subsequently, the total amount of this Order is increased from $40,441.18 to $45,441.18. Senior Project Schedule services. St. Louis, MO 63103-2833 More than 50% Completed Information GAO gathered to improve the description The award supports an existing contract for one employee to provide database maintenance and project status reporting services for several Corps projects. The employee will provide these services for a base period with the option of a 12-month extension. The employee will work at the U.S. Army Corps of Engineers Office at 1222 Spruce Drive, St. Louis, Missouri. URS GROUP, INC. TAS::96 3134::TAS NON-TIME CRITICAL REMOVAL ACTION - ELIZABETH MINES SUPERFUND SITE, DESCOPE TASK 3.1 - TP-1 TOPOGRAPHIC SURVEY, EXERCISE OPTIONAL TASKS 1.1 - PROJECT MGMT. 3.1 - SURVEY JOSSLER PROPERTIES, 9.6 - LYSIMETER SAMPLING AS WELL AS AMEND SOW. Property Boundary/Survey Delineation Environmental Site Monitoring Engineering Evaluations (Hydraulics and Hydrology) Material Testing (Information not reported) More than 50% Completed Information GAO gathered to improve the description The award is part of a larger contract for Hazardous Toxic Radioactive Waste (HTRW) cleanup at the Elizabeth Mines Superfund site. The award is for the collection of analytical data that will support the environmental engineering design for cleanup of the site. The Superfund site includes 35 acres of waste and the property boundary survey will determine how much private property is involved on a portion of the site. The work includes conducting a property boundary survey which will provide data to supplement the design report. The design will support the larger project goal of cleaning up the Superfund site and restoring the West Branch of the Ompompanoosuc River which discharges into the Connecticut River north of White River Junction, Vermont. REHIBILITATION FENCE BURNSVILLE LAKE Appendix XI Civil Works Program (Information not reported) Information GAO gathered to improve the description The award provides fencing related materials to the Corps at Burnsville Lake. Materials included 52,800 rolls of wire fence, 400 ACQ treated posts, 5,000 T fence posts, 10 lbs. of 1.25 inch galvanized fence staples, 15 steel tubular farm gates, and 56 bags of 60 lbs ready-mix concrete. HDB CONSTRUCTION, INC. Big Hill, Marion, Fall River, Elk City and John Redmond Lakes, Kansas Other Heavy and Civil Engineering Construction (Information not reported) Information GAO gathered to improve the description The award supports maintenance and upgrades of recreation areas at Fall River, Marion, Big Hill, Elk City, and John Redmond Lakes in Kansas. The activities under this award include paving road and recreation vehicle sites, improvement or repairs of electric pedestals, and sewer and water service to a number of storm-damaged recreation sites. The award also provides for modification of a boat launching ramp at John Redmond Lake. Much of the activities are related to repairing of damage suffered during severe storms over the past 2 years. Appendix XI Civil Works Program kansas city, KS 66105-1200 Information GAO gathered to improve the description The award provides a 40-horsepower boat motor to be used for water safety purposes at Smithville Lake, Missouri. SHANNON & WILSON, INC. Time histories for Dworshak Dam Information GAO gathered to improve the description The award provides electronic time histories for the Dworshak Dam site in Idaho. Time histories, or seismological records, provide pictures of the ground and its movements. These time histories will assist the U.S. Army Corps of Engineers in modeling and evaluating the dam's ability to withstand earthquakes. Appendix XI Civil Works Program More than 50 % Complete All Other Professional, Scientific, and Technical Services More than 50% Completed Information GAO gathered to improve the description The award supports oversight and inspection of a contractor installing a riser pipe in the Yalobusha River Watershed. The project office is in Sardis, Mississippi, but the installation project covers three counties in the state. The installation of a riser pipe will help control the discharge of water so flooding does not occur in the area surrounding the river. Appendix XI Civil Works Program Less Than 50% Completed Information GAO gathered to improve the description The award provides funds to hire an Engineering Technician VI for the Levee Inspection Program. This technician will conduct inspections in various locations across the U.S. Army Corps of Engineers St. Louis District. As part of the Levee Safety/Inspection Program, inspections will examine and confirm the operations of elements of a levee system, such as pumps, relief wells and closures. Inspections include the creation of condition reports using a tool called the Levee Inspection System (LIS). The award will result in improved public safety by providing a better understanding of levee systems performance, including how to better evaluate levee systems and their predicted performance before they are tested by a flood. The award will also help ensure a nationwide standard for evaluating levees, which ultimately should provide information that will help prioritize fixes and rehabilitation, where necessary. GEOKON, INC. Geotechnical Instrumentation - Load Cells Other Measuring and Controlling Device Manufacturing (Information not reported) East Alton, IL 62024-2406 Information GAO gathered to improve the description The award funds pressure temperature humidity instruments for work being done to the upstream lift gate at Melvin Price Lock and Dam, specifically five strain gauge load cells. These were provided in support of the overall project at Melvin Price Lock and Dam and are typically used during repairs or refurbishments, when a dam may have shown leaks or needs upgrading for seismic evaluations, for example. The strain gauge load cells provided will ultimately allow the project to continue in a safe manner by measuring loads and holding the dam in place during repairs. Appendix XI Civil Works Program LAKE CONTRACTING, INC. Rip Rap Placement complet 50% or more Other Heavy and Civil Engineering Construction REND LAKE, 12220 REND CITY ROAD More than 50% Completed Information GAO gathered to improve the description The award supports the provision of vegetative management services at Rend Lake. The contractor is to furnish all labor, equipment, and material necessary to prepare sites and place rip rap. The work includes the repair of east and west side flood-damaged shoreline revetment and breakwaters. Repair of flood damaged shoreline revetment and breakwaters will stabilize the shoreline and breakwaters, increasing public safety and reliability of the features to protect valuable resources. Water and Sewer Line and Related Structures Construction Information GAO gathered to improve the description The award supports installation of individual sewer hookups for camp sites at the Littcarr Campground at Carr Creek Lake, 843 Sassafras Road, Sassafras, Kentucky. Some of these hookups will be connected to a main sewage line that in turn is connected to the sewage lift station. The hookups provide campers a means of disposing of waste material from recreational vehicles and trailers without having a negative impact on the local environment. The waste is carried to the lift station and from there to the treatment plant. This work improves the environment and also provides better services for visitors. Appendix XI Civil Works Program Install entrance gate and barriers Install entrance gate and barriers All Other Specialty Trade Contractors (Information not reported) Information GAO gathered to improve the description This award supports the installation of force protection measures at Northfield Brook Lake in Thomaston, Connecticut. Specifically, a single-arm heavy duty gate was installed to replace an older style chain-link access gate at the entrance to the lake providing access to the U.S. Army Corps of Engineers' flood control protection project. Work also included the placement of concrete jersey barriers on the dam at Brook Lake. This appendix describes federal agencies’ actions to review Recovery.gov information for accuracy. In addition, to supplement our findings on the information that describes awards (as discussed in the body of this report), we performed certain computer edit checks to test certain Recovery.gov information for apparent errors. Prime recipients, as owners of the recipient reporting data, have the principal responsibility for the quality of the data submitted, and subrecipients delegated to report on behalf of prime recipients share in this responsibility. OMB’s guidance does not explicitly mandate a methodology for conducting data quality reviews at the prime and delegated subrecipient level. In its June 22, 2009, guidance, OMB says that, at a minimum, recipients and subrecipients should establish internal controls to ensure data quality, completeness, accuracy, and timely reporting of all amounts funded by the Recovery Act. review told us they did not typically review the information provided in narrative fields, and of the three programs that do, none had a systematic process in place to evaluate the accuracy or transparency of the information. In light of the importance of the quality of the Recovery Act data, the Recovery Accountability and Transparency Board (Recovery Board) has worked with federal Inspectors General to establish a multiphased review process to look at the quality of the data submitted by Recovery Act recipients. All but one of the agencies covered in our review were included in the first phase of the Inspectors General review process—to determine if agencies had developed data quality reviews in anticipation of the data to be submitted. The first phase report revealed that all of the federal agencies in our review had designed processes to perform limited data- quality reviews intended to identify material omissions and significant reporting errors in information reported by recipients of Recovery Act funds. The second phase review included only seven agencies, three of which have programs covered in our review—Departments of Defense and Transportation and GSA. The second phase report identified data errors and omissions in recipients’ first cycle reports and factors that may have contributed to them and the actions taken by agencies, OMB, and the Recovery Board to improve the quality of the data that recipients will submit in future reporting cycles. However, the report did not comment on the quality of the data in the narrative fields. According to the Recovery Board, future reports will focus on the effectiveness of the agency data quality review processes. error message if the entry exceeds this limit. In addition to these completeness checks, FederalReporting.gov includes over 30 data quality checks that primarily focus on the numerical fields, such as the award amount and congressional district. One such edit returns an error message if the submitted place of performance congressional district does not correspond with the place of performance zip code. A senior OMB official told us that such edits were added after the first reporting round to help ensure that congressional districts are correctly entered. We conducted a number of electronic edit checks on all of the 467 prime recipient awards, and any associated subrecipients, in our probability sample, to determine whether there were anomalies that may have affected the transparency of the award information. There were 950 subrecipients associated with the 467 awards in our sample, but not all awards had subrecipients. We found that 109 awards had subrecipients, and the number of subrecipients among these 109 awards ranged from 1 to 79. At the low end of the range, 53 awards had just 1 subrecipient each, and 12 awards had 2 subrecipients. At the high end, 14 awards had 20 or more subrecipients. The 4 awards with the highest number of subrecipients per award had from 60 to 79 subrecipients. Most of the awards with 20 or more subrecipients were within the weatherization program. In total, we performed edit checks on all 1,417 prime recipient and subrecipient reports. For both prime recipient and subrecipient reports, the electronic edit checks resulted in no missing information for the following fields: award number, award date, award amount, fiscal year, fiscal quarter, status, recipient name, recipient congressional district, and recipient Data Universal Numbering System (or DUNS) number. For prime recipients only, we also checked the funding agency code, funding agency name, awarding agency code, awarding agency name, project status, and final report. There was no information missing in these fields either. 950 missing the second. However, neither prime recipients nor subrecipients were missing information on the country, state, city, or zip code. For prime recipient and subrecipient reports, we checked to see if any award dates were on or before February 17, 2009 (before the Recovery Act was enacted) and after December 31, 2009 (the end of the quarter for round two reporting). We found three cases in which the award date was on or before February 17, 2009 (one prime recipient, and two subrecipients). Six cases had award dates after December 31, 2009 (one prime recipient and five subrecipients). These nine cases amount to only about one-half of 1 percent of all prime recipient and subrecipient reports in our sample and are not material to our findings or conclusions. We also performed additional electronic checks to determine if total Recovery Act funds received exceeded the award amount, as well as whether total funds expended exceeded the award amount. There were no cases in our probability sample of prime recipients or any identified subrecipients for whom the total funds received exceeded the award amount. To identify the information that is required to be included as part of the descriptions of awards funded by the Recovery Act, we reviewed the reporting requirements contained in the act, OMB’s guidance, Recovery.gov reporting instructions, and supplemental agency reporting guidance that were applicable for the quarter ending December 31, 2009. We discussed the reporting requirements, guidance, and reporting instructions with officials from OMB, the Recovery Board, and the federal program agencies for the programs included in our review. We also discussed with federal, state, and local officials and recipients their experiences in providing descriptions of awards funded by the act, including any positive reactions to or concerns they had about the requirements and guidance. The state and local officials that we contacted were those that were part of a judgmental sample of 52 awards we selected from those that we had previously contacted as part of our work to report bimonthly on how the Recovery Act is being implemented and from our search of media stories about Recovery Act awards. We contacted officials in 15 states and the District of Columbia regarding the following programs—Grants-in-Aid for Airports, Highway Infrastructure Investment, Transit Capital Assistance, Broadband Technology Opportunities Program, and Weatherization Assistance Program—because these were the programs that we were already reviewing as part of our bimonthly Recovery Act efforts. Because we selected these awards judgmentally, we do not assert that the experiences related by state and local officials about these awards are necessarily representative of all awards in a particular program. required for recipient reporting that describe the uses of Recovery Act funds, including the 3 narrative fields previously discussed. In table 12, we reproduced OMB’s Recipient Reporting Model instructions, specifically the definitions and examples, for these fields. cost (amount awarded), status (percentage complete), and outcome (what is expected to be achieved; e.g., increased safety or reduced congestion as a result of a redesigned highway intersection or increased energy efficiency from installation of a new heating, ventilation, and air-conditioning system). To these six specific attributes we used our professional judgment to add a seventh that seemed to be a reasonable adjunct to OMB’s attributes: scope (i.e., information on the magnitude or extent of an award). For example, scope could be the number of homes to be weatherized statewide or the number of miles (or lane miles) to be repaved. Finally, using these seven attributes and our professional judgment, we assessed the clarity and understandability of the narrative text, together with the completeness of the descriptions in their entirety. Those that were clear, understandable, and complete we considered to be “transparent.” In conducting the transparency assessment, we reviewed information reported by prime recipients on Recovery.gov for the quarter ending December 31, 2009, and available to the public on February 10, 2010. While more recent information became available in April 2010 (for the quarter ending March 31), we could not have analyzed this information in the time that we had for our study. We chose to use recipient-reported data from Recovery.gov because the administration considers it to be the official information on Recovery Act spending. to try and identify recipient reports with incorrect program codes. Our population size for each of the nine programs represents the number of correctly recorded recipient reports in Recovery.gov, as of the date on which we downloaded the records. We treated the samples within each of the programs as a stratified design when producing the estimate for overall award transparency. Because we followed a probability sampling procedure, based on random selection, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 90 percent confidence interval. This is the interval that would contain the actual population value for 90 percent of the samples we could have drawn. As a result we are 90 percent confident that each of the confidence intervals in this report will include the true values in the study population. reviewed the award information without regard to the original determinations, compared his or her determination with the results of the two analysts, and made a deciding assessment. The practical difficulties of making sometimes subjective decisions about whether awards meet our transparency criteria may introduce errors, commonly called nonsampling errors. We took steps to minimize these errors, such as by developing instructions for analysts to guide assessing the transparency of award information; conducting a calibration exercise on an initial selection of 70 awards (before drawing the probability sample) to assess the transparency criteria and to ensure that all analysts were interpreting the criteria consistently; having two analysts independently review each award and reach agreement; and, after all results had been entered, reviewing all results within a program for consistency of interpretation. For descriptions that partially met or did not meet our transparency criteria, we visited publicly available federal, state, and recipient Web sites, and reviewed publicly available documents (e.g., state weatherization plans) to attempt to obtain insight into the aspects of the award information that we considered missing, nonspecific, or unclear. While we were often able to “complete” the descriptions using this approach, for some of the awards we had to call award officials to get the needed information. In all these cases, we were able to get this information. We did not attempt to quantify the proportion of awards for which we called award officials. information was missing in any address fields, particularly for the city, state, zip code, and country, but also for the award number, award date, award amount, fiscal year, fiscal quarter, status, recipient name, recipient Data Universal Numbering System (or DUNS) number, funding agency code, funding agency name, awarding agency code, awarding agency name, project status, or final report. Our second sample was a certainty sample of larger dollar awards. We drew this sample because our probability sample did not consider the size of awards. As a result, it is possible that the sample we drew contained a disproportionate number of smaller awards compared with the entire population of awards; therefore, we could not accurately determine the amount of total award dollars for each of our three levels of transparency (i.e. met, partially met, did not meet), and any association of dollars would be misleading. In drawing our large dollar sample, we selected between 2 and 28 of the largest awards in each program, for a total of 70 awards. Overall, the transparency results of this sample are consistent with those of the probability sample (31 percent met, 63 percent partially met, and 6 percent did not meet). This gives us a reasonable level of confidence that that the dollar amount of awards is not necessarily related to the level of transparency of the description. Our third sample was a judgmental sample of 52 awards described at the beginning of this appendix. Much as we did for our probability sample, we reviewed award information reported on Recovery.gov and used publicly available information from state and federal agency Recovery Act Web sites to complete the information, where needed. In addition, we gathered source documentation, such as grant documents, to gain a sense of the accuracy of the information being reported on Recovery.gov. We also discussed with award officials the feedback that they have received from the public and press. Finally, we contacted state and local auditors about issues raised about these awards, if any. activities (such as a transit agency’s purchasing buses and building transit maintenance facilities) that are part of a self-contained Recovery Act award. Other awards may be part of a larger project. For example, one award may be to install a higher-efficiency heating, ventilation, and air- conditioning system and another award may be to install a new roof, both for the same federal building under the Federal Buildings Fund Program. The Corps’ Civil Works program awards have the similar attribute of being part of a larger whole. We assessed descriptions for these two programs against the activities in the award. Because individual awards under these two programs are not tied together to an overall project in any way on Recovery.gov, we did not rate an award lower if it did not make reference to the larger goal of which the award was a part. For example, we did not mark down an award to install a seawall for the outcome of controlling erosion if the description did not state that the award was part of an overall effort by the Corps to make a waterway more navigable. As another aspect of our work to review transparency of award information, for the 11 programs we covered, we discussed with federal agency officials and reviewed efforts by federal Inspectors General to assess the reliability and usefulness of the data reported by recipients. Finally, as discussed in appendixes I through XI, we determined the nature and scope of Recovery Act funding, obligations, and expenditures for the 11 programs covered by our review. Regarding the nature and scope of funding, for each program, we reviewed the act to determine the overall level of funding. We obtained data from the program agencies on the obligations, expenditures, and general purposes of funded awards (e.g., pavement improvements for highways). We chose to analyze information from the federal agencies’ databases because it offers greater ability to parse program activities than do recipient-reported data on Recovery.gov. Relatedly, because the federal agencies keep information on these awards in different levels of detail, our ability to categorize it extends only as far as the detail in the agencies’ databases. The federal agencies update their data at different frequencies. As a result, data for the 11 programs covered by our review are as of different dates, although they all are recent. The earliest data that we report are as of March 31, 2010, for the Weatherization Assistance Program, the latest data are as of May 12, 2010, for the Broadband Technology Opportunities Program. This appendix presents the estimated error rates associated with the results of our transparency assessment, on the extent to which awards from our representative sample were transparent, presented in table 2 of this report. For example, if we had taken 100 samples of Weatherization Assistance Program awards, we would expect that in 90 of the samples, between 6.4 percent and 19.3 percent of the awards would have met our transparency criteria, established elsewhere in this report. Katherine Siggerud (202) 512-2834 or [email protected] for buildings, telecommunications, and transportation issues. Patricia Dalton (202) 512-3841 or [email protected] for energy and Army Corps of Engineers issues. James Ashley, Carl Barden, Jonathan Carver, A. Nicole Clowers, Daniel Cain, Janice Ceperich, Michael Clements, Maria Edelstein, Elizabeth Eisenstadt, Susan Fleming, Mark Gaffigan, Joy Gambino, Kimberly Gianopoulos, Diana Goody, H. Brandon Haller, Daniel Hoy, Vondalee Hunt, Bert Japikse, Anar Ladhani, Hannah Laufe, Joanie Lofgren, Grant Mallie, Kristen Massey, David Maurer, Anu Mittal, Sara Ann Moessbauer, Joshua Ormond, James Ratzenberger, Amy Rosewarne, Beverly Ross, John Shumann, Larry Thomas, and Susan Zimmerman made significant contributions to this report. In addition, Laura Acosta, Silvia Arbelaez-Ellis, Paul Begnaud, Sarah Jane Brady, Laurel Breedon, Myra Watts Butler, Waylon Catrett, Sunny Chang, Richard Cheston, Chase Cook, James Cooksey, John H. Davis, Bonnie Derby, Kathleen Drennan, Daniel Egan, James Elgas, Nagla’a El-Hodiri, K. Eric Essig, Mattias Fenton, Christine Frye, Kathy Hale, John Hansen, Kay Harnish-Ladd, Barbara Haynes, Adam Hoffman, Sabur Ibrahim, Richard Jorgenson, Emily Larson, Alexander Lawrence, Jennifer Leone, Nancy Lueke, Richard Mayfield, Gail Marnik, Cory Marzullo, Ronald Maxon, Marietta Mayfield, Daniel Newman, Loren Obler, Keith O’Brien, Kathryn O’Dea, Carol Patey, Leslie Pollock, Gloria Proa, Frank Putallaz, Nadine Garrick Raidbard, Nitin Rao, Sanford Reigle, Matthew Rosenberg, Mark Ryan, Connie Sawyer Jr., Paul Schmidt, Ryan Scott, David Shoemaker, A. Paige Smith, Ray Smith, Ronald Stouffer, Rosemary Torres-Lerma, Robyn Trotter, and Stephen Ulrich contributed by conducting audit work at state and local governments. Moreover, Jennifer Andreone, Shea Bader, Steven Banovac, Deyanna Beeler, Amanda Cherrin, MacKenzie Cooper, Abbie David, George Erhart, Janida Grima, Michael Hanson, Paul Hobart, Dana Hopings, William King, Claire Li, Angela Miles, Justin Monroe, Meredith Moore, Michael Pahr, Chhandasi Pandya, Jonathan Stehle, April Van Cleef, Richard Winsor, and Katherine Wunderink contributed by conducting research that allowed us to complete descriptions for hundreds of Recovery Act awards. Finally, Joyce Evans, Jena Sinkfield, and Cynthia Taylor provided technical assistance.

A hallmark of efforts to implement the $862 billion American Recovery and Reinvestment Act of 2009 (Recovery Act) is to be transparent and accountable about what the money is being spent on and what is being achieved. To help achieve these goals, recipients are to report every 3 months on their award activities and expected outcomes, among other things. This information is available on Recovery.gov, the government's official Recovery Act Web site. As requested, this report covers 11 federal programs focused on broadband, energy, transportation, federal buildings, and civil works activities, representing $67 billion in Recovery Act funding. Primarily, the report (1) describes how the Office of Management and Budget (OMB) and federal agencies implemented the act to report funds' uses and (2) assesses the extent to which descriptions of awards meet GAO's transparency criteria. It also describes reported uses of funds for the 11 programs. GAO reviewed requirements for reporting in the act and OMB's guidance. Based on these requirements, GAO developed a transparency assessment and applied it to a probability sample of descriptions from 14,089 recipient reports. In addition, GAO reviewed 52 projects in detail in states that it had contacted as part of its bimonthly reviews and interviewed federal, state, and local officials about their experiences with reporting descriptions of awards. This report focuses on one aspect of transparency and accountability: the extent to which descriptions of awards found on Recovery.gov foster a basic understanding of award activities and expected outcomes. Section 1512 of the act created broad requirements for recipient reporting. The act does not further explain these requirements. To implement the act, OMB provided generic guidance instructing recipients to report narrative information, among other things, that captures the overall purpose of the award and expected results. GAO estimates that, for the nine programs with funds awarded by December 31, 2009, 25 percent of the descriptions met its transparency criteria; that is, they had sufficiently clear and complete information on the award's purpose, scope and nature of activities, location, cost, outcomes, and status of work. Two factors may have influenced what GAO found. First, GAO's results were somewhat more positive for programs in which the federal agencies provided program-specific materials that supplemented OMB's guidance with detailed information on what recipients should include in the narrative fields. The highway, transit, and geothermal programs that GAO reviewed tended to have more transparent descriptions compared with programs that only supplied general guidance. Second, officials in many programs told GAO that they did not typically include the narrative fields in their data quality reviews. While an estimated three-quarters of the recipient-reported information did not fully meet GAO's transparency criteria--thus potentially hampering understanding of what is being achieved with Recovery Act funding--GAO found that federal and state Recovery Act Web sites, in some cases, provided additional information that could aid the public in understanding what its tax dollars are being spent on and what outcomes are expected. GAO collected information on the reported uses of funds from federal agencies for the 11 programs it reviewed. These uses ranged from improving infrastructure to improving Internet access. Agencies have obligated program funds at different rates, which may be due, in part, to whether the programs were new, existing, or received sizable funding increases. GAO also asked the federal agencies and selected state agencies in its review about how they make Recovery Act project information available to the public and what feedback they have received. Each agency has established a Recovery Act Web site, as have states, some state auditors and Inspectors General, and some recipients. These sites contain varying amounts of information, such as program objectives, lists of projects, and interactive maps. To further public understanding of what Recovery Act funds are being spent on and the expected results, GAO recommends that the Director, OMB, (1) revise the agency's recipient reporting guidance to remedy the unclear examples and enhance instructions for completing narrative fields; (2) work with agencies to determine whether supplemental guidance is needed to meet the intent of the act and whether that supplemental guidance or other technical assistance proposed by agencies dealing with narrative descriptions of awards provides for transparent descriptions of funded activities; and (3) periodically review, in partnership with federal agencies, the recipients' descriptions of awards to determine whether the information provides a basic understanding of the uses of the funds and expected outcomes, and, if not, encourage agencies to develop or improve program-specific guidance, as well as work with the Recovery Board as the board reviews the results of agencies' data quality reviews to further reinforce actions to meet transparency goals. In commenting on a draft of this report, OMB agreed with GAO's recommendations. OMB and the federal agencies provided a number of specific comments, many of which GAO incorporated.

You are an expert at summarizing long articles. Proceed to summarize the following text: Many participants along the entire drug supply chain are affected by shortages. A typical drug supply chain involves a drug manufacturer selling a drug to a wholesale distributor, which then sells the drug to a hospital or pharmacy. (See fig. 1.) Shortages of drugs can result in a variety of problems that directly affect the care patients receive. For example, recent research on the effects of drug shortages identified an increase in adverse outcomes among pediatric cancer patients treated with an alternative drug. Further, in some cases, drug shortages can even contribute to additional health problems. For example, one stakeholder said that recent shortages of drugs that supply an essential nutrient, like calcium, could lead to nutrient deficiencies among patients. FDA is responsible for overseeing the safety and effectiveness of drugs marketed in the United States. Within FDA, the Center for Drug Evaluation and Research (CDER) manages these responsibilities. FDA’s approval is required before new drugs and generic drugs can be marketed for sale. To obtain FDA’s approval for a new drug, sponsors must submit a new drug application (NDA) containing data on the safety and effectiveness of the drug as determined through clinical trials and other research for review by CDER’s Office of New Drugs. Sponsors of generic drugs may obtain FDA approval by submitting an abbreviated new drug application (ANDA) to the agency for review by CDER’s Office of Generic Drugs. The ANDA must contain data showing, among other things, that the generic drug is bioequivalent to, or performs in the same manner as, a drug approved through the NDA process. After obtaining FDA’s approval, drug companies that want to change any part of their original application—such as changes to product manufacturing location or process, type or source of active ingredients, or the product’s labeling—must generally submit an application supplement to notify FDA of the change and, if the change has a substantial potential to have an adverse effect on the product, obtain FDA’s approval. CGMP regulations provide a framework for a manufacturer to follow to produce safe, pure, and high-quality drugs. See 21 C.F.R. pts. 210-211. action. In some cases, FDA may exercise its regulatory discretion and assess whether the risks of either taking a certain enforcement or other action or refraining from taking action will outweigh the benefits, such as when an action may cause or exacerbate a drug shortage. For example, if a manufacturing deficiency is identified, such as overfilled vials or the presence of contaminants, the manufacturer should take appropriate corrective and preventive actions, or FDA may issue a warning letter or take an enforcement action to require the manufacturer to do so. Similarly, FDA may request manufacturers of drugs whose labeling is not consistent with the labeling approved by FDA to correct such labeling, or it may take an regulatory action to require the manufacturers to do so. In 1999, FDA established the CDER Drug Shortage Program—now known as DSS—to coordinate issues related to drug shortages.DSS determines that a shortage is in effect or a potential shortage is pending, it contacts manufacturers of the drug to collect up to date information on inventory of the drug, demand for the drug, and manufacturing schedules. DSS may also coordinate its response with several offices including the Office of Generic Drugs, Office of New Drug Quality Assessment, and CDER’s Office of Compliance—the office responsible for minimizing consumer exposure to unsafe, ineffective, and poor quality drugs. DSS may also work with FDA’s Office of Regulatory Affairs—the office within FDA that oversees imports, inspections, and enforcement policy—and the manufacturer to help resolve any underlying problem a manufacturer is facing. If the shortage is of a controlled Once substance, FDA may work with the Drug Enforcement Administration (DEA) on any issues related to quotas for the production of the drug. When FDA is informed of a potential shortage in advance, it may take steps to prevent the shortage, such as providing assistance to address manufacturing problems. manufacturer’s proposed approach to responding to quality concerns. In addition, FDA can expedite inspections of manufacturing establishments to facilitate the marketing of an alternative to a drug in shortage or can expedite inspections once remediation to address quality problems has been completed. FDA officials said that they take steps to address shortages of both medically necessary drugs and non-medically necessary drugs, though they give priority to shortages of medically necessary drugs. additional sources of a drug in shortage, or supplements to ANDAs or NDAs, to provide additional capacity for production of an already approved drug. While there are a number of steps FDA can take to address a shortage, FDA cannot require manufacturers to start producing or continue to produce a drug. It also cannot require manufacturers to maintain or introduce manufacturing redundancies in their establishments to provide them with increased flexibility to respond to shortages. On October 31, 2011, the President issued an Executive Order that directed FDA to use its authority to encourage manufacturers to report drug supply disruptions earlier, to expedite regulatory review, when possible, to prevent or mitigate drug shortages, and to communicate to the Department of Justice any findings by FDA that shortages have led market participants to stockpile shortage drugs or sell them at exorbitant prices. In November 2011, we found that weaknesses in FDA’s ability to respond resulted in a predominately reactive approach to addressing shortages, although this was partially due to the fact that, at the time our report was issued, FDA did not have the authority to require manufacturers to notify Our previous report contained the agency of most impending shortages. several recommendations for FDA, including assessing the resources that FDA allocates to its DSS; developing an information system to manage data on shortages; ensuring that FDA’s strategic plan articulates goals and priorities for maintaining the availability of drugs; and developing results-oriented performance metrics related to FDA’s response to drug shortages. FDA outlined actions it planned to take which were consistent with these recommendations. Subsequently, the enactment of FDASIA in July 2012 resulted in several new requirements for FDA and manufacturers intended to address drug shortages. (See table 1 for a summary of these provisions.) The number of drug shortages remains high, with almost half of critical shortages involving generic sterile injectable drugs. Provider association representatives identified challenges in responding to drug shortages without adversely affecting patient care. The number of drug shortages reported each year remains high, although there was a decrease in 2012 relative to the record number of new shortages reported in 2011. We found that from 2007 through 2011, the number of drug shortages reported increased each year, with a record 255 shortages reported in 2011. However, in 2012, for the first time since 2006, there was a decrease in the number of drug shortages reported. Specifically, in 2012, 195 shortages were reported, which was a 24 percent decrease from 2011. As of June 30, 2013, 73 shortages had been reported in 2013. (See fig. 2.) Over half (55 percent, or 622) of the 1,132 shortages reported since January 1, 2007, were for drugs that were in shortage more than once. Specifically, 240 drugs were in shortage on multiple occasions between January 1, 2007, and June 30, 2013, representing 622 individual shortages. For shortages reported since January 1, 2007, the duration of the shortages varied, ranging from 1 day to over 5 years. The majority of shortages—68 percent—lasted 1 year or less.the drug shortages over this period was 340 days—slightly less than a year. (See fig. 3.) Provider association representatives told us that a number of the challenges that we reported in 2011 were still relevant for their members, including delays in or rationing of care, difficulties finding alternative drugs, risk associated with medication errors, higher costs, reduced time for patient care, and hoarding or stockpiling of drugs in shortage. During a shortage, providers may have to cancel or delay procedures, which can have detrimental health effects on patients. Providers may also have to ration care by prioritizing the patients who have a greater need for the drug. For example, provider association representatives said that if a drug is used in patients across age groups, but is essential for the care of newborns, a hospital may institute a policy that the drug can only be administered to newborns and will no longer be administered to adults. In addition, representatives from the provider associations noted that identifying effective, alternative drugs for those in shortage can be difficult. In some cases, it may not be possible to find a suitable alternative. For example, representatives from one of the associations we spoke to said that emergency service providers have reported significant difficulties finding alternative medications for stopping seizures and are concerned with the viability of alternative therapies in certain emergency situations. A representative from another association said that when effective alternatives are identified and located, medication errors may increase because the dosage of the alternative drug may differ from what providers are accustomed to using. Drug shortages may result in higher drug costs as well as greater risks to patients. To obtain drugs in short supply, providers may turn to suppliers they do not typically use, including authorized alternative suppliers, compounding pharmacies, or gray market suppliers—those not authorized by the manufacturer to sell the drug—who typically obtain small quantities of a drug that is in short supply and offer it for purchase at an inflated price. Drugs from alternative suppliers can cost significantly more, and, in the case of compounding pharmacies, and gray market suppliers, may pose risks to patients. An outbreak of fungal meningitis in 2012 linked to contaminated compounded drugs—resulting in over 60 deaths and hundreds of people becoming ill—has led to questions about the safety and quality of compounded drugs. Because the origin of a gray market drug may be unknown, there is no assurance that it was stored and transported appropriately. As a result, patients who receive treatment with such drugs may experience adverse events or receive inadequate or inappropriate treatment. (See app. III for a description of steps federal agencies have taken to respond to gray market activities.) Managing drug shortages also can detract from patient care. Providers may develop and institute polices for distributing drugs in short supply to patients, which some provider association representatives said may take time away from caring for patients. They may also need to become familiar with new products and different dosages, which may increase the risk for medication errors and take time away from patient care. Representatives from one provider association said that hospital pharmacists might need to devote more time than usual to work with the physician prescribing a drug that is in shortage to determine an appropriate therapeutic alternative. In some instances, providers have hired full-time staff whose positions are entirely devoted to managing drug shortages. One provider association representative said a well-known hospital system has eight full-time employees who only work on addressing drug shortages. However, a few representatives noted that smaller providers may not have the resources to hire full-time employees and existing staff may have to take on additional responsibilities in order to respond to shortages. Finally, the mere threat of a potential shortage can cause problems for patients and providers. While some provider association representatives reported that the lack of advance notice of a shortage hinders their ability to respond, most of the provider organizations we spoke with expressed concern that reports of an impending shortage can lead to the hoarding or stockpiling of drugs making it more difficult to access the drugs. Quality problems resulting in supply disruptions coupled with constrained manufacturing capacity were frequently cited as the immediate causes of recent drug shortages. However, we also identified multiple potential underlying causes of shortages, all of which were related to the economics of the generic sterile injectable drug market. The most frequently cited immediate cause for a drug shortage was that a manufacturer halted or slowed production after a quality problem was identified, resulting in a supply disruption. These supply disruptions were linked to, among other things, such problems as bacterial contamination or the presence of glass or metal particles in drug vials. Representatives from all eight manufacturers that we interviewed said that quality problems have contributed to recent shortages. Our analysis of FDA data shows that 40 percent of the shortages reported between January 1, 2011, and June 30, 2013, resulted from quality concerns, such as particulate matter or plant maintenance issues. In addition, most of the studies we reviewed (16 of 20) reported that concerns about product quality that led to supply disruptions have been the immediate cause of most shortages. For example, one analysis found that quality problems were the cause linked to the majority of shortages of sterile injectable drugs. Another study found that the immediate cause of 46 percent of all drug shortages in 2011 was a quality problem. According to this study, the specific issues contributing to recent shortages have ranged from an inability to ensure the sterility of products to the identification of particulate matter in products. According to another study, some of the largest manufacturers of sterile injectable drugs have had quality problems that they chose to address by temporarily closing or renovating their establishments, thereby reducing or temporarily ceasing manufacturing of multiple drugs and leading to supply disruptions. Some of the temporary plant closures were proactively undertaken by the manufacturers themselves, while others were undertaken as part of their response to a warning letter from FDA. Such plant closures to address quality problems with certain drugs or production lines can result in shortages of other drugs manufactured at these establishments, including those not associated with quality problems. One study noted that many shortages that are classified as being caused by delays and capacity issues are technically caused by supply disruptions related to quality. Our analysis of FDA data indicates that manufacturing delays or capacity issues accounted for 30 percent of the shortages reported between January 1, 2011, and June 30, 2013. FDA officials told us that delays or capacity issues that triggered shortages typically involved temporary shutdowns or slowdowns undertaken to perform maintenance or, in many recent cases, for remediation efforts, which then caused supply disruptions. Although quality problems were a frequently cited issue, there was not complete agreement as to whether quality problems were truly the trigger for the supply disruptions that cause shortages. Specifically, one study concluded that FDA has applied CGMPs more rigorously in its inspections of manufacturing establishments, resulting in a greater number of quality problems being identified and thus leading to manufacturing supply disruptions that then triggered shortages. Another study suggested that an increase in FDA inspections of injectable drug manufacturing establishments without evidence of an increase in quality problems has contributed to shortages of generic sterile injectable drugs. In addition, one manufacturer representative noted that FDA investigators throughout the country may differ in their interpretations of CGMPs, which the representative said creates uncertainty about whether a manufacturer’s current processes will be found to be in compliance during an FDA inspection. Therefore, from this manufacturer’s perspective, FDA’s compliance actions have been the primary cause of shortages with quality problems being a secondary cause. A second manufacturer representative said that though quality problems have contributed to recent shortages, from the manufacturer’s perspective, quality standards have also been raised. However, one study countered the claim that FDA’s enforcement has changed by stating that manufacturers often identify quality problems and it is their discoveries that trigger FDA inspections in the first place, rather than an increase in agency scrutiny. This study also noted that CGMPs, which provide a framework for a manufacturer to produce safe, pure, and high-quality drugs, have not changed in recent years. One manufacturer representative concurred that the CGMPs themselves had not changed. However, this representative noted that as manufacturing technology advances, the expectations of FDA investigators as to what represents quality manufacturing may advance as well. For example, as new manufacturing equipment becomes available, FDA investigators may expect manufacturers to install the new equipment, even if using older equipment will result in drugs of the same quality. Although not as prominently cited in the literature or the FDA data as quality problems, we identified a number of additional factors that can cause supply disruptions and ultimately result in shortages. Permanent product discontinuations: Permanent product discontinuations were another immediate cause of shortages. Our analysis of FDA data shows that 12 percent of the shortages reported between January 1, 2011, and June 30, 2013, resulted from product discontinuations. According to several studies, the generic drug market is extremely concentrated, with few manufacturers producing each drug. For example, one study found that most generic sterile injectable drugs are made by three or fewer manufacturers. As a result, the discontinuation of a drug by a single manufacturer can have a significant impact on drug availability. Two studies noted that older generic drugs may be discontinued in favor of producing newer drugs that are more profitable or Three manufacturer representatives said that that have more demand.they take a number of factors into account when determining whether to discontinue manufacturing a drug. The first manufacturer representative said that in addition to price, they will also account for factors such as the medical necessity and importance of the drug when making decisions about what drugs to manufacture. The second manufacturer representative said that they do not discontinue products if they know that doing so would cause a shortage or exacerbate an existing one, although the same representative also said that products with low sales or profitability may be de-emphasized in favor of producing drugs with greater demand. The third manufacturer representative also noted that it is likely that a lower-margin product would be discontinued rather than a higher-margin product. Two manufacturer representatives said that if a drug is already in shortage, they will try to continue to manufacture it, even at low or negative profit margins, to ensure that the drug remains in the market. Unavailability of raw materials or components: The unavailability of raw materials, such as an active pharmaceutical ingredient (API), and non-API components, such as vials, also contributes to shortages. The majority of the studies we reviewed cited the unavailability of raw materials or non-API components as a cause of shortages and two reported that there is often only one API source for a given drug. This dependency on a sole API source can lead to shortages if availability becomes a problem, regardless of the number of manufacturers of a particular product. Most of the manufacturers’ representatives agreed that the unavailability of API has caused some shortages, although some representatives said that it was a relatively small percentage of them. For example, a representative from one manufacturer said that the 2011 tsunami in Japan disrupted the API supply for one of its products and led to a shortage. Although the manufacturer ultimately identified another source for the needed material, FDA had to approve the manufacturer’s new source, which was time-consuming. In addition, two manufacturer representatives mentioned that issues with non-API components had contributed to shortages. Our analysis of FDA data shows that 9 percent of the shortages reported between January 1, 2011, and June 30, 2013, resulted from the unavailability of APIs or non-API components. Loss of a manufacturing site or site change: Our analysis of FDA data shows that 3 percent of the shortages reported between January 1, 2011, and June 30, 2013, were due to either the loss of a manufacturing site or site change. One manufacturer representative said that while manufacturers have experienced disruptions due to natural disasters, this has been rare. In the literature, half of the studies (10 of 20) mentioned natural disasters, such as floods or hurricanes, as a cause of shortages. Loss of, or damage to, a manufacturing site was typically given as an example of the supply disruption resulting from the disaster. Increased demand: In addition to events that result in changes in supply, we found that shortages can also be triggered by changes in demand. Our analysis of FDA data shows that 6 percent of the shortages reported between January 1, 2011, and June 30, 2013, were due to increased demand. An increase in demand, which may occur for a variety of reasons, such as the approval of an already marketed drug for a new indication or new therapeutic guidelines, can trigger a shortage. A shortage results because manufacturers cannot keep up with the increase in demand that exceeds their expectations or planned production. Increased demand was cited as a cause of shortages in 9 of the 20 studies we reviewed. Figure 6 summarizes information reported by manufacturers to FDA about the causes of drug shortages that the agency then analyzes and categorizes. The inability of other manufacturers to make up for supply disruptions experienced by their competitors due to constrained manufacturing capacity was another immediate cause of shortages. Several of the studies we reviewed generally concluded that the heavy concentration of the generic drug industry leaves few manufacturers available to respond to supply disruptions, leading to market-wide shortages. One study found that seven manufacturers dominate the generic sterile injectable market overall and also found that this market is even further concentrated for specific therapeutic classes. Specifically, this analysis indicated that in 2008, three manufacturers produced 71 percent of all generic sterile injectable oncology drugs and that three manufacturers held 91 percent of the market share of generic sterile injectable nutrients and supplements. Illustrating the interplay between supply disruptions and constrained manufacturing capacity, one 2010 study reported that a shortage of the generic sterile injectable anesthesia drug propofol resulted after one of the three manufacturers of the drug permanently discontinued its manufacturing and another experienced quality problems leading to a temporary halt in production, leaving the remaining manufacturer unable to meet the demand of the entire market. In addition to consisting of few manufacturers overall, we also found that the manufacturing capacity of the generic drug industry has been further challenged in recent years as the industry has expanded the number of generic products it manufactures. This expansion has resulted as a large number of brand-name drugs have lost patent protection, clearing the way for generic manufacturers to produce generic equivalents of these drugs. Two of the studies we examined cited the decisions of manufacturers to begin producing the generic equivalents of brand-name drugs as contributing to shortages by stretching already limited capacity. For example, one study found that the generic sterile injectable market had expanded by 52 percent between 2006 and 2010 without a commensurate increase in manufacturing capacity, leading to high utilization of available manufacturing capacity.manufacturers said that faced with limited capacity, when new generics are available for production a manufacturer may make the decision to stop producing some drugs to make room for the new products. As a result, such discontinuations could lead to shortages, but representatives from both manufacturers characterized this as a small factor in causing shortages. In addition to the challenge presented by having few manufacturers and the increase in the number of generic drugs, pressures to produce this large number of drugs on only a few manufacturing lines leaves the manufacturers that do participate in the generic sterile injectable market Since multiple drugs are often manufactured on the with little flexibility. same line, increasing production of one drug reduces the supply of other drugs and can lead to shortages. For example, one manufacturer representative said that there are usually anywhere from 30 to 50 different drugs manufactured on a given line. Further, according to one study, manufacturers of generic sterile injectable drugs do not typically have redundant manufacturing facilities.almost 900 generic sterile injectable applications that were submitted to the FDA and approved between 2000 and 2011, the authors found that only 11 applications (about 1 percent) referenced a backup facility. This becomes problematic when production in a given facility must stop for any reason as manufacturers cannot immediately move production of a drug to another facility. To do so, they must first obtain approval from FDA, which can further delay production. Specifically, in a review of A related constraint cited in the literature is that some generic sterile injectable drugs need to be manufactured on lines or in facilities dedicated solely to those drugs. One study noted that certain sterile injectable products, such as anti-infective and oncology drugs, require lines, and sometimes whole facilities, which are limited to the production of such drugs. For example, some anti-infective drugs, such as penicillin, are highly sensitizing and can trigger serious allergic reactions at very low levels and as a result, may be limited to specific manufacturing lines. Further, another study noted that a supply disruption on a dedicated line can result in shortages of multiple products of a similar type, such as oncology drugs, because other manufacturers are not able to step in due to limited capacity on their own lines.example, shortages of oncology drugs in 2011 were linked to just three dedicated oncology lines that were operated by two manufacturers. A final capacity-related constraint cited in the literature (9 of 20 studies), was how the widespread use of “just-in-time” inventory practices can increase the vulnerability of the supply chain to shortages. One of these studies said that most manufacturers only produce enough of a drug to satisfy current demand, so there is little, if any excess inventory, while another study asserts that when a manufacturer has to stop production, a supply disruption can result because of “just-in-time” inventory. One manufacturer representative said that any manufacturer typically has only a limited amount of inventory available. This representative said that manufacturers typically have about 2 to 3 months of inventory on hand, wholesale distributors usually have about 1 month, and providers only have a few weeks of inventory. Consequently, if an issue arises, a shortage can quickly result. The majority of manufacturer representatives we interviewed generally concurred with our finding from the literature that a supply disruption, for whatever reason, affecting one manufacturer can quickly lead to market- wide shortages because other manufacturers often cannot increase production enough to meet demand. For example, one manufacturer representative said that it had recently encountered capacity constraints when two other manufacturers experienced supply disruptions and one manufacturer exited the market. The representative from the manufacturer that remained said that the company did not have the capacity to ramp up production to meet the demand for all of the drugs at risk of shortage and thus had to prioritize which drugs to produce, based on market need and the severity of the shortages. Further complicating a situation like this, representatives of two manufacturers said that even if the remaining companies are able to increase their production of a drug whose supply has been disrupted, it can take time—as much as 3 months—to increase production, particularly for sterile injectables due to the complexity of manufacturing these products. We identified multiple potential underlying causes of drug shortages in the literature. Half of the studies (10 of 20) we reviewed suggested that the immediate causes of drug shortages, such as quality problems, are driven by an underlying cause that stems from the economics of the generic sterile injectable drug market. The studies that cited underlying causes did not all focus on the same underlying cause and manufacturer representatives had mixed views on the potential underlying causes we identified in the literature. One underlying factor we identified in the literature is that when choosing between different manufacturers of the same drug, purchasers may focus primarily on price. Six of the 20 studies mentioned either low prices or low profit margins as features of the generic drug market that may make it vulnerable to shortages. Two of the studies suggested that low profit margins in the generic market may affect manufacturers’ decisions to invest in their facilities.expect all generic drugs to be of equivalent quality and may be unable to Another of the six studies said that purchasers discern differences in the quality of drugs, particularly sterile injectables. As a consequence, purchasers of sterile injectables focus on price when choosing among seemingly identical generic manufacturers at the expense of any potential differences in quality and the ability to reliably meet customer demand. According to this study, a manufacturer that strives to exceed minimum manufacturing standards is not rewarded with a willingness among buyers to pay more for the manufacturer’s products. Therefore, using economic theory as a rationale, the authors suggested that this reduces the incentive for the manufacturer to sufficiently invest in maintenance or quality improvements at its manufacturing establishments. The study suggests that the lack of reward for quality is an underlying cause that may have led to manufacturers’ minimizing investment in establishments, which has ultimately resulted in many of the recent quality problems at generic sterile injectable manufacturing establishments. Five of the six drug manufacturer representatives that responded to this claim reported that manufacturers continue to invest in upgrading existing establishments and building new ones. One manufacturer representative stated that some generic products in manufacturers’ portfolios are highly profitable and prompt investments in manufacturing facilities. Another manufacturer representative said that they continue to invest in making improvements to their sterile injectable facilities. For example, they said that they have invested in spare capacity on some of their lines, and as a result, are now better equipped to ramp up production in response to a shortage. Group purchasing organizations (GPO), which negotiate purchasing contracts with drug manufacturers on behalf of hospitals and other health care providers, have been cited in the literature as potentially having an underlying role in causing drug shortages. Four of the 20 studies suggested that the operating structure of GPOs results in fewer manufacturers producing generic drugs and this, in turn, contributes to a more fragile supply chain for these drugs. For example, one of the four studies asserted that GPOs reduce profits in the generic drug market, where margins are already low. This study states that because of these low manufacturer profit margins, when production problems arise, manufacturers may stop producing certain products in lieu of making investments in improvements at their establishments. Another of the four studies theorized that when generic drug manufacturers fail to win GPO contracts, manufacturers will either exit or decide not to enter the market for those drugs, contributing to the immediate cause of constrained manufacturing capacity. All of the representatives of the three GPOs that we contacted disagreed with the claim that GPOs are a cause of shortages. They emphasized that they have an incentive to avoid drug shortages and ensure that the drug manufacturers with which GPOs contact can meet GPOs’ members’ needs. Further, they said that while price is an important consideration in determining the manufacturers with whom they contract, the ability of manufacturers to ensure an adequate supply of products is critical. According to one GPO representative, generic drug manufacturers are generally profitable, which the GPO representative said demonstrates that manufacturers are not being driven out of the market. All of the GPO representatives also noted that in recent years GPOs have instituted strategies to avoid shortages. For example, one GPO representative told us that it typically tries to contract with two or more manufacturers for drugs that have a recent history of being in shortage. Of the five manufacturer representatives who commented on the claim, three stated that GPOs may contribute to shortages by exerting downward price pressure. However, one manufacturer representative disagreed that GPOs were a cause and a second manufacturer representative said that GPOs had no more of a role in causing shortages than any other supply chain participant. While the second representative said that GPOs contribute to the pressure to lower prices, the representative also noted that every participant in the supply chain contributes to the price competition. A third manufacturer representative noted that, because manufacturers have already made investments in production that they are unwilling to abandon, failing to obtain a GPO contract does not cause them to exit the market for a given drug. Further, representatives from the second and third manufacturers also told us that, in the event that a major manufacturer does not obtain a GPO contract, the manufacturer may send its sales force to hospitals directly and offer a price that is lower than the GPO contract price. Hospitals may either accept this lower priced offer or seek additional price concessions from the contracted manufacturer through the GPO. A change in Medicare Part B drug reimbursement policy was also cited in the literature (5 of 20 studies) as an underlying cause of drug shortages. In 2005, a change was implemented in how providers are reimbursed for most Medicare Part B drugs administered in an outpatient setting. Three studies we reviewed suggested that this change resulted in a sharp decrease in reimbursement to providers.focused on oncology drugs, suggested that this decrease in reimbursement caused providers to switch to higher-cost drugs for which they would receive increased reimbursement, reducing demand for One of the studies, which generics. The other two studies suggested that this decrease in reimbursement to providers also resulted in lower prices for manufacturers. Two of the three studies suggested that manufacturers responded by exiting the market for these products entirely, while the third suggested that manufacturers reduced their investments in manufacturing facilities, both of which left the generic sterile injectable market vulnerable to shortages. Four of the five manufacturer representatives who responded to this claim did not view the change in Part B reimbursement policy as a main cause of shortages, though they said it could have complicated the generic market. For example, one manufacturer representative contended that it had a negligible impact at most as the reimbursement is paid to physicians, not manufacturers. The payments that manufacturers collect are several steps removed from the physician’s reimbursement. In addition, the representative stated that even if some providers switch to more expensive alternative drugs in response to the reimbursement change, the impact would be minimal as the vast majority of generic sterile injectables are administered in hospital inpatient departments, which means that they are not reimbursed through Medicare Part B.Finally, though drugs in at least one of the therapeutic classes that have most frequently been in shortage in recent years may be reimbursed through Part B based on the Average Sales Price methodology, the extent to which all of the therapeutic classes driving recent shortages are reimbursed in this manner is unclear. Figure 7 summarizes the key immediate and potential underlying causes of drug shortages that we found in our review of the literature. Through a variety of efforts, FDA has prevented more potential shortages and improved its ability to respond to shortages since we issued our report in 2011. Among other things, FDA is working to improve its response to drug shortages by implementing FDASIA’s requirements and the recommendations we made in 2011. However, FDA lacks policies and procedures for managing and using information from its drug shortage database. FDA has taken steps that have prevented more potential shortages and improved its ability to resolve existing drug shortages since 2011, including expediting review of ANDAs and supplements, working with manufacturers to increase production, and using its regulatory discretion to allow certain products to remain on the market or bring new products to market. Based on our analysis of FDA data from January 2011 through June 2013, FDA was able to prevent 89 potential shortages in 2011, 154 potential shortages in 2012, and 50 potential shortages through June 2013. This is more than the 35 potential shortages we found that FDA prevented in 2010 and the 50 prevented through June 2011. FDA officials told us that although they relied on many of the same steps to prevent and resolve shortages prior to the enactment of FDASIA, FDASIA’s requirement that manufacturers notify FDA in advance of a potential shortage allowed FDA to employ those steps sooner. FDA officials said the notification requirement has helped the agency become more proactive and successful in its efforts. FDA officials noted there has been a sizeable increase in notifications with a six-fold increase after issuance of the drug shortages Executive Order in October 2011, a subsequent doubling of that rate after the enactment of FDASIA in July 2012, and a return to the Post-Executive Order notification rate in 2013. FDA has expedited a number of agency actions to prevent or resolve shortages, in accordance with relevant FDASIA provisions. For example, FDA may expedite the review of ANDAs, or supplements to NDAs and ANDAs, to help bring an alternative drug to market or authorize an additional API supplier or manufacturing site. FDA officials said the agency has also expedited inspections to facilitate improvements at manufacturing establishments. Expediting inspections that are required before an ANDA or supplement is approved also facilitates the availability of a needed drug. Manufacturer representatives we spoke with noted that in some cases expedited reviews or inspections have happened quickly and have helped prevent shortages. However, others told us that some application reviews or inspections have taken a long time, limiting the manufacturers’ ability to help prevent or resolve a shortage. For example, one manufacturer representative said waiting for FDA’s approval of ANDA supplements related to new raw material suppliers has been a key hindrance to the manufacturer’s ability to respond to drug shortages. In addition, FDA routinely contacts manufacturers regarding their ability to increase production in response to a potential or actual drug shortage. Although a number of manufacturer representatives said that ramping up production takes time and may not always be possible, given production capacity constraints, FDA has reported some successes. For example, when FDA determined that an impending product discontinuation might result in a shortage of a drug that treats shingles and chickenpox, it encouraged another manufacturer to increase production, thus avoiding a shortage. Similarly, when quality problems were identified in a drug used to treat eye infections in patients with acquired immune deficiency syndrome, FDA reached out to another manufacturer that was able to increase production to avert a potential shortage. Manufacturer representatives said manufacturers will generally increase production, if possible, when FDA advises them of a shortage. FDA reported to us that, from January 1, 2011, to June 30, 2013, its encouragement to manufacturers to increase production helped prevent or resolve 41 shortages. FDA officials said that in appropriate cases, the agency may attempt to use its regulatory discretion to keep products from going into short supply or from making an active shortage worse. FDA may use its discretion in deciding whether to take a certain action. FDASIA requires FDA to consider whether an enforcement action or issuance of a warning letter could reasonably cause or exacerbate a shortage of a life-saving drug.If FDA reaches such a determination, the agency must evaluate the risks associated with the impact of such a shortage upon patients and the risks associated with the violation before taking action, unless there is an imminent risk of serious health consequences or death. FDA officials said that they had used their regulatory discretion prior to the enactment of FDASIA and were continuing to do so, through communication across various FDA offices and with manufacturers. Officials noted that they try to balance the risk to patients when making their decisions. That is, they consider the risk of allowing the continued distribution of the product— despite the problems related to the possible enforcement action or warning letter—against the public health risks of the product not being available. FDA officials said they also continue to use their regulatory discretion to temporarily allow the importation of “unapproved drugs” into the United States to help prevent or resolve shortages of FDA-approved drugs that are critical to patients, in rare cases where the shortages cannot be resolved by manufacturers willing and able to supply the FDA- approved drugs in the immediate future. We previously reported that FDA had allowed for the importation of seven unapproved drugs from January 2011 through September 2011. FDA officials told us that, through June 30, 2013, they have subsequently allowed for the importation of nine additional unapproved drugs. For example, when the manufacturer of a drug used to treat patients who require total parenteral nutrition lost the use of a manufacturing site, FDA allowed importation of a comparable version of the drug not approved by FDA to prevent a potential shortage from occurring. Several stakeholders commented that FDA’s efforts to allow the importation of unapproved drugs to address a shortage have improved, which has helped to resolve some critical shortages. However, some stakeholders noted that certain shortages could not be resolved quickly because it took a long time for FDA to respond to providers’ requests to allow importation. For example, some stakeholders noted that delays in the importation of total parenteral nutrition products created significant challenges for treating patients who depend upon them. To help speed up the process of temporary importation, FDA officials said that since January 2012 they have proactively identified foreign manufacturers that have expressed a willingness to import their drugs to help with a shortage. Officials said this has allowed them to reach out to companies more quickly and has already helped the agency address one shortage. FDA has also reported using its regulatory discretion in other ways. For example, the manufacturer of a drug that may slow the progress of the human immunodeficiency virus and acquired immune deficiency syndrome lost its component supplier and was forced to find a new one. However, this new supplier was experiencing a quality problem. FDA used its regulatory discretion to allow the manufacturer to use the new component supplier while quality problems were being addressed after it determined those issues posed no significant risks to public health. In another instance, FDA used its regulatory discretion to allow the continued marketing of a drug, despite a manufacturing deviation, after determining the benefits of having the drug available outweighed the risk associated with the manufacturing error. FDA is taking steps to further enhance its ability to respond to shortages. Some of the agency’s actions are required by FDASIA, some are in response to recommendations we made in 2011, and others were initiated by the agency. For example, FDA has established the Drug Shortages Task Force as required by FDASIA. FDA officials said the Drug Shortages Task Force has helped FDA revise internal policies and procedures, track the development of the proposed regulations for implementing the manufacturer notification requirements, and generally coordinate across the agency on issues related to drug shortages. As required by FDASIA, FDA officials also noted that they have continued to work with DEA on shortages related to controlled substances. describes how providers and others can report a potential drug shortage. The e-mail address and toll-free number listed on the website are the main mechanisms through which FDA receives drug shortage-related reports from health care providers or other third-party groups. FDASIA requires FDA to maintain an up-to-date list of drugs that it determines to be in shortage and—subject to public health, trade secret, and confidentiality concerns—make the list publicly available. FDA officials told us that, upon receiving notification of a potential drug shortage, the agency works to verify whether a shortage exists through contacting the drug’s manufacturer to determine supply levels and comparing that to industry sales data on historical demand for the product. Once FDA determines that the amount of the drug—or pharmaceutical equivalents—appears to be insufficient to meet demand, the agency posts information about the shortage on its drug shortages website. Though FDA takes steps to respond to all shortages about which the agency is informed, officials said the agency places the highest priority on responding to shortages of drugs that it considers medically necessary. Nevertheless, officials said that FDA’s website includes all verified shortages, regardless of whether the drug is determined to be medically necessary. However, FDA officials noted that the agency may not be notified of all potential shortages, because FDASIA only requires manufacturers to report disruptions in the production of drugs that are life supporting, life sustaining, or used to treat debilitating health issues. Though health care professionals can also notify FDA about potential shortages, FDA officials told us that the agency is less likely to be notified about shortages of drugs for which there are easy substitutes or little patient impact. In July 2012, as required by FDASIA, FDA began classifying the reasons for shortages using standardized terminology specified in the law and posting this information on its website along with information on estimated shortage duration. Also, though not required by FDASIA, in July 2013 FDA added information on the therapeutic categories of drugs in shortage to its drug shortages website. This change allows users, for example, to view all oncology shortages in one place, rather than having to review the entire list of drugs in shortage and identify individual drugs used in oncology themselves. FDA plans to improve the functionality of the website further by allowing users to sort shortages by other types of information as well. A number of stakeholders noted that the improvements to FDA’s drug shortage website help them keep informed about drug shortages. However, some expressed disappointment with the passive nature of the website as stakeholders must proactively visit the website as opposed to receiving automated alerts. A number of stakeholders noted that notifications of shortages by therapeutic class would be particularly helpful for communicating the potential for a shortage to targeted groups earlier. FDA officials said that they plan to add active alerts by therapeutic category to the website. Although FDA continues to refine the information on its website, it is nonetheless dependent on what manufacturers report to the agency: the reported reasons for a shortage and the estimated length of the shortage. The information FDA receives from manufacturers and other sources may be incomplete and may change over time. As a result, the information on the website may not always be current and accurate. Stakeholders noted that the reasons given for the shortages are often categorized as “other” which can make it difficult to understand why a drug is in shortage. FDA officials said they use the category “other” when none of the classifying terminology required by FDASIA directly applies, although FDA officials said they try to include available details to help explain the cause of the shortage. In addition, FDA may not be able to publicly post all of the information the agency receives from manufacturers because some of the information provided to FDA is proprietary. Although some stakeholders reported that information on the duration of a shortage is one of the most useful pieces of information that can be provided, others noted that the estimated shortage resolution dates on FDA’s website are not always reliable. Two stakeholders said that the estimated duration for a shortage is often listed as “unavailable” or “to be determined,” which is not particularly helpful. Stakeholders noted that such inaccuracies may limit their ability to plan ahead. For example, a representative of one provider group noted that in order to plan for the multiple rounds of a patient’s chemotherapy regimen, the provider would need to be sure that there will be a sufficient supply of the drug for the second round of chemotherapy before starting the first. Manufacturer representatives said the complexity of a manufacturing disruption often makes it difficult to provide FDA accurate estimates of the time it will take to resolve the disruption. FDA has also taken steps to respond to the recommendations we made in our 2011 report. In response to our recommendation that FDA develop an information system that would allow drug shortage data to be tracked in a systematic manner—to be consistent with the internal control standards for the federal government—the agency developed a drug shortage database that is used on a daily basis to track shortages, document the actions FDA takes to prevent and resolve shortages, and monitor the workload of DSS personnel. All FDA offices can access the database; however, the officials we spoke with said they request information from DSS instead of accessing the database directly. In September 2013, FDA informed us that it is now planning to transition from its existing database to an information system with additional capabilities and functionality. For example, FDA officials said they are planning to automate some of the data fields by extracting information from other sources that provide NDCs, market share, and other relevant product information. This may reduce the likelihood of manual entry errors and speed up the entry of some shortage information. The officials said the establishment of an information system could also help facilitate analysis related to drug shortages. However, they were unable to provide us with a description of the types of analyses they would conduct. FDA has also taken steps to respond to our recommendation related to the resources allocated to the drug shortage program. FDA has since increased the number of DSS personnel from 4 in 2011 to 11 in 2013 and officials said this has improved FDA’s ability to respond to drug shortages in a number of ways. First, it allowed FDA to assign each manufacturer experiencing a shortage a specific contact person, which FDA officials said has allowed the agency and the manufacturers to develop better working relationships and has improved information sharing. Representatives from one manufacturer we spoke with agreed that this effort has improved their relationship with FDA. In addition, a number of stakeholders, including other manufacturers’ representatives, noted it is now easier to contact DSS officials and that discussions have become more regular. Second, FDA officials said having additional staff has allowed them to respond more quickly to manufacturer notifications and to identify possible approaches to preventing or resolving a shortage. Some stakeholders also noted that FDA reached out to them for additional information on specific drug shortages or the availability of certain drugs. Third, officials said it has allowed DSS to play a bigger role in revising drug shortage policies and procedures. FDA also improved the staffing resources available for responding to drug shortages by assigning drug shortage coordinators in each of its 20 district offices. In addition, it developed written procedures to enhance coordination between headquarters staff in DSS, the CDER Office of Compliance, and staff in the district offices on issues related to drug shortages.have helped bring drug shortage-related concerns to light earlier, such as violative inspections at establishments that manufacture a large volume of drugs. Officials said this has improved FDA’s ability to work with such FDA officials told us that the drug shortage coordinators manufacturers early in order to prevent drug shortages. FDA held a retreat in July 2012 to educate the drug shortage coordinators and other staff on FDA’s processes for responding to drug shortages. The retreat included a number of FDA offices, including CDER Office of Compliance, DSS, Office of Generic Drugs, Office of New Drug Quality Assessment, and Office of Regulatory Affairs, and officials said the retreat helped attendees understand drug shortage responsibilities of the various FDA offices. As required by FDASIA, FDA’s Drug Shortages Task Force developed a strategic plan that identifies its goals and priorities for mitigating and resolving ongoing shortages and for preventing future shortages. This is also in line with our 2011 recommendation that FDA ensure that the agency’s strategic plan articulates goals and priorities for maintaining the availability of all medically necessary drugs. Though FDA officials said the agency has not made this change in the agency-wide strategic plan, FDA’s drug shortages strategic plan includes two goals related to maintaining drug availability, each with a number of tasks for achieving the goal. The first goal—to improve and streamline FDA’s current mitigation activities once the agency is notified of a supply disruption or shortage—includes four tasks: streamline internal FDA processes; improve data and response tracking; clarify roles and responsibilities of manufacturers; and enhance public communication about drug shortages. The second goal—to develop prevention strategies to address the underlying causes of production disruptions to prevent drug shortages— contains three tasks: develop methods to incentivize and prioritize manufacturing quality; use regulatory science to identify early warning signals of shortages; and increase knowledge to develop new strategies to address shortages. As part of this second goal, the strategic plan describes efforts FDA is considering to help address manufacturing and quality issues, including broader use of manufacturing metrics to assist in the evaluation of manufacturing quality and developing incentives for high-quality manufacturing. Finally, FDA officials said that their annual report on drug shortages, which was due December 31, 2013, will contain information on performance measures to assess and quantify the implementation of the agency’s goals and response to drug shortages, as we recommended in 2011. As of January 31, 2014, the annual report has not been released. While FDA is planning on establishing a new information system to track drug shortage data, it lacks policies, procedures, and specific training materials related to management and use of its existing drug shortage database. While FDA did create a database glossary, which briefly defines a number of the data fields, an official told us that no other documents or training materials have been created because staff use the existing database every day and are therefore familiar with its operation. Further, while FDA officials said they plan to create policies for entering data in the planned new drug shortage information system and create a tutorial for users, they have not yet done so. This lack of documentation may limit the agency’s ability to communicate proper use of the existing and new databases to staff and could also ultimately lead to inconsistencies in the use of the database. The lack of policies and procedures is also inconsistent with internal control standards for the federal government, which state that agencies should have controls over information processes, including procedures and standards to ensure the completeness and accuracy of processed data. For example, internal controls require the appropriate documentation of system controls and that such documents be readily available for review. Such documentation may include management directives, administrative policies, and operating manuals; none of which have been prepared for the existing database. Related to FDA’s lack of policy and procedures for its existing drug shortage database, we also found that FDA lacks sufficient controls to ensure the quality of the data in the existing database. For example, FDA officials said there are no automated data checks to ensure the accuracy of the data in the database. Instead, officials review the data for accuracy at the end of each year by relying on their memories of events, emails, and meeting notes. The first such data check was completed in 2012. Officials said they plan to perform another such review at the end of 2013, in preparation for the annual report to Congress. This practice is inconsistent with the internal control standards for the federal government, which require agencies to design controls, which may include data checks that help ensure completeness, accuracy, and validity of database entries. Without such data checks, FDA’s existing database may be more likely to have errors, incomplete data, and inconsistent data. We asked officials to provide us with any documentation of their 2012 review of the existing database for accuracy and they were unable to do so. FDA officials said they plan to incorporate automated data checks in their new information system, which may eliminate the need for subsequent manual quality checking. FDA officials told us that, as of January 2014, any new drug shortages will be entered into their new information system. In addition, FDA has not conducted routine analyses of its existing drug shortage database to identify, evaluate, and respond to the risks of drug shortages proactively. Again, according to the internal control standards for the federal government, agencies should comprehensively identify risk through qualitative and quantitative methods, including data collected in the course of their work. FDA’s drug shortages strategic plan states that the agency will explore using risk-based approaches to identify early warning signs of problems that could lead to production disruptions. However, FDA currently uses data on an ad hoc basis to respond to specific shortages as opposed to using the data to identify trends or patterns that may help it predict and possibly prevent shortages. According to FDA officials, other than producing the annual report required by FDASIA, the agency has not established regular schedules for generating reports in the database and is not currently using the database to conduct regular trend analyses. By only using the database to respond to individual shortages as they occur, FDA is missing opportunities to use the data proactively to enhance the agency’s ability to prevent and mitigate drug shortages. FDA has made progress in preventing potential drug shortages and responding to actual shortages since we issued our last report in 2011. In part, this progress can be attributed to the new FDASIA requirement that manufacturers provide FDA with information about potential or current shortages of drugs that are life supporting, life sustaining, or used to treat debilitating health issues. This additional information has improved the agency’s ability to act more quickly when it learns of a potential shortage. Yet, the number of shortages remains high, despite the fact that FDA has taken steps to prevent and mitigate shortages, such as expediting application reviews and inspections, exercising enforcement discretion in appropriate cases, and helping manufacturers respond to quality problems. Many shortages are prolonged, with some spanning multiple years. As a result, patients and providers continue to struggle as essential and life-saving medications—such as anti-infective, nutritive, and cardiovascular drugs—remain in short supply. These shortages complicate patient care and may lead to adverse outcomes with serious consequences. Although there are potential underlying causes of drug shortages, FDA has made important strides in responding to some immediate causes. However, some of the causes identified in our literature review and conversations with manufacturers are beyond the agency’s authority, as it does not have control over private companies’ business decisions. For example, FDA is unable to require manufacturers to start producing or continue producing drugs, or to build redundant manufacturing capacity, regardless of the severity of a shortage. Nonetheless, FDA can take steps to maximize the agency’s ability to use the information at its disposal to address drug shortages. We continue to believe in the importance of our prior recommendation that FDA should develop an information system that would facilitate the agency’s response to shortages. FDA took the first step in implementing this recommendation by creating a database on drug shortages. However, a key component of any system is assuring the reliability of the data. Our current work shows that the agency lacks adequate policies and procedures governing the use of its database, as well as sufficient checks to ensure the data’s reliability—in both cases, the failure to do so is inconsistent with internal controls for the federal government. These shortcomings could hinder FDA’s efforts to understand the causes of shortages as well as undermine its efforts to prevent them from occurring. Additionally, FDA’s ability to manage risk- based decisions, including when to use regulatory discretion, and proactively help prevent and resolve shortages may be hindered by its lack of routine analysis of the data it collects. FDA may be missing an opportunity to identify causes of shortages, risks for shortages, and patterns in events which may be early indicators of shortages for certain types of manufacturers, drugs, or therapeutic classes. Though FDA has taken important steps to better prevent and address shortages, the large number of potential shortages itself suggests a market still at risk of continuing supply disruptions. To enhance its oversight of drug shortages, particularly as the agency fine-tunes the manner in which it gathers data on shortages and transitions from its database to a more robust system, we recommend that the Commissioner of FDA take the following two actions: develop policies and procedures for the use of the existing drug shortages database (and, ultimately, the new drug shortages information system) to ensure staff enter information into the database in a consistent manner and to ensure the accuracy of the information in the database; and conduct periodic analyses using the existing drug shortages database (and, eventually, the new drug shortages information system) to routinely and systematically assess drug shortage information, and use this information proactively to identify risk factors for potential drug shortages early, thereby potentially helping FDA to recognize trends, clarify causes, and resolve problems before drugs go into short supply. We provided a draft of this report for comment to HHS, the Department of Justice, and the Federal Trade Commission. We also provided excerpts of this report for comment to the Department of Defense, the Department of Homeland Security (for review of the U.S. Coast Guard), the Department of Veterans Affairs, and UUDIS. We received written comments from HHS, which are reproduced in appendix V. We also received technical comments from HHS, the Department of Defense, the Federal Trade Commission, and UUDIS, which we incorporated as appropriate. The Department of Homeland Security, the Department of Justice, and the Department of Veterans Affairs did not have any comments based on their review. In its comments, HHS stated that drug shortages remain a significant public health issue and emphasized its commitment to preventing new shortages and resolving those that are already ongoing. HHS agreed with our recommendations to enhance its oversight by developing policies and procedures for its drug shortages database and by conducting periodic analyses of these data to identify drug shortage risk factors. Regarding our first recommendation, HHS said it agrees that policies and procedures for data entry are important to help assure the timely, accurate, and consistent inputting of data into its drug shortage database. Regarding our second recommendation, HHS agreed that it could make better use of its drug shortage data to identify trends, clarify causes of shortages, and resolve problems before drugs go into short supply. However, HHS noted that there are many factors that can trigger or exacerbate a shortage and that it lacks some relevant data, such as detailed information on manufacturing capability, to create a comprehensive forecasting system for drug shortages. We acknowledge that the agency’s access to certain information is limited, but believe that routine analysis of available data could nonetheless reveal some early indicators of shortages. Although HHS agreed with our recommendations, it took issue with our use of UUDIS data concerning the persistence of recent shortages. HHS said that these data may overstate the number of shortages that persist because UUDIS considers a shortage to be ongoing unless all NDCs for a given product are available, even if some manufacturers that currently produce the drug have increased production enough to meet all demand. We recognize that there are differences in the way UUDIS and FDA define, and therefore count, shortages. Our report notes that FDA considers a shortage to be resolved when the total supply of the drug and any pharmaceutical equivalents is sufficient to meet demand in the market overall. UUDIS defines shortages more broadly, focusing on supply issues that affect how pharmacies prepare and dispense a product or that influence patient care when prescribers must choose an alternative therapy because of supply issues. According to a UUDIS official, tracking all NDCs for all manufacturers is important for providers because using substituting one package size for another may create a safety issue. To enhance clarity, we have provided additional detail in our report to describe UUDIS’s methods for defining and tracking shortages. Moreover, it is important to note that we used UUDIS data because FDA was unable to provide data on shortages that would allow for an analysis of trends. As we have previously reported, until FDA established a database containing shortage information in 2011, the agency did not systematically maintain data on shortages. In the absence of FDA data, the data from UUDIS was the only data that we could identify that would allow for a meaningful analysis of drug shortages over time. We are sending copies of this report to the Secretary of the Department of Health and Human Services, the Attorney General, the Chairman of the Federal Trade Commission, appropriate congressional committees, as well as other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who make key contributions to this report are listed in appendix VI. As part of our report objectives, we reviewed the trends in recent drug shortages and examined the causes of drug shortages. This appendix provides further detail on our methods. To review the trends in recent drug shortages, we identified the number of drugs that were in short supply from January 1, 2007, through June 30, 2013, and examined the characteristics of drugs that were reported to be in shortage from June 1, 2011, through June 30, 2013. Specifically, to review trends in recent drug shortages that occurred from January 1, 2007, through June 30, 2013, we analyzed data from the University of Utah Drug Information Service (UUDIS), which were the most recent data available at the time we did our work. These data are generally regarded as the most comprehensive and reliable source of drug shortage information for the time period we reviewed and are what we used in preparing our 2011 report. We focused our analysis on shortages of prescription drugs.(1) the total number of new shortages reported each year and (2) the total We reviewed UUDIS’ drug shortage data to identify number of active shortages each year. To calculate the total number of new shortages reported each year, we counted shortages only for the year in which UUDIS was first notified and not in any subsequent years during which the shortage may have been active. To calculate the number of active shortages in each year, we included both shortages reported that year and any shortages that had started in a prior year, but We also identified the duration of any were still ongoing during the year.shortages reported from January 1, 2007, through June 30, 2013, and the number of drugs that had been in short supply on more than one occasion. To identify drugs that had been in short supply more than once, we grouped together shortages of clinically interchangeable versions of a drug that were administered through the same route, such as injection. We confirmed our grouping of these shortages with a knowledgeable pharmacist from UUDIS. To analyze the characteristics of shortages, we reviewed 219 drug shortages that were newly reported between June 1, 2011, and June 30, 2013, and that UUDIS identified as critical. These critical shortages were a subset of the total number of shortages reported during this time. Specifically, these 219 shortages represented 57 percent of the 382 shortages reported between June 1, 2011, and June 30, 2013. UUDIS identified these shortages as critical because alternative medications were unavailable, the shortages affected multiple manufacturers, or it received multiple reports from different institutions. For these critical shortages, we obtained drug shortage bulletins created by UUDIS, which contain the national drug codes (NDC) associated with each shortage. Using these NDCs, we analyzed Red Book data to determine the product types, routes of administration, and therapeutic classes of the critical shortages. We reviewed all UUDIS data for reasonableness, outliers, and consistency, and determined that the data were sufficiently reliable for our purposes. To examine the causes of recent drug shortages, we conducted a structured search of research databases using various combinations of relevant search terms including, “drug”, “shortage”, “supply”, “medication”, and “generic” to identify any literature published from January 1, 2003, through June 30, 2013, that reported on the causes of drug shortages. We then reviewed the abstracts for 714 articles and the full-text of 176 of those articles to determine whether they addressed the causes of drug shortages and met our inclusion criteria. Our inclusion criteria included journal articles and government publications, as well as policy briefs or papers, in which the causes of drug shortages were examined through the presentation of original research. Because there is not a large volume of peer-reviewed literature that incorporates original research, we also included articles that provided an in-depth discussion of the causes of drug shortages. However, we excluded editorials and news wire articles from our review. Finally, we included directly relevant studies to which we were referred by stakeholders, but which did not appear in our initial search. Based on these steps, we identified 20 articles that were published between March 1, 2005, and March 31, 2013, and then summarized the causes of shortages on which these articles reported.While our search criteria were for shortages of all drug types, the majority of the articles we identified were focused on generic sterile injectables, which have frequently been in shortage in recent years. For the purposes of reporting on our literature review, we identified and summarized the causes frequently discussed in the literature and did not list all topics mentioned in each article we reviewed. Some causes that were mentioned only sparingly in the literature were not included in our review. American Society of Health-System Pharmacists. “ASHP Guidelines on Managing Drug Product Shortages in Hospitals and Health Systems.” American Journal of Health-System Pharmacy, vol. 66, no.15 (2009): 1399-1406. Balkhi, B., L. Araujo-Lama, E. Seoane-Vazquez, R. Rodriguez-Monguio, S. L. Szeinbach, and E. R. Fox. “Shortages of Systemic Antibiotics in the U.S.A.: How Long Can We Wait?” Journal of Pharmaceutical Health Services Research, vol. 4, no. 1 (2013): 13-17. Born, K. “Time and Money: An Analysis of the Legislative Efforts to Address the Prescription Drug Shortage Crisis in America.” The Journal of Legal Medicine, vol. 33, no. 2 (2012): 235-251. Department of Health and Human Services. Office of the Assistant Secretary for Planning and Evaluation, Economic Analysis of the Causes of Drug Shortages. Washington, D.C.: October 2011. Department of Health and Human Services. Food and Drug Administration. A Review of FDA’s Approach to Medical Product Shortages. Silver Spring, Md: October 2011. Dorsey, E. R., J. P. Thompson, E. J. Dayoub, B. George, L. A. Saubermann, and R. G. Holloway. “Selegiline Shortage: Causes and Costs of a Generic Drug Shortage.” Neurology, vol. 73, no. 3 (2009): 213- 217. Gatesman, M. L., and T.J. Smith. “The Shortage of Essential Chemotherapy Drugs in the United States.” The New England Journal of Medicine, vol. 365, no. 18 (2011): 1653-1655. Gehrett, B. K. “A Prescription for Drug Shortages.” JAMA: The Journal of the American Medical Association, vol. 307, no. 2 (2012): 153-154. Graham, John. R. The Shortage of Generic Sterile Injectable Drugs: Diagnosis and Solutions. Midland, Mich.: Mackinac Center for Public Policy, June 2012. Griffith, M. M., A. E. Gross; S.H. Sutton, M.K. Bolon. J. S. Esterly, J. A. Patel, M. J. Postelnick, T. R. Zembower, and M. H. Scheetz. “The Impact of Anti-infective Drug Shortages on Hospitals in the United States: Trends and Causes.” Clinical Infectious Diseases, vol. 54, no. 5 (2012): 684-691. Hoffman, S. “The Drugs Stop Here: A Public Framework to Address the Drug Shortage Crisis.” Food and Drug Law Journal, vol. 67, no. 1 (2012): 1-22. Jensen, V., R. Kimzey, and J. Saliba. “An Overview of the FDA’s Drug Shortage Program.” Pharmacy and Therapeutics, vol. 30, no. 3 (2005): 174-175 & 177. Jensen, V., and B. A. Rappaport. “The Reality of Drug Shortages—The Case of the Injectable Agent Propofol.” The New England Journal of Medicine, vol. 363, no. 9 (2010): 806-807. Johnson, P. J. “The Ongoing Drug Shortage Problem Affecting the NICU.” Neonatal Network, vol. 31, no. 5 (2012): 323-327. Kweder, S.L., and S. Dill. “Drug Shortages: The Cycle of Quantity and Quality.” Clinical Pharmacology & Therapeutics, vol. 93, no. 3 (2013): 245-251. Schweitzer, S. O. “How the U.S. Food and Drug Administration Can Solve the Prescription Drug Shortage Problem.” American Journal of Public Health, vol. 103, no. 5 (2013): e10-e14. U.S. House of Representatives. Committee on Oversight and Government Reform. Staff Report. “FDA’s Contribution to the Drug Shortage Crisis.” (Washington, D.C.: June 2012). Ventola, C. L. “The Drug Shortage Crisis in the United States: Causes, Impact, and Management Strategies.” Pharmacy and Therapeutics, vol. 36, no.11 (2011): 740-742 & 749-757. Woodcock, J., and M. Wosinska. “Economic and Technological Drivers of Generic Sterile Injectable Drug Shortages.” Clinical Pharmacology & Therapeutics, vol. 93, no. 2 (2013): 170-176. Yurukoglu, A. “Medicare Reimbursements and Shortages of Sterile Injectable Pharmaceuticals.” National Bureau of Economic Research Working Paper No.17987 (2012). We also interviewed, and in some cases, obtained written responses from, manufacturers and group purchasing organizations (GPO) regarding the causes of drug shortages identified through our literature review because the reported causes we identified were related to the role that these stakeholders have in the drug supply chain. We interviewed three leading national associations representing drug manufacturers, both brand-name and generic, and five generic sterile injectable manufacturers. Specifically, we selected the top three manufacturers of generic sterile injectables between 2010 and 2012. We also selected two additional manufacturers, which were among the manufacturers associated with the highest number of shortages, according to a 2011 report by the IMS Institute for Healthcare Informatics. We provided manufacturers and manufacturer associations with a list of potential causes based on our review of the literature and asked them to comment on each cause either through interviews or in writing. Finally, we selected the three largest GPOs based on their self-reported purchasing volume in fiscal year 2011 and asked each to comment on causes in writing. We also analyzed FDA data on the reported causes of shortages for all shortages that it was notified about from January 1, 2011, through June 30, 2013. All data came from the database that FDA has developed to track shortages and reflects information reported by manufacturers to FDA that is subsequently analyzed and categorized by the agency. FDA defines a shortage as when the total supply of a drug and any pharmaceutical equivalents is inadequate to meet demand. FDA’s definition of a shortage differs from UUDIS’ and UUDIS also tracks shortages that do not meet FDA’s definition of a shortage. For example, according to FDA officials, UUDIS will track shortages that only affect one manufacturer, even if other manufacturers of the same drug have supply available. FDA, however, will not consider such a situation to be a shortage if the other manufacturers that can supply the drug can meet national demand. We interviewed FDA Drug Shortages Staff about the data and reviewed it for reasonableness, outliers, and consistency, and for our purposes, we determined that the data were sufficiently reliable. 2. Novation, LLC 3. Premier, Inc. In the event of a drug shortage, providers who are unable to obtain drugs from their regular wholesale distributors may resort to purchasing drugs through distribution channels that were not authorized by the manufacturer, referred to as the gray market. Gray market suppliers typically obtain small quantities of a drug that is in short supply and offer it for purchase at an inflated price. Because the origin of gray market drugs may be unknown, there is no guarantee of the drug’s pedigree or assurance that it was stored and transported appropriately, potentially putting patients at risk. This appendix describes steps federal agencies have taken in response to activities associated with the gray market for shortage drugs. To identify steps that federal agencies have taken, we interviewed officials from FDA, the Department of Justice (DOJ), and the Federal Trade Commission (FTC); reviewed federal laws and regulations, including an Executive Order on reducing prescription drug shortages issued on October 31, 2011; and examined agency documents. Among other things, the October 31, 2011, drug shortages Executive Order directed FDA to communicate to DOJ any findings by FDA that shortages have led market participants to stockpile shortage drugs or sell them at exorbitant prices. The Executive Order also directed DOJ to determine whether these activities violate federal law, and if so, to take appropriate enforcement actions. 21 U.S.C. § 355e. Counterfeit drugs, which are defined in law at 21 U.S.C. § 321(g)(2), include, for example, those sold under a product name without proper authorization— where the drug is mislabeled in a way that suggests that it is the authentic and approved product—as well as unauthorized generic versions of FDA-approved drugs that mimic trademarked elements of such drugs. Diverted drugs are legitimate drugs that are illegally bought, sold, or otherwise circulated outside of the legal distribution system that has been established to ensure safety and quality. Diversion can involve such activities as illegal sales of prescription drugs by physicians, patients, or pharmacists; prescription forgery; or pharmacy theft. drugs that violate FDCA requirements. DOJ, often in consultation with FDA, may bring civil and criminal actions for such violations. FTC and DOJ’s Antitrust Division are responsible for enforcing federal antitrust laws, which are designed to preserve and protect market competition. Federal Trade Commission Act, and the Clayton Act. The Sherman Act, enforced by DOJ, prohibits monopolization and restraints of trade, and civil and criminal penalties may be imposed for violations of the act. The Federal Trade Commission Act, enforced by FTC, bans unfair methods of competition and unfair or deceptive acts or practices. For example, collusion by drug manufacturers to set prices may violate both the Sherman Act and the Federal Trade Commission Act. The Clayton Act, jointly enforced by DOJ and FTC, regulates mergers and acquisitions and prohibits those that may substantially lessen competition or create a monopoly and are, therefore, likely to increase prices for consumers.The Federal Trade Commission Act and Clayton Act are civil statutes that do not carry criminal penalties. FTC only has the authority to investigate civil antitrust cases. If the case is criminal in nature, FTC refers it to DOJ. activities. This includes, for example, the mail fraud statute, which makes it a crime to use the U.S. mail to commit a fraud, such as facilitating the sale of a shortage drug with a fake pedigree through the U.S. mail. Consistent with the October 31, 2011, Executive Order on drug shortages, three federal agencies—FDA, DOJ, and FTC—review information concerning possible gray market sales of shortage drugs from a number of sources and have taken other steps to respond to relevant directives contained in the order.agencies told us that their authorities in relation to the gray market are limited. They explained that the selling of shortage drugs by suppliers not authorized by the manufacturer alone, even at exorbitant prices, does not itself violate federal law. Though gray market sales may violate agreements between manufacturers and wholesale distributors, such sales may not violate federal law unless they are made outside the legal distribution system. As a result, there have been no prosecutions or enforcement actions taken by federal agencies solely on the basis of gray market activities. Yet officials from all three federal FDA has compiled gray market solicitations into quarterly reports that it shares with DOJ as part of its response to the Executive Order’s directive to communicate findings that shortages have led to the stockpiling or sale of shortage drugs at exorbitant prices. From January 2012—when FDA first began providing this information to DOJ—through October 2013, FDA shared information on solicitations from 26 different wholesale distributors. According to FDA officials, these solicitations typically originate as e-mails to providers containing advertisements that list the drugs for sale and, in some cases, the prices, which the providers then forward to FDA. FDA officials said that some of the gray market solicitations were for sterile injectables in shortage, including drugs related to cancer treatment, emergency medicine, antibiotics, and nutritive products. For example, one solicitation stated that a wholesale distributor was offering an intravenous multi-vitamin for $785, when the average wholesale price for that same vitamin was $8.61. FDA officials told us that they review the solicitations to determine whether they violate the FDCA, such as a wholesale distributor making false claims about a drug or diverting a drug outside the legal distribution system. FDA has opened a number of investigations in relation to the solicitations to examine whether counterfeiting or diversion had occurred, but did not identify any illegal activity. For example, when the anesthetic propofol was in shortage, FDA did not object to the temporary importation of an unapproved version of the drug, but limited distribution to the manufacturer of the drug. However, in January 2010 FDA initiated two investigations related to complaints that the imported drug was being distributed by wholesale distributors, rather than the manufacturer. In both cases, FDA could not substantiate a criminal violation, so it closed the investigations. FDA officials told us that the FDCA does not prohibit hoarding or stockpiling of shortage drugs or regulate drug pricing. As a result, as of December 2013, FDA had not taken any enforcement action related to the gray market solicitations they reviewed, but had provided information from the solicitations to DOJ. Officials from DOJ told us that, as required by the Executive Order, they review FDA’s quarterly reports for information that could indicate the drug listed was diverted for illegal purposes. For example, DOJ considers whether there is evidence of use of fake pedigrees in violation of the FDCA. DOJ officials noted that the solicitations listed in the quarterly reports sometimes indicate that a drug is being sold for a higher-than- normal price; however, selling drugs at elevated prices alone is not illegal. Such sales may be illegal, for example, if the drugs are bought and sold through diversion from the legal distribution system. DOJ officials told us that as of November 2013, DOJ had not launched any investigations or taken any enforcement actions based on the solicitations listed in the quarterly reports, because, according to DOJ officials, the reports have not indicated that any solicitation was unlawful. According to DOJ officials, based on information obtained separately from the quarterly reports, the agency has launched at least one investigation into activity in which there are indications of the illegal sales of shortage drugs through diversion. FTC staff told us they investigate complaints about the gray market received from the public, as well as complaints referred to them by FDA and Congress, to determine whether an antitrust investigation is warranted. FTC receives complaints from the public through a toll-free telephone number, an email address, and through the U.S. mail.staff told us that they review these complaints to determine whether there is enough information, such as evidence that the company is engaging in any coordinated antitrust behavior in violation of the Federal Trade Commission Act or the Clayton Act, to warrant an investigation. According to FTC staff, as of November 2013 they had not launched any full-phase investigations or taken any enforcement actions related to the pharmaceutical gray market. Though not a full-phase investigation, FTC staff told us that in the fall of 2011 they conducted an initial investigation to determine whether wholesale distributors or other parties were engaged in any conduct that violated federal antitrust laws, such as colluding to hoard drugs in shortage and then selling the drugs at higher FTC prices. However, they were unable to find any evidence that widespread hoarding was occurring. Instead, they found cases where a single wholesale distributor acting alone would buy a few vials of a shortage drug and then sell it at a higher price—a practice that is not illegal. In addition, in response to the Executive Order, federal agencies have worked together in an attempt to respond to gray market activities. In 2012, FDA, DOJ, FTC, and the National Association of Attorneys General convened three meetings to discuss the legal authorities that might apply to the gray market and the activities that each was undertaking related to this issue. Officials told us that in the future, they will meet on an “as needed” basis. FDA officials told us that the agency is considering whether additional legal authorities to help address the pharmaceutical gray market and secure the drug supply chain would be beneficial. Such authorities may include registration and reporting requirements for wholesale distributors, potential prohibitions on wholesale distributors purchasing products from pharmacies, and pedigree and track-and-trace options. FDA officials also noted that gray markets do not cause shortages, but are a symptom of such shortages. To the extent that FDA and other stakeholders address drug shortages, opportunities for gray markets to develop will become more limited. DOJ officials told us that DOJ does not have the authority to address drug pricing and stockpiling of drugs per se, but noted that the agency does have the authority to prosecute suppliers operating outside of the legal distribution system, regardless of the drug’s shortage status or price. Officials did not take a position as to whether additional authority over drug stockpiling and exorbitant pricing is necessary. FTC staff told us that they do not believe additional FTC authority in relation to the pharmaceutical gray market is necessary. They stated that the FTC’s existing enforcement authority would be adequate to take action in relation to the inflated pricing of a shortage drug if such pricing was a consequence of anticompetitive conduct. If, however, the inflated pricing resulted from factors other than anticompetitive conduct, assessment of such issues would be outside the scope of the FTC’s competition expertise. Some have suggested that incentivizing drug manufacturers to address the purported causes of drug shortages could alleviate or prevent such shortages. Proposed incentives include those related to regulatory activities undertaken by FDA or financial incentives that the federal government could provide to manufacturers. Some incentives target immediate causes of drug shortages, such as by rewarding manufacturers for a strong quality record, thereby reducing the likelihood of quality-related supply disruptions, or by increasing redundancy in drug supply chains. Other proposed incentives target underlying causes, such as by increasing manufacturer revenue in order to encourage manufacturers to remain in the market and continue investments in production facilities. In February 2013, FDA published a notice in the Federal Register with a request for comment about its drug shortages task force and strategic plan. Two of FDA’s questions related to incentives: 1c. Are there incentives that FDA can provide to encourage manufacturers to establish and maintain high-quality manufacturing practices, to develop redundancy in manufacturing operations, to expand capacity, and/or to create other conditions to prevent or mitigate shortages? and 2. In our work to prevent shortages of drugs and biological products, FDA regularly engages with other U.S. Government Agencies. Are there incentives these Agencies can provide, separately or in partnership with FDA, to prevent shortages? 78 Fed. Reg. 9928 (Feb. 12, 2013). manufacturer and association representatives and to FDA for comment. We obtained comments from three leading national associations representing drug manufacturers, both brand and generic, and five generic sterile injectable manufacturers. For one incentive related to exempting certain products from Medicaid rebates and 340B discounts, we also obtained comments from relevant stakeholder groups whose members would be affected by this exemption. Expedited and streamlined reviews: Most of the comments submitted by manufacturers in response to FDA’s request for comment proposed expediting or streamlining FDA review of regulatory submissions. Submissions that could be expedited included application supplements related to the approval of redundant manufacturing sites or new drug applications (NDA) or abbreviated new drug applications (ANDA) from manufacturers with a record of quality manufacturing and an adequate risk management plan to prevent shortages.June 30, 2013, there were more than 900 manufacturing supplements to NDAs, more than 5,700 manufacturing and chemistry supplements to ANDAs, and more than 2,700 ANDAs pending review. Therefore, proponents of expediting FDA review of regulatory submissions— including applications and supplements—note that increasing the speed of such reviews could provide an incentive to manufacturers to establish redundant manufacturing capacity to which production could be shifted in the event of manufacturing problems at a primary production facility, thereby avoiding a shortage. Further, by rewarding manufacturers with a history of quality manufacturing, expediting reviews could provide an According to FDA, as of incentive to ensure quality-related production problems—and ensuing shortages—do not occur in the first place. While representatives of the stakeholders we interviewed were generally supportive of this potential incentive, they also identified some limitations. One stakeholder cautioned that the resource-intensive nature of building in redundancy means it is a long-term solution, the implementation of which could hinder efforts to address current shortages. Another stakeholder noted that maintaining redundant manufacturing capacity is expensive and that expedited review alone may not provide enough of an incentive to establish such capacity. FDA officials noted that expediting reviews of regulatory submissions is a tool the agency already uses to address shortages. However, FDA officials cautioned that expanding the pool of submissions eligible for expedited review, without regard to the risk of shortage, could slow down review of all submissions and make expediting reviews meaningless. Representatives from one stakeholder echoed this concern, noting that, though faster than standard review times, in their experience there is already a backlog for review of supplements that have been expedited to address current shortages. Representatives from this stakeholder noted that without additional FDA resources devoted to the review of applications and supplements, making additional regulatory submissions eligible for expedited review would be problematic. FDA officials also noted that, although redundancy can help prevent a shortage if production stops, many shortages are the result of production disruptions driven by failures in manufacturing quality systems. Therefore, FDA officials told us that it is more important to prioritize incentives to improve manufacturing quality systems over those that expand capacity. To that end, as part of its drug shortages strategic plan goal to develop long-term prevention strategies in order to prevent shortages, FDA states that it will continue to expedite reviews to mitigate shortages, including the review of submissions for facility upgrades to improve quality. Flexibility in meeting regulatory requirements: A few manufacturers proposed that FDA could allow for flexibility in meeting regulatory requirements for manufacturers with a strong history of compliance with current good manufacturing practice regulations or robust risk management plans to prevent shortages. For example, they suggest that FDA could reduce the level of agency review for such change notifications as manufacturing site transfers, if the manufacturer had a history of production without quality issues. When proposing such incentives, supporters commented that, as it could allow manufacturers to implement manufacturing changes more quickly, reducing the level of agency review could provide an incentive for quality production. Incentivizing quality production could thus reduce the likelihood of a quality-related supply disruption and shortage. One stakeholder generally supported this approach, as long as all manufacturers were still held to the same standards and any change in requirements was accompanied by FDA guidance on the new approach. FDA officials told us that the agency has issued guidance documents to help identify types of changes after an application is approved that represent a lower risk. They added that the agency is currently exploring new approaches to the review of application products. To ensure that drugs are produced in conformance with federal statutes and regulations, including good manufacturing practice regulations, FDA may inspect the establishments where drugs are manufactured. We previously reported that FDA inspected domestic drug manufacturing establishments about once every 2.5 years and generally inspected foreign manufacturing establishments much less frequently. In part, this difference in frequency of inspection was due to the fact that, at the time, FDA was required to inspect every 2 years those domestic establishments that manufacture drugs in the United States, but there was no comparable requirement for inspecting foreign establishments. GAO, Drug Safety: FDA Has Conducted More Foreign Inspections and Begun to Improve Its Information on Foreign Establishments, but More Progress is Needed, GAO-10-961 (Washington, D.C.: Sept. 30, 2010). respond to issues raised by the FDA investigator conducting the inspection and in terms of production disruptions caused by the inspection itself. As it could reduce costs and disruptions for the manufacturer, if carefully designed so that manufacturers would still be inspected with some frequency, increasing the interval between inspections may provide an additional incentive for compliance with good manufacturing practices, which could reduce the likelihood of manufacturing quality issues and resultant shortages. One stakeholder commented that decreasing inspection frequency could be an effective incentive in the long term, but at present, frequent inspections set a high bar for manufacturers in this industry. FDA officials noted that the agency already considers compliance history as a major factor when determining the frequency of inspection of a manufacturing site. Further, in response to new Food and Drug Administration Safety and Innovation Act (FDASIA) authority, the agency is in the process of establishing a risk- based inspection schedule for all establishments. FDA officials told us that they are considering incorporating additional factors, such as process performance metrics and shortage performance, into their selection model. Transparency regarding compliance status of manufacturing sites: In documents submitted in response to FDA’s request for comment, a few manufacturers proposed increasing the transparency of manufacturing establishment compliance status such as by assigning site scores or an FDA stamp of approval, which could help those engaged in drug purchasing and drug pricing negotiations—including providers, group purchasing organizations, insurers, and consumers—make informed purchasing and pricing decisions. Proponents of this approach suggest that FDA’s provision of such quality metrics could make additional information publicly available for consideration in making purchasing and pricing decisions, thereby giving manufacturers an additional incentive for the highest quality production and making quality-related supply disruptions less likely to occur. Representatives from the stakeholders we spoke with were generally skeptical of this approach. One noted that providers and group purchasing organizations—which are the primary decision makers for sterile injectable purchases, where shortages have recently been concentrated—assume that quality is built in to any FDA-approved drug and may not be able to readily interpret quality metrics. Representatives from one stakeholder told us that FDA has spent extensive time and effort educating prescribers and the public that there is one quality standard for all FDA-approved drugs and that, from this stakeholder’s perspective, further differentiating quality with ratings would diminish confidence in the nation’s drug supply and lead to confusion and mistrust. Representatives from another stakeholder expressed skepticism that the market would respond to such information by allowing for higher prices. Likewise, representatives from multiple stakeholders noted that information about FDA inspections of manufacturing establishments and warning letters are already available online and are presumably already used when making purchasing and pricing decisions. FDA officials confirmed that they currently provide information on the compliance status of manufacturing sites on the agency’s website and added that they are looking for new ways to provide transparency in this area. They cautioned that there are significant questions and issues regarding how to provide more transparent compliance information to the public, such as the fact that FDA cannot disclose either confidential commercial information or trade secret information. Nevertheless, as part of its drug shortages strategic plan goal to develop long-term strategies in order to prevent shortages, FDA states that it is examining the broader use of quality metrics to assist in the evaluation of manufacturing quality. However, the plan also notes that although FDA can make quality information available to the public, including inspection outcomes, recalls, and shortages, buyers ultimately decide whether they will use these data when making purchasing decisions. Guaranteed purchase: A few manufacturers proposed that the federal government guarantee the purchase of a given volume of certain drugs. This would allow manufacturers to ensure capacity for a given production volume regardless of whether there is sufficient market demand. Representatives from one stakeholder that supported this proposal told us that such an incentive might bring more predictability to both the volume of product made and product margins. In turn, this guarantee could create some predictability in a manufacturer’s ability to invest in their facilities, resulting in continued high quality and compliant production. One stakeholder noted that such an incentive may be useful in terms of ensuring the availability of future capacity, but at present would not be an effective tool to address shortages as there is simply no excess capacity available even if the government could guarantee purchase volume. FDA officials noted that establishing such a program would be challenging. For example, identifying a list of drugs eligible for guaranteed purchase would be difficult, because it is hard to predict which drugs are vulnerable to shortage in advance and the particular drugs at risk of shortage may change rapidly. Reduction in fees: Both recently-introduced federal legislation and some manufacturers proposed reducing manufacturer fees to help alleviate or prevent drug shortages. As introduced in the 112th Congress, H.R. 6611 proposed exempting certain drugs from the annual branded prescription drug fee established by the Patient Protection and Affordable Care Act in order to provide an incentive for brand-name drug manufacturers to enter the market to produce a drug in short supply. Proponents of this approach state that a reduction in the annual branded prescription drug fee could induce brand-name companies to re-enter the market. One stakeholder also noted that brand-name manufacturers may have more idle capacity than generic manufacturers, so encouraging them to re- enter a market could be effective in addressing shortages. A few manufacturers proposed a reduction in or waiver of various user fees if the manufacturer demonstrates that they have built redundant capacity into their manufacturing plan.reductions noted that building redundancy into a manufacturing plan is resource intensive and that a fee reduction to help offset these costs could incentivize manufacturers to build redundancy which could help prevent supply disruptions. At the same time, one stakeholder that supported this approach noted that, though user fees add up, reducing such fees would not make a large enough economic difference to impact a manufacturer’s decision to enter or exit a market. FDA officials first noted that any changes to the user fee structure would have to be negotiated with industry and then enacted by Congress. They stated that, although the agency is open to using user fees as a way to prevent shortages and encourage manufacturers to help address a shortage that does arise, there are some uncertainties about doing this. For example, definitions of redundancy are unclear and mechanisms ensuring redundant capacity is not repurposed would need to be developed and enforced. Finally, FDA officials also cautioned that reducing or waiving fees for certain manufacturers could increase fees on other manufacturers. This is because the total amount of user fees FDA collects is fixed in statute and the annual fees assessed against individual manufacturers are determined by dividing the fixed statutory amount by the forecasted number of fee-paying entities. As a result, elimination of, or a reduction in, fees for some parties would effectively transfer these costs to the remaining fee-paying entities. Tax incentives: In order to offset the costs of such investment, some manufacturers proposed tax credits targeted to manufacturers that invest in redundant manufacturing capacity. Multiple stakeholders noted that, given the significant costs associated with new manufacturing establishments, such an incentive would only be effective for manufacturers that already operated such establishments. Representatives from one stakeholder noted that the time, resources, and approvals to create a new manufacturing site are likely to take more than 3 years with associated costs totaling tens of millions of dollars. Therefore, tax credits are a strong incentive for companies to re-invest in existing infrastructure, not necessarily to create new infrastructure. FDA officials told us that modernizing existing facilities to prevent quality and safety issues that lead to shortages can go a long way to prevent shortages even in a system with little redundancy. They noted that such incentives would need to encourage manufacturers to purchase new equipment, renovate facilities, and implement new manufacturing processes and technologies. Changes in drug pricing or reimbursement: As introduced in the 112th Congress, H.R. 6611 proposed changing the reimbursement rate or pricing system for generic sterile injectable products for which there are three or fewer active manufacturers. Such changes are intended to prevent shortages by providing an incentive to manufacturers to continue production in a concentrated market. Specifically, the bill proposed changing the calculation of the Medicare reimbursement rate for generic sterile injectable products for which there are three or fewer active manufacturers from average sales price plus 6 percent to wholesale acquisition cost. It would also exempt such products from Medicaid rebates and 340B discounts. The premise of the Medicare reimbursement change proposal is that basing reimbursement on wholesale acquisition cost will enable manufacturers to adjust their prices to meet supply and demand, which some claim the current reimbursement structure prevents.manufacturers to more readily adjust their prices and achieve a profit, this proposal aims to provide an incentive for manufacturers to remain in the market, thereby preventing further erosion of manufacturing capacity, which could make the generic sterile injectable market even more vulnerable to shortages. Proponents note that this incentive could positively affect manufacturer profit and influence a manufacturer’s decision about participating in the market for a particular drug. One stakeholder cautioned that, in their opinion, using reimbursement as an incentive increases the risk of fraud and abuse. The premise of the Medicaid rebate and 340B discount exemptions proposal is that such rebates exert additional downward pressure on already extremely low prices, thereby limiting manufacturers’ ability to sustain production and upgrade facilities. Removing such rebates and discounts would provide additional revenue to manufacturers, thereby potentially providing them an incentive to remain in the market and maintain manufacturing capacity or to re-enter the market. Proponents state that this incentive may help influence manufacturer margins, thereby providing revenue to invest in production capacity to ensure demand is met. However, some stakeholders caution that these exemptions would increase costs to patients and the government (including increasing drug costs and administrative costs to the government for tracking such an exemption). Representatives from one stakeholder group we interviewed noted that, according to its inquiries, the majority of generic sterile injectable drugs are manufactured by three or fewer manufacturers, in which case nearly all such drugs would be subject to this exemption, whether the drug had ever been in shortage or not. Further, stakeholders noted that generic sterile injectable drugs are often administered in hospital inpatient departments and are therefore not subject to Medicaid rebates, which only apply to outpatient drugs. One stakeholder stated that for the few drugs in this group that are subject to Medicaid rebates, the cost of these drugs is already low, which would result in a minimal financial impact of such an exemption. Finally, one stakeholder stated that 340B discount exemptions would have a minimal influence on drug shortages. In addition to the contact named above, Geri Redican-Bigott, Assistant Director; Katherine L. Amoroso; Zhi Boon; Leia Dickerson; Sandra George; Alison Goetsch; Cathleen Hamann; Rebecca Hendrickson; Eagan Kemp; Sarah-Lynn McGrath; Yesook Merrill; and Leslie Powell made key contributions to this report. Drug Compounding: Clear Authority and More Reliable Data Needed to Strengthen FDA Oversight. GAO-13-702. Washington, D.C.: July 31, 2013. High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February 2013. Drug Shortages: FDA’s Ability to Respond Should Be Strengthened. GAO-12-315T. Washington, D.C.: December 15, 2011. Drug Shortages: FDA’s Ability to Respond Should Be Strengthened. GAO-12-116. Washington, D.C.: November 21, 2011. Drug Safety: FDA Faces Challenges Overseeing the Foreign Drug Manufacturing Supply Chain. GAO-11-936T. Washington, D.C.: September 14, 2011. Food and Drug Administration: Response to Heparin Contamination Helped Protect Public Health; Controls That Were Needed for Working With External Entities Were Recently Added. GAO-11-95. Washington, D.C.: October 29, 2010. Food and Drug Administration: Opportunities Exist to Better Address Management Challenges. GAO-10-279. Washington, D.C.: February 19, 2010. Food and Drug Administration: FDA Faces Challenges Meeting Its Growing Medical Product Responsibilities and Should Develop Complete Estimates of Its Resource Needs. GAO-09-581. Washington, D.C.: June 19, 2009. Human Capital: Key Principles for Effective Strategic Workforce Planning. GAO-04-39. Washington, D.C.: December 11, 2003. Standards for Internal Control in the Federal Government. GAO/AIMD-00-21.3.1 Washington, D.C.: November 1999.

From prolonged duration of a disease, to permanent injury, to death, drug shortages have led to harmful patient outcomes. FDA—an agency within the Department of Health and Human Services (HHS)—is responsible for protecting public health and works to prevent, alleviate, and resolve shortages. In 2011, GAO recommended that FDA should enhance its ability to respond to shortages. In 2012, FDASIA gave FDA new authorities to improve its responsiveness and mandated GAO to study drug shortages. In this report, GAO (1) reviews the trends in recent drug shortages and describes what is known about their effect on patients and providers; (2) examines the causes of drug shortages; and (3) evaluates the progress FDA has made in addressing drug shortages. GAO analyzed data from FDA and the University of Utah Drug Information Service, which is generally regarded as the most comprehensive source of drug shortage information for the time period we reviewed. GAO interviewed officials from FDA and other federal agencies, organizations representing patients and providers, and drug manufacturers. GAO also reviewed the literature, relevant statutes, regulations, and documents. The number of drug shortages remains high. Although reports of new drug shortages declined in 2012, the total number of shortages active during a given year—including both new shortages reported and ongoing shortages that began in a prior year—has increased since 2007. Many shortages are of generic sterile injectable drugs. Provider association representatives reported that drug shortages may force providers to ration care or rely on less effective drugs. The immediate cause of drug shortages can generally be traced to a manufacturer halting or slowing production to address quality problems, triggering a supply disruption. Other manufacturers have a limited ability to respond to supply disruptions due to constrained manufacturing capacity. GAO's analysis of data from the Food and Drug Administration (FDA) also showed that quality problems were a frequent cause. GAO also identified potential underlying causes specific to the economics of the generic sterile injectable drug market, such as that low profit margins have limited infrastructure investments or led some manufacturers to exit the market. While shortages have persisted, FDA has prevented more potential shortages in the last 2 years by improving its responsiveness. Among other things, FDA implemented Food and Drug Administration Safety and Innovation Act (FDASIA) requirements and recommendations GAO made in 2011. FDA has also initiated other steps to improve its response to shortages, such as developing procedures to enhance coordination between headquarters and field staff. However, there are shortcomings in its management of drug shortage data that are inconsistent with internal control standards. For example, FDA has not created policies or procedures governing the management of the data and does not perform routine quality checks on its data. Such shortcomings could ultimately hinder FDA's efforts to understand the causes of specific shortages as well as undermine its efforts to prevent them from occurring. In addition, FDA has not conducted routine analyses of the data to proactively identify and evaluate the risks of drug shortages. FDA should strengthen its internal controls over its drug shortage data and conduct periodic analyses to routinely and systematically assess drug shortage information, using this information to proactively identify drug shortage risk factors. HHS agreed with GAO's recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: Traditionally, DOD’s combat aircraft have used on-board electronic warfare devices called jammers for self-protection against radar-controlled weapons, including missiles and anti-aircraft artillery. These jammers emit electronic signals from the aircraft to try to impede or deny the threat radar’s ability to locate the aircraft. DOD’s existing self-protection jamming systems for its tactical aircraft have limitations against certain threats, and these threats are expected to be improved. DOD has modified existing systems, such as the Air Force’s ALQ-131 used on the F-16 and the ALQ-135 on the F-15, and has developed a newer system, the Navy’s Airborne Self-Protection Jammer (ASPJ), which is being used on some F-14D and F/A-18C/D aircraft. As we have previously reported, however, testing after deployment has shown that the modified jammer systems have had problems, while operational testing of ASPJ and other jammers showed they were unable to meet effectiveness criteria against certain classified threats. In an attempt to overcome the limitations of the on-board jammers, the services are acquiring two new towed decoy systems, the ALE-50 and the RFCM, to enhance survivability against the radar-controlled threats. The ALE-50 towed decoy system is in production, while the future RFCM system is in development. The ALE-50’s towed decoy component generates and emits its own signals that are intended to lure an incoming radar-guided weapon away from the aircraft by presenting a more attractive target. To provide further improvement for selected Air Force and Navy aircraft, the RFCM is to provide more sophisticated techniques than the ALE-50. A jamming device called the techniques generator carried onboard the aircraft produces jamming signals that are transmitted by fiber optic cable to the RFCM decoy for transmission. Both decoys are single use systems. Once deployed from the aircraft, the decoy’s tow line is severed prior to return to base. Each aircraft is to carry multiple decoys, so if one is destroyed by enemy fire or malfunctions, another can be deployed. Therefore, substantial inventories of decoys are required to sustain potential combat operations. The services expect that these decoys will improve survivability of their aircraft against radar-controlled threats compared to the current technique of emitting the jamming signals directly from the aircraft. Classified test results show that the ALE-50 towed decoy offers improved effectiveness against radar-controlled threats, including some threat systems against which self-protection jammers have shown little to no effectiveness. Moreover, the future RFCM decoy system is expected to further improve survivability due to its more sophisticated jamming techniques. Recognizing the potential offered by these towed decoy systems to overcome the limitations of using just on-board jammers, such as the ASPJ, the Air Force is actively pursuing the use of towed decoys for its current aircraft. It has done the necessary modifications to add the ALE-50 to the F-16, an aircraft slightly smaller than the Navy’s F/A-18C/D, and to the B-1, a much larger aircraft. The Air Force is also considering use of the RFCM decoy system on the F-15, which will use its existing on-board jammer instead of the techniques generator, and on the B-1, as well as several other aircraft. The Navy plans to equip only its future F/A-18E/F aircraft with a decoy system. The ALE-50 decoy system is to be used by the Air Force on 437 F-16 and 95 B-1 aircraft. In addition to the ALE-50 components such as the launcher and controller installed on the aircraft, the Air Force plans to procure 17,306 ALE-50 decoys to meet operational requirements. The Navy plans to buy 466 ALE-50 decoys. These will be used for F/A-18E/F testing and contingencies after the aircraft’s deployment until the RFCM decoy is available. The ALE-50 program cost is estimated at about $1.2 billion. The Navy’s estimated RFCM cost for its F/A-18E/F aircraft is about $2.6 billion. The Navy’s plan is to procure enough RFCM systems and spares to equip and support 600 of its planned buy of 1,000 F/A-18E/F aircraft. For 600 F/A-18E/F aircraft, the number of decoys to be procured to meet operational needs is 18,000. (These estimates predate the May 1997 decision of the Quadrennial Defense Review (QDR) to recommend a reduction in the number of F/A-18E/Fs.) The future RFCM decoy system is also being considered by the Air Force for its B-1 aircraft, part of its F-15 fleet, and several other Air Force manned and unmanned aircraft. If the Air Force buys the RFCM system for the B-1 and the F-15, which would use its existing onboard jammer instead of the RFCM techniques generator, the estimated cost, including 9,107 decoys, is about $574 million. In contrast with the Air Force, which intends to use decoys to improve the survivability of its current aircraft, current Navy combat aircraft will be at a comparative survivability disadvantage since they will not be provided with a decoy system. In particular, because F/A-18E/Fs will not be replacing all of the C/D models in the Navy/Marine Corps inventory in the foreseeable future, adding a towed decoy system to the F/A-18C/D potentially offers the opportunity to save additional aircraft and aircrew’s lives in the event of hostilities. In the year 2010, more than 600 of the Navy’s tactical fighter inventory objective of 1,263 aircraft will still be current generation fighters such as the F/A-18C/D. This will be true even if F/A-18E/Fs are procured at the Navy’s desired rates of as high as 60 per year. At the post-QDR suggested rate of 48 per year, almost 50 percent of the current generation aircraft will still be in the fleet in the year 2012. DOD and the Navy have done studies to determine whether towed decoys could improve the survivability of the F/A-18C/D. DOD’s Joint Tactical Electronic Warfare Study and an analysis conducted by the Center for Naval Analyses concluded that the addition of a towed decoy system to the F/A-18C/D would provide a greater increase in survivability for that aircraft than any jammer, including the ASPJ. In limited flight testing on the F/A-18C/D, the Navy demonstrated the ALE-50 decoy could be deployed from either a wing station or the centerline station of the aircraft. While the Navy acknowledges that towed decoys can enhance aircraft survivability, it does not consider these flight tests to have been successful because of the following suitability concerns. According to the Navy (1) the tow line can come too close to the horizontal tail or the trailing edge flap when deployed from a wing station, making it unsafe or (2) the tow line can be burned off by the engine exhaust or separated by abrasion if deployed from the centerline station. The Navy’s report on the wing station testing stated that tow line oscillation led to lines breaking on several flights, but did not state that the decoy system was a flight safety risk nor that there was any contact with the horizontal tail or flaps. Concerning the centerline station tests, several tow lines were burned off or otherwise separated from the aircraft by abrasion during maneuvering flights. A reinforced tow line later solved these problems and the Navy is continuing testing on the F/A-18C/D from the centerline station. Based on these test results, the Navy now intends to deploy the ALE-50 decoy from the centerline of the fuselage of the F/A-18E/F. The Navy also maintains that even if the decoy could be successfully deployed from the F/A-18C/D wing or centerline station, for actual operations, it could not afford to trade a weapon or fuel tank on a wing or centerline station for a towed decoy system. Further, the Navy considers modification of the C/D model’s fuselage for internal carriage of the decoy to be unaffordable due to volume, weight, power, and cooling constraints that would have to be addressed. The Air Force has modified a wing pylon to successfully deploy towed decoys from the F-16’s wing while avoiding major aircraft modifications and without sacrificing a weapons station or a fuel tank. The Navy, however, has not done the technical engineering analyses to determine the specific modifications necessary to accommodate a towed decoy on the F/A-18C/D either from the wing or the centerline without affecting the carriage capability unacceptably. Congress has expressed concerns regarding F/A-18C/D survivability. The Report of the Senate Appropriations Committee on the National Defense Appropriations Act for Fiscal Year 1997 directed the Navy to report on the advantages and disadvantages of using various electronic warfare systems to improve F/A-18C/D survivability. In addition, Congress provided $47.9 million in fiscal year 1997 funding not requested by DOD to buy 36 additional ASPJs for 3 carrier-deployed squadrons to meet contingency needs. The Navy could have addressed the congressional concern for C/D survivability in the required report by including analysis of the improvement offered by incorporating the ALE-50 and RFCM towed decoy systems. In completing the required report, however, the Navy did not include any analysis of survivability benefits from using towed decoys because it maintains, as described above, that there are unacceptable impacts associated with towed decoys on the F/A-18C/D. In commenting on a draft of this report, DOD agreed that towed decoy systems could enhance aircraft survivability, but stated the Navy had conducted an engineering analysis that concluded any installation option of a towed decoy on the F/A-18C/D has unacceptable operational and/or safety of flight impacts. In response to our request for this analysis, the Navy provided us with a paper discussing the feasibility of installing a towed system on the F/A-18C/D. This paper concluded that the options considered had risks or created operational concerns but did not conclude that these options were unacceptable. Furthermore, the paper did not consider all possible options. With regard to the safety of flight issue, the Navy stated that the decoy or towline might contact aircraft control surfaces such as the flaps or the horizontal stabilizers if deployed from a wing station. The Navy’s summary of wing station test results, however, does not show any evidence of such contact. The Navy has expressed no concern about a safety of flight issue when deploying the decoy along the aircraft’s centerline and continues to fly test missions with the towed decoy, deploying it from a pod on the centerline of an F/A-18D aircraft. Furthermore, the Navy intends to install the system in the fuselage and deploy towed decoys from the centerline of the E/F model aircraft. In addition, the Air Force incorporated the ALE-50 on to the F-16 without loss of a weapon station or fuel tank and without having to undertake major aircraft modifications, demonstrating that it is possible to adapt a towed decoy system to an existing aircraft without creating unacceptable tactical impacts. DOD did not concur with the recommendations that were set forth in a draft of this report. In the draft, we had suggested that (1) in preparing its congressionally required report, DOD consider F/A-18C/D aircraft upgraded with RFCM and ALE-50 towed decoy systems and (2) the Navy do the necessary engineering analyses of the modifications needed to integrate towed decoys into F/A-18C/D and other current Navy aircraft. DOD completed the congressionally required report without implementing our first draft recommendation. We continue to believe, however, that the Navy needs to explore ways to improve the survivability of its current aircraft and, therefore, should do a detailed engineering analysis of the modifications needed to adapt the towed decoy to the F/A-18C/D. DOD’s comments are reprinted as appendix I in this report. We recommend that the Secretary of Defense direct the Secretary of the Navy to make a detailed engineering analysis of the modifications needed to adapt the towed decoy to the F/A-18C/D. In light of the demonstrated improvement in survivability that analyses and test results indicate towed decoy systems can provide, and recognizing that in the year 2010 almost 50 percent of the Navy’s tactical fighter inventory will still be current generation fighter aircraft such as the F/A-18C/D, Congress may wish to direct the Navy to find, as it has done for its F/A-18E/F and the Air Force has done for the F-16, cost-effective ways to improve the survivability of its current aircraft. To accomplish our objective of determining whether towed decoys could improve survivability of Air Force and Navy aircraft, we examined DOD and contractor analyses of adding towed decoy systems and reviewed Air Force and Navy ALE-50 test results from testing on a variety of aircraft. We interviewed officials from the Office of the Secretary of Defense, the Navy, and the Air Force involved in the acquisition and testing processes of towed decoy systems. We also interviewed contractor personnel involved in the development, integration, and/or production of towed decoy systems. We performed our work at the Offices of the Secretaries of Defense, the Navy, and the Air Force; F-15, F-16, and B-1 System Program Offices at the Air Force Material Command, Wright-Patterson Air Force Base, Ohio; F/A-18 and Tactical Air Electronic Warfare Program Offices at the Program Executive Office for Naval Tactical Aviation, Naval Air Systems Command, Washington, D. C.; the 53rd Wing and Air Force Operational Test and Evaluation Detachment, Eglin Air Force Base, Florida; and selected contractor locations, including McDonnell-Douglas Aircraft, Lockheed-Martin, and Rockwell International. We performed our review from February 1996 to July 1997 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Secretaries of Defense, the Navy, and the Air Force; the Director, Office of Management and Budget; and other congressional committees. We will make copies available to others upon request. Please contact me on (202) 512-2841, if you or your staff have any questions concerning this report. Major contributors to this report are listed in appendix II. Following are our comments on the Department of Defense’s (DOD) letter dated May 5, 1997. 1. Our draft report included references to the comparability of F/A-18E/F and C/D survivability, and it was provided to DOD for comment prior to the decision to produce the F/A-18E/F. As DOD states, this decision has now been made. Consequently, we have deleted references to the comparability of the F/A-18E/F and C/D models. The issue of F/A-18C/D survivability remains important, however, because E/F models will not replace all of the current C/D models in the inventory in the foreseeable future. 2. Test results for towed decoys on the F/A-18C/D and other information provided by DOD and the Navy do not support DOD’s statements. The safety of flight issue, according to the Navy, arises from the concern that the decoy or towline might contact aircraft control surfaces such as the flaps or the horizontal stabilizers if deployed from a wing station. The Navy’s summary of wing station test results does not show any evidence of such contact. According to the test report, the Navy did find that aircraft vortices behind the wing created aerodynamic instability in the towline, but the report does not conclude that this potentially jeopardized aircraft flight safety. Additionally, the Navy has expressed no concern about a safety of flight issue when deploying the decoy along the aircraft’s centerline, and use of a reinforced towline appears to have eliminated the burnoff/abrasion problem. Thus, the Navy continues to fly test missions with the towed decoy, deploying it from a pod on the centerline of an F/A-18D aircraft, and intends to install the system in the fuselage and deploy towed decoys from the centerline of the E/F model aircraft. This evidence indicates that Navy concerns about a high degree of difficulty, and severe volume, weight, power, cooling, and aircraft aerodynamics issues associated with installing towed decoys may not be insurmountable. As for unacceptable tactical impacts associated with towed decoy installation, the Air Force has overcome this problem on the F-16, and we presume that the Navy may also be able to find an integration solution for the F/A-18C/D that avoids unacceptable tactical impacts if it continues to pursue alternatives. The Navy did not abandon towed decoy installation for the F/A-18E/F because of early problems with abrasion and heat breaking the towline. Instead, it pursued alternatives. The solutions for the F-16 and F/A-18E/F do not have to be the only alternatives considered for the F/A-18C/D. 3. The Navy and DOD did provide us with additional information intended to bolster its broad assertion of unsuitability. However, the information provided was not an “engineering analysis” (implying a technical document of some depth), but is instead a rather superficial “installation feasibility study” that while identifying risk areas associated with installing the towed decoy on the F/A-18C/D does not conclude that all installation options have unacceptable operational and/or safety of flight impacts. 4. According to the Navy’s feasibility study, 220 pounds is the weight of the towed decoy system mounted in a pod. According to the same study, if the system’s launch controller is mounted in the aircraft’s fuselage, the bring-back weight is reduced by only 140 pounds. In any case, since studies and test results indicate the ALE-50 system can provide significant improvements in survivability, the Navy needs to determine whether loss of a relatively small amount of bring-back weight is worth the increased risk of losing aircraft to radar-guided missiles. Michael Aiken Terrell Bishop Paul Latta Terry Parker Charles Ward The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. 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GAO reviewed the Department of Defense's (DOD) acquisition plans for the ALE-50 towed decoy system and the Radio Frequency Countermeasures System (RFCM), which includes a more advanced towed decoy, focusing on whether towed decoys could improve the survivability of certain Navy and Air Force aircraft. GAO noted that: (1) DOD's effort to improve the survivability of its aircraft through the use of towed decoys has demonstrated positive results; (2) according to test reports and test officials, the ALE-50 has done very well in effectiveness testing and the future RFCM decoy system is expected to be even more capable; (3) the Air Force is actively engaged in efforts to field towed decoy systems on a number of its current aircraft, including the F-15, F-16, and B-1, while the Navy is planning towed decoys only for its future F/A-18E/F; (4) in the year 2010, almost 50 percent of the Navy's tactical fighter inventory will still be current generation fighter aircraft such as the F/A-18C/D, even if new F/A-18E/Fs are procured at the rates desired by the Navy between now and then; and (5) improving the survivability of the F/A-18C/D, as well as other current Navy and Marine Corps aircraft, potentially offers the opportunity to save additional aircraft and aircrew's lives in the event of future hostilities and also addresses congressional concerns expressed for F/A-18C/D survivability.

You are an expert at summarizing long articles. Proceed to summarize the following text: USERRA has extremely broad coverage, provides a wide range of protections, and applies over long time periods. The discrimination provisions of the law cover every individual who serves in, plans to serve in, or has served in the uniformed services of the United States. The law’s reemployment and benefit provisions are applicable to some active duty military personnel as well as to National Guard and Reserve members. USERRA applies to public and private employers in the United States, regardless of size, and includes federal, state, and local governments, as well as for-profit and not-for profit private sector firms. It also applies in overseas workplaces that are owned or controlled by U.S. employers. Generally, servicemembers are entitled to the reemployment rights and benefits provided by USERRA if they meet certain conditions. These include having held a civilian job prior to call-up, serving fewer than 5 years of cumulative military service with respect to that employer, providing their employer with advance notice of their service requirement when possible, leaving service under honorable conditions, and reporting back to work or applying for reemployment in a timely manner. Provided servicemembers meet their USERRA requirements, they are entitled to prompt reinstatement to the positions they would have held if they had never left their employment, or to positions of like seniority, status, and pay; health coverage for a designated period of time while absent from their employers, and immediate reinstatement of health coverage upon return; training, as needed, to requalify for their jobs; periods of protection against discharge based on the length of service; non-seniority benefits that are available to other employees who are on leaves of absence. Figure 1 is a flowchart that shows servicemembers’ options for receiving federal assistance with their USERRA complaints. While the flowchart shows several different paths for resolving employment problems, the chart does not show all of the options available to servicemembers. Some servicemembers have used members of their military chain-of-command to help them resolve problems with their employers. In addition, the ESGR is available to provide information and informal mediation of USERRA- related employment problems. The DOL offers assistance similar to the ESGR in that it provides information to employers and employees, and works to informally resolve USERRA-related employment problems. The DOL also receives formal complaints from servicemembers under USERRA. Another option that is available to servicemembers at any time is to hire a private attorney and to file a complaint against their employer in court (for private employers and state and local governments) or before the Merit Systems Protection Board (for federal employers). However, a working group from the American Bar Association found that many private attorneys are reluctant to take USERRA complaints because cases are not likely to result in large judgments or settlements. The responsibility for enforcing and implementing USERRA is complex, involving several federal agencies. Under USERRA, specific outreach, investigative, and enforcement roles are assigned to DOD, DOL, DOJ, and OSC. Most of the people entitled to USERRA rights and benefits earn their entitlement while serving in the military services. The Secretary of Defense shares responsibility with DOL for informing servicemembers and employers of their rights, benefits, and obligations under the act. The ESGR carries out this responsibility for DOD. The ESGR was established in 1972 to manage activities that maintain and enhance employers’ support for the reserve components, and it has a goal to inform servicemembers and their employers of their respective USERRA rights and responsibilities. The Office of the Under Secretary of Defense (Personnel and Readiness) develops the policies, plans, and programs that manage the readiness of both active and reserve forces, and within that office, the Assistant Secretary of Defense for Reserve Affairs oversees the activities of the ESGR. The ESGR has a staff of about 55—18 civilians and 37 military personnel— at its national headquarters in Arlington, Virginia. However, much of the ESGR’s work is done through its more than 4,000 volunteers who are organized into state committees. These volunteers help to educate both employers and servicemembers about USERRA, and a specially trained subgroup of about 800 volunteers serve as impartial ombudsmen who work to informally mediate USERRA issues that arise between servicemembers and their employers. While many volunteer ombudsmen are attorneys, human relations specialists, or have other backgrounds that assist them in their mediation work, all of the ESGR’s ombudsmen are required to attend a 3-day training course before they handle servicemember complaints. (App. II contains additional information about the backgrounds of these volunteer ombudsmen.) Most USERRA-related complaints come to the ESGR through its toll-free telephone number (1-800-336-4590), which is answered at the ESGR’s Customer Service Center in Millington, Tennessee. The customer service representatives in Tennessee screen calls, fill requests for information, and forward complaints that appear to have merit to volunteer ombudsmen, who are generally located geographically near the servicemembers. The complaints are often channeled through state ombudsmen coordinators. The ESGR’s volunteer ombudsmen attempt to resolve pay-related USERRA complaints within 7 days and other USERRA complaints within 14 days. When ombudsmen cannot resolve servicemember complaints, they are to notify the servicemembers of the other options that are available to address complaints. The ombudsmen may then pass the complaints to the ESGR headquarters through their state ombudsman coordinators. The Secretary of Labor has responsibility for providing assistance to servicemembers who claim USERRA rights and benefits. This responsibility is carried out primarily through the efforts of VETS. VETS is led by an assistant secretary who is supported by headquarters, regional, and state staff as well as local investigators. When a servicemember leaves active duty and a USERRA-related complaint develops against the servicemember’s civilian employer, the servicemember can file a formal complaint at www.vets1010.dol.gov, or can file a printed copy of the complaint form, such as the one included in appendix III, with the Secretary of Labor. The complaint is then assigned to one of VETS’s approximately 125 investigators, generally an investigator who is located close to the employer. These VETS investigators examine USERRA complaints and try to help the servicemembers and employers resolve their differences. The investigators also typically have a host of other responsibilities that support veterans’ programs but that are not directly related to USERRA. The law gives DOL subpoena power over records and individuals to aid in its investigations, but officials note that subpoenas are used infrequently because the threat alone is usually enough to gain cooperation. The statute also states that the Secretary of Labor may use the assistance of volunteers and may request assistance from other agencies engaged in similar or related activities. When DOL is unable to resolve servicemember complaints, DOL informs the servicemembers that they may request to have their complaints referred. A complaint is referred to DOJ if it involves state or local governments or private employers or to OSC if it involves a federal executive agency. Before complaints are sent to DOJ or OSC, they are reviewed by a VETS regional office, which reviews the memorandums of referral to ensure that the investigations are thorough and that the documentation is accurate and sufficient. The referrals are also reviewed by a DOL regional solicitor’s office to assess the complaints’ legal basis. Both offices render opinions on the merits of the complaints. Even if both offices find that the complaints have no merit, DOL is required by the act to pass the complaints to DOJ or OSC if the servicemembers request referrals. Along with their investigation and mediation responsibilities, VETS investigators also conduct briefings to educate employers and servicemembers about USERRA requirements and responsibilities, and they field service-related employment and reemployment questions that are directed to their offices. These investigators are required to take three courses that train them in the basics of the USERRA law, advanced investigative techniques, and the differences between veterans’ preference issues and USERRA discrimination issues. Under USERRA, the Secretary of Labor reports USERRA information to Congress on an annual basis, after consulting with the Attorney General and Special Counsel. The Secretary’s report includes information about the number of complaints reviewed by DOL during the fiscal year for which the report is filed along with the number of complaints referred to DOJ or OSC. The annual report should also address the nature and status of each complaint and should state “whether there are any apparent patterns of violation.” Finally, the report should include any recommendations for administrative or legislative action that the Secretary of Labor, the Attorney General, or Special Counsel consider necessary to effectively implement USERRA. USERRA also granted DOL authority to issue regulations that implement USERRA provisions for state and local government and private employers. In its most recent report to Congress, the department did not note any apparent patterns of violation. DOL did note that it had published draft regulations implementing USERRA for the first time on September 20, 2004, and DOL has completed the evaluation of comments that were submitted in response to these draft regulations. DOL has submitted the final regulations to OMB for formal review prior to publication in the Federal Register, and publication is expected in the near future. The Attorney General is assigned enforcement responsibilities under USERRA, but DOJ is not authorized to receive USERRA complaints directly from servicemembers. It investigates, mediates, and litigates only private sector or state or local government complaints that it receives from DOL. The Civil Division in DOJ was responsible for handling USERRA complaints until September 2004, when DOJ transferred responsibility to its Civil Rights Division, which handles other types of employment discrimination complaints not related to military service. The Civil Division procedures called for the division to review the complaint and either (1) decline representation and return the complaint to DOL’s regional solicitor’s office because the complaint lacked merit or (2) forward the complaint to the U.S. Attorney’s Office for possible litigation. If the complaint was forwarded, the U.S. Attorney’s Office would assign the complaint to an assistant U.S. attorney who would review the information in the DOL referral, and interview the servicemember and potential witnesses. The assistant U.S. attorney then would make a determination on the merits of the complaint. If the assistant U.S. attorney found that the complaint was meritorious and the U.S. attorney agreed, the U.S. attorney’s Office would represent the servicemember. In these situations, the assistant U.S. attorney would contact the employer and try to resolve the matter without litigation. If that failed, the assistant U.S. attorney would file a complaint against the employer in federal district court. If the assistant U.S. attorney found that the complaint was not meritorious and the U.S. attorney agreed, the complaint would be referred back to DOL and the servicemember would have the option of seeking their own legal representation and filing a complaint against the employer in federal district court. A settlement could be negotiated at any stage of the process. In July 2005, the Civil Rights Division was still following these procedures pending sufficient experience with USERRA complaints to decide if new procedures are necessary. DOJ’s Civil Rights Division attorneys are trained in handling discrimination complaints because they receive training on Title VII of the Civil Rights Act of 1964. In addition, according to DOJ officials, 37 attorneys in the Employment Litigation Section received training on USERRA in March 2005 and also received a collection of reference documents relevant to USERRA. These attorneys are available to handle both civil rights and USERRA complaints. There are also 18 professional and 8 clerical staff who are trained on USERRA matters. Under USERRA, OSC is responsible for enforcing USERRA rights at federal executive agencies. Prior to February 8, 2005, OSC was not authorized to receive USERRA complaints directly from servicemembers and had to wait until DOL referred the complaints. However, under a demonstration project, OSC may now receive USERRA complaints against federal executive agencies directly from certain servicemembers. OSC recently established a six-person USERRA unit to investigate, mediate, and, as necessary, litigate USERRA complaints. Under the traditional procedures, when a servicemember employed by a federal executive agency requests to have his or her DOL complaint referred to OSC, DOL’s regional solicitor sends a referral to OSC. While OSC takes the referral information into account, OSC conducts its own review of the facts and the law and comes to its own conclusions on the merits of the complaint. If the complaint is received directly from the servicemember, OSC conducts the investigation without DOL input. In either case, if OSC is satisfied that the servicemember is entitled to corrective action, OSC begins negotiations with the servicemember’s federal employer. If an agreement cannot be reached, OSC may represent the servicemember before the Merit Systems Protection Board. If the Merit Systems Protection Board rules against the servicemember, OSC may appeal the decision to the U.S. Court of Appeals for the Federal Circuit. In instances where OSC finds that complaints do not have merit, it informs the servicemembers of its decision not to represent them and informs servicemembers that they have the right to take their claims to the Merit Systems Protection Board without OSC representation. OSC’s USERRA unit consists of three investigators, two attorneys, and a unit chief, who is also an attorney. According to the unit chief, the members of the USERRA unit spend most of their time on USERRA complaints but they also handle some other prohibited personnel practice complaints. The specific USERRA training for the unit consists primarily of on-the-job and other informal training. To support the personnel information needs of DOD, DMDC, which reports to the Under Secretary of Defense for Personnel and Readiness, surveys the attitudes and opinions of the DOD community on a wide range of personnel issues. In May 2004, DMDC surveyed a random sample of 55,794 Selected Reserve members who had at least 6 months of service and who were below flag rank. Figures 2 and 3 show the projected results from survey questions that asked employed survey respondents about their employers. Figure 2 shows that about 10 percent of employed Selected Reserve members are self-employed or work in family businesses. According to the figure, about 29 percent of Selected Reserve members below flag rank work for federal, state, or local governments. However, the federal government percentage in this figure is understated because DMDC’s survey did not ask full-time National Guard and Selected Reserve members and military technicians—DOD civilian employees who must be members of a National Guard or Reserve unit as a condition of their employment—the survey question from which these data are drawn. Figure 3 shows that an estimated 45 percent of employed Selected Reserve members below flag rank are employed by large employers who have 1,000 or more total employees. The figure also shows that about 13 percent of employed Selected Reserve members work for small employers who have 9 or fewer total employees. We have issued prior reports concerning USERRA and, more generally, about the need for results-oriented government. Our prior USERRA work has examined issues pertaining to employer support and enforcement of USERRA complaints at OSC. Our work on results-oriented government examined how the federal government could shift toward a more results- oriented focus. Since 2002, we have issued two reports related to employer support and USERRA. In our most recent report, we provided information on OSC’s role in enforcing USERRA. The report found that separate OSC and DOL determinations generally agreed on the merits of servicemember complaints, OSC took an average of about 145 days to process the 59 complaints it received between 1999 and 2003, and OSC had made changes that were designed to expedite the handling of current USERRA complaints and any influx of new complaints. In our earlier report, we addressed DOD’s management of relations between reservists and their employers. Our report stated the following. DOD had established a database to collect employer information from reserve component members on a voluntary basis in 2001. However, by May 14, 2002, only about 11,000 servicemembers had entered employer information into the database. DOD could not educate all employers concerning their USERRA rights and responsibilities because it viewed the Privacy Act as a constraint that prevented it from requiring reserve component members to provide civilian employer contact information. Ombudsmen were not always available to field servicemember phone calls. The ESGR did not have good data to determine the effectiveness of its outreach and mediation efforts. We made a number of recommendations to address these and other findings in the report. In response to our recommendations, DOD reevaluated its interpretation of the Privacy Act and issued a requirement that all Ready Reserve members provide contact information for their civilian employers to their military departments. DOD also began funneling calls to its volunteer ombudsmen through a central customer service center where information is logged into a database that is used to measure the ESGR’s outreach and mediation efforts. We have issued a number of reports that address the need for federal agencies to manage for results. In 2004, we issued a report that examined, among other things, the challenges agencies face in using performance information in management decisions and how the federal government can continue to shift toward a more results-oriented focus. The report noted that serious weaknesses persist, such as how agencies are coordinating with other entities to address common challenges and achieve common objectives. Moreover, mission fragmentation and overlap contribute to difficulties in addressing crosscutting issues, especially when those issues require a national focus. Other barriers to interagency cooperation include conflicting agency missions, jurisdiction issues, and incompatible procedures, data, and processes. These issues are particularly important in the context of USERRA implementation and enforcement. Since USERRA provisions are administered by four distinct agencies, coordination is imperative to successfully implement this law in the context of results- oriented government. DOL, DOJ, OSC, and DOD have formal and informal USERRA complaint data, and some employer support figures. DOL’s formal complaint numbers show a possible relationship with the level of reserve component usage and the number of complaints. By design, DOJ and OSC formal complaint numbers are small, and may not provide a fully accurate picture of USERRA compliance or employer support. DOD data indicate that some employers are exceeding USERRA requirements; however, these data have limitations. DOD has only 1 full year of informal complaint data, so it will be several years before it has data that can identify any meaningful trends. Furthermore, data from a DOD survey indicate that most servicemembers do not seek assistance for their USERRA problems, which indicates that complaint data alone cannot fully explain USERRA compliance or employer support. Formal complaint numbers from DOL show a possible relationship with reserve component usage and the passage of USERRA. Table 1 contains DOL’s formal complaint numbers and shows that DOL’s formal complaint numbers rose significantly in fiscal year 1991 and remained high in fiscal year 1992. This increase followed DOD’s activation of almost 270,000 reserve component members for Operations Desert Shield and Desert Storm. The table also shows an increase in complaints between fiscal years 2001 and 2004. This increase followed the activation of more than 300,000 reserve component members for Operations Noble Eagle, Enduring Freedom, and Iraqi Freedom. DOL’s formal complaint data also show that complaints were generally lower in the years following USERRA’s passage in 1994 than in the years prior to its passage. Table 1 shows that between fiscal years 1989 and 1994, DOL’s annual formal complaint figures ranged from 1,208 to 2,537 but between fiscal years 1995 and 2004 the formal complaints were lower, ranging from 895 to 1,465. Finally, if complaints for the fourth quarter of fiscal year 2005 are consistent with the first three quarters, fiscal year 2005 complaint numbers could fall back to between the fiscal year 2002 and 2003 levels. However, two recent changes could affect the number of complaints filed with DOL. First, a demonstration project now allows OSC to receive complaints directly from certain servicemembers instead of having the complaints referred to OSC by DOL. Second, DOL implemented an electronic (Form 1010) complaint form that allows servicemembers to file complaints directly from the DOL Web site rather than mailing or hand-delivering complaint forms to their local VETS offices. Relatively few formal complaints reach DOJ and OSC each year since the formal process begins at DOL and complaints may be resolved there and not forwarded to DOJ or OSC. Thus, the number of formal complaint data from these two agencies is small and cannot be used to fully explain the relationship between complaints and USERRA compliance or employer support. Between fiscal years 1995 and 2004, formal complaints at DOJ ranged from 37 to 59 complaints each year. OSC’s annual formal complaint numbers ranged from 1 to 21 over the same period. Data from DMDC and the ESGR show that some employers are exceeding USERRA requirements. DMDC’s May 2004 survey found that many employers of Selected Reserve members had provided these members with extra benefits beyond those required by USERRA. Projections, which apply to more than 120,000 Selected Reserve members who were employed and had been activated in the 24 months prior to the survey, show that more than 26 percent of these members have employers who pay them salaries or differential pay for at least part of the time they are away from their civilian jobs performing military duties. Projections also show that more than 32 percent receive medical benefits that are not required by USERRA, and more than 30 percent receive other benefits above and beyond those required by USERRA. While these data indicate that some employers are exceeding USERRA, the DMDC data were collected only in 2004 and therefore cannot establish whether overall employer support is improving, steady, or declining. The ESGR data show increases in both employer awards and statements of support, but these increasing figures cover a relatively small group of employers. Servicemembers are increasingly nominating their employers for the ESGR’s various employer support awards. “Patriot Award” employers may be recognized for simply complying with USERRA. However, higher level awards typically require support above and beyond USERRA requirements. According to the ESGR officials, award nominations have increased over the years, and in fiscal year 2004 servicemembers nominated their employers for more than 20,000 awards. The ESGR’s “Above and Beyond” award is one of the higher level awards. It is awarded annually by the ESGR’s state committees and recognizes employers who have exceeded USERRA requirements. Many employers have received this award over the years, and in fiscal year 2004 the ESGR’s state committees recognized 1,058 employers with “Above and Beyond” awards. In addition to increases in awards, the ESGR figures show increases in the numbers of employers signing the ESGR “statements of support.” In signing statements of support, employers acknowledge that they will comply with USERRA. Between 2000 and 2002, 575 employers signed statements of support. In 2003, 1,228 employers signed the statements, and by July 26, 2005, the ESGR records showed that almost 6,000 employers had signed statements of support. The ESGR continues to solicit statements of support, but is now focusing its outreach efforts on a “5-star” program, which encourages employers to move beyond simple USERRA compliance to increasingly higher levels of employer support. (See app. IV for additional details.) Despite encouraging increases in the ESGR’s employer support figures, the thousands of employers who have received awards or signed statements of support do not represent all the employers of the millions of servicemembers covered by USERRA. The absence of informal complaint data prevents linking the informal complaint numbers and the total number of complaints. It will be several years before the ESGR can identify any meaningful trends in informal complaint numbers because the ESGR has only 1 full year of informal complaint data in its central database. Until October 2003, the ESGR had a manual complaint tracking system that relied on monthly reports from its state committees to its national headquarters. Our 2002 reportreviewed the ESGR’s effectiveness and found that the ESGR did not have an accurate count of the complaints handled by its ombudsmen. We found that reporting by ombudsmen had been sporadic and some states had gone an entire year without reporting any complaints at all. In 2003, the ESGR began funneling calls to its ombudsmen through a central call center where the complaint information is logged into a centralized database before assigning the complaint to an ombudsman. As a result of the changed procedures, the ESGR is now able to track the complaints handled by each of its nearly 800 ombudsmen. After they have been assigned a complaint, ombudsmen can access, review, update, and close assigned complaints, but they cannot create new complaint files in the database. Although the database now captures the informal complaints brought to the ESGR, at the time of our review the ESGR had only collected 1 full year of complaint data—fiscal year 2004. Because informal complaint figures have not been captured annually, agencies cannot know whether informal complaints have been increasing, decreasing, or remaining steady. Available data suggest that the number of informal complaints handled by the ESGR is large enough that if annual data were available, the volume of informal complaints could overshadow that of DOL’s formal complaint data. We conducted a survey to collect information about the workload, backgrounds, and training of the ESGR’s ombudsmen because the ESGR lacked complete and accurate ombudsmen data. We surveyed all of the 831 ombudsmen that the ESGR headquarters officials told us were available to handle complaints as of April 6, 2005. Of the 831 ombudsmen, 618 responded to our survey but 52 said they were not available to handle complaints as of April 6, 2005. (See app. V for a complete list of our survey questions and results.) Our survey asked the ombudsmen how many complaints they had handled and resolved since becoming ombudsmen. Survey responses showed that the ombudsmen who were available to handle complaints on April 6, 2005, had handled 37,684 complaints. Although this figure does not cover a specific time period, it far exceeds the 22,204 formal complaints handled by DOL between 1989 and 2004. DMDC survey data also suggest that informal complaint numbers could overshadow formal complaint numbers. Projections from DMDC’s May 2004 survey show that between 54 and 78 percent of Selected Reserve members with USERRA problems seek assistance from the ESGR but only between 16 and 36 percent seek assistance from VETS. Cross tabulations of survey responses further showed that servicemembers who had received USERRA briefings were more likely to seek assistance from the ESGR than those who had never been briefed. Conversely, the cross tabulations showed that servicemembers who had received USERRA briefings were less likely to turn to VETS for assistance than those who had never been briefed. If this pattern continues, as more servicemembers are briefed about their USERRA rights, servicemembers may file more informal complaints and fewer formal complaints. DMDC survey data indicate that formal and informal complaint numbers do not capture most USERRA problems experienced by servicemembers because most servicemembers do not seek assistance for their USERRA problems. In the spring of 2004, DMDC surveyed a random sample of 55,794 Selected Reserve members and received responses from more than 19,000 of these members. Survey respondents were asked about their civilian work experiences, reserve component programs and affiliations, and activations, and were asked a series of questions related to USERRA if they were not full-time National Guard or Reserve members, or military were not on active duty when they completed the survey; were employed during the week prior to the time when they completed the survey, or during the week prior to their activation; and had been activated during the 24 months prior to the time when they completed the survey. The survey respondents who met these criteria were first asked if, despite their USERRA protection, they had experienced any of a series of USERRA problems. The survey projections show that between 4 and 8 percent of the 119,761 Selected Reserve members who met the criteria above did not receive prompt reemployment upon their return from military service; between 9 and 14 percent experienced a loss of seniority, seniority-related pay, or seniority-related benefits; and between 5 and 9 percent did not receive immediate reinstatement of employer-provided health insurance. The survey yielded similar results for other USERRA problems listed in the survey question. The survey respondents who experienced one or more problems were then asked if they had sought assistance for their problems. Survey results show that only between 18 and 28 percent of the 42,119 Selected Reserve members who had USERRA problems sought assistance for the problems. Therefore, at least 72 percent of the Selected Reserve members who had experienced USERRA problems never filed a complaint, either formal or informal, to seek assistance in resolving their problems. In a separate question, all of the Selected Reserve members who had responded to the survey were asked if they had ever filed a formal USERRA complaint with DOL/VETS. The survey results show that less than 2 percent of the more than 776,381 Selected Reserve members in the survey population have ever filed a formal USERRA complaint with DOL/VETS. The large percentage of servicemembers who fail to file either formal or informal complaints indicate that complaint data alone may be insufficient to fully explain USERRA compliance or employer support. Without periodic surveys of employment issues, such as DMDC’s May 2004 survey, DOD will continue to have difficulties determining trends in USERRA compliance and employer support. Agencies have taken actions to educate hundreds of thousands of servicemembers and employers about USERRA, but the efficiency and effectiveness of agency outreach actions are hindered by a lack of employer information. DOD, DOL, and OSC have conducted educational outreach using a variety of means, such as individual and group briefings, Web sites, and telephone information lines. However, agencies have been restricted in their ability to efficiently and effectively target educational outreach actions to employers who actually have servicemember employees because only limited employer information is available. DOD, DOL, and OSC have used a variety of means to educate servicemembers and employers about USERRA, such as individual and group briefings, Web sites, and telephone information lines. According to agency officials and employers, one of the primary reasons employers violate USERRA is their lack of knowledge about the law’s requirements. USERRA assigns DOD and DOL responsibilities for informing servicemembers and their employers about their USERRA rights, benefits, and obligations, but it gives the agencies flexibility to determine the appropriate means for conducting this outreach. DOD and DOL have used this flexibility to conduct educational outreach through a wide variety of means. Group briefings are one of the primary means these agencies use to educate employers and servicemembers about the law. However, they also have USERRA information on their agency Web sites, and headquarters and field representatives respond to individual requests for information through toll-free phone lines. Between September 11, 2001, and June 30, 2005, VETS staff responded to more than 34,000 requests for USERRA information and conducted briefings for more than 247,000 people. DOL also made a USERRA poster available for employers to post in their workplaces as a means of complying with the requirements set forth in the Veterans Benefits Improvement Act, which was enacted in December 2004. The poster is on the VETS Web site and is included as appendix VI of this report. The poster does not include any information about OSC’s role in providing assistance on USERRA problems, even though OSC told us that they have requested that DOL include information about OSC’s role. DOD also conducts a wide range of outreach actions. Some activities, such as the ESGR statements of support and awards, were discussed earlier in this report, and appendix IV contains information on many of DOD’s other outreach programs. Although not required by USERRA, OSC also has taken actions to educate federal employers about their responsibilities under the law. OSC officials have conducted USERRA briefings for executive branch employees and managers and other groups. For example, they have conducted briefings at recent federal dispute resolution conferences and for the District of Columbia Bar Association. OSC’s Web site also contains information about USERRA, contact information for complaints or questions, and information about OSC’s ongoing demonstration project. Agencies have been restricted in their ability to efficiently and effectively target educational outreach actions to employers who actually have servicemember employees, because only limited employer information is available. To accomplish its employer outreach requirements, DOD established a database and a policy requiring collection of these data. However, information collection efforts are incomplete, which impedes agencies’ ability to communicate with employers who have servicemember employees. In 2001, DOD established a database to voluntarily collect employer information from reserve component members, but few servicemembers submitted the data, and following a recommendation in our 2002 report, DOD made the submission of employer information mandatory. On March 21, 2003, the Under Secretary of Defense for Personnel and Readiness signed a memorandum mandating the collection of employer information. The memorandum directed the military departments to immediately implement a civilian employment information program for National Guard and Reserve members subject to involuntary recall to active duty. This memorandum required that all members of the reserve components provide employment-related information upon assignment to the Ready Reserve and at other times determined by their respective military departments. According to the Under Secretary’s memorandum, one of the purposes for collecting the employer information is to “utilize (the information) on a recurring basis to assist the Department in accomplishing its employer outreach purposes under 38 U.S.C. 4333.” The information required by the memorandum included employment status, employer’s name, employer’s complete mailing address, member’s civilian job title, and the servicemember’s length of experience in their civilian occupation. The memorandum indicated members who refuse to provide information or who provide false information may be subject to administrative action or punishment for dereliction of duty under the Uniform Code of Military Justice. The memorandum assigned unit commanders the responsibility for ensuring that their Selected Reserve members were familiar with the memorandum’s requirements and provided adequate time to comply with the requirements during training periods. The military departments were assigned responsibility for ensuring the compliance of other Ready Reserve members. According to DOD officials, reserve component members with a computer and Internet access can enter their employer information into DOD’s database from home or they can enter the information at their units during normal training periods. The employer database is linked to the defense enrollment eligibility reporting system. Therefore, if reserve component members check on their dependents’ eligibility for health care or enter their dependents into the system, they can also take the opportunity to enter or update their employer information. The collection of employer information is improving but, more than 2 years after the Under Secretary called for the immediate implementation of a civilian employment information program, collection efforts are still incomplete, which impedes the efficiency and effectiveness of agencies’ outreach efforts. As of August 2005, about 40 percent of DOD’s Ready Reserve members had not entered their civilian employer information into DOD’s database. The percentage of Selected Reserve members who have complied with the requirement to enter their employment information into the database has risen substantially over the past year—from 13 percent in October 2004, to 58 percent in April 2005, to 73 percent in August 2005, when we ended our review. Figure 4 shows the compliance rates for Selected Reserve members in each of the seven reserve components, as well as the compliance rates for Individual Ready Reserve and Inactive National Guard members in the six components where they serve. (The Air National Guard does not have any Inactive National Guard or Individual Ready Reserve members.) Figure 4 illustrates that compliance rates vary by reserve component, supporting the assertion of DOD officials that compliance rates are tied to command attention and enforcement. Compliance rates are substantially lower for Inactive National Guard and Individual Ready Reserve members than they are for Selected Reserve members, further reflecting the lack of enforcement of the policy. Responsible DOD officials said that as far as they knew, the military departments had not enforced this policy by subjecting any servicemembers to punishment or administrative action for failing to comply with the policy. Since Individual Ready Reserve members do not participate in any regular training and have been recalled to active duty less frequently than Selected Reserve members, the employers of Individual Ready Reserve members may be unaware that their employees have a military obligation and that they, as employers of servicemembers, have USERRA obligations. Therefore, outreach to these employers may be even more important than outreach to employers of Selected Reserve members. Between September 11, 2001, and June 30, 2005, more than 9,500 Individual Ready Reserve members had been recalled to active duty, with more than 4,500 coming from the Army Reserve and more than 4,200 from the Marine Corps Reserve. Despite these activations, figure 4 shows that only 10 percent of the Individual Ready Reserve members in the Army Reserve and only 16 percent in the Marine Corps Reserve had entered their employer information into DOD’s database. In the absence of full compliance with the requirement for servicemembers to provide civilian employer information, agencies’ abilities to conduct outreach to educate employers about USERRA has been hindered. Agencies have conducted many general outreach efforts but have been restricted in their ability to efficiently and effectively target outreach to employers who actually have servicemember employees. With limited employer data available, DOD is unable to share this information with the other federal agencies that perform employer outreach so that agencies can coordinate their activities to reach all the employers of servicemembers who are covered by USERRA. Without complete information about the full expanse of servicemember employers, the federal agencies conducting outreach efforts have no assurance that they have informed all servicemember employers about USERRA rights, benefits, and obligations. Therefore, agency outreach efforts are likely to be reaching some employers who do not have any servicemember employees while neglecting other employers who do have servicemember employees. A segmented process with incompatible data systems hampers agencies’ abilities to efficiently and effectively address servicemembers’ complaints and report results as intended by USERRA. The speed with which servicemembers’ USERRA complaints are addressed often hinges on efficient and effective information sharing among the agencies involved in the complaint resolution process; however, DOD, DOL, DOJ, and OSC use incompatible data systems to track USERRA complaints. This impedes information sharing and can lead to duplicative efforts that slow processing times. In addition, the use of paper files to transfer complaints among offices limits the agencies’ abilities to efficiently process complaints and increases complaint processing times. Futhermore, agencies’ abilities to monitor the extent to which complaints are efficiently and effectively addressed are hampered by a lack of visibility and by the segmentation of responsibilities for addressing complaints among several different agencies. The ability of DOD, DOL, DOJ, and OSC to effectively and efficiently address USERRA complaints has been hampered by the use of five different and incompatible automated systems to capture data about USERRA complaints. DOD, OSC, and DOJ each operate one system and DOL operates two systems, one for its VETS offices and another for its solicitors’ offices. Because the systems were created for different purposes, they do not capture the same data. The ESGR and VETS systems are complaint file systems that can contain extensive ombudsmen or investigator notes and details about individual complaints. The other three systems are used primarily for tracking purposes and do not capture extensive details about individual cases. Even when data fields in the different systems bear similar names, the information contained in the fields may not match. For example, in DOJ’s Interactive Case Management System, the date closed means that final action has taken place on the complaint. In contrast, in the VETS system, the closed date can mean several different things, such as the date the investigator resolved the complaint, the date the servicemember requested to have his or her complaint referred to DOJ or OSC, or the date the complaint was withdrawn by the servicemember. During the course of our review, we attempted to compare complaint data from the VETS system to data from the DOL solicitor, DOJ, and OSC systems. Because the systems captured data differently, we were not able to perfectly match the data during any of these attempts. In some cases we were able to match dates from the different systems, in other cases dates differed, and in still other cases we could not even identify the matching complaint files. Because DOL could not identify complaints that had been handled by the ESGR, we did not attempt to match DOL and the ESGR files. The inability of ombudsmen, investigators, and other officials to share complaint information by electronically transferring information among their systems or accessing each other’s systems may result in duplicate efforts to collect identical information that is needed to investigate and process USERRA complaints. For example, during informal mediation efforts, DOD’s approximately 800 ombudsmen may gather pertinent information and documentation that concerns servicemember eligibility for USERRA coverage; civilian supervisors; employer policies and organizational structures, including information about who makes employment decisions; circumstances surrounding the alleged USERRA violations; and witness statements. However, if ombudsmen efforts do not resolve the complaints and the servicemembers elect to file formal DOL complaints, the ESGR officials cannot transfer information from their database directly to DOL’s database, and DOL investigators do not have access to the ESGR’s database. As a result of this inability to share information, VETS investigators sometimes start their investigations with nothing more than the basic information included on the formal complaint form, and they later contact servicemembers and employer representatives to request the exact same information that was previously provided to the ESGR ombudsmen. These duplicative efforts slow complaint processing times, increase the times that servicemembers must wait to have their complaints fully addressed, and may frustrate servicemembers or employers. Likewise, DOL cannot transfer information from the VETS database to DOJ, OSC, or even to DOL’s solicitors’ offices, and people in these other offices do not have access to the VETS database. As a result, officials in these other offices may contact the servicemember or employer and again request information that had been previously provided to the ESGR or VETS. As complaints are referred from one office to another, agencies are unable to efficiently process complaints because they are forced to create, maintain, copy, and mail paper files due to the incompatible data systems. For example, when a servicemember asks a VETS investigator to refer his or her complaint to DOJ or OSC, the investigator cannot electronically transfer the complaint information to the requisite offices. Instead, the investigator prepares and mails a paper complaint file to a VETS regional office where the file is reviewed, added to, and then mailed or hand carried to a DOL solicitor’s office. The solicitor’s office then reviews the file, adds a legal opinion concerning the merits of the complaint, and mails the file to OSC or DOJ. Because VETS investigators cannot electronically transfer information when they refer complaints, they face the administrative burden of maintaining both paper and electronic complaint files that contain much of the same information. This reliance on paper files results in increased complaint processing times and can limit managers’ abilities to provide effective and timely oversight. When complaint numbers are large, managers can exercise more efficient and effective oversight of electronic complaint files that are stored in automated systems with query capabilities than of geographically dispersed paper complaint files. Of the four federal agencies we reviewed, only the agencies that deal with large numbers of complaint files—DOD and DOL—had electronic complaint files that were stored in automated systems with query capabilities that facilitate oversight. However, DOL still considers its paper complaint files its official records, and the VETS operations manual outlines management oversight and internal control procedures that focus on reviews of the investigators’ paper files. Because the paper files are located in VETS offices in all 50 states, the District of Columbia, and Puerto Rico, paper file reviews take longer than electronic file reviews, and managers can lose visibility of paper case files. For example, during our visits to two regional VETS offices, we judgmentally selected 64 complaints and asked to review the paper complaint files to compare the data in those files to information in the VETS automated system. Officials located 60 of the 64 paper files we requested, but 8 weeks after our visit to one office, officials were still unable to locate the other 4 files and concluded that the files had been misplaced or lost. In addition, our review of data from the VETS automated database identified a number of issues that warranted management attention. However, the VETS reviews of sample paper files had not addressed the full scope of these problems in a timely manner. For example, we were able to quickly identify more than 430 complaints that had been closed and then reopened, and we were also able to identify that a large portion of these reopened cases occurred in a single region, many with a single investigator. If VETS oversight procedures had focused on electronic file review rather than paper file review, corrective action could have been taken sooner on cases that were improperly closed. The ability of agencies to monitor the efficiency and effectiveness of the complaint process is hampered by a lack of visibility and by the segmentation of responsibility for addressing complaints among several different agencies. From the time informal complaints are filed with the ESGR through the final resolution of formal complaints at DOL, DOJ, or OSC, no one has visibility over the entire process. The segmented complaint resolution process means that the agency officials who handle the complaint at various stages of the process generally have limited or no visibility over the other parts of the process for which they are not responsible. This prevents any one agency from monitoring the length of time it takes for a servicemember’s complaint to be fully addressed, and leads agencies to focus on output figures for their portion of the complaint process rather than on overall federal responsiveness to complaints. As a result, agencies have developed goals that are oriented toward outputs of their agency’s portion of the process rather than toward results for an individual servicemember’s complaint. For example, agency goals address complaint processing times at different stages of the process, but agencies do not measure a result of primary concern to servicemembers— the elapsed time between the bringing of a complaint to a federal agency and the complaint’s final resolution. Due to the incompatibility of agency systems and the lack of visibility across agencies, we were not able to track the entire elapsed time that servicemembers wait to have their complaints fully addressed. However, the VETS database attempts to capture processing times from the time a servicemember files a formal complaint until the time the complaint is finally resolved by VETS, DOL’s solicitor’s office, DOJ, or OSC. To highlight the difference between agency focuses on processing times and servicemember concerns with elapsed times, we reviewed complaints that had been closed and later reopened by VETS investigators. Between October 1, 1996, and June 30, 2005, servicemembers filed 10,061 formal complaints with DOL. More than 430 of these complaints were closed and later reopened, and 52 of the 430 complaints were closed and reopened two or more times. For example, one investigator opened a complaint file on September 30, 2001, and then closed and reopened the complaint six times before finally referring the complaint to the VETS regional office on September 9, 2002. We analyzed the processing times and elapsed times for the 52 complaints that had been closed and reopened two or more times and found substantial differences between the figures. DOL’s system assigned separate complaint numbers to the 52 complaints each time the complaint was opened or reopened. As a result, the system recorded the average processing time as 103 days. However, from the servicemembers’ perspectives, it took much longer for DOL, DOJ, and OSC to address their complaints. The servicemembers who filed the 52 complaints actually waited an average of 619 days from the time they first filed their initial formal complaints with DOL until the time the complaints were fully addressed by DOL, DOJ, or OSC. Because agency officials do not have visibility over the entire complaint resolution process and no one has information about the time it takes federal agencies to fully address servicemember complaints, the Secretary of Labor, Attorney General, and Special Counsel cannot evaluate the full range of administrative or legislative actions that may be necessary to effectively implement USERRA, and the Secretary of Labor’s annual report to Congress cannot be as accurate and complete as required. Informal and formal complaint data from the agencies responsible for enforcing and implementing USERRA do not support the analysis needed to determine if employer compliance with USERRA and support for the act’s purpose has improved since passage of the act in 1994. The responsible agencies collect data and some insight may be gained from DOL’s formal complaint numbers. However, the numbers from DOJ and OSC are small and cannot be used to fully explain the relationship between complaints and USERRA compliance or employer support, and DOD’s data collection effort is so new that meaningful trends cannot yet be identified using informal complaint data. Complaint data alone may not accurately reflect the problems servicemembers are experiencing transitioning between their federal service and civilian employment. The vast majority of surveyed National Guard and Reserve members who experienced USERRA-related problems did not seek assistance for their problems. The survey data do not lend themselves to the analysis needed to determine if the problems were resolved to the servicemember’s satisfaction. DOD periodically conducts these surveys to identify issues that need to be addressed or monitored. However, questions on the surveys vary from year to year and have not always included those pertaining to USERRA compliance and employer support. Periodic, projectable surveys of the servicemembers who are covered by USERRA could provide DOD, DOL, DOJ, and OSC with a means to determine whether or not USERRA compliance and employer support is improving and thus, USERRA’s purpose—to minimize employment disadvantages that can result from service in the uniformed service—is being achieved. Employer violation of USERRA is often attributed to employers’ lack of knowledge about the law’s requirements. Having a means to identify the civilian employers of servicemembers who are covered by USERRA is essential to effectively and efficiently target the agencies’ educational outreach efforts. DOD has made progress establishing a civilian employer database. However, DOD has not taken steps to enforce its requirement for National Guard and Reserve members to enter and maintain their civilian employer data. Until complete employer information is obtained, agency outreach efforts are likely to be reaching some employers who do not have any servicemember employees, while neglecting other employers who do have servicemember employees. Currently, DOD’s ESGR, DOL’s VETS and solicitors’ offices, DOJ, and OSC all operate their own automated systems for tracking USERRA complaints. Officials from each agency have access to their own system but they cannot access complaint information in the automated systems of the other agencies, and complaint data cannot be electronically transferred from one system to another. As a result, officials from different agencies sometimes spend time collecting information that has already been provided to another agency. This slows the complaint resolution process. In addition, because data systems are incompatible, formal referrals from VETS investigators to DOJ or OSC must be accompanied by a paper file, which is first routed through a VETS regional office and a DOL solicitor’s office. The creation, maintenance, and transfer of these paper files add to complaint processing times and the time servicemembers wait to have their complaints addressed. As long as agency systems remain segmented and incompatible and referral information is passed through the mail, complaints will continue to be processed inefficiently. VETS investigators are geographically dispersed across the country and they maintain both paper and electronic USERRA complaint files. Managers with the requisite level of authority can have virtually instant access to every electronic complaint file from every investigator across the country. However, DOL considers its paper complaint files its official records. As a result, the VETS operating procedures and internal controls are geared toward the review of the paper complaint files. These paper reviews are time consuming. In addition, paper files can be misplaced or lost when they are moved from office to office. Until VETS switches to electronic files, investigators will continue the inefficient practice of maintaining duplicate records and managers will be limited in their ability to provide timely oversight and effective corrective actions for any problems that arise. The responsibility for enforcing and implementing USERRA is complex, involving several federal agencies. A single complaint can start at DOD and flow through three different DOL offices before finally being resolved at DOJ or OSC. The segmented complaint resolution process means that the agency officials who handle the complaint at various stages of the process generally have limited or no visibility over the other parts of the process for which they are not responsible. As a result, agency officials have not addressed complaint processing issues that cut across federal agencies or set outcome–oriented goals. Instead, agencies have focused their goals on outputs from their particular portions of the complaint process rather than focusing on overall federal responsiveness to USERRA complaints. Meanwhile, the servicemember knows how much time is passing since the initial complaint was filed. Under USERRA, specific outreach, investigative, and enforcement roles are assigned to DOD, DOL, DOJ, and OSC. However, no agency has visibility over the entire complaint process. Therefore, it is difficult for the responsible agencies to achieve their common goal–to minimize the employment disadvantages that can result from service in the uniformed service, and the time servicemembers wait to have their complaints fully addressed–which is of great importance to servicemembers. Furthermore, the Secretary of Labor’s annual reports will not provide Congress with a complete and accurate picture of USERRA violation patterns or the legislative actions that may be necessary to effectively implement the act. To gauge the effectiveness of federal actions to support USERRA by identifying trends in USERRA compliance and employer support, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Personnel and Readiness to include questions in DOD’s periodic Status of Forces Surveys to determine the extent to which servicemembers experience USERRA-related if they experience these problems, from whom they seek assistance; if they do not seek assistance, why not; and the extent to which servicemember employers provide support beyond that required by the law. To more efficiently and effectively educate employers about USERRA through coordinated outreach efforts, which target employers with servicemember employees, we recommend that the Secretary of Defense take the following two actions: Direct the service secretaries to take steps to enforce the requirement for servicemembers to report their civilian employment information and develop a plan to maintain current civilian employment information. Direct the Assistant Secretary of Defense for Reserve Affairs to share applicable employer information from DOD’s employer database with DOL, OSC, and other federal agencies that educate employers about USERRA, consistent with the Privacy Act. To increase agency responsiveness to servicemember USERRA complaints, we recommend that the Secretary of Defense, the Secretary of Labor, the Attorney General, and the Special Counsel develop procedures or systems to enable the electronic transfer of complaint information between offices. To reduce the administrative burden on VETS investigators and improve the ability of VETS managers to provide effective, timely oversight of USERRA complaint processing, we recommend that the Secretary of Labor direct the Assistant Secretary for Veterans’ Employment and Training to develop a plan to reduce agency reliance on paper files and fully adopt the agency’s automated complaint file system. To encourage agencies to focus on results rather than outputs, to improve federal responsiveness to servicemember complaints that are referred from one agency to another, and to improve the completeness and accuracy of the annual USERRA reports to Congress, Congress should consider designating a single individual or office to maintain visibility over the entire complaint resolution process from DOD through DOL, DOJ, and OSC. For example, the office or individual would track and report the actual time it takes for federal agencies to fully address servicemember USERRA complaints. In written comments on a draft of this report, DOD, DOL, and OSC generally concurred with our findings and recommendations to their respective agencies. DOJ reviewed a draft of this report and had no comments on this report. DOD deferred to DOL, DOJ, and OSC regarding our recommendation for the agencies to develop procedures or systems to enable the electronic transfer of complaint information between agencies. DOL and OSC commented on our matter for congressional consideration that Congress should consider designating a single office to maintain visibility over the entire conflict resolution process. In DOD’s written comments, the department concurred with our recommendation for the Secretary of Defense to include questions on servicemembers’ employment issues in DOD’s continuing Status of Forces surveys that would address (1) the extent to which servicemembers experience USERRA-related problems; (2) from whom the servicemembers sought assistance if they experienced such problems; (3) if they did not seek assistance, why not; and (4) the extent to which the servicemembers’ employers provide support beyond that required by law. DOD stated that the department’s May 2004 Status of Forces survey asked a series of questions about reemployment after activation that included the areas addressed in our recommendations. We disagree. For this report, we used results from the May 2004 survey that showed at least 72 percent of the Selected Reserve members who had experienced USERRA-related problems never filed a complaint, informal or formal, to seek assistance in resolving the problem. However, the survey did not cover all the areas addressed in our recommendation. For example, the survey did not ask those servicemembers who had experienced USERRA-related problems and never filed a complaint, informal or formal, why they did not seek assistance in resolving the problem. We believe that this would be valuable information, if gathered regularly, to gauge the effectiveness of federal actions to support USERRA by identifying trends in compliance and employer support. DOD also stated that, at the request of DOL, it has agreed to include the series of questions about reemployment after activation in future surveys. OSC generally concurred with this recommendation, but had no specific comment. DOL did not comment on this recommendation. DOD also concurred with our recommendation for the Secretary of Defense to (1) take steps to enforce compliance with servicemembers’ reporting of their civilian employer information and maintain employer information, and (2) share employer information from the database with other federal agencies that educate employers about USERRA. DOD stated that the first objective of this recommendation had already been accomplished. We disagree. In our report, we noted that compliance with the requirement to enter Selected Reserve member employment information into the database has risen substantially during this review— from 13 percent in October 2004, to 58 percent in April 2005, to 73 percent in August 2005. We also noted that compliance varies by component, with the Army Reserve and the Marine Corps Reserve each having the lowest percentage of compliance—66 percent. Further, we noted that compliance rates are substantially lower for the Individual Ready Reserve and the Inactive National Guard—about 24 percent. Individual Ready Reserve and Inactive National Guard members are subject to be recalled to active duty. About 9,500 Individual Ready Reserve members were called to duty between September 11, 2001, and June 30, 2005. Outreach to employers of Individual Ready Reserve members may be even more important than outreach to Selected Reserve members’ employers. Individual Ready Reserve members do not participate in regular drilling and their employers may be unaware of the employees’ military obligations and USERRA rights. As the war on terrorism continues, DOD may rely more upon Individual Ready Reserve members. DOD also noted that enforcement of compliance is a high priority and is already monitored. As noted in our report, responsible officials told us that as far as they knew, the military departments had not enforced the requirement for servicemembers to comply with reporting their civilian employer information by subjecting any member to punishment or administrative action for failing to comply. We believe DOD has more to accomplish in this area. With regard to the second objective of this recommendation, DOD stated that it is working collectively with DOL and the Department of Veterans Affairs to ensure that their respective systems facilitate consistent reporting capabilities. OSC generally concurred with both objectives of this recommendation, but had no specific comments. DOL did not comment on this recommendation. DOD deferred to DOL, DOJ, and OSC regarding our recommendation for the Secretary of Defense, along with the Secretary of Labor, the Attorney General, and the Special Counsel, to develop procedures or systems to enable the electronic transfer of complaint information between agencies. DOD stated that the department only tracks “informal inquires,” not complaints that are filed with DOL, with possible referral to the DOJ or the OSC. Therefore, establishment of a complaint database would fall within the purview of those agencies. DOD noted that it would support the sharing of USERRA information received by DOD with responsible agencies. We note that DOD’s system can contain extensive ombudsmen notes and details about informal complaints, not just inquires for information that are tracked separately, and would be beneficial and time saving to DOL if an informal complaint becomes a formal complaint filed with DOL. DOL concurred with this recommendation and noted that DOL has initiated internal discussions on ways in which DOL offices can ultimately use one electronic case management system. DOL stated that the department will work closely with DOD, DOJ, and OSC in advancing an electronic shared system configured to fit the agencies’ responsibilities under USERRA. OSC also concurred with this recommendation, noting that OSC’s ability to enforce USERRA has not been adversely affected by the transfer of information by other than electronic means. Nevertheless, OSC noted that the office was dedicated to improving USERRA services to servicemembers and thus generally concurred with the recommendation, although OSC indicated that the development of USERRA-specific electronic files may require additional funding from Congress. DOL concurred with our recommendation for the Secretary of Labor to develop a plan to reduce agency reliance on paper files and fully adopt the agency’s automated complaint file system. DOL noted that the establishment of such electronic files would enhance DOL’s ability to more efficiently and effectively share documents and other case-specific data with other agencies, thus advancing accomplishment of our recommendation for DOD, DOL, DOJ, and OSC to develop procedures or systems to enable the electronic transfer of complaint information between agencies. DOL and OSC commented on our matter for congressional consideration that Congress should consider designating a single office to maintain visibility over the entire complaint resolution process from DOD through DOL, DOJ, and OSC. DOL noted that the mandated OSC demonstration project is ongoing, and therefore, it would be premature to make any suggestions or recommendations for congressional or legislative action until the pilot has been completed. However, DOL stated that its office is uniquely suited to provide an overview of the entire complaint resolution process. OSC supported our matter and stated that OSC has unparalleled experience and expertise in administering federal sector employment complaints and prosecuting meritorious workplace violations before the Merit Systems Protection Board. OSC believes that their office is the best qualified to be the overseer. DOD did not comment on this matter. We believe that the Congress is the best qualified to determine the identity of the overseer and the timing of this matter for congressional consideration. DOD, DOL, and OSC’s written comments are reprinted in their entirety in appendixes VII, VIII, and IX, respectively. All the agencies also provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the date of this letter. We are sending copies of this report to the Secretary of Defense; the Secretary of Labor; the Attorney General; the Special Counsel; the Secretaries of the Army, the Navy, and the Air Force; the Commandant of the Marine Corps; the Chairman of the Joint Chiefs of Staff; the Director, Office of Management and Budget; and other interested congressional committees. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-5559 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix XI. To assess whether the federal agencies that support or enforce USERRA have data that indicates the level of compliance with USERRA, we gathered and analyzed data from DOL, DOD, DOJ, and OSC. Specifically, we obtained historical data on the numbers of formal complaints handled by DOL and then analyzed the data to determine whether the data showed any trends and whether it was sufficient to demonstrate overall USERRA compliance or employer support. We also analyzed the annual numbers of formal complaints referred from DOL to DOJ and OSC between fiscal year 1997 and the third quarter of fiscal year 2005 to determine whether there were trends in the total referrals, or the referrals to either agency. We also followed up on our 2002 report to determine whether the ESGR had improved its collection of informal complaint data. We interviewed the ESGR headquarters officials and ombudsmen who handled informal complaints. We observed training for the ESGR’s new database and we observed data entry procedures at the ESGR’s Customer Support Center. In addition, we analyzed DMDC’s projectable Status of Forces Survey of Reserve Component Members, which was conducted in the spring of 2004. This survey included more than 20 questions about servicemember employment and USERRA-related issues. We also analyzed results from the Reserve Officers Association’s annual surveys of Fortune 500 companies, which asked about policies that support servicemember employees. We discussed the agency data related to USERRA compliance or employer support, along with the practices and methods used to collect these data, with responsible officials from the Department Of Labor, Washington, D.C.; Department Of Labor, Veterans Employment and Training Service, Field Offices in Memphis, TN, and Norfolk, VA; and regional offices in Philadelphia, PA; and Atlanta, GA; Department Of Labor, Office of the Solicitor, Washington, D.C.; and Regional Offices in Philadelphia, PA, and Atlanta, GA; Department of Justice, Washington, D.C.; Office of Special Counsel, Washington, D.C.; Department Of Defense, Employer Support of the Guard and Reserve, Arlington, VA; and Department Of Defense, Employer Support of the Guard and Reserve, Customer Service Center, Millington, TN. We also discussed these issues with The ESGR’s State Ombudsmen Coordinators from AR; IL; KY; MD; TN; UT; and Washington, D.C., and with officials who were present at The ESGR’s Basic Ombudsman Training Session held in Meridian, MS. To gauge the impact of the ESGR’s ombudsmen program, we conducted a survey of ombudsmen nationwide. We wished to survey all ombudsmen who were available to handle servicemember complaints as of April 6, 2005 (the “target” population). To do this, we obtained the list that the ESGR was using to assign USERRA complaints to ombudsmen on that date (the “study” population), which presumably included all of the individuals who were available to handle complaints. We conducted seven pretests of our ombudsmen questionnaire prior to administering the survey. During the pretests we asked the ombudsmen whether (1) the survey questions were clear, (2) the terms used were precise, and (3) the questions were unbiased. We made changes to the content and format of the final questionnaire based on pretest results. The ombudsmen surveys were conducted using self-administered electronic questionnaires posted on the World Wide Web. The survey questionnaire consisted of 12 questions, and asked ombudsmen how many USERRA complaints they had received and personally resolved. (App. V contains a copy of the survey and the survey results.) On May 3, 2005, we used a list supplied by the ESGR headquarters to send E-mail notifications to 831 ombudsmen in 54 states and territories to inform them that a survey would be forthcoming. Then, on May 9, 2005, we activated the survey, sending each of the 831 members of the study population a unique password and username by E-mail so they could enter and complete the Web-based questionnaire. To encourage ombudsmen to respond, we sent two additional E-mail messages over the following 3 weeks. Those ombudsmen who were unable to complete the survey online were given the option to respond via fax, phone, or mail. We closed the survey on June 9, 2005. Although all members of the study population were surveyed, not every member replied to our survey. Specifically, 618 of the 831 members of the study population replied. In addition, 52 of the 618 respondents were out of scope because they indicated they were not serving as volunteer ombudsmen as of April 6, 2005. Table 2 contains a summary of the survey disposition for the surveyed cases. The response rate for our survey was 74 percent. We obtained responses from volunteer ombudsmen across the country. Although the response rate of ombudsmen differed somewhat across states, we have no reason to expect that the responses on the issues studied in our survey would be associated with the ombudsmen’s states. Therefore, our analysis of the survey data treats the respondents as a simple random sample of the population of the ESGR volunteer ombudsmen across the country. Assuming that the respondents constitute a random sample from the study population, the particular sample of ombudsmen we obtained was only one of a large number of such samples that we might have obtained. To recognize the possibility that other samples might have yielded other results, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval. Unless otherwise noted, the percentage estimates from the survey have a margin of error of plus or minus 3 percent or less with a 95 percent level of confidence. All numerical estimates other than percentages have a margin of error of plus or minus 14 percent or less of the value of those numerical estimates with a 95 percent level of confidence, unless otherwise noted. The practical difficulties of conducting any survey may introduce errors, commonly referred to as nonsampling errors. For example, difficulties in how a particular question is interpreted, in the sources of information that are available to respondents, or in how the data are entered into a database or were analyzed, can introduce unwanted variability into the survey results. We took steps in the development of the questionnaire, the data collection, and the data analysis to minimize these nonsampling errors. For example, social science survey specialists designed the questionnaire in collaboration with GAO staff with subject matter expertise. Then, the draft questionnaire was pretested to ensure that the questions were clearly stated and easy to comprehend. When the data were analyzed, a second, independent analyst checked all computer programs. Since this was a Web- based survey, most respondents entered their answers directly into the electronic questionnaire. This eliminated the need to have the data keyed into a database, thus removing an additional source of error. A GAO analyst entered responses into our database from those ombudsmen who were unable to complete the survey on-line and responded via fax, phone, or mail. All these data were independently verified by a second analyst to ensure their accuracy. We also assessed the reliability of the data from the May 2004, Status of Forces Survey of Reserve Component Members, by (1) interviewing agency officials from the Defense Manpower Data Center, Washington, D.C., and the Assistant Secretary of Defense for Reserve Affairs, Washington, who were knowledgeable about the data, (2) reviewing existing information about the data and the system that produced them, and (3) performing electronic testing of required data elements. The response rate for the survey was 39 percent. To the extent that respondents and nonrespondents had different opinions on the questions asked, the estimates from this survey have the potential to be biased. DOD has previously conducted and reported on research to assess the impact of response rate on overall estimates. DOD found that, among other characteristics, junior enlisted personnel (E1 to E4), servicemembers who do not have a college degree, and members in services other than the Air Force, were more likely to be nonrespondents. We have no reason to believe that potential nonresponse bias not otherwise accounted for by DOD’s research is substantial for the variables we studied in this report. All percentage estimates cited from the survey have sampling errors of plus or minus 2.3 percentage points or less, unless otherwise noted. The at least 72 percent of National Guard and Reserve members who never sought assistance for their USERRA problems represents the lower bound of a 95 percent confidence interval around a point estimate (77 percent) that has a plus or minus 5 percent margin of error. Ranges cited from the survey represent a 95 percent confidence interval around point estimates. We used the weighting factors and the sampling error methodology provided by the Defense Manpower Data Center to develop estimates and sampling error estimates, and determined that the data from the May 2004 Status of Forces Survey of Reserve Component Members were sufficiently reliable for the purposes of this report. To asses the efficiency and effectiveness of federal educational outreach efforts, we reviewed Section 4333 of Title 38 of the United States Code to determine which agencies have outreach responsibilities under USERRA. We interviewed agency officials to determine whether their agencies had any significant educational outreach efforts. Although only two of the four agencies we reviewed had outreach responsibilities under the law—DOD and DOL—officials from three agencies said that they had significant outreach activities—DOD, DOL, and OSC. We obtained information about each agency’s activities, and analyzed the available outreach figures for individual programs and total agency outreach. Because DOD has at least nine different formal outreach programs, we devoted an entire appendix (app. IV) to the details of DOD’s programs. We also followed up on issues related to the collection of servicemember employer information, which we raised in our 2002 employer support report. Specifically, we reviewed DOD’s policy memoranda that were issued after our 2002 report and which mandated that Ready Reserve members supply information about their civilian employers. We also monitored and analyzed figures that showed servicemember rates of compliance with the estimates from this survey on these reporting requirements. These compliance figures covered each of the reserve components and various reserve categories. To asses how efficiently and effectively DOD, DOL, DOJ, and OSC addressed servicemember complaints, we obtained and analyzed information about complaint processing practices, including applicable guidance, regulations, or operations manuals. We also obtained and reviewed the memorandums of understanding between DOL and DOJ, OSC, and the ESGR. To further analyze the entire process, we gathered and analyzed information about how the agencies share information from USERRA complaint files with one another. We exported data from the VETS USERRA Information Management System and analyzed the data to look for trends in processing times. We specifically focused our analysis on cases that had been closed and later reopened, and on cases that had been referred from DOL to DOJ or OSC. We performed multiple sorts of the entire data set, and data subsets, to determine whether there were any common characteristics in complaint files from the group of complaints that remained open for long time periods, or in the complaint files from the group of complaints that were quickly resolved. For example, we sorted complaint data by: type of employer, regional office, type of servicemember, and type of complaint. We used many of the other more than 70 data fields to perform data sorts but much of our analysis did not yield reportable results because substantial amounts of information were missing for certain data fields. However, our analysis of date fields was not hampered by missing data and we were able to calculate elapsed times and processing times from the available data. We assessed the reliability of formal complaint data provided by DOL, DOJ, and OSC by (1) reviewing existing information about the data and the systems that produced them and (2) interviewing and obtaining written responses from agency officials knowledgeable about the data. We compared data obtained from DOJ and OSC to that captured in the DOL USERRA Information Management System. We also compared data drawn from DOL’s USERRA Information Management System at different time periods to determine the consistency of the data. In addition, where available, we compared information from 59 hard copy complaint files to data recorded in the DOL system to assess how accurately information was being entered into the database. We also discussed informal complaint data and its reliability with knowledgeable ESGR officials. On the basis of these assessments, we determined that the data were sufficiently reliable for the purposes of this report, though agency data systems had some limitations that we discussed in the report. We conducted our work from October 2004 through August 2005 in accordance with generally accepted government auditing standards. Between May 9, 2005, and June 9, 2005, we surveyed the ESGR’s volunteer ombudsmen who were available to handle servicemember complaints as of April 6, 2005. We received a 74 percent response rate to our survey. Tables 2 shows that about 58 percent of the volunteer ombudsmen were employed in full-time jobs, and about 30 percent were retired. Table 3 shows the distribution of ombudsmen by their primary employers. About 44 percent worked for the government or military, and about 56 percent worked for private employers, including the approximately 21 percent who were self-employed. In addition to the general background employment questions, our survey asked respondents to specify their occupations or backgrounds that they felt were particularly relevant to their ombudsmen duties. The responses were varied and showed that many of the volunteers hold or had previously held paid positions that required: leadership, skillful negotiation, extensive interactions with different types of people, or knowledge of laws and regulations or military operations and procedures. In the information that follows, we have grouped the responses and provided some examples of the occupations the ombudsmen thought were particularly relevant. The ombudsmen said that they had held Legal positions ranging from paralegals to attorneys, assistant attorney generals and a wide range of judges—administrative law, municipal, district, superior court, and state supreme court; Dispute or resolution positions as mediators, negotiators, arbitrators, facilitators, and grievance officers; Counseling positions as veterans’ career/employment, vocational rehabilitation, and recruitment/retention counselors; Political positions ranging from local mayor and city council positions to lobbyist and state legislature and senate positions; Military positions in the active Army, Navy, Air Force, and Marine Corps; and in the Army Reserve, the Army National Guard, the Air National Guard, the Air Force Reserve, the Naval Reserve, the Marine Corps Reserve, and the Coast Guard Reserve; Federal government positions in the Departments of: Defense, Justice, Homeland Security, Labor, Veterans Affairs, Education, Health and Human Services, Interior, Corrections, Energy, Agriculture, Treasury, and in the U.S. Postal Service; State and local government positions in the Departments of Military Affairs, Environmental Management, Public Safety, and Aviation; and in the Adjutant General’s office; Education positions ranging from teachers and college professors, who taught mediation and communications, to principal, school superintendent, and college president positions; Law enforcement positions as police officers, supervisors, or chiefs; state troopers, marshals, investigators, and as a liaison between the military and a major city police department that employs more that 500 Guard and Reserve members; Religious positions as chaplain and deacon; Business and management positions as labor relations specialists, negotiators, human resource managers, public affairs officers, owners, general managers, directors, presidents, vice-presidents, and CEOs; and Trade organization positions as union officers or shop steward/negotiators. OMB NO. 1293-0002 (EXP 03/31/2007) VETS/USERRA/VP Form 1010 (REV 2/99) Section III: Employer Information 10. Employer or Prospective Employer’s Name: _______________________________________________________________________ 11. Address: __________________________________________________________________________________________________________ Street City County State ZIP 12. Principal Employer Contact (PEC): (a) PEC Name/Title: ___________________________________________ (b) PEC Phone: __________________________________________ 13. Employment Dates (If applicable): From: ____________________ To: ____________________ 14. Since beginning work with this employer, has your cumulative uniformed service exceeded 5 years? ? Yes ? No If YES, explain in Comments box at end of this claim form. 15. Name of Union(s) That Represent You: ______________________________________________________ If Claim Concerns Veterans’ Preference in Federal Employment 16. Preference Issue (Check One): ? Hiring ? Reduction-in-Force (RIF) If Claim Concerns Employment Discrimination under USERRA 17. Employment Discrimination Issue(s): ? Hiring ? Reemployment ? Promotion ? Termination ? Benefits of Employment If Claim Concerns Hiring, Promotion, RIF or Termination 18. Title of Position Held or Applied For: _____________________________________________________________ 19. Pay Rate: __________________________ 20. Date of Application Employment/Promotion: ________________________ 20a. Vacancy Announcement No.: ______________________________________________________________________ 20b. Date Vacancy Opened: __________________________ 20c. Date Vacancy Closed: _________________________ If Claim Concerns Reemployment Following Service 21. Was Prior Notice of Service Provided to Employer? ? Yes ? No (If “No,” Explain in Comments) 22. (a) Who Provided Notice of Service to Employer? ? Self ? Other (name): _______________________________________ ? Written ? Oral ? Both (c) Date Notice of Service was given to Employer: _______________________ 23. Name/Title of Person to Whom Notice of Service was Provided: _________________________________________ 24. Date Applied for Reemployment: ______________________ OR Date Returned to Work: ______________________ 25. Reemployment Application Made To: Name: _________________________________ Title: _____________________________ ? Yes (date): ______________________ (a) If YES, what position? ____________________________________ at what pay rate? ________________________ (b) If NO, Date denied: ___________________ Reason given: ______________________________________________ (c) Who denied (name): ____________________________________ PUNISHMENT FOR UNLAWFUL STATEMENTS The information provided in this complaint will be utilized by the U.S. Department of Labor, Veterans’ Employment and Training Service (VETS) to initiate an investigation of alleged violations of the Uniformed Service Employment and Reemployment Rights Act (USERRA) and/or the Veterans’ Preference (VP) provisions of the Veterans Employment Opportunities Act of 1998 (VEOA). Potential claimants should keep in mind that it is unlawful to “knowingly and willfully” make any “materially false, fictitious, or fraudulent statements or representation” to a federal agency. Violations can be punished under Section 2 of the False Statements Accountability Act of 1996 by a fine and/or imprisonment of not more than 5 years. 18 U.S.C. § 1001. I certify that the above information is true and correct to the best of my knowledge and belief. I authorize the U.S. Department of Labor to contact my employer or any other person for information concerning this claim. Pursuant to 5 U.S.C., Section 552(b) of the Privacy Act, I consent to the release of the above information and any records necessary for the investigation and prosecution of my claim. SIGNATURE: ___________________________________________________________ DATE: _________________________________ Persons are not required to response to the collection of information unless it displays a currently valid OMB control number. Public reporting burden for this collection of information is estimated to average 15 minutes per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the U.S. Department of Labor, Veterans’ Employment and Training Service, Room-S1316, 200 Constitution Avenue, N.W., Washington, DC 20210. PRIVACY ACT STATEMENT The primary use of this information is by staff of the Veterans’ Employment and Training Service in investigating cases under USERRA or laws/regulations relating to veterans’ preference in Federal employment. Disclosure of this information may be made to: a Federal, state or local agency for appropriate reasons; in connection with litigation; and to an individual or contractor performing a Federal function. Furnishing the information on this form, including your Social Security Number, is voluntary. However, failure to provide this information may jeopardize the Department of Labor’s ability to provide assistance on your claim. Continue in Comments box &/or use additional sheet(s) to explain items if needed – Sign and date form (above) The ESGR has responsibility for most DOD outreach programs but DOD also has a public affairs campaign that encourages employer support of servicemember employees. In past years, the ESGR’s focus was on educating servicemembers concerning their employment rights. In fiscal year 2005, the ESGR shifted its focus to educating employers. The new focus better aligns with the ESGR’s mission—to gain and maintain support for employee military service from all public and private employers of the men and women of the National Guard and Reserve. To fulfill its mission, the ESGR has developed and implemented a number of employer outreach efforts. In addition to the ESGR’s “statement of support” and awards programs, which were discussed in the body of this report, the ESGR has a number of other outreach programs that are discussed below. Some of these efforts are well underway, others are relatively new. Mass Market Outreach. This ESGR effort has used public service advertising and mass marketing to make employers and the general public aware of the importance of employer support for Guard and Reserve members who are called to military service, and the role that the ESGR can play in encouraging supportive employer relations. Strategic Partnerships. Through these partnerships with the national headquarters and local chapters of the Chamber of Commerce, Society for Human Resource Management, National Federation of Independent Business, Small Business Administration, and Rotary Club, the ESGR strives to educate employers about USERRA, the ESGR organization, and the different ways employers can support their servicemember employees. The ESGR uses a variety of media, trade show, and speaking opportunities to reach this target audience. The ESGR’s goal was to reach at least 430 local chapters of these groups in fiscal year 2005. As of July 2005, the ESGR had met with 250 of its strategic partners. Industry Segment Outreach. This outreach effort is focused on leaders in industries that employ significant numbers of reserve component members. For about 5 years, DOD leaders have met regularly with key officials from the airline industry to discuss concerns that arise as the military and industry share the same personnel resources. In fiscal year 2005, the ESGR planned to hold three similar symposiums with (1) law enforcement, (2) fire and safety officials, and (3) city and municipal leaders. However, none of the other symposiums had taken place when we ended our review in August 2005. Federal Government Outreach. USERRA states that the federal government should be a model employer. The ESGR is encouraging the 17 cabinet-level departments and 81 independent federal government agencies to sign the ESGR statements of support as a means to demonstrate their commitment to their servicemember employees. The ESGR established a goal to have10 federal government agencies sign statements of support in fiscal year 2005. As of August 2005, a total of 20 federal agencies had signed statements of support. 5-Star Program. In the past, the ESGR’s outreach efforts were focused on simply asking employers to sign statements of support for their National Guard and Reserve members. The statement of support simply stated that employers would fulfill their obligations by complying with USERRA. Currently in its first year, the 5-Star Program seeks to get employers more actively involved in the management of their National Guard and Reserve employees. The five steps of the 5-Star Program are to (1) sign a statement of support, (2) review employer human resource policies with respect to employer support, (3) train supervisors and managers on USERRA, (4) provide “above and beyond” human resource policies, and (5) advocate for National Guard and Reserve members. Bosslifts. Bosslifts are usually 2- to 3-day outreach events where employers, civic leaders, and legislators are taken to Guard or Reserve units to observe Guard or Reserve members in action. These events present employers with opportunities to directly observe the technical, organizational, team building, and leadership skills of their employees. They also provide employers with opportunities to observe military training, some of which may be directly related to their employees’ civilian jobs. Each ESGR state committee is programmed for one nationally sponsored bosslift each year. However, based on the size and distribution of its reserve component population, California is programmed for two bosslifts. Additional committee-sponsored bosslifts are authorized and encouraged. Some state committees sponsor and fund bosslifts using state funding. Employer Briefings. Employer briefings provide a forum for local employers, unit commanders, the ESGR members, and community leaders to meet, network, and discuss issues that arise from employee participation in the National Guard and Reserve. The meeting site can be a local restaurant, hotel, service club, Chamber of Commerce, National Guard Armory, Reserve Center, or military installation. This is a local- level 1-day activity funded at the state level. Defense Advisory Board. In August 2003, the Secretary of Defense created a defense advisory board composed of 15 to 25 industry public and private sector leaders to act as consultants without compensation. The board was established for up to 3 years and provides advice to the Secretary of Defense about issues concerning Reserve component members and their civilian employers. It also recommends policies and priorities for employer support actions and programs. The board meets at least twice a year at the call of the National Chairman, and as needed to address emergent issues. In March 2005, this board met with both the Secretary and Deputy Secretary of Defense. Board members included a state governor, a major city fire chief, and representatives from employer associations, higher education, and the airline, information technology, aircraft repair, transportation, public relations and public affairs, defense and aerospace systems, investment banking, and food industries. America Supports You. This is a nationwide program launched by DOD’s public affairs office to recognize citizens’ support for military men and women and to communicate that support to members of the Armed Forces at home and abroad. Participants can join the team at www.americasupportsyou.mil, share their stories of support with the nation and troops, and download program materials. In turn, military members will access the Web site and learn about America’s support for their service. In addition to personal stories of support, the Web site has a section that recognizes employer support for servicemembers and particularly for servicemember employees. This appendix presents a facsimile of the actual questions asked in our survey of the ESGR ombudsmen along with aggregate responses. The results presented have been weighted to correspond to the universe of the ESGR ombudsmen. See appendix I, Scope and Methodology, for a detailed discussion of this process. 1. Were you serving as an Ombudsman and available to handle cases as of April 6, 2005? (Select one answer.) Yes (Continue.) No (Click here to skip to question 12.) 2. How long have you served as an Ombudsman with the ESGR? (Select one answer.) Less than 1 year 1 to less than 3 years 3 to less than 7 years 7 or more years No response 3. Have you received or not received each of the following types of training either prior to or since becoming an Ombudsmen? (Select one answer in each row.) a. Basic Ombudsman training b. Advanced Ombudsman training d. Other training related to your If you received any of the above types of training, what was the year of the most recent training you received? (Enter year of training. Please enter all four digits of the year, e.g., “2004”.) 2005-10% 2004-22% 2003-23% 2002 or earlier-45% N=698 2005-8% 2004-33% 2003-26% 2002 or earlier-33% N=244 2005-11% 2004-41% 2003-18% 2002 or earlier-30% N=137 2005-31% 2004-27% 2003-13% 2002 or earlier-29% N=259 If you received any “other training related to your Ombudsman duties”, what was included in that training and at what specific location(s) did that training take place? 5. Since becoming an ESGR Ombudsman, what is the total number of cases that you have handled? (Enter number. If none, enter zero.) Mean = 51.4 cases Total = 37,684 cases N=735 Please indicate whether the number you entered in question 5 above was an… (Select one answer.) Exact number (from records or memory) 6. Since becoming an ESGR Ombudsman, what is the total number of cases that you have personally resolved, that is that you brought to closure yourself? (Enter number. If none, enter zero.) Veterans’ Employment and Training Service or ESGR national headquarters or state coordinators. Mean = 40.6 cases Total=29,816 cases N=735 Please indicate whether the number you entered in question 5 above was … (Select one answer.) Exact number (from records or memory) 7. On average, how many hours do you spend in a typical week on your ESGR Ombudsman duties? Minimum = 0 hours Maximum = 45 hours Mean = 3.7 hours N=730 Apart from your work as an ESGR Ombudsman, we are interested in finding out a few things about your current employment, or if you are retired, your former employment. 8. Other than your work as an ESGR Ombudsman, are you currently employed full-time (35 hours or more per week), employed part-time (34 hours or less per week), retired, or not currently employed? (Select one answer.) Retired Not currently employed, but not retired No response 9. Other than your work as an ESGR Ombudsman, which one of the following best describes your primary employer? (If you are not currently employed or retired, answer for your former primary employer.) (Select one answer.) Military (Answer question 9a below.) Federal government (non-military) (Answer question 9a below.) State government (Answer question 9a below.) Local government (Answer question 9a below.) Corporation or large private sector firm Small business Non-profit or charitable organization Self-employed No response 9a. If you answered military, federal government (non-military), state, or local government in question 9 above, in what branch of the military or specific government agency are/were you 10. Other than your work as an ESGR Ombudsman, which one of the following best describes your current primary occupation? (If you are not currently employed or retired, answer for your former primary occupation.) (Select one answer.) Military - attorney/JAG Military - non-attorney officer Military - enlisted Nonmilitary - attorney Nonmilitary - not an attorney (Answer question 10a below.) No response 10a. If you answered “Nonmilitary - not an attorney” in question 10 above, and your primary or former occupation directly relates to your ESGR ombudsman responsibilities (e.g., mediator, negotiator, etc.), please enter this occupation in the space below. 11. If you have had more than one occupation that directly relates to your ombudsmen responsibilities, please list the secondary occupation (that was not covered by questions 9 and 10) in the box below. 12. If you would like to make any suggestions on how to make the ESGR Ombudsman program more successful, please use the space below. (You may enter as much text as you like. The space will expand to accommodate your response.) In addition to the contact named above, Brenda S. Farrell, Assistant Director; Renee S. Brown; Jonathan Clark; Michael J. Ferren; Stuart M. Kaufman; Susanna R. Kuebler; Mary Jo Lacasse; Ronald La Due Lake; Susan J. Mason; Jennifer R. Popovic; and Irene A. Robertson made significant contributions to the report.

The Uniformed Services Employment and Reemployment Rights Act (USERRA) of 1994 protects millions of people, largely National Guard and Reserve members, as they transition between their federal duties and their civilian employment. The act is intended to eliminate or minimize employment disadvantages to civilian careers that can result from service in the uniformed services. This report examines the extent to which the Departments of Defense (DOD), Labor (DOL), Justice (DOJ), and the Office of Special Counsel (OSC) have achieved this purpose, specifically, the extent to which the agencies (1) have data that indicate the level of compliance with USERRA, (2) have efficiently and effectively conducted educational outreach, and (3) have efficiently and effectively addressed servicemember complaints. Whether or not overall USERRA compliance has changed is difficult to firmly establish; however, the agencies that support or enforce USERRA have collected formal and informal complaint data and some employer support figures that provide limited insights into compliance. For example, DOL's formal complaint numbers show a possible relationship with the level of the use of the reserve components and the number of complaints. DOD data show that some employers exceed USERRA requirements, but these data have limitations. DOD has only 1 full year of informal complaint data, so it will be several years before DOD can identify any meaningful trends in informal complaints. Because informal complaint figures have not been captured on a consistent basis, agencies lack the data necessary to identify total complaint trends. Furthermore, data from a 2004 DOD survey showed that at least 72 percent of National Guard and Reserve members with USERRA problems never sought assistance for their problems. This raises questions as to whether complaint numbers alone can fully explain USERRA compliance or employer support. Some recently added employment questions on DOD's periodic surveys, if continued, offer the potential to provide insight into compliance and employer support issues. DOD, DOL, and OSC have educated hundreds of thousands of employers and servicemembers about USERRA, but the efficiency and effectiveness of this outreach is hindered by a lack of employer information. DOD's reserve component members who can be involuntarily called to active duty are required to enter their civilian employer information into a DOD database but the services have not enforced this requirement and as of August 2005, about 40 percent of the members had not entered the required information. Without information about the full expanse of servicemember employers, federal agencies have conducted general outreach efforts but have been limited in their ability to efficiently and effectively target educational outreach efforts to employers who actually have servicemember employees. Agency abilities to efficiently and effectively address servicemember complaints are hampered by incompatible data systems, a reliance on paper files, and a segmented process that lacks visibility. The systems that DOD, DOL, DOJ, and OSC use to track USERRA complaints are not compatible. As a result, data collection efforts are sometimes duplicated, and DOL relies on its paper files when transferring or reviewing complaints. This slows the transfer of complaints and limits the ability of DOL managers to conduct effective, timely oversight of complaint files. Furthermore, segmented responsibilities and lack of visibility have led agencies to focus on outputs rather than results. For example, agencies measure complaint processing times but not the elapsed time servicemembers actually wait to have their complaints fully addressed. GAO analysis of 52 complaints that had been closed and reopened two or more times found that recorded processing times averaged 103 days but the actual elapsed times that servicemembers waited to have their complaints fully addressed averaged 619 days.

You are an expert at summarizing long articles. Proceed to summarize the following text: The federal government established education provisions for American Indians through treaties dating back to the late 1700s. Since the early 1800s the federal government has funded schools to educate American Indians, and Interior’s BIE currently administers this school system. These federally funded schools were established in order to provide educational opportunities for American Indian children who largely live in remote areas. Today, an estimated 10 percent of American Indian children attend the 174 schools and 12 dormitories that receive funding from the Department of the Interior’s BIE. Although these schools are located in 23 states across the nation (see fig. 1), the majority of BIE students (83 percent) attend BIE schools in 6 states—Arizona, Mississippi, New Mexico, North Dakota, South Dakota, and Washington. According to BIE, in the 2006-07 school year, educational opportunities were provided to approximately 48,000 students in these schools located across 63 reservations. According to BIE, American Indian students enrolled in the BIE-funded schools represent 228 tribes, but the majority of students belong to a small number of tribes. The primary mission of BIE schools is to provide quality educational opportunities that are compatible with tribes’ cultural and economic well- being and their wide diversity as distinct cultural and government entities. To accomplish its mission, BIE’s elementary and secondary school system is multifaceted, with schools located in a variety of settings, including rural, town, suburban, and urban areas. However, the schools are located primarily in rural areas and small towns and serve American Indian students living on or near reservations. The BIE school system includes day schools, on-reservation boarding schools, and off-reservation boarding schools—which house and educate students from numerous tribes. BIE schools also vary in size, with an average enrollment of approximately 280 students in school year 2006-07. While the BIE helps fund 174 schools and 12 dormitories, it does not operate all of them; in the 2006-07 school year, 67 percent of BIE schools were tribally operated under federal contracts or grants (see table 1). Over the past 2 decades, these contracts and grants have transferred the operation of BIE-funded schools to tribes and tribal school boards, offering the potential for tribal groups to take greater ownership of their children’s education. The BIE is organized into two major divisions, with one division located in Albuquerque, New Mexico—called Central Office–West— and the other division located in Washington, D.C.—called Central Office–East. The Central Office–East division conducts research, policy analysis, and planning, and houses the Division of Post Secondary Education, which operates two post-secondary institutions and administers operating grants for 24 colleges operated by tribes and tribal organizations. The BIE performs some functions of a state education agency and receives grants from Education. Further, at the time of our review, BIE Central Office– West had oversight responsibilities for 21 BIE education line offices located in 10 states that provide assistance and/or oversight for the 186 schools and dormitories. Each education line office houses an ELO who functions similarly to a public school district superintendent in managing the schools and providing technical assistance to those schools that tribal groups operate through grants or contracts with the BIE. Throughout this report, we refer to officials from BIE’s Central Offices (East and West) as “BIE officials” and, while we recognize that the ELOs are also BIE officials, we refer to them as “ELOs.” Under NCLBA states are required to establish performance goals and hold their Title I schools accountable for students’ performance by determining whether or not schools have made AYP. The act requires states to set challenging academic content and achievement standards in reading or language arts, mathematics, and science, and determine whether school districts and schools make AYP toward meeting these standards. To make AYP, schools generally must: show that the percentage of students scoring at the proficient level or higher meets the state proficiency target for the school as a whole and for designated student groups, test 95 percent of all students and those in designated groups, and meet goals for an additional academic indicator, such as the state’s graduation rate. NCLBA requires states to establish these performance goals so that all students reach proficiency in reading/language arts, mathematics, and science by 2014. Schools that have not met their states’ performance goals for 2 or more consecutive years are identified for improvement and must implement certain remedial actions that are meant to improve student academic achievement. NCLBA required the Secretary of the Interior to develop a definition of AYP for BIE schools, through negotiated rulemaking. Interior established a No Child Left Behind Negotiated Rulemaking Committee (committee) to develop proposed rules to implement this requirement, among others. By law, the committee was to be comprised of representatives of the federal government and tribes served by BIE-funded schools. The committee held a series of meetings from June 2003 through October 2003 to develop its recommendations. After a public comment period, the final rule was published in April 2005. Under the rule, each BIE school must adopt the academic content standards, assessments, and definition of AYP of the state in which the school is located beginning with the 2005-06 school year. Moreover, if states do not give tribal groups access to their assessments, the tribal groups are obligated to develop alternative definitions of AYP. The regulations do not delineate how to determine AYP in the cases in which schools cannot access state assessments and have not developed an alternative. While NCLBA requires that states’ assessments be aligned with their standards, neither NCLBA nor BIE regulations require that schools’ curricula be aligned with state standards or assessments. Under the Secretary’s definition of AYP—i.e., that of the state in which the school is located—determining the AYP status of the 174 BIE schools requires that BIE officials apply 23 different definitions of AYP. The process is complex because of the many differences in assessments and criteria for AYP determination across the states. For example, some states assess students in additional areas, such as testing students in both reading and language arts. In addition, the complexity of state statistical formulas for calculating AYP also varies among states. Some states’ formulas include multiple confidence bands while other states use none; some states reference students’ improvement over their past performance while others use only current individual performance data on students. Similarly, annual measurable objectives, alternate AYP indicators, and formulas for calculating graduation rates also vary across states. Under NCLBA, tribal governments or school boards (tribal groups) must either adopt the Secretary’s definition of AYP—i.e., that of the state in which they are located—or waive all or part of the definition and propose an alternative. Specifically, tribal groups that waive all or part of the state’s definition of AYP must submit a proposal for an alternative definition of AYP within 60 days of the decision to waive. BIE regulations state that BIE will notify the tribal group within 60 days of receiving the proposed alternative definition whether the proposal is complete and, if complete, an estimated timetable for the final decision. All proposed alternatives are subject to the approval of the Secretaries of Interior and Education, with the tribal groups obligated to use the state’s definition, content standards, and assessments unless the alternative is approved. BIE is required to provide technical assistance upon request, to a tribal group that seeks to develop an alternative definition. Under BIE regulations, a tribal group that requires assistance in developing an alternative must submit a written request to BIE specifying the type of assistance it requires. BIE must acknowledge receipt of the request for technical assistance within 10 days of receiving the request. Within 30 days after receiving the original request for technical assistance, the BIE must identify a point of contact who will immediately begin working with the tribal group. In providing technical assistance to tribal groups in developing alternatives, the BIE can consult with Education. Under BIE regulations, in providing assistance, BIE may use funds provided by Education for assessment-related activities under section 6111 of the ESEA, as amended by NCLBA. According to BIE officials, BIE has used some of these funds on professional development training, development of a reporting system, and improvements to its student information management and tracking systems, which are appropriate uses of these funds. BIE officials stated they used most of these funds to develop BIE’s student information tracking system—the Native American Student Information System. In addition, BIE can use these funds to provide technical assistance to tribal groups in developing AYP alternatives. With respect to achievement under NCLBA, in the 2006-07 school year, BIE reported 51 of the 174 BIE schools made AYP as defined by the states in which the schools are located. Schools that fail to meet AYP for 2 consecutive years must implement remedial actions as required under NCLBA, although the requirements for BIE schools vary from those for public Title I schools (see table 2). For a BIE-operated school, implementation of required remedial actions is the responsibility of the BIE, whereas for schools that are tribally operated through contracts or grants, implementation of remedial actions is the responsibility of the tribal group. Unlike public schools, BIE schools that have an AYP status of school improvement, corrective action, or restructuring are exempt from offering public school choice and supplemental educational services. While the remedial actions applied to public schools and BIE schools under NCLBA may include change in governance, BIE officials told us that there was no provision to implement such a change with retrocession—reverting from grant or contract to BIE-operated status or from BIE-operated to another status—based on continued failure to meet AYP. Almost all of the BIE schools adopted the definition of AYP, content standards, and assessments of the state in which the school is located. While BIE had signed MOUs delineating the terms of accessing and scoring state assessments with 11 of the 23 states in which BIE schools are located, it had not completed MOUs with the other 12, as of April 2008. In addition, BIE experienced some challenges in applying the state definitions to determine whether the 174 schools had met AYP, and some schools, including about half of the schools we contacted, indicated they had not aligned their curricula with the state content standards. BIE officials told us that their schools generally use state definitions of AYP, content standards, annual proficiency goals, and assessments. Therefore, BIE makes AYP determinations for almost all 174 schools using the AYP definition of the state in which the school is located. Using the 23 state definitions of AYP, BIE reported that in 2006-07, 51 of the 174 schools had made AYP, 119 had not, and 4 did not have determinations. BIE officials told us that the AYP determinations were made by applying the criteria filed with Education by the relevant state, except in California and Florida, where BIE schools did not take the state assessment, and in Arizona and North Carolina where there was a data constraint. BIE officials told us that it was challenging to apply the various definitions of AYP and report their determinations to the schools prior to the beginning of the subsequent school year. As of December 2007, 93 of the 174 schools had been notified of their AYP status for school year 2006-07. By March 2008, the number of schools notified had increased to 146. BIE officials told us that, while they were aware that schools should have been notified of their AYP status prior to the beginning of the 2007-08 school year, the delay in notification was prolonged due to staffing issues, as well as schools and states missing deadlines to report assessment data. For example, BIE officials told us that there was a delay getting assessment results for the BIE schools in New Mexico due to a statewide scoring delay. In addition, BIE officials told us that it had been hard to collect attendance data and graduation data needed to make AYP determinations; however, they stated that these data will be more readily available in their new student information system—the Native American Student Information System. BIE officials told us that for the 2006-07 school year, they were unable to apply one feature of Arizona and North Carolina’s new definitions of AYP and made determinations for the 51 schools in Arizona and the 2 in North Carolina using those states’ respective AYP definitions without this new feature. In particular, BIE officials told us that Arizona and North Carolina had recently begun to use a growth model, which BIE was unable to use, as required by the states’ definition of AYP. Some growth models measure individual student progress across time and require a student data system that can link the individual students’ current test scores to those of prior years. BIE officials told us that their new Native American Student Information System has such capabilities, but had not been fully implemented. Officials expressed optimism they would be able to incorporate growth model-based components of AYP in the next round of AYP determinations (2007-08). In addition, BIE officials told us that four schools, two in California and two in Florida, were not administering the state exams. These schools were continuing to administer the standardized tests they had used in prior years. Officials from all four schools told us that their schools had adopted the academic content standards of their respective states, but had not administered the state assessments for different reasons. In these cases, BIE initially made AYP determinations for the 2005-06 school year but has recently suspended the AYP determinations for the four schools until issues regarding how to assess their students are resolved. In terms of content standards, BIE’s ELOs and some school officials told us that while the schools generally have access to state content standards and reported adopting them, some schools have not aligned their curricula to these standards. In particular, 10 of the 21 BIE ELOs stated that some schools in their purview had not aligned their curricula to the state standards for various reasons, including teacher turnover and resistance to change. For example, one ELO told us that some teachers who had been teaching the same material for over 40 years resisted changing the curriculum and preferred to continue to teach as they had been doing for years. Furthermore, officials from at least nine schools we contacted told us that their schools had not fully aligned their curriculum with the state content standards. For example, one school official told us that the school’s elementary reading curriculum was aligned with state content standards, but the elementary science curriculum was not. BIE uses MOUs with states to delineate the terms of BIE-funded schools’ access to the states’ assessment systems; however it had not completed MOUs with 12 of the 23 states, including 5 we visited—Arizona, California, Florida, Mississippi, and New Mexico. The 12 states without signed MOUs enroll about two-thirds of the students in BIE schools. BIE officials told us that in 2005, BIE asked the ELOs to work with state officials to establish MOUs with all 23 states in which BIE schools are located. By March 2006, 11 agreements had been completed, and no new agreements had been completed as of April 2008. The MOUs contain various aspects of administering and scoring the assessment, including delineating responsibilities for state and BIE officials (see table 3). For example, under the MOUs, the state’s responsibilities include inviting BIE school personnel to assessment-related training and informing the BIE of any changes to the state’s AYP definition and assessment system. The BIE’s responsibilities address, among other things, test security to ensure that the contents of the test are not improperly disclosed and proper test administration. BIE officials told us that they did not actively pursue MOU’s with the remaining states, in part because BIE’s leadership had not viewed the completion of the MOUs as a priority—most states were allowing BIE schools to access state assessments and scoring arrangements without such agreements. While BIE schools in 9 of the 12 states without signed MOUs were given access to the state assessments, BIE schools in California and, to a lesser degree in Mississippi, have encountered issues in accessing the state assessments. In particular, California state officials have not given the two BIE schools in California access to the state assessments. State officials in California told us that the state had invested millions of dollars on test development and that a breach in security could undermine the validity of the test. These officials also stated that several entities, including private schools, had requested permission to administer the test and that their approach was to restrict the test to public schools in California. State officials were willing to make an exception for BIE schools to administer the assessment, but requested a $1 million bond for security reasons. BIE and Education officials told us that they were trying to work with the state to resolve the issue. Education officials told us that they were hopeful that a solution, such as having BIE students assessed at public schools, could be worked out. Under BIE regulations, BIE schools without access to their state’s assessment must submit a waiver to develop an alternative definition of AYP. However, officials from the two BIE schools in California stated that developing an alternative definition was unreasonably burdensome and that they had no intention of submitting an alternative assessment in the foreseeable future. The eight BIE schools in Mississippi were able to administer the state assessment in both 2005-06 and 2006-07; however, they were not initially able to access a re-administration of the assessment in 2006-07 that some students needed in order to graduate. Tribal officials explained that they had to sign a special agreement personally guaranteeing the security of the test to administer the test in that instance. State officials and school officials told us that having a signed MOU in place could have expedited access to the test. In addition to concerns regarding test security, state officials we interviewed cited the lack of tribal input as a reason for delaying or rescinding an MOU (see table 4). For example, state officials in Washington told us that when they received the request to sign the MOU, they contacted tribal groups and realized that the tribal groups had been informed of the MOU, but not consulted regarding its details. After consulting with tribal groups, Washington state officials modified the proposed MOU and signed it. In addition, BIE does not currently have a valid MOU with New Mexico because the Governor of New Mexico suspended the state’s MOU with BIE shortly after signing it, in part because tribal groups indicated that they had not been consulted about the terms of the MOU. Officials from three tribal groups—the Navajo Nation, OSEC, and the Miccosukee Tribe of Indians—have informed BIE officials that they wish to pursue alternatives to state AYP definitions for a variety of reasons, including the desire to ensure that standards and assessments include components of native culture. However, the remaining tribal groups have not indicated that they will waive state definitions of AYP, in an effort to maintain compatibility with public schools or because of potential challenges to developing alternatives. According to ELOs and the school officials we interviewed, there are significant potential challenges involved in developing alternatives, as well as advantages to using the state assessments, including compatibility with public schools. As of March 2008, three tribal groups—Navajo Nation, OSEC, and Miccosukee—had formally notified the BIE of their intent to develop alternatives to state definitions of AYP. These tribal groups represent BIE- funded schools in five states and include about 44 percent of BIE students (see table 5). The tribal groups began the process of developing alternatives at different times, but all were still in the early stages of doing so. Officials from the Navajo Nation, with BIE schools in three states, have requested technical assistance for developing an alternative definition of AYP, citing the desire to include cultural components in the standards and assessments and to compare the progress of Navajo students across states. Navajo officials told us that they currently do not have a consistent method of measuring the academic progress of their students across the states in which they are enrolled. Navajo officials have recently (October 2007) requested technical assistance from BIE in their effort to develop an alternative to the relevant states’ definition of AYP. In their proposal to BIE, Navajo officials stated that while they are willing to work with existing assessment procedures as much as possible, they were seeking to develop a “Navajo specific” measure that would influence AYP determination, regardless of the state. OSEC, a consortium of tribal groups including representatives from 11 BIE-funded schools in South Dakota, has also requested technical assistance as it seeks to develop an alternative definition of AYP, primarily to improve student performance in its schools and to more accurately reflect the length of time it takes some students to graduate. First, it plans to define graduation rates differently from the state. In particular, South Dakota uses a 4-year window to determine graduation rates. OSEC officials told us that a definition of graduation rate that included those who successfully completed high school within 6 years would more accurately reflect the reality that many students take more than 4 years to graduate. In addition, OSEC officials told us that they wanted to replace the attendance component of the state’s definition of AYP with a language and culture component. Furthermore, OSEC would like to develop standards and assessments for its students in subject areas currently covered by the state assessment, such as reading, math, and science. To this end, the consortium has submitted a proposal to BIE officials that provides a framework for developing academic content standards for math, reading, and science, as well as developing an assessment. OSEC officials consulted with BIE officials regarding the proposal, and BIE has since forwarded the proposal to Education for review. Education officials met with officials from BIE and OSEC in November 2007 to evaluate OSEC’s needs and offer technical assistance. Education officials told us that they have a consultant who could help OSEC ensure that the new standards and assessments meet Education’s guidelines. Officials from the Miccosukee Tribe have informed BIE that, while they have aligned their curriculum to Florida’s academic content standards, they do not intend to administer the Florida state assessment system in their school. Miccosukee tribal officials explained that they did not want to implement the Florida assessment system because they thought it was flawed and inferior to the Terra Nova—the standardized test they were already using. They also told us that because attendance in the Miccosukee School was not compulsory, they rejected the use of attendance as an additional AYP indicator. After having met with Education officials and a consultant, the Miccosukee told us that they were considering various options in their development of an alternative assessment, including augmenting the Terra Nova or developing a new assessment based on a modified version of Florida’s academic content standards. Officials also told us that they were working on developing standards for Miccosukee culture and language to implement an assessment that would serve as the additional AYP indicator in lieu of attendance for their students in third through eighth grade. Officials representing BIE schools in California, Mississippi, and Washington told us that it was important that their schools be compatible with the local public schools. For example, officials from the BIE schools in Mississippi told us that they wanted their students to take the same tests as students attending Mississippi public schools, in part to ensure that they received the same diploma. In addition, officials from one California school explained that their students come from public schools and may return to public schools in high school. These officials told us that it made more sense for the students to take the state tests for continuity. In addition, BIE school officials in California, Mississippi, and Washington told us that because they followed the state curriculum, it would be logical to administer the state assessment. However, while the tribal groups representing the eight BIE schools in Washington have not waived the state definition of AYP, they have proposed a technical change that would affect how BIE officials determine AYP for these schools. In particular, BIE considers the 2002-03 school year as the baseline for its AYP determinations; however, officials representing the BIE schools in Washington told us that the 2005-06 school year is a more appropriate baseline, as it is the first year in which they administered the state assessment for AYP purposes. While the Washington state superintendent approved the schools’ request to change the baseline school year, BIE officials have not done so. As a result, officials representing one of the schools challenged BIE’s AYP determination for the 2005-06 school year. School officials and education line officers identified several potential challenges that tribal groups might encounter in their efforts to develop alternative standards or assessments, including a lack of expertise, funding, and time (see table 6). According to ELOs and school and Education officials, the specialized knowledge needed to develop an alternative definition of AYP is generally beyond the capacity of tribal groups. For example, ELOs and Education officials stated that the technical expertise needed to develop an assessment was not available among members of some tribes and would need to be obtained through consultant contracts. School officials from Mississippi and Washington agreed that developing such alternatives would require expertise beyond that available within their tribal groups. With regard to financing the development of alternatives, Education officials stated that developing standards and assessments could cost tens of millions of dollars—financial resources that are generally not available among many tribal groups for this purpose. Education officials and ELOs also agreed that developing alternatives requires an extensive time commitment that may not be sustainable given changes in leadership. In particular, Education officials told us that developing, piloting, and testing alternative content standards or assessments can take from 12 months to 3 years. Some of the education line officers we interviewed volunteered that the required time commitment could affect support for such a project. Five of the ELOs and two school officials specifically noted that the time needed to develop an alternative would be a challenge for their tribal groups or school boards, with one school official citing the time commitment needed to help teachers understand and incorporate alternative standards into their lesson plans. One school official stated that changes in BIE leadership had led to different interpretations of how to implement the NCLBA provision related to developing alternatives. Most tribal groups, school officials, and ELOs we spoke with said they had little guidance about the process BIE uses to help tribal groups develop alternatives. In addition, school officials and tribal groups we interviewed reported communication problems with BIE, including lengthy delays and a lack of response. Recently, however, BIE and Education officials have offered both technical assistance and funds to those tribal groups seeking to develop alternatives. Most tribal groups, ELOs, and school officials we spoke with said they had received little guidance about the process BIE uses to help tribal groups develop alternatives. Officials representing the two tribal groups and one consortium that have formally requested technical assistance stated they were uncertain about the BIE process for applying for an alternative. Likewise, we found school officials were also unsure of BIE’s process for applying for an alternative. For example, officials from the two BIE schools in California said they had no knowledge of the BIE process to assist tribal groups and school boards to develop alternatives. In addition, officials from one school said they hired legal counsel to assist them with their request because they were uncertain about BIE’s process for applying for an alternative. About half of the ELOs, despite being the first point of contact, told us they did not have enough information to accurately describe the process a tribal group would use to waive the Secretary of the Interior’s definition and pursue development of an alternative definition of AYP. This may be at least partly due to turnover among ELOs. Eight of the 21 ELOs said they had been in their current position for 12 months or less while 7 had been in their current position from 1 to 3 years. BIE officials told us that about 25 percent of the ELOs who attended training on the process to develop an alternative were no longer employed in that position. According to BIE officials, ELOs had received such training in 2005—although no requested documentation of this training and guidance was provided to us. During the course of our review, 19 of the 21 ELOs we interviewed also stated they had not received any training or written guidance on the BIE’s policy for approving a tribal groups’ request for an alternative, even though providing technical assistance to tribal groups developing an alternative is included in their job responsibilities. During our interviews, 11 of the 21 ELOs indicated they were knowledgeable about the NCLBA provision that allows tribal groups to waive the Secretary’s definition and develop an alternative and would be able to describe the provision to tribal groups. During our interviews, almost all of the ELOs (19 of 21) told us that they had not received any information from BIE officials on their role in providing technical assistance to tribes in developing content standards, assessments, or definitions of AYP. As a result, most tribal groups have not received any information from ELOs on the availability of technical assistance for developing alternatives. In particular, only 3 of the 21 ELOs stated they had provided any information on the availability of technical assistance for developing alternatives to tribal groups within their jurisdiction. BIE receives funds from Education that could be used to assist tribal groups with the development of alternatives, but BIE’s ELOs told us they had not been instructed that BIE funds were available for this purpose. All 21 ELOs told us they had not received any guidance from BIE on BIE funds that might be used to assist tribal groups seeking to develop alternatives. Some school officials and tribal groups we interviewed reported a lack of response from the BIE or lengthy delays in responding to requests for assistance related to development of alternative standards, assessments, or definitions of AYP. For example, OSEC’s written request for technical assistance in developing an alternative definition of AYP was not acted upon for 8 months. In another case, the Miccosukee’s written request to waive the state assessment and develop an alternative went unanswered by the BIE from October 2006 to June 2007. BIE officials, in acknowledging their slow response to the tribal groups’ requests for technical assistance, stated that in some cases tribal groups’ written requests were not always clear about what they wanted from the BIE or had not adhered to the regulation that requires the waiver request be submitted by either a tribal governing body or school board. Other tribal groups we interviewed reported frustration in communicating with BIE due to BIE’s failure to proactively initiate communication when necessary. For example, officials from one of the BIE schools in California stated that, although BIE officials were aware that the state had not given the schools access to the state assessment, BIE had not communicated with or offered any type of assistance to the schools. Further, OSEC submitted to BIE a written request for guidance and funds to pay for the development of assessment tools on developing an alternative definition of AYP. In its response, the BIE denied the consortium’s written request without further discussion or inquiry, noting that the request did not come from either a school board or a tribal governing body but rather a consortium of schools. BIE officials told us that their prior focus had been on ensuring that BIE schools were accessing and using the state standards and assessments and therefore did not devote resources to assist those tribal groups who sought to develop alternatives to the state systems. In addition, BIE officials told us that BIE had not initially been proactive in working with Education on issues related to alternative assessments. To address tribal groups’ requests for technical assistance, BIE assigned a staff person as the primary BIE contact for tribal groups that are requesting technical assistance or seeking to develop alternatives. However, this BIE staff person has several other key responsibilities including responsibility for applying 23 state AYP definitions to calculate the AYP status of BIE schools and responsibility for overseeing the special education program for all BIE schools. In addition, BIE officials informed Education officials in September 2007 of the OSEC and Miccosukee’s requests for technical assistance, and in November 2007 of the Navajo’s request for technical assistance. In response to the requests, BIE and Education officials have recently offered technical assistance to those tribal groups that are seeking to develop alternatives. For example, officials from BIE and Education met with the Miccosukee and OSEC in November 2007 to assess the type of technical assistance needed in order for the tribe to pursue development of its alternative. Likewise, officials from BIE and Education also met with the Navajo Nation in March 2008 to assess their technical assistance needs as they continue to pursue development of an alternative. In addition to identifying the types of technical assistance needed by those tribal groups that have formally submitted a request to waive state standards, assessments, or definitions of AYP, Education officials told us they have also sent a contractor to assist tribal groups as they pursue the development of alternative assessments. Specifically, in Florida, the Education contractor is charged with helping the Miccosukee to identify the steps needed to ensure its assessment complies with relevant regulations under NCLBA by reflecting Florida’s state standards—or any modified standards that the Miccosukee may adopt. Similarly, in South Dakota, the Education contractor is charged with working with the OSEC consortium to identify the actions needed to ensure that its alternative assessment will comply with NCLBA regulations. As of February 2008, according to BIE officials, none of the funds provided by Education to BIE under the NCLBA provision supporting assessment- related expenses had been spent to provide technical assistance to tribal groups seeking to develop alternatives. The BIE reported receiving from Education a total of $11.7 million for school years 2002-03 through 2007-08, that was targeted to assessment-related expenses. According to BIE, all of these funds had been obligated, primarily for improvements to BIE’s student information and tracking systems and other assessment-related uses, including professional development. In fact, some tribal groups told us they were not aware that BIE received funds that might be available to assist with development of alternatives. BIE officials stated that none of these funds had been spent on technical assistance, but said that they expected to spend some funds to provide technical assistance in the near future. In most cases, BIE schools that wish to adopt their state’s definition of AYP, standards, and assessments, have had no problems doing so, but the lack of MOUs between BIE and some states exposes the BIE schools in those states to the potential risk of losing access to state assessments. Under the existing MOUs, the state (or BIE) may terminate the agreement, but notice is required. Additionally, the MOU ensures that tribes’ access to tests is not dependent on decisions made by particular state officials or administrations, who could otherwise terminate or impose conditions on the sharing arrangements without notice. In part because BIE may have little leverage in negotiating with state education departments, BIE may encounter difficulty in reaching agreement on these MOUs, especially if a state imposes challenging conditions. In addition, a large burden is placed on tribal groups and schools that lack access to state assessments—in terms of developing an alternative assessment that meets federal guidelines. Without prompt assistance, such schools may lack appropriate measures of what children know and can do that could support plans for educational improvement. Similarly, lack of alignment between curricula and standards or inability to promptly produce determinations of performance can slow the pace of improvement for students and schools. Clearly, if tribal groups wish to propose an alternative, they must understand the process in place to pursue this option. Developing alternatives requires clear and timely communication between BIE and tribal groups, as well as between BIE and Education. To date, guidance from BIE on developing alternatives has been limited and BIE’s communication with tribal groups, BIE ELOs, and Education has been slow or lacking. Without improved guidance to tribal groups and ELOs, those tribal groups seeking to develop alternatives may lack information or receive inaccurate information about how to develop an acceptable alternative definition. Further, unless BIE establishes response time frames and processes, the communication between BIE and those tribal groups seeking alternatives will remain ineffective. As a result, these tribal groups could continue to view BIE as a hindrance rather than a partner in the process. While BIE and Education have recently begun offering technical assistance, clear guidance from BIE and timely communication between BIE and tribal groups could not only improve working relations, but also facilitate the use of the provision allowing the alternatives to address the unique cultural needs of the students. To improve support for tribal governments and school boards in their adoption of definitions of AYP, we are making the following four recommendations. We recommend that the Secretary of the Interior direct BIE to: Coordinate with relevant tribal groups in pursuing negotiation of MOUs with states that lack them, seeking facilitation from Education when necessary and appropriate. In close coordination with Education, provide prompt assistance to tribal groups in defining assessment options, especially in instances in which tribal groups are not accessing state assessments. Such assistance could include delineating options—such as using an already established assessment, augmenting an assessment, or incorporating cultural components as an additional academic indicator—and their associated costs. Provide guidelines and training on the process for seeking and approving alternatives to all tribal governments, tribal school boards, and education line offices. Establish internal response time frames and processes to ensure more timely responses to all correspondence with tribal groups as well as proactive communication with tribal groups and Education to resolve issues related to waivers, requests for technical assistance, and development of alternative definitions of AYP. We provided a draft of this report to Interior and Education for review and comment. Interior provided a written response to the report (see app. I); Education did not. Both agencies provided technical comments, which we incorporated in the report where appropriate. Interior agreed with all of our recommendations. In responding to our first recommendation, Interior explained that BIE is continuing to work jointly with Education to facilitate agreements with the states to ensure access to state assessments and to establish MOUs with those states where none currently exist. With respect to our second recommendation, Interior reported that the BIE has established a Scope of Work that addresses the full range of technical assistance needed to assist tribal groups that seek to waive all or part of the state’s definition of AYP, content standards, or assessments. In regard to our third recommendation, BIE stated that, in addition to continuing to provide guidance and training to tribal groups and tribal school boards, it has developed information on the process for seeking and approving alternatives that will be posted on its Web site as well as distributed to tribal groups and tribal school boards. In responding to our final recommendation, BIE stated it would continue to be more proactive in its communication with tribal groups and Education to resolve issues related to waivers of the state’s definition of AYP, requests for technical assistance, and development of alternative definitions of AYP. Moreover, as part of the project management with tribal entities that have sought technical assistance, a consultant will maintain a management document that identifies timelines, among other things. In addition to the steps BIE has mentioned, we continue to believe it is important for BIE to establish internal timelines to ensure more timely responses to all correspondence with tribal groups. We are sending copies of this report to the Secretaries of Education and the Interior; the Director of the Bureau of Indian Education; representatives of tribal groups identified in the report, relevant congressional committees, and other interested parties. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. Please contact me on (202) 512-7215 if you or your staff have any questions about this report. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix II. Betty Ward-Zukerman, Assistant Director, and Nagla’a El-Hodiri, Analyst- in-Charge, managed this assignment. Kris Trueblood and Tahra Nichols made significant contributions to all aspects of the work. Nora Boretti, Kimberly Granger, Angela Jacobs, Annamarie Lopata, and Sara Pelton assisted with data collection. Charlie Willson and Jessica Orr provided assistance in report preparation; Jeffery Malcolm provided expertise on Indian issues; James Rebbe and Doreen Feldman provided legal support; Jean McSween and John Mingus provided technical support; and Lise Levie verified our findings. No Child Left Behind Act: Education Actions Could Improve the Targeting of School Improvement Funds to Schools Most in Need of Assistance. GAO-08-380. Washington, D.C.: February 29, 2008. No Child Left Behind Act: States Face Challenges Measuring Academic Growth That Education’s Initiatives May Help Address. GAO-06-661. Washington, D.C.: July 17, 2006. Bureau of Indian Affairs Schools: Expenditures in Selected Schools Are Comparable to Similar Public Schools, but Data Are Insufficient to Judge Adequacy of Funding and Formulas. GAO-03-955. Washington, D.C.: September 4, 2003. Bureau of Indian Affairs Schools: New Facilities Management Information System Promising, but Improved Data Accuracy Needed. GAO-03-692. Washington, D.C.: July 31, 2003. Title I: Characteristics of Tests Will Influence Expenses; Information Sharing May Help States Realize Efficiencies. GAO-03-389. Washington, D.C.: May 8, 2003.

The No Child Left Behind Act (NCLBA) requires states and the Department of the Interior's Bureau of Indian Education (BIE) to define and determine whether schools are making adequate yearly progress (AYP) toward meeting the goal of 100 percent academic proficiency. To address tribes' needs for cultural preservation, NCLBA allows tribal groups to waive all or part of BIE's definition of AYP and propose an alternative, with technical assistance from BIE and the Department of Education, if requested. GAO is providing information on the extent of (1) BIE schools' adoption of BIE's definition of AYP; (2) tribal groups' pursuit of alternatives and their reasons as well as reasons other tribal groups have not done so; and (3) federal assistance to tribal groups developing alternatives. To obtain this information, GAO interviewed tribal groups, federal officials, and state education officials; conducted site visits to BIE schools; and reviewed laws, regulations, and other relevant documents. Although almost all of the 174 BIE schools have officially adopted BIE's definition of AYP--the definition of AYP of the state where the school is located--BIE had not yet completed memoranda of understanding (MOU) to delineate BIE and state responsibilities concerning BIE schools' access to the states' assessment systems for 12 of the 23 states with BIE schools. Without MOUs, states could change their policies regarding BIE schools' access to assessments and scoring services. Officials from the Navajo Nation, the Oceti Sakowin Education Consortium, and the Miccosukee Tribe have begun to develop alternatives to state AYP definitions, in part to make standards and assessments reflect their culture, while officials of other tribal groups have cited various reasons for not developing alternatives. The three tribal groups developing alternatives, representing about 44 percent of the 48,000 BIE students, have requested technical assistance in developing their alternatives. Other tribal officials cited a desire to maintain compatibility with public schools and/or cited challenges, such as a lack of expertise, as reasons not to pursue alternatives. The three tribal groups pursuing alternatives reported a lack of federal guidance and communication, although they have recently received some initial technical assistance from BIE and Education officials. These tribal groups reported receiving little guidance from BIE and difficulties in communicating with BIE because the Bureau did not always have internal response timelines or meet the ones it had. Moreover, BIE education line officers--the primary points of contact for information on the alternative provision--generally indicated that they had received no guidance or training on the provision. During the course of this review, BIE and Education officials began offering technical assistance to the tribal groups working to developalternatives

You are an expert at summarizing long articles. Proceed to summarize the following text: The TANF and CCDF programs are two of the nation’s key federal programs for assisting needy families with children and are an important component of states’ social services networks. These two programs each consist of more than 50 distinct state-level programs—one for each state, the District of Columbia, four territories, and numerous tribal entities. Annually, the federal government makes available to each state a portion of the (1) $16.5 billion TANF block grant that was established by PRWORA and (2) $4.8 billion from CCDF for child care subsidies and other related activities. Within HHS, the Administration for Children and Families (ACF) oversees states’ TANF and CCDF programs. Congress created TANF in 1996 to replace the decades-old Aid to Families With Dependent Children (AFDC) program that entitled eligible needy families to monthly cash assistance payments. PRWORA made sweeping changes to federal welfare policy, including ending individuals’ entitlement to aid, imposing time limits on the receipt of aid, and imposing work requirements on most adults receiving aid. This federal framework gives states the flexibility to design their own programs; define who will be eligible; establish what benefits and services will be available; and develop their own strategies for achieving program goals, including how to help recipients move into the workforce. PRWORA provides states substantial authority to use TANF funds in any way that is reasonably calculated to meet the goals of the program. As specified by PRWORA, TANF’s goals include ending the dependence of needy families on government benefits by promoting job preparation, work, and marriage; preventing and reducing the incidence of nonmarital pregnancies; and encouraging two-parent families. These broad goals represent a significantly broader scope than AFDC. PRWORA also expanded the scope of services that could potentially be contracted out, such as determining eligibility for TANF, which had traditionally been done by government employees. In addition to these programmatic changes, PRWORA dramatically changed the fiscal structure of the program and shifted significant fiscal responsibility for the program to states. Each year, the federal government makes a fixed amount of TANF funds available to each state, and a state may reserve some of these funds for use in the future. This represents a significant departure from past policy, under which the amount of federal funds received was linked to the size of each state’s welfare caseload. To receive their federal TANF funds, states must spend a specified amount of their own funds each year, referred to as state maintenance of effort. Along with granting states significant flexibility, PRWORA redefined HHS’s role in administration of the nation’s welfare system, limiting its regulatory and enforcement authority and reducing its staff level for administering TANF. Specifically, the law states: “No officer or employee of the Federal Government may regulate the conduct of States under this part or enforce any provision of this part, except to the extent expressly provided in this part.” The law also eliminated the quality control system that HHS used to measure payment accuracy of monthly welfare payments under AFDC. Under that system, states were required to statistically select a sample of cash assistance cases and determine the level of erroneous (improper) payments; if a state’s improper payment rate exceeded the targeted error rate, it faced a financial penalty. HHS states in the preamble to TANF regulations that PRWORA reflects the principle that the federal government should focus less attention on eligibility determinations and place more emphasis on program results. To that end, PRWORA gave HHS new responsibilities for tracking state performance, including a set of financial penalties for states that fail to comply with program requirements and a bonus program for states that perform well in meeting certain program goals. Several of these penalties reflect new expectations for states to assist recipients in making the transition to employment. For example, states face financial penalties if they do not place a minimum specified percentage of adult TANF recipients in work or work-related activities each year and if they provide federal TANF funds to families who have reached the TANF time limits on receipt of aid—60 months over a lifetime. The bonus program was to reward states for high performance toward achieving program goals, such as moving welfare recipients into jobs and reducing out-of-wedlock births. At the same time, Congress, through PRWORA, emphasized the importance of sound fiscal management for state TANF programs. One part of the new penalty system focused on penalties for states that use funds in violation of PRWORA, as identified through audits conducted under the Single Audit Act. In addition, the law stated that states are to include in the TANF plans that they file with HHS a certification that procedures are in place to combat fraud and abuse, although the law does not require the states to describe these procedures. Moreover, states are required to continue participating in the Income and Eligibility Verification System (IEVS) that provides information from various sources to help verify eligibility information. As state TANF programs have evolved since implementation, the nation’s welfare system now looks quite different than it did under AFDC, posing some challenges for defining and measuring improper payments. As our previous work has shown, welfare agencies now operate more like job centers, taking steps to move recipients into work and providing aid to help families avoid welfare. States now spend most TANF funds on a broad array of services for families rather than on monthly cash assistance, as shown in figure 1. These services include employment services, case management services, support services such as child care and transportation, and pregnancy prevention among others. In addition, states offer various services to other low-income families not receiving welfare, including child care and employment and training services. In addition to the broad range of services provided by TANF programs, more entities receive and administer TANF program funds than before, posing additional challenges for states in managing improper payments. In many states, county or local governments receive TANF funds and are the key TANF administrative agencies, sometimes establishing their own policies and programs. States may also distribute TANF funds to several different state agencies to provide services. States and localities also may contract with a multitude of nonprofit and for-profit organizations. In our 2002 report on TANF contracting, our survey to states identified more than 5,000 TANF contracts with nongovernmental organizations at the state level and at least 1,500 contracts at the local level. We also found that in 2001, about a quarter of states contracted out 20 percent or more of TANF funds expended for services in fiscal year 2000, ranging up to 74 percent. Figure 2 shows the broad range of services for which TANF payments are made and the entities involved in the TANF payment processes. PRWORA also combined several existing child care programs into one program designed to provide states with more flexible funding for subsidizing the child care needs of low-income families who are working or preparing for work. CCDF provides states funds to subsidize child care assistance for families with incomes up to 85 percent of state median income who are working or in education or training. Under CCDF rules, eligible participants are to be allowed parental choice of child care providers, including center-based, home-based, or relative care. In addition, families are required to contribute to the cost of care, in the form of a copayment, unless states exempt families below the poverty level from this requirement. CCDF rules also provide some guidance on establishing reimbursement rates for child care providers and requires that a specified portion of funds be set aside for activities designed to enhance child care quality. Within this framework, states establish their own income eligibility criteria and determine how the program will be administered. Like TANF, CCDF is administered through multiple agencies, including county and local governments and nonproft and for-profit organizations. This decentralized system can create challenges for determining what constitutes an improper payment. Figure 3 illustrates the steps often involved in making child care payments. In recent years, federal and state CCDF expenditures have increased more than 100 percent—from $4.0 billion in 1997 to $8.6 billion in 2002, the most recent year for which data are available. At the federal level, ACF’s Office of Family Assistance (OFA) is responsible for overseeing TANF, and the Child Care Bureau is responsible for overseeing CCDF. Staff in the 10 ACF regional offices and the Office of Financial Services also assist in overseeing aspects of state TANF and CCDF programs. Figure 4 shows ACF’s organizational structure. OFA is responsible for overseeing TANF and coordinating HHS efforts to assist states in managing improper payments in the TANF program. Specifically, the office is responsible for (1) developing and implementing strategies to assist grantees in implementing and designing programs to meet TANF purposes; (2) ensuring compliance with federal laws and regulations; (3) implementing national policy and developing regulations to implement new laws; (4) developing regulations to implement data collection requirements; (5) implementing and maintaining systems for the collection and analysis of data, including participation rate information, recipient characteristics, financial and administrative data, state expenditures on families, work activities of noncustodial parents, transitional services, and data used in the assessment of state performance; and (6) identifying best practices and sharing information through conferences, publications, and other means. The Child Care Bureau is responsible for overseeing CCDF programs and coordinating HHS efforts to assist states in managing improper payments in the CCDF program. The Bureau’s responsibilities include (1) tracking grantee program implementation by collecting and analyzing information that states are required to report through CCDF plans, financial expenditure reports, and administrative data reports; (2) providing technical assistance to grantees concerning CCDF through the Child Care Technical Assistance Network where the Bureau sponsors national and regional conferences and meetings and support the development of Technical Assistance materials and websites; (3) developing program policy guidance to grantees on the administration of CCDF, including questions related to what expenditures are allowable under the program; and (4) supporting research to disseminate findings that document emerging trends in the child care field. OFA and the Child Care Bureau share fiscal oversight responsibility with the 10 regional offices that are responsible for reviewing financial expenditure reports that states are required to submit as well as assisting in other program responsibilities. The Office of Financial Services is the HHS-designated lead unit for coordinating reporting on the agency’s efforts to manage improper payments in the TANF and CCDF programs. In November 2002, Congress passed the Improper Payments Act. The act requires the head of each agency to annually review all programs and activities that the agency administers and identify all such programs and activities that may be susceptible to significant improper payments. For each program and activity identified, the agency is required to estimate the annual amount of improper payments and submit those estimates to Congress before March 31 of the following applicable year. The act further requires that for any agency program or activity with estimated improper payments exceeding $10 million and 2.5 percent of program payments, the head of the agency shall provide a report on the actions the agency is taking to reduce those payments. The Improper Payments Act also required the Director of OMB to prescribe guidance to implement its requirements. OMB issued guidance on May 21, 2003, that provides instructions for estimating improper payment rates, and requires agencies to set target rates for future reductions in improper payments, identify the types and causes of improper payments, and highlight variances from targets or goals established. Significantly, the May 2003 guidance also required 15 agencies to publicly report improper payment information for 46 programs identified in OMB Circular No. A-11 in the agencies’ fiscal year 2003 Performance and Accountability Reports. According to OMB, the programs were selected primarily because of their large dollar volumes ($2 billion dollars or more in outlays). The TANF and CCDF programs are included in the 46 programs. Internal Control Framework In most cases, the cause of improper payments can be traced to a lack of or breakdown in internal control. Our Standards for Internal Control in the Federal Government provides a road map for entities to establish control for all aspects of their operations and a basis against which entities’ control structures can be evaluated. Also, our Executive Guide on Strategies to Manage Improper Payments: Learning from Public and Private Sector Organizations focuses on the internal control standards as they relate to reducing improper payments. The five components of internal control—control environment, risk assessment, control activities, information and communication, and monitoring—are defined in the Executive Guide in relation to improper payments as follows: Control environment—creating a culture of accountability by establishing a positive and supportive attitude toward the achievement of established program outcomes. Risk assessment—analyzing program operations to determine where risks of improper payments exist, what those risks are, and the potential or actual impact of those risks on program operations. Control activities—taking actions to address identified risk areas and help ensure that management’s decisions and plans are carried out and program objectives are met. Information and communication—using and sharing relevant, reliable, and timely financial and non-financial information in managing activities related to improper payments. Monitoring—tracking improvement initiatives over time, and identifying additional actions needed to further improve program efficiency and effectiveness. Improper payments in the TANF program can occur in all of the TANF payment types: ongoing monthly cash assistance payments to individuals or families; one-time payments to individuals or families; and payments made to a range of for-profits, non-profits, state agencies, and contractors. HHS has instructed states that they should recover any overpayments by recouping them from the recipients as a reduction in future TANF cash payments or by collecting cash repayments. It also states that the full amount of recovered overpayments made after October 1, 1996—PRWORA was signed into law in August 1996—is to be retained by the state and used for TANF program costs. Improper payments in the CCDF program can occur in all payment types: payments to child care providers or families. Almost all states we surveyed and visited reported taking some steps to assess whether their TANF and CCDF programs were at risk for improper payments or to measure the extent of improper payments. However, these efforts were uneven--not all states had assessed risks, risk assessments often did not cover all program payment types, and states’ measures of the amounts of improper payments did not always rely on rigorous methodologies. While these assessments provide some valuable information, they do not provide a comprehensive picture of the nature and extent of improper payments in TANF and CCDF programs among the 16 states. In addition, while the states reported they have various strategies and tools in place to help prevent and detect improper payments, these efforts were also uneven. While states understand the importance of addressing improper payments, they cited several factors that make it difficult for them to adequately manage improper payments. The unevenness of internal controls among states may result in missed opportunities to further address improper payments. Almost all the states we surveyed and visited reported performing some activities to assess whether their TANF and CCDF programs were at risk of improper payments. We defined a risk assessment as a formal or informal review and analysis of program operations. The purpose of a risk assessment is to determine where risks of improper payments exist, what those risks are, and the potential or actual impact of those risks on program operations. Conducting risk assessments helps to ensure that public funds are used appropriately and clients receive the proper benefits. Improper payments, including fraud, may occur in several different ways in the TANF and CCDF programs, involving clients, providers, and agency personnel. For example, an inadvertent error may result in an overpayment or underpayment when a client mistakenly fails to report some income, a provider accidentally receives payment due to a billing error, or a caseworker incorrectly records some information or makes an error in calculating a benefit amount. Improper payments due to fraudulent activity may occur, for example, when a client files for and receives benefits in two jurisdictions concurrently, a provider claims payment for services not rendered, or an agency employee creates a fictitious case and collects the benefit. In addition, a broad range of state entities may be involved in identifying improper payments and measuring the extent to which they occur. For overpayments and underpayments, these state entities may include frontline workers, quality control staff, or management staff. State entities involved in preventing and detecting fraud may include the state inspectors general offices, state fraud units, and state auditors. The 16 states we surveyed and visited reported a mix of risk assessment activities. These activities include state studies conducted under the Single Audit Act and other studies by state auditors, fraud units, and inspectors general. States also identified other activities, including reviews of program policies, one-time studies or pilots, and regular reviews of client cases. States generally reported more activities for TANF than CCDF programs. More specifically, TANF-related activities were more likely to include regular quality control reviews than CCDF activities, as might be expected given the requirements for the previous AFDC program. Table 1 provides some examples of states’ risk assessment activities. While states reported performing some risk assessment activities, these activities did not appear to be uniformly comprehensive in their coverage of all types of program payments. As shown in table 2, many of the states we surveyed said they had performed some type of an assessment or analysis of risk for three primary types of TANF payments, while others did not cover all of these payment types. Three states said they had assessed risks for monthly cash payments only. Data from HHS for fiscal year 2002 showed that in these three states, the percentage of TANF expenditures for cash assistance ranged from about 25 percent to more than 50 percent. (See app. I for each state’s percentage of TANF expenditures for cash assistance.) While fewer states reported assessing risk in payments to service providers, states typically have procedures in place to monitor these contracting activities, as we reported in our previous work. Most of the states we surveyed and visited reported taking steps to measure the extent of improper payments in their TANF and CCDF programs as part of their risk assessment activities, although the extent of these efforts was mixed. As shown in table 3, the surveyed states reported relying on a variety of methods to calculate their measures of improper payments. For the TANF program, four of the surveyed states (California, Maryland, Michigan, and Pennsylvania) as well as one site visit state (Texas) reported that they relied on a statistically representative sample to estimate an amount of improper payments, although these generally covered TANF monthly cash assistance payments only. Among the surveyed states, fewer reported estimating an amount of improper payments for the CCDF program than for the TANF program. Compared with TANF, CCDF measures of improper payments generally occurred on a more ad hoc basis, such as a one-time study or pilot effort that covered one jurisdiction of a state, and were less likely to result from regular reviews of cases. In one state we visited, child care officials said they estimated the amount of improper payments for the largest subsidized child care program but not the other three programs also supported with CCDF funds. Many of the states we visited and surveyed provided us data on the amount of improper payments in their TANF and CCDF programs, but these data do not provide a complete picture of the amount of payments in these states’ programs and cannot be used for comparisons among states. Too often, states’ assessment activities did not measure the amount of improper payments among all types of TANF payments, and therefore do not present a complete picture of improper payments. In addition, some state data included amounts based on overpayments to clients only while others also included underpayments to clients based on agency errors. In other cases, the amount included only those payments identified as fraudulent but not other types of improper payments based on inadvertent mistakes. As a result, data were not comparable across states. However, data on the amount of improper payments, can play an important role in states’ program management, helping them to identify program areas at risk so they can be addressed and to recover funds when possible. The following are some examples of these types of activities from the states we visited. In Texas, TANF program officials stated that the quality control unit and the fraud unit estimate the amount of improper payments, which include client error, agency error, and fraud. The quality control unit uses a statistically representative sample of cash payments to calculate improper payments and the fraud unit uses all claims established in the investigation system to estimate improper payments. Based on these methods, Texas officials estimated the amount of improper payments to be $6.3 million for the TANF program during fiscal year 2002. Furthermore, officials estimated that $5.7 million in improper payments were recovered that same year. In Illinois, child care program officials stated that suspected fraud cases are sent to the state Bureau of Investigations to be examined. In 2002, the Illinois Office of Inspector General completed 114 CCDF investigations, which identified $1,172,293 in overpayments. The office cited several examples of fraudulently received child care benefits, including the following: A client falsified her payroll information to qualify for child care assistance. The alleged overpayment was $27,203. A client falsified payroll information to qualify for child care and failed to report her true earnings. The child care overpayment totaled $45,174. In Virginia, child care program officials told us that they conducted a pilot study to assess the extent of fraud in the child care subsidy program. The pilot focused on 3 of the state’s 121 local social service offices. During the year-long pilot, a total of 28 fraudulent claims were identified, and based on these findings, officials determined that the savings that would accrue to the state would justify the costs of fraud monitoring. Child care officials identified several examples of fraudulent activity, including the following: A client failed to report income from a second job, that she was living with the child’s father, and the father’s earnings; the total household income made them ineligible for assistance. The total overpayment was $8,944. A provider submitted invoices for five siblings for child care provided during periods when the provider was not providing care and was not living near the children. The total overpayment was $14,931. States generally rely on information from risk assessment activities to identify the extent of program risks and to highlight problem areas. Officials in the states we surveyed responded that on the basis of their risk assessments, they did not perceive improper payments to be a great problem in either the TANF or CCDF programs. However, some CCDF officials reported improper payments as a moderate problem while none of the TANF officials did so, as shown in figure 5. As discussed previously, the nature and extent of states’ reported risk assessments varied greatly, and often did not cover all payment types. This suggests their overall program risk assessments were based on a limited perspective. While state officials did not see improper payments as a great problem, they had identified factors that contributed to improper payments in their programs, as shown in table 4. TANF respondents most often identified inaccurate information on income, earnings, and assets and clients not meeting participation requirements as factors contributing to improper payments. Inaccurate information on income, earning, and assets can occur, for example, when clients do not report income from employment or changes in earnings that they are required to report and that may affect the amount of their payments or basic eligibility for aid. For states’ child care programs, the surveyed officials identified factors associated with both clients and child care providers as contributing most frequently to improper payments, as shown in table 5. Officials in the states we visited identified examples of client- and provider-related problems. For example, Virginia CCDF officials identified several cases in which clients were no longer working or looking for work and therefore no longer eligible for a child care subsidy. Illinois officials cited several cases in which the provider gave inaccurate information on the amount of child care received. In one case, the provider billed the state for children she had stopped caring for, and in another case the provider billed the state for watching children during hours when the provider was actually working at another job. In addition to assessing a program’s risk of improper payments, states reported using other key aspects of an internal control system, including emphasizing accountability and using tools to prevent and detect fraud, although the extent of use varied among the states and was less widespread among CCDF programs. For example, states we surveyed sometimes used performance goals to instill a culture of accountability by working toward improvement and achievement of established program outcomes. Although improper payment estimates were incomplete (as noted in the previous section), table 6 shows that a majority of TANF programs and two CCDF programs surveyed had established goals for reducing improper payments. In addition, some states were required to generate reports on improper payments to senior government officials. This was also the case in one of the states we visited. Texas officials told us they have established statewide performance goals for reducing the TANF rate of improper payments and hold regional offices accountable for performance objectives. If regions fail to meet their objectives, they must draft and implement performance improvement plans, which are then monitored by state officials. Greater emphasis on reducing improper payments in state TANF programs likely stems from states’ experience under the former AFDC program in which the federal government had more guidance and requirements specifically related to improper payment levels. In contrast, state CCDF assistance programs do not share that history and generally do not have the same formal internal control elements in place as in TANF. For example, officials in Virginia told us TANF fraud is more under control than child care fraud because there are more institutional processes in place to manage improper payments. They noted these processes are holdovers from the old AFDC program, and pointed out that eligibility workers are more aware of improper payment activities in TANF because of the training they received under AFDC. Along these lines, CCDF officials in Virginia told us they do not have any performance goals or measures for reducing improper payments, and pointed out that internal controls aimed at reducing fraud for the CCDF program are relatively new. In addition to performance goals and reporting requirements, each TANF and CCDF program reviewed reported performing a variety of activities to verify the accuracy of information to determine client eligibility and the proper payment amount, as shown in table 7. For example, Illinois officials told us they verify among other things: income, assets, residency, relationship of members in household, age, school attendance, and child support payments, for all appropriate household members to determine TANF eligibility. In addition, any caseworker or member of the public who is suspicious of welfare fraud is encouraged to complete a one-page on-line form that is submitted to Illinois’ Office of Inspector General. Fraud investigations are then initiated, if warranted. As the list of activities in table 7 demonstrates, many CCDF programs report that they verify the accuracy of payments to providers as well as clients, although this occurs in a variety of ways given the flexibility provided to states under CCDF. All CCDF programs surveyed reported that they confirm the licensing status of regulated child care providers before payments are made and most conduct background checks for providers. For example, in Texas, CCDF funds are monitored in a two-tier system. CCDF funds are distributed by the state to 28 local boards that contract out the CCDF program. Contract monitors at the state level identify questionable costs from the boards, while contractors monitor the individual providers’ contracts at the local level. Some child care providers are not required to be licensed, and some CCDF officials reported having a more difficult time monitoring payments to these types of providers. These legal provider arrangements (referred to as unregulated or unlicensed providers) are generally established by parents and frequently involve care by a family member. Under CCDF, states are to allow parents to make their own decisions on the type of child care used, as long as they choose a legally operating provider. CCDF officials in Virginia told us there might be more potential for fraud among unregulated providers because the officials have little knowledge about unregulated providers, and do not feel they have enough tools in place to monitor the legitimacy of all unregulated providers. In addition to activities taken by states to help ensure initial eligibility, all states surveyed reported requiring additional check-ins with clients to ensure that their eligibility status has not changed (often referred to as a redetermination). Most states surveyed said that they require a redetermination at least once every 12 months for both programs, although the method of check-in is generally more flexible for the CCDF program. For example, the majority of TANF programs require clients to visit the TANF office in order to continue receiving benefits. Conversely, most CCDF programs allow clients to check in by phone, fax, e-mail, or mail. This difference may be explained by state welfare programs’ long history of requiring periodic office visits for families to continue receiving monthly checks. In contrast, the newer CCDF program can be characterized as an important support for working families not associated with traditional welfare and the welfare office. Virginia CCDF officials told us redetermination methods stem from the philosophy that clients should not have excessive requirements to meet agency representatives face-to-face. A CCDF official in Washington echoed this sentiment when she told us benefit interviews are never meant to interfere with a client’s work or training schedule. These views are consistent with CCDF’s objective to assist parents with child care so that they can enter or remain in the workforce. One specific activity all the states reported relying on to help identify accurate eligibility information was data sharing, although the extent of use varied. Data sharing, a key control activity, allows comparison of information from different sources to confirm initial and continuing client or provider eligibility. All states reported performing at least one data sharing activity; however, the amount of data sharing varies greatly between the TANF and CCDF programs. Among the states we surveyed, while the majority of TANF programs reported data matching with at least 10 sources, the CCDF programs reported data matching with significantly fewer sources. For example, while all of the TANF programs we surveyed reported sharing data with the state department of labor or employment security to ensure that clients are correctly reporting their income levels, only 3 of 11 CCDF programs reported doing the same. Appendix II summarizes data matching results from all surveyed states. The extent to which states reported using data sharing capabilities in TANF and CCDF programs varied by program, in part because state TANF programs are more likely to have automated information systems that can help them analyze large amounts of data from other sources. Some possible explanations for this difference may be the greater maturity of the TANF program and the existence of data sharing requirements for TANF that do not exist for CCDF. Additionally, under TANF’s predecessor (AFDC), the federal government funded a large portion of state-run automated computer system costs in earlier years. Recognizing the importance of automated systems in efficiently and accurately determining eligibility, Congress acted to encourage states to develop automated systems for the AFDC program by authorizing ACF to reimburse states for a significant proportion of their total costs to develop and operate automated eligibility determination systems that met federal requirements. Under PRWORA, states may use their TANF or CCDF funds for their automated system needs, although no specific federal requirements exist for these systems. The level of sophistication of data sharing practices varied in the states we visited. For example, CCDF officials in Washington have implemented a complex automated system that allows them to find duplicate payments. Another automated data sharing resource frequently used with TANF programs is the Public Assistance Reporting Information System (PARIS). PARIS helps states voluntarily share information on public assistance programs to identify individuals or families who may be receiving benefit payments in more than one state simultaneously. Almost half of the TANF programs surveyed participate in PARIS. No CCDF programs surveyed participated in PARIS because the project was designed especially for Medicaid, food stamps, and TANF. ACF officials said they are considering the possibilities of PARIS for the CCDF program. Not all data matching is done with automated systems however. Georgia CCDF officials told us they had conducted a match with Head Start to ensure that families are not being paid twice for child care. To conduct this match Head Start program officials provided CCDF administrators with a printed list of enrolled children, and officials cross-referenced the list to look for duplication. Officials noted that the process would have been more efficient if it were automated, but speculated that a lack of funding or on-going partnership may be reasons the process was not computerized. While states reported having implemented many prevention and detection tools to manage improper payments, it is difficult to determine the relative effectiveness of these efforts. If states routinely performed comprehensive risk assessments or rigorously measured improper payments, it would be easier to understand the effect of these efforts. Without such strategies, success of these initiatives cannot be quantitatively determined, and the return on investment is unknown. While the states visited and surveyed understand the importance of addressing improper payments, many cited factors that make it difficult for them to address improper payments. Table 8 highlights the most frequently cited factors and demonstrates that many concerns were similar for the TANF and CCDF programs. Factors frequently cited in both programs include competing demands for staff attention and the lack of staff working specifically on improper payments. Based on their survey responses, one reason states often face competing demands is because they place their greatest focus on key mission goals, such as moving TANF clients into employment and meeting clients’ child care needs. This is consistent with the transformation in the federal welfare program from a cash welfare entitlement program to an employment program. Officials in some of our site visit states noted that the shift from AFDC to TANF changed the focus of the program. For example, Washington state officials said the TANF program emphasizes assisting the recipient with the tools needed to obtain and maintain employment. Illinois state officials also identified activities other than payment accuracy as their primary focus in meeting TANF program goals, such as providing income supports including child care assistance and transportation. Related to these factors are states’ concerns about insufficient funding, with about half of the states citing this as a factor for TANF and CCDF. We also heard this concern from some of the state auditors we spoke with in site visit states; the auditor general in one state said that his office has not conducted any reviews of the TANF and CCDF programs outside of the single audit within the past few years, in part due to resource limitations and the loss of staff within the department. Among CCDF officials, survey respondents were also less likely to have focused on managing improper payments and more likely to have focused on other aspects of their program, such as matching clients with providers. For example, Kansas CCDF officials were concerned that policies and monitoring activities developed to prevent improper payments and fraud could become overly burdensome, thereby possibly limiting the quality of services they provide to the children and families they serve. Officials also cited a lack of staff dedicated solely to addressing improper payments as problematic for both the TANF and CCDF programs. For example, Illinois officials said they have fraud cases that are not investigated due to small staff ratios per case or loss of staff. Likewise, Virginia officials stated that there is a lack of investigator staff to pursue fraud cases. States’ concerns about how best to use limited resources highlight the importance of risk assessment as a key element of sound internal control systems. Risk assessment activities allow an organization to focus often limited resources on the most significant problem areas and determine where risks exist, what those risks are, and what needs to be done to address the identified risks. This helps to ensure that public funds are used appropriately and clients receive the proper benefits, thereby helping meet the program’s mission and goals. Officials also cited problems that were more prevalent in one program than the other. In the TANF program, officials expressed more concern about the reluctance of law enforcement to prosecute low dollar value cases. For example, TANF officials in Virginia told us about law enforcement officials’ reluctance to prosecute improper payment cases unless they reach a certain dollar amount. The commonwealth attorney in each county determines the threshold for prosecuting these cases. On the other hand, CCDF officials frequently cited their limited ability to use SSNs for data sharing as a problem. While the Social Security Act and implementing regulations require SSNs as a condition of eligibility for the TANF program, no such law exists for the CCDF program. States may not require SSNs for the CCDF program without violating the Privacy Act of 1974. States may request that applicants provide their SSNs but must make clear that supplying the numbers is not required as a condition of receiving services. HHS has told states they may use alternatives (such as a unique case identifier) to the SSN to verify non-applicant income and resources when determining eligibility and benefit levels of applicants. Regardless of HHS’s position on this issue, CCDF officials in Illinois reported that the inability to require SSNs presents the potential for fraudulent payments. Similarly, CCDF officials in Florida reported that they would like SSNs to be required at the federal level, because they believe the effectiveness of data sharing is limited when parents are allowed to report them voluntarily. On the other hand, at least one state we reviewed addressed this issue in its CCDF program by asking for SSNs, but noting that the provision of them is voluntary. This state said that clients provided SSNs in all but 2 percent of cases. In addition to the SSN issue, CCDF officials often cited insufficient funding as a factor that hinders their efforts to address improper payments. For example, Washington state CCDF officials said they do not have enough money to improve improper payment identifications and recoveries because CCDF rules cap administrative costs at 5 percent of the grant, and improper payment identification is a very labor-intensive process. Similarly, Virginia CCDF officials told us the reason they do not have enough staff dedicated to addressing improper payments is a result of the funding restrictions imposed by the CCDF’s administrative cap. While some states saw the administrative cap as a limitation, others did not. Nationwide, the average portion of total funds spent on administrative costs in the CCDF program is about 3 percent. In addition, states may structure their programs to use state maintenance of effort funds (required to receive a portion of their CCDF funds) for these costs because no administrative cap exists on these state funds. ACF officials explained that some activities related to identifying and addressing improper payments may not be considered administrative activities to be included under the cap. For example, eligibility determination and redetermination, training of child care staff, and the establishment and maintenance of computerized child care information systems are not to be considered administrative activities, and these activities can play an important role in states’ efforts to combat improper payments. At the same time, CCDF regulations state that activities such as program monitoring; audit services, including coordinating the resolution of audit and monitoring findings; and program evaluation are considered administrative. States’ choices about how they design and structure their internal control activities affect the extent to which the administrative cap may limit their efforts. HHS relies on the single audit process and financial expenditure reporting to monitor state compliance with federal guidelines and oversee whether states expend federal funds properly. These mechanisms, however, do not capture information on the various strategies and tools that states have in place for managing improper payments. In the absence of such information, HHS cannot adequately determine if the TANF and CCDF programs are susceptible to significant improper payments, as required by the Improper Payments Act. HHS officials acknowledge that they will need information on state activities to manage improper payments if they are to comply with the Improper Payments Act. As a result, HHS recently started several projects to collect information from selected states. HHS also initiated several projects to encourage state use of certain tools in managing improper payments, such as data matching capabilities. Several states in our review reported that they would like additional assistance from HHS in identifying effective practices for managing improper payments. While HHS’s projects are a good start, they do not provide mechanisms to gather information on state control activities on a recurring basis. The absence of such mechanisms could hinder HHS’s ability to assess the extent to which program payments may be at risk and comply with the Improper Payments Act. HHS is required to annually review the TANF and CCDF programs to determine if they are susceptible to significant improper payments. The Improper Payments Act also requires agencies to estimate the amount of improper payments if a program is determined to be susceptible to significant improper payments. HHS needs information on the various controls that states have in place to minimize improper payments in order to adequately assess risk. In preparing its 2004 review of TANF and CCDF, HHS used findings from single audit reports, the key activity that HHS relies on to monitor state fiscal activities. Single audits assess whether states have complied with requirements in up to 14 managerial or financial areas, including allowable activities, allowable costs, cash management, eligibility, reporting, period of availability of funds, procurement and subrecipient monitoring. Audit findings in many of these areas often identify control weaknesses that can lead to improper payments. Based on an analysis of single audit findings, particularly findings related to eligibility and allowable cost, HHS concluded in its January 2004 review that there were no systemic problems or improper payment trends in the TANF and CCDF programs. HHS also concluded that only a very small percentage of program costs have been classified as misspent funds based on the rate of questioned costs included in the Single Audit reports, which according to HHS, has been less than .1 percent of program costs in recent years. While single audit findings as well as the amounts of unallowable or questioned costs that the audits identify are useful in determining the potential for improper payments in the TANF and CCDF programs, the audits are not designed to provided a complete description of the methods and activities that the states use to minimize improper payments. Questioned costs identified in single audits are also not intended to provide an estimate of the total amount of improper payments, and the methods used to derive questioned costs are not consistent among state auditors. For example, we observed variation in the methods that auditors used to identify questioned costs when testing whether TANF payments are accurate according to states’ eligibility and payment criteria. In reviewing the fiscal year 2002 and 2001 single audit reports for the five states we visited, we noted that some samples were selected statistically so that any questioned costs could be projected to all TANF payments and others were not. Also, some auditors determined that payments were improper if case files were missing or incomplete while others identified improper payments based on the specific eligibility criteria that clients failed to meet. HHS also reported that it considered information from its reviews of state expenditure reports in determining if TANF and CCDF payments were susceptible to significant improper payments. Federal guidelines require states to report on the expenditure of TANF and CCDF funds on a quarterly basis. HHS reported that its review of these reports helps to ensure that states are properly expending TANF and CCDF funds. However, regional office staff said that few resources are devoted to financial expenditure reviews and that the reviews are limited in identifying improper payments because expenditures are reported on a summary level and states are not required to submit detailed financial reports that they would need to identify improper payments. As a result, these reviews provide little useful information in assessing the risk of improper payments. Also, HHS reported that it gains access to information about state practices and activities from the TANF and CCDF plans that PRWORA requires states to submit to HHS, although this information is not used directly to monitor state fiscal activities. The state plans describe the practices that states use to meet the key objectives and federal requirements of the TANF and CCDF programs. Further for TANF plans, states are required to certify that they have procedures in place to combat fraud and abuse. However, states are not required to describe these procedures in their TANF plans. Similarly, CCDF plans do not require states to describe the procedures that they have in place to combat fraud and abuse but HHS officials report that they often gain an understanding of state procedures in reviewing and approving these plans. HHS officials acknowledged that HHS’s monitoring activities do not provide enough information to determine if TANF and CCDF programs are susceptible to significant improper payments. In our most recent report on governmentwide improper payments initiatives, we reported that HHS did not include information on TANF and CCDF improper payments in its Performance and Accountability Reports for fiscal year 2003, as required by OMB guidance for implementing the Improper Payments Act. The TANF and CCDF programs are among the 46 programs that OMB required agencies to report the results of their improper payment efforts in the Management Discussion and Analysis section of their accountability reports for fiscal year 2003. Specifically, we reported that HHS did not report improper payment amounts, initiatives to prevent and reduce improper payments, or impediments to preventing or reducing them. HHS has started several initiatives intended to collect more information on state efforts to control TANF and CCDF improper payments. HHS has also started several initiatives to assist states in managing improper payments and to encourage state use of certain tools to minimize improper payments, such as data matching capabilities. These initiatives should help HHS begin to assess the risk of improper payments and send a strong signal to states that managing improper payments is an important issue. They should also help states understand that the information they provide HHS on the strategies and tools that they have in place to manage improper payments is critical to determining whether these programs are susceptible to significant improper payments. HHS’s initiatives to collect more information on state CCDF programs are under way, and HHS is already starting to compile the results. HHS officials developed the CCDF initiative in September 2003. The overall goals of the initiative are to improve monitoring and administration regarding improper payments and fraud, provide better definitions of child care errors and child care fraud, and gather documented “best practices.” HHS officials also expect to identify other technical assistance materials and any new information reporting needs for the states. As part of the CCDF initiative, HHS recruited a state agency official with experience in program integrity to help the Child Care Bureau oversee the initiative. According to HHS officials, key actions for completing the initiative include: Working with selected states to determine whether there is an effective and cost efficient approach or methodology for estimating improper payment amounts in the CCDF program. Conducting visits to some of the selected states to observe the internal control and other activities they have in place to manage improper payments. Coordinating with the HHS Office of the Inspector General to provide training and technical assistance on improper payments and fraud to state CCDF officials. Coordinating with the United Council on Welfare Fraud and the American Public Human Services Association to discuss child care fraud and other issues. HHS is working with 11 states (Arkansas, Connecticut, Georgia, Indiana, Maryland, Ohio, Oklahoma, Oregon, South Carolina, Virginia, and Wisconsin) on the project. According to HHS officials, these 11 states provide experience in dealing with erroneous payments, knowledge of the capacity of their automated systems, and strong working relationships among key state agencies. In addition, both centralized and county-based organizational structures are represented in the 11 states. HHS held initial meetings with the 11 states during November 2003, in Washington, D.C. State officials such as child care administrators, fraud directors, quality assurance directors, auditors, and investigators participated in the meetings along with HHS Child Care Bureau and regional office staff. During the meetings, states discussed various approaches to controlling errors and fraud. In addition, the Child Care Bureau has conducted a number of conference calls with states, including one on PARIS. Since the November meeting, HHS has completed site visits to two states, Connecticut and Arkansas, and plans to complete visits to three other states—Indiana, Ohio, and Oklahoma—by the end of June 2004. HHS officials told us that they would compile all of the information from their visits into a report to analyze and identify possible options for estimating payment errors in the CCDF program and for improving program integrity. HHS expects to issue its report by September 2004. HHS has developed plans to implement three projects aimed at improving its monitoring activities for TANF and assistance to states. HHS is actively working with OMB on its implementation plans for the TANF projects to ensure that they strike the right balance between the authority that HHS has to oversee TANF, as set forth by PRWORA, and the requirements of the Improper Payments Act. The first project involves asking two states to volunteer for an expanded single audit review of their TANF programs by state auditors. Auditors are expected to conduct more detailed examinations of certain state controls, such as those used to determine that payments are in accordance with eligibility criteria and those controls used to oversee payments to entities that states contract with to provide TANF services. While this project only includes two states, HHS hopes to gain detailed knowledge of the adequacy of controls that states have in place to identify improper payments in all payment types. HHS said it plans to evaluate the first-year results of the project, report the information to OMB, and then decide upon second-year initiatives based on the initial results. According to HHS, it must still secure funding for these audits and obtain agreement from state auditors to perform the additional work. HHS is working with its Office of Inspector General to identify states to participate in the pilot project. The second TANF project involves collecting and sharing information on state activities to address improper payments. HHS is drafting a letter to states asking them for information on their “best practices” for addressing improper payments. HHS says the letter will request that states describe how they define improper payments in the state, the process used to identify such payments, and what actions are taken to reduce improper payments. HHS noted that the letter will make clear that a state's submission is voluntary. HHS also said it is working with OMB to ensure that the letter is in accordance with the oversight authority that HHS has under PRWORA and requirements under the Paperwork Reduction Act of 1995. According to HHS, it plans to establish a repository for the state submissions, which would be available to all states for viewing on an HHS Web site. The third project involves encouraging more states to use PARIS. PARIS is the interstate match program that was initiated to help state public assistance agencies share information to identify individuals or families who may be receiving or may have duplicate payments improperly made on their behalf in more than one state. In 2001, we reported on the usefulness of PARIS in identifying improper payments in the TANF program along with other programs for low-income individuals, such as food stamps and Medicaid. Currently only 22 states participate in PARIS. Other states reported that they do not participate in PARIS for various reasons, including the lack of data showing that participating would produce savings for their state. ACF officials say they have promoted state awareness of PARIS at conferences and ACF staff currently participate as members of the PARIS board of directors. In addition, HHS’s proposed fiscal year 2005 budget includes $2 million for PARIS activities. HHS plans to use $500,000 of the $2 million for contractor support to conduct an evaluation of participant states' PARIS activities to (1) establish a valid and reliable method for calculating the costs and benefits of participating in PARIS and (2) disseminate data on cost and benefits to other states. HHS also plans to devote a full-time equivalent position to manage the PARIS project. In carrying out these projects for TANF and CCDF, HHS expects to also provide more assistance to states in managing improper payments. Several states that we surveyed said they would like additional assistance from HHS in this area. We specifically asked states the following: To what extent, if any, have you received assistance from HHS (regional or headquarters) regarding identifying and managing improper payments in your state’s TANF and CCDF programs--assistance such as responses to state queries, any written guidance, any Web-based HHS information, conference, presentation, etc.? Many of the states we surveyed reported that they did not receive assistance from HHS regarding managing improper payments. As figure 7 shows, states reported that HHS generally provided little to no assistance for the CCDF program and moderate to some assistance for the TANF program on this topic. Several states said they would like additional assistance from HHS in managing improper payments. We also asked states if they would like assistance from a variety of national organizations, recognizing that other organizations play an important role in advising states on how to operate their TANF and CCDF programs. TANF officials most frequently indicated they would like assistance from the National Council of State Human Services Administrators (NCSHS) and the United Council on Welfare Fraud (UCOWF), while the CCDF officials primarily wanted assistance from the National Child Care Information Center (NCCIC). Regarding assistance from HHS, most states indicated that they would like additional assistance identifying and disseminating promising practices for managing improper payments, as figure 8 illustrates. Additionally, most CCDF programs reported that they would like HHS to provide guidance on what the federal law requires and allows with respect to improper payments. The projects for TANF and CCDF should help improve HHS monitoring activities as well as assistance to states. If successfully implemented, the projects will begin to provide HHS with a baseline of information on the various controls that states have in place for managing improper payments and thus improve HHS’s ability to determine if the TANF and CCDF programs are susceptible to significant improper payments. However, HHS projects do not provide mechanisms to gather information on state control activities on a recurring basis. The absence of such mechanisms hinders HHS’s ability to adequately assess the risk of improper payments and assist states in managing improper payments in these multi-billion dollar programs on an ongoing basis. The extent to which the TANF and CCDF programs are vulnerable to improper payments cannot be determined given the information currently available nationwide and in the 16 states we reviewed. Given the dollar magnitude of these programs—about $34 billion in federal and state funds—and the nature of their activities, we know that potential risks exist. We also know—based on our review of the 16 states--that states have some prevention and detection tools in place and at least some understanding of the extent of program risks, although some unevenness exists among states and between the TANF and CCDF programs in these areas. What is not known, however, is the extent to which states’ internal control systems are sufficient to protect these programs against an unnecessarily high level of improper payments. While we acknowledge that states have a great deal of discretion in TANF and CCDF, HHS continues to have a fiduciary responsibility to ensure that states properly account for their use of federal funds and maintain adequate internal controls over the use of funds. In addition, it has requirements under the Improper Payments Act to assess the significance of risks for improper payments, which it cannot do with the information currently available. As a result, HHS needs mechanisms to gather information on state control activities on a recurring basis. HHS may determine that it needs legislative action in obtaining information from states. HHS may also require a shift in resources or additional resources to implement its efforts. It is essential that HHS move ahead with and expand its actions to better understand the internal control systems that states have in place and the extent to which program payments may be at risk. It can also play an important role in exploring the usefulness of expanding data sharing systems like PARIS to state CCDF programs. In the short term, program funds lost to fraud and abuse or used to support ineligible families mean other needy families cannot be helped. In the longer term, it means that federal resources may not be used as effectively and efficiently as possible to meet important federal goals. Insufficient attention to addressing improper payments can erode public confidence in and support for these programs. As HHS moves forward, attention must be paid to carefully balancing the flexibility allowed states under law and the need for accountability for federal funds. To better assist states in managing improper payments in the TANF and CCDF programs and comply with the Improper Payments Act, we recommend that the Secretary of Health and Human Services direct the Assistant Secretary of ACF to take the following four actions: Develop mechanisms to gather information on a recurring basis from all states on their internal control systems for measuring and minimizing improper payments. Follow through on efforts to identify practices that states think are effective in minimizing improper payments and facilitate sharing of these with other states. Where appropriate, partner with states to assess the cost-effectiveness of selected practices. Explore the feasibility of expanding PARIS to include CCDF, in addition to TANF, including a study of the cost-effectiveness of such a plan. In recommending these approaches, we recognize that HHS may determine that it needs legislative action to direct states to provide the information. We also recognize that these approaches may require a shift in resources or additional resources. ACF provided written comments on a draft of this report; these comments appear in appendix III. It also provided technical comments that we incorporated as appropriate. We also provided a draft of the report to the American Public Human Services Association, the professional organization of state welfare officials, which provided technical comments that we also incorporated as appropriate. In its comments, ACF said that the report provides HHS with new and useful information. It also expressed concerns about our recommendation for collecting information on state internal controls as it relates to the TANF program and said we did not address its ongoing initiatives. Regarding CCDF, ACF said it welcomed our examination of improper payments in CCDF and added that our work complements its ongoing initiative to examine state efforts to address improper payments. While it did not specifically state that it agreed with our recommendations as they pertain to CCDF, it noted that its new efforts to examine child care improper payments are still in the early stages and it is committed to considering a wide range of options for possible next steps. ACF also noted that our findings on states' views about the level and usefulness of ACF technical assistance related to improper payments may not reflect its recent and growing level of effort it provides states in this area. We generally spoke with and surveyed states between December 2003 and February 2004. As a result, the time period of our review would not cover ACF's most recent efforts. Regarding TANF, ACF agreed that new and improved information from states would enable HHS to better help states address improper payments. It also stated, however, that it believed that the assessment of risk called for under the Improper Payments Act must be made within the statutory framework of the TANF program, which places constraints on ACF to regulate state TANF programs. Within this statutory framework, ACF thinks its plan for acquiring additional information and assessing risk is adequate. It also expressed concern that the draft report did not adequately portray the regulatory constraints, particularly in its summary sections. In the draft report, we clearly stated the regulatory restrictions and noted that HHS may need to pursue additional legislative authority to collect the information needed on state internal control systems to assess program risk levels. We have added more of this information to our summary sections. We also recognize, and discuss in the draft report, that ACF has plans to ask states to provide voluntarily more information on their efforts to address improper payments in order to share that information with all states. We agree that this is an important effort; we found that states in our review often reported wanting more assistance from HHS on identifying promising practices in this area. However, ACF will need to expand upon this effort or pursue additional strategies to ensure it has information of sufficient detail to gain an understanding of states' internal control systems. Its current data collection strategy is not likely to lead to information of sufficient detail to adequately assess the risk of improper payments on a recurring basis. In addition, ACF said the draft did not address the relevant initiatives it has undertaken or will undertake during fiscal years 2004 and 2005 and it provided information on these initiatives. We disagree. Our draft discussed all of the initiatives for the CCDF and TANF programs that ACF noted in its comments. We did, however, enhance portions of the discussion based on information provided by ACF in its comment letter. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from its date. At that time, we will send copies of this report to the Secretary of Health and Human Services and others who are interested. In addition, this report will be available at no charge on GAO’s Web site at http://www.gao.gov. We will also make copies available to others upon request. If you or your staff have any questions about this report, please contact Linda M. Calbom on (202) 512-9508 or [email protected] or Cynthia M. Fagnoni on (202) 512-7215 or [email protected]. Additional GAO contacts and acknowledgments are provided in appendix IV. We designed our study to provide information on (1) what selected states have done to manage improper payments in the Temporary Assistance for Needy Families (TANF) and Child Care and Development Fund (CCDF) programs, and (2) what the Department of Health and Human Services (HHS) has done to assess risk and assist states in managing improper payments in these programs. To obtain information about these objectives, we developed a data collection instrument for state TANF directors and a separate one for state CCDF administrators, conducted in-person interviews with state TANF and CCDF program officials and state fraud officials, conducted telephone interviews with state auditors, reviewed information from our prior work, and conducted work at the federal level. In addition, we interviewed or consulted officials with professional associations including the American Public Human Services Association and the United Council on Welfare Fraud. We provided a draft of this report to APHSA and HHS. HHS’s comments are included in appendix III and technical comments from HHS and APHSA were incorporated as appropriate. We conducted our work from April 2003 through May 2004 in accordance with generally accepted government auditing standards. To obtain information for this report, we judgmentally selected 16 states that reflect variations in the following characteristics: geographic location, level of TANF and CCDF program expenditures, and size of population. As part of our analysis, we sent data collection instruments to 11 states: California, Colorado, Florida, Idaho, Kansas, Maryland, Michigan, New Mexico, New York, Ohio, and Pennsylvania. We also visited 5 other states: Georgia, Illinois, Texas, Virginia, and Washington. Table 9 provides information on the amount of TANF expenditures for the 16 states in our review and each state’s TANF expenditure as a percentage of the U.S. total. The table also shows that together these states represent about 70 percent of total U.S. TANF expenditures. Table 10 provides information on the number of families and children served by the TANF program and the percentage of TANF expenditures attributed to cash assistance payments for the 16 states in our review. Table 11 provides information on the amount of CCDF expenditures, average number of children served, and the state CCDF expenditure as a percentage of the U.S. total for the 16 states in our review. The table also shows that together these 16 states represent almost 60 percent of total U.S. CCDF expenditures. Table 12 provides information on the number of providers operating in the selected states we reviewed and the percentage of those providers operating without regulation. Some limitations exist in any methodology that gathers information about programs undergoing change, such as those included in this review. Although we did not collect information on the entire population of states and therefore cannot generalize our findings beyond the 16 states in our review, we have used the information for descriptive/illustrative purposes. To obtain information on what selected states have done to manage improper payments in the TANF and CCDF programs, we surveyed states using a data collection instrument (DCI) for each program in 11 states. These DCIs were identical in many respects to allow comparisons between the two programs; the instruments differed to the extent necessary to capture different conditions and factors in each program. We pretested the instruments in two states with the key TANF and CCDF officials responsible for program administration and program integrity. In addition, we showed the instruments to and received input from Administration for Children and Families (ACF) officials at HHS. Separate data collection instruments were mailed to TANF directors and Child Care administrators in December 2003, and follow-up phone calls were made to state TANF and CCDF officials whose DCIs were not received by January 9, 2004. We addressed DCIs to each state TANF director and child care administrator and requested he or she to consult with other state officials who were most familiar with efforts taken to manage and identify improper payments to complete the DCI. We received responses from all 11 of the state TANF directors and 11 child care administrators, although each state did not respond to all questions. We did not independently verify the information obtained through the DCI, other than for specific dollar amounts for which we asked states to provide documentation. Data from the DCIs were double-keyed to ensure data entry accuracy and were independently verified. In addition, the information was analyzed using approved GAO statistical software (SAS). The DCIs included questions on an assessment of risk to decide the nature and extent of improper payments in the TANF and CCDF programs; other actions taken to prevent, identify, and reduce improper payments, including fraudulent payments in the TANF and CCDF programs; and assistance and guidance from HHS and other sources. The practical difficulties of conducting any survey may introduce errors, commonly referred to as nonsampling errors. For example, difficulties in how a particular question is interpreted, in the sources of information that are available to respondents, or in how the data are entered into a database or were analyzed can introduce unwanted variability into the survey results. We took steps in the development of the survey instrument, the data collection, and the data analysis to minimize these nonsampling errors. For example, a survey specialist designed the survey instrument in collaboration with GAO staff with subject matter expertise. Then, as stated earlier, it was pretested to ensure that the questions were relevant, clearly stated, and easy to comprehend. When the data were analyzed, a second, independent analyst checked all computer programs. To obtain information about each assignment objective and, in particular, an understanding of the steps states have taken to identify and address improper payments, we interviewed state officials in Georgia, Virginia, Illinois, Texas, and Washington. We met with state TANF, CCDF, and fraud officials in these states. The interviews were administered using an interview guide that included questions similar to those on the DCIs. To obtain additional perspectives on TANF and CCDF mechanisms to manage improper payments, we conducted observations at local offices in the following locations: Springfield, Illinois; Austin, Texas; and Tumwater, Washington. In addition, we interviewed state auditors in the 5 states we visited and we analyzed state single audit reports conducted under Office of Management and Budget’s (OMB) Circular A-133 for 15 of the 16 states in our review. We also reviewed documents provided by states that described their programs and internal control systems and that corroborated any data officials provided on the amounts of improper payments. Review of Federal Role To identify steps HHS has taken to assess risk and assist states in managing improper payments in the TANF and CCDF programs, we identified and reviewed policies and procedures that described HHS’s oversight activities; observed key oversight activities at an HHS regional office; reviewed documents, plans, and strategies for identifying improper payments; and interviewed ACF finance and program officials. We also reviewed results of audits done under OMB’s Circular No. A-133 and the Single Audit Act. Other human services programs in agency/ state State department of labor or employment security State directory of new hires State department of motor vehicles Public Assistance Reporting Information System Prisons and criminal justice agencies at state level Other providers of services, education, and training Social Security Administration (SSA) form W-2 (wage statements) Elspeth Grindstaff, Amanda Mackison, Kathryn Peterson, Cynthia Teddleton, and Kris Trueblood made major contributions to this report. Jerry Sandau provided technical assistance in analyzing data. Financial Management: Fiscal Year 2003 Performance and Accountability Reports Provide Limited Information on Governmentwide Improper Payments. GAO-04-631T. Washington, D.C.: April 15, 2004. Financial Management: Effective Implementation of the Improper Payments Information Act of 2002 Is Key to Reducing the Government's Improper Payments. GAO-03-991T. Washington, D.C: July 14, 2003. Single Audit: Single Audit Act Effectiveness Issues. GAO-02-877T. Washington, D.C.: June 26, 2002. Welfare Reform: Federal Oversight of State and Local Contracting Can Be Strengthened. GAO-02-661. Washington, D.C.: June 11, 2002. Welfare Reform: States Provide TANF-Funded Work Support Services to Many Low-Income Families Who Do Not Receive Cash Assistance. GAO- 02-615T. Washington, D.C.: April 10, 2002. Single Audit: Survey of CFO Act Agencies. GAO-02-376. Washington, D.C.: March 15, 2002. Human Services Integration: Results of a GAO Cosponsored Conference on Modernizing Information Systems. GAO-02-121. Washington, D.C.: January 31, 2002. Means-Tested Programs: Determining Financial Eligibility Is Cumbersome and Can Be Simplified. GAO-02-58. Washington, D.C.: November 2, 2001. Strategies to Manage Improper Payments: Learning From Public and Private Sector Organizations. GAO-02-69G. Washington, D.C.: October 2001. Public Assistance: PARIS Project Can Help States Reduce Improper Benefit Payments. GAO-01-935. Washington, D.C.: September 6, 2001. Welfare Reform: Challenges in Maintaining a Federal-State Fiscal Partnership. GAO-01-828. Washington, D.C.: August 10, 2001. Medicaid: State Efforts to Control Improper Payments Vary. GAO-01-662. Washington, D.C.: June 7, 2001. The Challenge of Data Sharing: Results of a GAO- Sponsored Symposium on Benefit and Loan Programs. GAO-01-67. Washington, D.C.: October 20, 2000. Benefit and Loan Programs: Improved Data Sharing Could Enhance Program Integrity. GAO/HEHS-00-119. Washington, D.C.: September 13, 2000. Standards for Internal Control in the Federal Government. GAO/AIMD- 00-21.3.1. Washington, D.C.: November 1999. 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Minimizing improper payments is important given the dollar magnitude of the Temporary Assistance for Needy Families (TANF) and Child Care and Development Fund (CCDF) programs--about $34 billion in federal and state funds expended annually. These block grants support millions of low-income families with cash assistance, child care, and other services aimed at reducing their dependence on the government. At the federal level, the Department of Health and Human Services (HHS) oversees TANF and CCDF. Within states, many public and private entities administer these programs and share responsibility for financial integrity. GAO looked at (1) what selected states have done to manage improper payments in TANF and CCDF and (2) what HHS has done to assess risk and assist states in managing improper payments in these programs. To address these questions, GAO judgmentally selected states that varied in geographic location and program size. GAO used a survey to collect consistent information from 11 states and visited 5 states. The 16 states in GAO's review reported using various strategies and tools to manage improper payments, but their efforts were uneven. Almost all the states in the review reported that they performed some activities to assess whether their programs were at risk of improper payments. These activities, however, did not always cover all payments that could be at risk, focusing, for instance, on cash welfare payments but not on payments for services, which were more than half of all TANF payments in certain states. As a result, the assessments do not provide a comprehensive picture of the level of risk in these state programs, which would be useful to HHS as it takes steps to address requirements under the Improper Payments Act. States also reported using a variety of prevention and detection tools to protect against improper payments, but states reported fewer tools in place for CCDF than for TANF, particularly in the area of data sharing to verify eligibility. Although the states in GAO's review recognized the importance of addressing improper payments, they cited competing demands for staff attention and resource limitations that constrained their efforts. While addressing improper payments does involve costs, comprehensively assessing risks can help focus prevention and detection efforts on areas at greatest risk. HHS reported using information from its monitoring activities, including single audits and state financial expenditure reporting to determine if the TANF and CCDF programs are at risk of improper payments. We found however, that these activities do not capture information about the various strategies and tools that states have in place for managing improper payments, such as those we observed in our review. In the absence of such information, HHS cannot determine if the TANF and CCDF programs are susceptible to significant improper payments, as required under the Improper Payments Act. HHS officials acknowledged that they needed more information to be in a position to carry out their responsibilities under the act and therefore recently initiated several projects to gain a better understanding of state control activities. However, HHS's projects do not provide mechanisms to gather information on a recurring basis. The absence of such mechanisms hinders HHS's ability to adequately assess the risk of improper payments and assist states in managing improper payments in these multibillion dollar programs on an ongoing basis. Given the statutory framework of the TANF program, GAO recognizes that HHS may determine that it needs legislative action to direct states to provide the information it needs to take this approach.

You are an expert at summarizing long articles. Proceed to summarize the following text: In 1980, the Comprehensive Environmental Response, Compensation, and Liability Act created the Superfund program to clean up highly contaminated hazardous waste sites. Under the act, EPA is authorized to compel the parties responsible for the contamination to perform the cleanup. EPA may also pay for the cleanup and attempt to recover the cleanup costs from the responsible parties. When EPA pays for the cleanup, the work is conducted by a private contractor who is directly hired by EPA, another federal entity, or a state. Superfund contractors study and design cleanups, as well as manage and implement cleanup actions at sites on the National Priorities List (EPA’s list of the nation’s worst hazardous waste sites) or at sites where there are immediate threats from hazardous wastes. In our 1998 report on contractor cleanup spending, we reported that for remedial action cleanups managed by EPA, about 71 percent of the costs charged by cleanup contractors was for the subcontractors who physically performed the cleanups—such as earthmoving and constructing treatment facilities. The remaining 29 percent went to the prime contractors for professional work, such as construction management and engineering services, and associated travel, overhead, and administrative costs and fees. For the purpose of this report, contractor cleanup work includes all Superfund spending for the study, design, and implementation of cleanups. The remaining Superfund spending is classified as cleanup support, which includes both site-specific and non-site-specific support. Site-specific support consists of Superfund activities linked to a specific hazardous waste site, such as supervising cleanup contractors and conducting site analyses. Non-site-specific support consists of activities related to the overall Superfund program, rather than a specific site, and includes activities such as financial management and policy development. The share of total Superfund expenditures for contractor cleanup work declined from about 48 percent in fiscal year 1996 to about 42 percent in fiscal year 1998. Over the same period, spending for site-specific support increased from about 16 percent of total Superfund expenditures to about 18 percent. Finally, the non-site-specific expenditures also increased from about 36 percent to over 39 percent. (See fig. 1.) As the figure shows, the share of Superfund expenditures used for contractor cleanup work decreased between fiscal year 1996 and fiscal year 1997, and again in fiscal year 1998. EPA officials could not explain these changes in detail because they had not analyzed Superfund costs in this manner and were unaware of this decline until we presented the results of our analysis. Similarly, EPA officials were unaware of, and therefore did not have an explanation for, the changes in the other cost categories shown in figure 1 above. The actual expenditures for contractor cleanup work, site-specific support, and non-site-specific support for fiscal years 1996 through 1998 are shown in table 1. Over the 3-year period of our analysis, the mix of spending for contractor cleanup work, site-specific support, and non-site-specific support varied substantially among EPA’s regions and headquarters units. (See fig. 2.) As shown in figure 2, the mix among contractor cleanup work, site-specific support, and non-site-specific support is substantially different between headquarters and the regions. This difference can be expected because headquarters functions are more related to administration and management, while the regions have primary responsibility for overseeing the implementation of cleanups. However, our analysis also identified substantial variation among the regions in the mix of their expenditures. Specifically, expenditures for contractor cleanup work ranged from a low of 42 percent in EPA’s Kansas City region to a high of 72 percent in EPA’s Boston and New York regions. Site-specific support spending ranged from a low of 12 percent in EPA’s New York region to a high of 29 percent in EPA’s Kansas City region. Non-site-specific support ranged from a low of 14 percent to a high of 30 percent among EPA’s regions. These differences in the relative shares of expenditures among these categories—more than double in some instances—raise questions about the factors underlying them. We discussed these variations with EPA headquarters officials. However, because EPA does not analyze Superfund expenditures in this manner, they did not have an explanation for the specific factors underlying these regional differences and whether they warrant action. We also examined EPA’s Superfund personnel costs because they account for a significant share of all Superfund support costs. In total, over the last 3 years, about 21 percent of EPA’s Superfund personnel expenses have been for site-specific functions and 79 percent for non-site-specific functions. As shown in figure 3, this breakdown varies substantially between regional personnel spending and headquarters personnel spending. Over the 3-year period of our analysis, Superfund personnel spending totaled about $722 million. Of this, about $547 million was for regional personnel spending, and the remaining $175 million was for headquarters personnel spending. Over this period, the breakdown between site-specific and non-site-specific personnel spending within the individual units (headquarters and each of the regions) remained relatively constant from year to year. However, we found that there was variation among the regions. For example, site-specific personnel spending for the 3-year period ranged from a low of 22 percent in one region to a high of about 33 percent in another region—a 50-percent difference between the lowest and highest regions. Because EPA headquarters does not analyze Superfund personnel costs in terms of the amount of site-specific and non-site-specific spending, the meaning of these differences is unclear. In 1996, EPA implemented improvements to its Superfund accounting system to better track Superfund expenditures. EPA expected that these improvements would help it compile more detailed cost information to support the agency’s efforts to recover costs from responsible parties and to improve internal tracking of Superfund financial data for management purposes. These improvements introduced over 100 categories to account for the activities that are paid for with Superfund money. Some of the categories capture activities that are site-specific, such as monitoring and supervising cleanups conducted by private parties, while other categories capture activities that are more administrative, such as maintaining automated data processing systems. We found that Superfund spending is not evenly distributed among all the activity categories. Three of the more than 100 categories accounted for over 60 percent of all Superfund support costs (both site-specific and non-site-specific). These three categories are defined by EPA as follows: General support and management—includes all activities associated with managing and evaluating costs for site characterization. Also includes the general support activities required to operate and maintain the Superfund program. Activities include, but are not limited to, the following contractual services: establishing, maintaining, and revising automated data processing systems, and conducting special studies to help determine programmatic direction in future years. General enforcement support—includes all activities associated with managing and evaluating the enforcement program. Activities include, but are not limited to, the following contractual services: establishing, maintaining, and revising automated data processing systems, and conducting special studies to help determine programmatic direction in future years. Remedial support and management—includes all activities associated with managing and evaluating the remedial program. Figure 4 shows EPA’s spending for non-site-specific and site-specific support. EPA’s non-site-specific spending was more concentrated in these three administrative categories than its site-specific spending. Specifically, about 78 percent of EPA’s non-site-specific spending was in the three administrative categories, compared to only 25 percent of the site-specific spending. Given the concentration of non-site-specific spending under these three categories, we conducted a detailed analysis of 1 year’s (fiscal 1997) non-site-specific spending under these three administrative categories for three EPA regions and the three headquarters offices that had the highest amount of Superfund spending—the Office of Administration and Resources Management, the Office of Enforcement and Compliance Assurance, and the Office of Solid Waste and Emergency Response. For the three regions, most of the non-site-specific spending was on personnel items—such as management, administrative, and secretarial support—and general support activities, such as financial management, facility management, public affairs, and contract management. We found that some of this spending represented cost allocations to the Superfund program, while other spending was more directly related to specific program activities. For example, in all three regions we found that some of the non-site-specific costs had been allocated to the Superfund program for its share of expenses, such as the regional administrator’s management, clerical, and administrative costs, regional motor pool expenses, and computer equipment and service costs. We also identified a few instances in which non-site-specific expenditures were more directly related to implementing cleanups, such as expenditures on annual physical examinations for staff who conduct field work at hazardous waste sites. Among the headquarters units, the Office of Administration and Resources Management had non-site-specific Superfund expenditures for items such as rent, information management, and facilities operations and maintenance. The Office of Enforcement and Compliance Assurance had non-site-specific expenditures for items such as overall program direction; policy development; and budgetary, financial and administrative support. This Office also incurred expenses for criminal investigations and for activities such as field sampling and laboratory and forensic analyses in support of criminal cases. These expenses were recorded as non-site-specific to protect the confidentiality of ongoing criminal investigations. The Office of Solid Waste and Emergency Response had non-site-specific expenditures for personnel functions, such as developing national strategy programs, technical policies, regulations and guidelines, and for providing program leadership for such activities as community involvement, program planning and analysis, contract management, information management, and human and organizational services. This Office also incurred non-site-specific expenditures for contracted functions such as worker training, analytic support for EPA’s contract laboratory program, and information management support. We also analyzed EPA’s spending for site-specific support activities for fiscal years 1996 through 1998. We found that about $184 million of the site-specific spending was in the three administrative categories. About $542 million was in the other more than 100 categories, for activities such as developing information for enforcement cases, overseeing cleanups at federal facilities, conducting site analyses and studies, overseeing private party cleanups, conducting laboratory analysis, and supervising cleanup contractors. EPA regularly monitors and performs analyses of Superfund spending. These analyses, however, do not examine the breakdown of Superfund expenditures in terms of contractor cleanup work, site-specific support, and non-site-specific support. The Director of the Superfund office responsible for resources and information management provided a summary of the activities EPA undertakes to manage Superfund spending, including: monitoring whether regions and units obligate funds at the expected rate and in accordance with the agency’s operating plan; conducting midyear reviews that focus on program accomplishments, contracts and grants, and resources management; reviewing contract management issues in all regions on a 3-year cycle; and monitoring inactive contracts to identify and deobligate funds that are no longer needed. EPA’s 1996 memorandum announcing improvements to its Superfund accounting system stated that one of the main benefits of the improvements would be to enable managers to more precisely account for site-specific and non-site-specific costs. The memo also stated that Superfund financial and programmatic managers would be able to track financial trends more accurately due to the increased level of financial detail now available in the accounting system. However, when we discussed our analyses with EPA officials, they told us that they do not perform the types of analyses we conducted. During the course of our work, we noted that another federal agency that deals with the cleanup of hazardous wastes—the Department of Energy—has been analyzing its costs using a functional cost reporting system since 1994. This system breaks costs down into functional categories—mission-direct and several categories of support costs, including site-specific support and general support. While not identical to the categories we used in our analyses, Energy’s functional cost categories are similar. In essence, Energy’s system compares the share of costs in the different categories among the agency’s operating units. If a unit’s costs in any given category vary significantly from the other operating units’, those costs are further analyzed to determine whether the differences are appropriate or whether they indicate areas for improvement. Department of Energy financial officials stated that the functional cost reporting system has resulted in support costs receiving increased attention by management and has been a helpful tool that has contributed to support costs declining faster than other costs—from 45 to 43 percent of total costs between fiscal years 1994 and 1997. Detailed analyses of expenditure trends over time and among regions and headquarters units can be a valuable tool in identifying potential cost savings. While EPA’s Superfund accounting system contains the data necessary to perform such analyses, EPA has not done so, even though tracking site-specific and non-site-specific costs more accurately was one of the major benefits anticipated when the 1996 system improvements were made. Given the variation in spending shares for contractor cleanup work, site-specific support, and non-site-specific support among EPA’s regional and headquarters units, we believe that conducting such analyses would be a valuable tool in helping the agency to ensure that its Superfund resources are being used as wisely as possible. In order to better identify opportunities for potential cost savings, we recommend that the Administrator, EPA, require the Assistant Administrator for Solid Waste and Emergency Response to expand the monitoring of Superfund expenditures to regularly analyze the breakdown of expenditures in terms of contractor cleanup work, site-specific spending, and non-site-specific spending. These analyses should compare such spending shares among EPA’s regional and headquarters units, and significant differences should be further analyzed to identify the underlying causes and to determine whether cost-saving corrective actions are warranted. We provided EPA with copies of a draft of this report for its review and comment. In a letter from EPA’s Acting Assistant Administrator for Solid Waste and Emergency Response, EPA disagreed with our characterization that EPA’s activities fall into three groups—contractor cleanup costs, site-specific support, and non-site-specific support—and stated that this division gives the erroneous impression that site-specific and non-site-specific support do not contribute substantially to the achievement of cleanups. We do not believe that our categorization of Superfund costs leads to this impression. In fact, the first paragraph of the report explicitly states that EPA undertakes a number of activities, both site-specific and non-site-specific, that support cleanups, including supervising cleanup contractors, compelling private parties to perform cleanups, and performing management and administrative activities. Furthermore, the body of the report provides numerous examples of the purposes served by both site-specific and non-site-specific spending. We believe that these examples demonstrate that many of the site-specific and non-site-specific support activities contribute to the achievement of cleanups. The purpose of our analyses was to disaggregate Superfund expenditures to provide more detailed information on the specific functions served by this spending. This analytic method can be used (and is being used by the Department of Energy) to identify cost category differences among operating units that can lead to potential cost savings. Our report does not attempt to define or determine which expenditures are “cleanup activities,” but rather to describe the purposes for which Superfund money has been expended. According to EPA, cleanup response spending includes “lab analysis, engineering and technical analyses, project manager salaries, State/Tribal activities, community involvement activities, and oversight of responsible parties and many other activities necessary to achieve cleanups.” We agree that these activities support the cleanup of sites, as stated in this report. However, when these support costs are aggregated into the larger category of cleanup response, it is unclear what share of these costs are for work related to specific sites, as opposed to general program expenditures. EPA also stated that our analyses failed to recognize Superfund appropriations used by other federal agencies. In fact, our analyses included Superfund expenditures by other federal agencies, and these expenditures were included under our site-specific and non-site-specific spending categories, as appropriate. The only substantial expenditures excluded from our review were made by the Agency for Toxic Substances and Disease Registry, because these expenditures are made directly by that agency and are not reported in EPA’s Superfund accounting system. EPA further stated that our analyses did not account for the expenditures private parties make to clean up Superfund sites that are the result of EPA’s enforcement expenditures. We did not analyze private parties’ expenditures to clean up hazardous waste sites because our focus was on federal Superfund expenditures. However, as part of our work for this assignment, we found that more than half of EPA’s fiscal year 1997 enforcement expenditures was for management and administrative activities. Notwithstanding EPA’s concerns as discussed above, the agency agreed to consider analyzing Superfund spending in terms of site-specific and non-site-specific obligations and expenditures, as we recommended. The full text of EPA’s comments is included as appendix II. We conducted our review from September 1998 through April 1999 in accordance with generally accepted government auditing standards. See appendix I for our scope and methodology. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to other congressional committees with jurisdiction over the Superfund program, and to the Honorable Carol M. Browner, Administrator, Environmental Protection Agency. We will also make copies available to others upon request. If you have any further questions about this report, please call me at (202) 512-6111. Major contributors to this report are listed in appendix III. To determine the share of annual Superfund spending for contractor cleanup work, site-specific support, and non-site-specific support for fiscal years 1996 through 1998, we obtained information from the Environmental Protection Agency’s (EPA’s) Integrated Financial Management System (IFMS). Using the IFMS information, we classified the cleanup support activities into spending for site-specific support and non-site-specific support for these fiscal years. We confirmed this classification with Office of Comptroller officials. In order to give a complete representation of cleanup support activities, we made one adjustment to the analyses included in our prior reports. Specifically, we included the costs for EPA personnel who supervise the cleanup contractors into the category for site-specific support. In our two prior reports, we had included these personnel in the contractor cleanup work category as EPA’s accounting system does. This change has the effect of reducing the percentage of contractor cleanup work by about 1 percent from the level we had previously reported. To determine what activities were carried out with EPA’s cleanup support spending, particularly its non-site-specific spending, we used the IFMS information. We categorized the spending by EPA’s budget action codes, which provided general activity descriptions for Superfund spending under the more than 100 action codes. To obtain more specific information for EPA’s non-site-specific spending, we selected three regional offices—Philadelphia, Chicago, and Kansas City—for sampling. Among EPA’s regions, the first two had the highest non-site-specific spending and the third had the lowest, based on fiscal year 1997 data, which was the most recent information for which we had a breakdown of total support spending at the time we made our selection. We also selected the three EPA headquarters units—the Office of Solid Waste and Emergency Response, the Office of Administration and Resources Management, and the Office of Enforcement and Compliance Assurance—with the highest levels of Superfund spending. We interviewed cognizant officials from the three regional offices and three headquarters units about the particular activities conducted under the various budget action codes for the non-site-specific spending, and obtained greater detail on the uses of this spending. In a 1995 report on the IFMS, we found instances of inaccurate and incomplete data in the system. While we did not consider these instances to be representative of the overall integrity of the IFMS data, we recommended that EPA conduct statistical testing of the data, which EPA has done. During the course of our current review, officials of EPA’s Office of Inspector General told us that in their opinion the IFMS has not led to any material misstatements in EPA’s 1996 and 1997 annual financial statements and that they believed that the IFMS information was reliable for the purposes of our review. Finally, in discussing spending activities with officials from EPA’s regional offices and headquarters units, we did not identify any material variations between the IFMS information and the underlying detailed records. To ascertain how EPA monitors and analyzes its regions’ and headquarters units’ spending of Superfund resources, particularly for contractor cleanup work, site-specific support, and non-site-specific support, we met with EPA headquarters officials. These officials included representatives from EPA’s Office of Solid Waste and Emergency Response—which is responsible for the Superfund program—and the Office of the Chief Financial Officer. We also obtained copies of pertinent documents describing EPA’s monitoring and analysis procedures and related reports. In addition, we met with Department of Energy officials and obtained documentation on their Functional Cost Reporting System. Richard P. Johnson, Senior Attorney The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. 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Pursuant to a congressional request, GAO provided information on the Environmental Protection Agency's (EPA) Superfund Program expenditures, focusing on: (1) the relative shares of Superfund expenditures for contractor cleanup work, site-specific support, and non-site-specific support; (2) the activities carried out with the EPA's cleanup support spending, particularly its non-site-specific spending; and (3) EPA's efforts to monitor and analyze how its regions and headquarters units spend Superfund resources, particularly the distribution of expenditures among contractor cleanup work, site-specific support, and non-site-specific support. GAO noted that: (1) over the last 3 years, the share of total Superfund expenditures for contractor cleanup work was about 45 percent in fiscal year 1998; (2) over this period, expenditures for non-site-specific support were about 38 percent, whereas those for site-specific support were about 17 percent; (3) however, GAO found substantial variation among EPA's regions in the shares of their expenditures devoted to each of these cost categories; (4) for example, spending for non-site-specific support ranged from a low of 14 percent in EPA's Boston region to 30 percent in EPA's San Francisco region; (5) EPA spends its support funds predominately on administrative activities; (6) although EPA classifies its Superfund expenditures into over 100 separate activity categories, GAO found that over 60 percent of all Superfund support expenditures (both site-specific and non-site-specific) were accounted for by three activities--general support and management, general enforcement support, and remedial support and management; (7) moreover, almost 80 percent of EPA's non-site-specific spending was concentrated on these three administrative activities; (8) for the three regions that GAO reviewed in detail, these non-site-specific expenditures were primarily personnel expenses for activities such as management, administrative and secretarial support, financial management, public affairs, and contract management; (9) for the three headquarters units that GAO reviewed in detail, this spending was on items such as rent, information management, facilities operations and maintenance, program and policy development, and budgetary, financial, and administrative support; (10) EPA monitors the Superfund spending of its regions and headquarters units in several ways, including tracking whether funds are obligated at the expected rate and in compliance with the approved operating plan, and monitoring program accomplishments; (11) however, EPA does not monitor or analyze the expenditures of its regions and units in terms of the relative shares of contractor cleanup costs, site-specific support costs, and non-site-specific support costs; and (12) conducting such analyses would provide EPA with an additional tool to identify potential cost savings in Superfund spending.

You are an expert at summarizing long articles. Proceed to summarize the following text: The annual number of fatalities from crashes involving large trucks increased by 20 percent from 4,462 in 1992 to 5,355 in 1997 (see fig. 1).This result reversed a trend of decreasing truck fatalities in the previous 5-year period, 1988 through 1992. Also from 1992 through 1997, the fatality rate—the number of fatalities per 100 million miles traveled by large trucks—has remained fairly constant at about 2.9 deaths per 100 million miles traveled after decreasing by 27 percent between 1988 and 1992. The recent increases in annual fatalities reflect, in part, increases in truck travel: the number of miles traveled increased by 25 percent from 1992 through 1997. If truck travel continues to increase at this rate, and nothing is done to reduce the fatality rate, the annual number of fatalities could increase to 5,800 in 1999 and to more than 6,000 in 2000 (see fig. 2). The Federal Highway Administration has established a goal for OMCHS for 1999 to reduce the number of fatalities from truck crashes to fewer than 5,126—the number of fatalities in 1996. This goal is substantially below our projected figure of 5,800 for 1999. While we are concerned that the number of fatalities from crashes involving large trucks could increase in the next few years, only about 1 percent of all truck crashes reported to police in 1997 resulted in a fatality. About 99 percent resulted in injuries or property-damage-only. From 1988 through 1997, the number of people injured each year increased overall from 130,000 to 133,000. During the same period, the number of injuries per 100 million miles traveled fell from 92 to 69. In addition, the annual number of crashes involving large trucks that resulted in property-damage-only increased from 291,000 to 329,000 while the number of these crashes per 100 million miles traveled decreased from 206 to 172. For each mile that they traveled from 1988 through 1997, large trucks were involved in fewer total crashes than cars were. However, large trucks were involved in a greater number of fatal crashes per mile traveled (see fig. 3). The higher fatal crash rate for large trucks is not surprising, considering the difference in weight between cars and large trucks. When there is such a mismatch in weight between the vehicles involved in a crash, the lighter one and its occupants tend to suffer more damage. In fatal crashes between cars and large trucks in 1997, 98 percent of the fatalities were occupants of the car. While no reliable information exists on the causes of crashes involving large trucks nationwide, some information exists on factors that may contribute to these crashes. These factors include (1) driver-related factors such as excessive speed, fatigue, inattentiveness, and reckless driving; (2) vehicle-related factors such as worn brakes, bald tires, and improperly secured loads; (3) road-related factors such as the type of road and how it is designed; and (4) environmental factors, such as bad weather and darkness. However, OMCHS does not know how many crashes are related to each of these factors because existing data bases do not contain sufficiently complete information on contributing factors. Without this information, OMCHS cannot effectively tailor its activities to address the factors that are most likely to contribute to truck crashes. One national data base contains information on factors that contribute to truck crashes. This data base is the Fatality Analysis Reporting System (FARS), maintained by the National Highway Traffic Safety Administration (NHTSA). However, FARS includes only fatal crashes, which represent only 1 percent of all truck crashes. Furthermore, it does not include a comprehensive list of factors nor does it rely on a thorough investigation of the crash scene to pinpoint factors that contributed most heavily to the crash. Despite its limitations, FARS has been used to estimate the number of crashes related to certain factors. Data from FARS indicate that car driver errors contribute to more fatal crashes between cars and trucks than do truck driver errors. In 1997, errors by car drivers were reported in 80 percent of the crashes, while errors by truck drivers were reported in 28 percent of the crashes. Safety groups have questioned the validity of these data because truck drivers, who are more likely to survive the crash than car drivers, have more opportunities to tell the officer at the crash scene their version of how the crash occurred. However, a recent study found that in fatal crashes in 1994 and 1995 in which both the truck driver and the car driver survived, car driver errors were cited in 74 percent of the crashes compared with 35 percent for truck driver errors. This finding provides some support for the hypothesis that, compared with truck drivers, car drivers contribute more to fatal crashes between large trucks and cars. On the basis of data from FARS and several studies involving in-depth crash investigations, OMCHS estimates that truck driver fatigue contributes to 15 to 33 percent of crashes that are fatal to the truck occupant(s) only. OMCHS estimates that truck driver fatigue contributes to a much lower percentage—from 1 to 2 percent—of crashes that are fatal to people other than truck occupants, such as car occupants or pedestrians. The imprecision of these estimates partly reflects the difficulty of detecting driver fatigue after crashes occur. Nevertheless, these data indicate that when truck driver fatigue contributes to crashes, truck drivers are killed more often than someone outside the truck. Because of the lack of complete and precise information on factors that contribute to crashes, OMCHS recently began to design a data base that contains more detailed information on these factors. OMCHS will provide funding to NHTSA to collect data on a national sample of large truck crashes, including fatal, injury, and serious property-damage-only crashes. OMCHS estimates that the data base would take 2 to 3 years to complete, at a cost of $2 million to $3 million. The American Automobile Association (AAA) recently proposed a similar study, except that AAA’s proposal calls for the Transportation Research Board to design the study. AAA believes that this approach allows the widest possible input from the traffic safety and trucking communities, while providing scientific objectivity and technical expertise. An OMCHS official agreed that the study would have more credibility if it were designed by the Transportation Research Board. As in OMCHS’ study, AAA’s proposal calls for NHTSA to conduct the crash investigations and data collection. AAA estimates that the study would take from 3 to 5 years, at a cost of about $5 million. Beginning in fiscal year 1998, all states submitted annual commercial vehicle safety plans to OMCHS that included the state’s goals for improving truck safety and the activities the state will use to meet those goals. Following OMCHS’ encouragement, several states will attempt to identify roadways with a greater incidence of crashes or fatalities and design activities targeted at those roadways. Several states’ plans also include in-depth crash investigations to determine the prevalence of different contributing factors. OMCHS is encouraging the states to use a common format when conducting their crash investigations so that the data collected by various states will be compatible. Michigan is currently implementing this format. OMCHS has undertaken a number of activities that are intended to improve truck safety. While these activities could have a positive effect on truck safety issues over the long term, their effectiveness is limited because (1) OMCHS’ initiative to target high-risk carriers for safety improvements depends on data that are not complete, accurate, or timely; (2) major components of several of its activities will not be completed within the next several years; and (3) OMCHS cannot tell whether its campaign to educate car drivers about the limitations of large trucks is working. In addition, representatives from trucking associations and safety groups agree that the effectiveness of OMCHS’ activities is hampered by its slowness in implementing measures to improve truck safety. OMCHS’ activities are just one of many factors that affect the level of truck safety. OMCHS’ activities—either directly or through grants provided to states—are intended to improve truck safety largely by influencing the safety practices of trucking companies and the behavior of truck drivers. There are other factors that affect truck safety that OMCHS does not directly influence, such as the use of safety belts by car occupants, highway design standards, trucks’ and cars’ handling and crashworthiness characteristics, traffic congestion, local traffic laws and enforcement, and state initiatives. Each year, OMCHS and state inspectors conduct thousands of on-site reviews of motor carriers’ compliance with federal safety regulations, known as compliance reviews. To identify high-risk carriers for these reviews, OMCHS uses a safety status measurement system known as SafeStat. SafeStat relies heavily on data from OMCHS’ motor carrier management information system (MCMIS) to rank motor carriers on the basis of four factors: (1) crashes, (2) driver performance, (3) vehicle mechanical condition, and (4) safety management. The crash factor is given twice the weight of the other factors because carriers that have been in crashes are considered more likely to be involved in crashes in the future. Carriers that are ranked in the worst 25 percent of all carriers for three or more factors or for the accident factor plus one other factor are targeted for a compliance review. However, SafeStat’s ability to accurately target high-risk carriers is limited because state officials do not report a large percentage of crashes involving large trucks to MCMIS. For 1997, OMCHS estimated that about 38 percent of all reportable crashes and 30 percent of the fatal crashes involving large trucks were not reported to MCMIS. Furthermore, 10 states reported fewer than 50 percent of the fatal crashes occurring within their borders, including 4 states that reported fewer than 10 percent. Because MCMIS does not contain a record of a large percentage of crashes, a carrier that has been involved in a substantial number of crashes might go undetected by SafeStat. According to OMCHS officials, states do not report all crashes for several reasons. In particular, (1) states do not understand that complete reporting would enable OMCHS to more accurately target high-risk carriers, (2) state employees who submit crash data to MCMIS may not have sufficient training or incentives, or (3) there may be errors in some states’ data bases that are preventing the transmittal of the data. According to OMCHS officials, an initiative to encourage states to report data for all crashes in a consistent manner is being developed; however, no implementation date has been set. SafeStat’s ability to target high-risk carriers is also limited by out-of-date data in MCMIS. SafeStat uses the census data—such as the number of trucks operated by each carrier—to normalize safety data. For example, SafeStat checks the number of crashes reported for a carrier against the number of trucks operated by the carrier to determine if the number of crashes is disproportionate. However, interstate carriers are required to file census data with OMCHS only once—when they initially go into business. After that, the census data are updated generally only when OMCHS or states conduct compliance reviews at the carriers’ facilities. Each year from 1993 through 1997, these reviews were conducted for fewer than 4 percent of the carriers listed in MCMIS, whose number increased from 275,000 to more than 415,000 over the period. As we reported in 1997, states have improved the timeliness of reporting the results of the roadside inspections, compliance reviews, and crashes that are used by SafeStat. However, the states are still not meeting OMCHS’ reporting deadlines. OMCHS’ December 1996 guidance to states requires that states report the results of roadside inspections and compliance reviews within 21 days and crashes within 90 days. As shown in table 1, states improved the timeliness of reporting data to MCMIS from fiscal year 1997 to 1998 but were missing OMCHS’ deadlines by an average of 8 to 16 days. Data problems also exist at the state level. In fiscal year 1998, all states submitted performance-based safety plans to OMCHS for the first time. Under these plans, states must identify areas that need improvement, such as sections of highways where a disproportionate number of crashes involving large trucks have occurred, and develop a plan for improving those areas. In a pilot program to implement performance-based plans, 5 of 13 pilot states reported that they lacked sufficient or timely data to accurately identify areas that need improvement. OMCHS officials said that insufficient data—such as information on the number of trucks a carrier operates to help states focus their safety education programs for carriers—have also been a problem for some states once they have identified problem areas and are developing improvement plans. Several of OMCHS’ activities that have the potential to improve large truck safety—including revising the rule governing the number of hours that truck drivers can drive and targeting high-risk carriers through the number of citations drivers receive—will not be completed for several years. The ICC Termination Act of 1995 directed the Federal Highway Administration to modify the existing hours of service rule for commercial motor vehicles to incorporate countermeasures for reducing fatigue-related incidents, such as crashes. The act required the Federal Highway Administration to issue an advance notice of proposed rulemaking by March 1, 1996; this notice was issued on November 5, 1996. The act also required a proposed rule within 1 year after the advance notice, and a final rule within 2 years after that 1-year deadline. The Federal Highway Administration has not issued a proposed rule. OMCHS officials explained that revising the rule is a difficult and very contentious issue and the final rule will not be issued until 2000 or later. In addition, OMCHS has concluded that high-risk carriers can be more accurately targeted by tracking the number of citations issued to each carrier’s drivers. A 1997 report prepared for the Federal Highway Administration found that trucking companies with higher rates of citations—for such things as overweight vehicles or moving violations—are also more likely to have higher accident rates. OMCHS officials have said that they plan to develop software that will track the number of citations drivers for each carrier receive. However, states must first agree on a standard format for collecting and reporting citations, and OMCHS does not yet have an estimated date for implementing its plan to use driver citations as a targeting mechanism. Representatives from both trucking associations and safety groups agree that OMCHS is too slow in implementing measures to improve truck safety. For example, following a rulemaking by NHTSA requiring that trailers be manufactured with reflective markings to make them more visible to drivers of other vehicles, OMCHS decided to consider requiring that older trailers without such marking be retrofitted. OMCHS issued an advance notice of proposed rulemaking in January 1994 and, in August 1996, announced that it would propose a rule establishing requirements for these markings. OMCHS issued a notice of proposed rulemaking in June 1998 and expects to issue a final rule within the next 2 months—almost 3 years after it decided to issue a rule in this area and more than 5 years after the advance notice of proposed rulemaking. According to an OMCHS official, this rule was delayed in part because of a difference of opinion within the Department of Transportation over which trailers the rulemaking should apply to and whether the rulemaking would be too costly to the trucking industry. In addition, the ICC Termination Act of 1995 required the Secretary of Transportation to create an information system to consolidate motor carrier information, such as census data and insurance and tax information. Carriers will be required to update this information every year. The act required the Secretary to issue a final rule on this information system by January 1, 1998. OMCHS issued an advance notice of proposed rulemaking in August 1996 and expects to issue a notice of proposed rulemaking within the next 6 months, about 3 years after the advance notice was issued. According to an OMCHS official, the rule has been delayed because of insufficient resources and the act’s provision that states not lose revenue compared to 1995 as a result of the new system. Because of the large contribution of car driver errors to fatal crashes between large trucks and cars, OMCHS launched the “No-Zone” campaign in 1994. (No-Zone is a term used to describe the areas around a truck where the truck driver’s visibility is limited.) This campaign is intended to reduce crashes between large trucks and cars by educating car drivers about how to safely share the road with large trucks and about trucks’ limitations, such as reduced maneuverability, longer stopping distances, and blind spots. The campaign’s public education efforts include public service announcements via radio, television, and print; brochures; posters; and decals on large trucks. Because car drivers between 15 and 20 years old were found to be involved in a relatively high percentage of fatal crashes, the No-Zone campaign focused a large part of its public outreach on this age group. The campaign has a goal of reducing fatal crashes involving large trucks and cars by 10 percent over a 5-year period. However, as evidenced by the overall increase in the number of fatalities since 1994, the campaign apparently did not make any progress toward achieving its goal of reducing fatalities overall through 1997, the last year for which data are available. OMCHS has not determined to what extent, if any, the No-Zone campaign has contributed to changing car drivers’ behavior and reducing crashes between large trucks and cars. While OMCHS plans to conduct a national telephone survey within the next year to determine the level of public recognition of the No-Zone campaign, the survey will not measure whether car drivers’ behavior has changed. Mr. Chairman, this concludes my statement. I will be pleased to answer any questions that you or Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. 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Pursuant to a congressional request, GAO discussed the safety of large commercial trucks on the nation's highways, focusing on: (1) recent increases in the number of crashes involving large trucks; (2) the Federal Highway Administration's Office of Motor Carrier and Highway Safety's (OMCHS) need to better understand the factors that contribute to such crashes; and (3) OMCHS' need for better data and quicker action on implementing improvements to truck safety to be more effective. GAO noted that: (1) of the nearly 42,000 people who died on the nation's highways in 1997 (the latest year for which data are available), about 5,400 died in crashes involving large trucks; (2) this represents a 20-percent increase from 1992; (3) at the same time, the annual number of miles travelled by large trucks increased by 25 percent; (4) if this trend of increasing truck travel continues, the number of fatalities could increase to 5,800 in 1999; (5) this figure is substantially more than the goal that the Federal Highway Administration established for 1999 of reducing fatalities from truck crashes to below the 1996 level of 5,126; (6) while trucks are involved in fewer crashes per mile travelled than are cars, crashes involving trucks are more likely to result in a fatality; (7) in 1997, 98 percent of the fatalities from crashes between trucks and cars were occupants of the car; (8) while no reliable nationwide information exists on the causes of crashes involving large trucks, one existing database does provide some indication of the extent to which factors such as driver behavior, vehicle mechanical condition, the roadway, and the environment contribute to these crashes; (9) however, the existing database includes data from only fatal truck crashes, and does not rely on a thorough investigation of the crash scene; (10) to better tailor its activities to address the factors that are most likely to contribute to truck crashes, OMCHS plans to design and fund the development of a database that contains more detailed information on these factors; (11) in addition, several states plan to collect their own data on contributing factors based on in-depth crash investigations; (12) while many actions outside OMCHS' authority influence truck safety, OMCHS had undertaken a number of activities to improve truck safety, such as identifying high-risk carriers for safety improvements and educating car drivers about how to share the road with large trucks; (13) however, the effectiveness of these activities is limited by: (a) data that are incomplete, inaccurate, or untimely; (b) the length of time it will take to complete several activities; and (c) the unknown effect of OMCHS' campaign to educate car drivers about the limitations of large trucks; (14) for example, OMCHS' effort to identify high-risk carriers for safety improvements depends in part on having complete data on the number of crashes experienced by carriers; and (15) however, OMCHS estimated that about 38 percent of all crashes and 30 percent of the fatal crashes involving large trucks were not reported to OMCHS in 1997.

You are an expert at summarizing long articles. Proceed to summarize the following text: HUD, through FHA, provides insurance that protects private lenders from financial losses stemming from borrowers’ defaults on mortgage loans for both single-family homes and multifamily rental housing properties for low- and moderate-income households. When a default occurs on an insured loan, a lender may “assign” the mortgage to HUD and receive payment from FHA for an insurance claim. According to the latest data available from HUD, FHA insures mortgage loans for about 15,800 multifamily properties. These properties contain just under 2 million units and have a combined unpaid mortgage principal balance of $46.9 billion.These properties include multifamily apartments and other specialized properties, such as nursing homes, hospitals, student housing, and condominiums. In addition to mortgage insurance, many FHA-insured multifamily properties receive some form of direct assistance or subsidy from HUD, such as below-market interest rates or Section 8 project-based assistance. HUD’s Section 8 program provides rental subsidies for low-income families. These subsidies are linked either to multifamily apartment units (project-based) or to individuals (tenant-based). Under the Section 8 program, residents in subsidized units generally pay 30 percent of their income for rent and HUD pays the balance. According to HUD, its restructuring proposals apply to 8,636 properties that both have mortgages insured by FHA and receive project-based Section 8 rental subsidies for some or all of their units. Data provided by HUD in April 1996 show that, together, these properties have unpaid principal balances totaling $17.8 billion and contain about 859,000 units, of which about 689,000 receive project-based Section 8 subsidies. According to HUD’s data, about 45 percent of the insured Section 8 portfolio (3,859 properties, 303,219 assisted units, and $4.8 billion in unpaid loan balances) consist of what are called the “older assisted” properties. These are properties that were constructed beginning in the late 1960s under a variety of mortgage subsidy programs, to which project-based Section 8 assistance (Loan Management Set Aside) was added later, beginning in the 1970s, to replace other subsidies and to help troubled properties sustain operations. About 55 percent of the insured Section 8 portfolio (4,777 properties, 385,931 assisted units, and $13.0 billion in unpaid loan balances) consists of what are called the “newer assisted” properties. These properties generally were built after 1974 under HUD’s Section 8 New Construction and Substantial Rehabilitation programs and received project-based Section 8 subsidies based on formulas with automatic annual adjustments, which tended to be relatively generous to encourage the production of affordable housing. There is great diversity among the properties in HUD’s insured Section 8 portfolio, as illustrated by 10 properties that we studied in greater depth as part of our current assignment (see app. I). These properties differ in a number of important respects, such as the amount of their remaining unpaid mortgage debt; the types and amounts of assistance they receive from HUD; and their financial health, physical condition, rents, types of residents served, and surrounding neighborhoods and rental housing markets. These factors can influence the effect that HUD’s or other reengineering proposals would have on the properties. The insured Section 8 portfolio suffers from three basic problems—high subsidy costs, high exposure to insurance loss, and in the case of some properties, poor physical condition. A substantial number of the properties in the insured Section 8 portfolio now receive subsidized rents above market levels, many substantially above the rents charged for comparable unsubsidized units. This problem is most prevalent in (but not confined to) the “newer assisted” segment of the portfolio, where it stems from the design of the Section 8 New Construction and Substantial Rehabilitation programs. The government paid for the initial development or rehabilitation of these properties under these programs by initially establishing rents above market levels and then raising them regularly through the application of set formulas that tended to be generous to encourage the production of new affordable housing. It has become difficult to continue the high subsidies in the current budget environment. A second key problem affecting the portfolio is the high risk of insurance loss. Under FHA’s insurance program, HUD bears virtually all the risk in the event of loan defaults. A third, closely related problem is the poor physical condition of many properties in the portfolio. A 1993 study of multifamily rental properties with FHA-insured or HUD-held mortgages found that almost one-fourth of the properties were “distressed.” Properties were considered to be distressed if they failed to provide sound housing and lacked the resources to correct deficiencies or if they were likely to fail financially. The problems affecting HUD’s insured Section 8 portfolio stem from several causes. These include (1) program design flaws that have contributed to high subsidies and put virtually all the insurance risk on HUD; (2) HUD’s dual role as mortgage insurer and rental subsidy provider, which has resulted in the federal government averting claims against the FHA insurance fund by supporting a subsidy and regulatory structure that has masked the true market value of the properties; and (3) weaknesses in HUD’s oversight and management of the insured portfolio, which have allowed physical and financial problems at a number of HUD-insured multifamily properties to go undetected or uncorrected. In May, 1995 HUD proposed a mark-to-market process to address the three key problems and their causes by decoupling HUD’s mortgage insurance and project-based rental subsidy programs and subjecting the properties to the forces and disciplines of the commercial market. HUD proposed to do this by (1) eliminating the project-based Section 8 subsidies as existing contracts expired (or sooner if owners agreed), (2) allowing owners to rent apartments for whatever amount the marketplace would bear, (3) facilitating the refinancing of the existing FHA-insured mortgage with a smaller mortgage if needed for the property to operate at the new rents, (4) terminating the FHA insurance on the mortgage, and (5) providing the residents of assisted units with portable Section 8 rental subsidies that they could use to either stay in their current apartment or move to another one if they wanted to or if they no longer could afford to stay in their current apartment. Recognizing that many properties could not cover their expenses and might eventually default on their mortgages if forced to compete in the commercial market without their project-based Section 8 subsidies, the mark-to-market proposal set forth several alternatives for restructuring the FHA-insured mortgages in order to bring income and expenses in line. These alternatives included selling mortgages, engaging third parties to work out restructuring arrangements, and paying full or partial FHA insurance claims to reduce mortgage debt and monthly payments. The proposed mark-to-market process would likely affect properties differently, depending on whether their existing rents were higher or lower than market rents and on their funding needs for capital items, such as deferred maintenance. If existing rents exceeded market rents, the process would lower the mortgage debt, thereby allowing a property to operate and compete effectively at lower market rents. If existing rents were below market, the process would allow a property to increase rents, potentially providing more money to improve and maintain the property. HUD recognized, however, that some properties would not be able generate sufficient income to cover expenses even if their mortgage payments were reduced to zero. In those cases, HUD proposed using alternative strategies, including demolishing the property and subsequently selling the land to a third party, such as a nonprofit organization or government entity. After reviewing HUD’s proposal, various stakeholders raised questions and concerns about the proposal, including the effect that it would have on different types of properties and residents, and the long-term financial impact of the proposal on the government. In response to stakeholders’ concerns, HUD made several changes to its proposal and also renamed the proposal “portfolio reengineering.” The changes HUD made included (1) giving priority attention for at least the first 2 years to properties with subsidized rents above market; (2) allowing state and local governments to decide whether to continue Section 8 project-based rental subsidies at individual properties after their mortgages are restructured or switch to tenant-based assistance; and (3) allowing owners to apply for FHA insurance on the newly restructured mortgage loans. In addition, HUD stated a willingness to discuss with the Congress mechanisms to take into account the tax consequences related to debt forgiveness for property owners who enter into restructuring agreements. More recently, HUD has also suggested that action should be deferred on properties that would not be able to generate sufficient income to cover operating expenses after reengineering until strategies are developed that address the communities’ and residents’ needs relating to the properties. On April 26, 1996, HUD received legislative authority to conduct a demonstration program to test various methods of restructuring the financing of properties in the insured Section 8 portfolio. Participation in the program is voluntary and open only to properties that have rents which exceed HUD’s fair market rent (FMR) for their locality. The purpose of the demonstration is to test the feasibility and desirability of properties meeting their financial and other obligations with and without FHA insurance, with and without above-market Section 8 assistance, and using project-based assistance or, with the consent of the property owner, tenant-based assistance. The demonstration program is limited by law to mortgages covering a total of 15,000 units or about 2 percent of the total units in the insured Section 8 portfolio. An appropriation of $30 million was provided to fund the cost of modifying loans under the program, which remains available until September 30, 1997. HUD believes that this funding level could limit the number of properties that can be reengineered under the demonstration. On July 2, 1996, HUD issued a public notice announcing the program and providing initial guidance on how it plans to operate the program. On May 21, 1996, the Senate Committee on Banking, Housing, and Urban Affairs issued a Staff Discussion Paper to outline a general strategy for addressing the problems with HUD’s insured Section 8 portfolio. Among other things, the staff proposed to continue project-based Section 8 assistance and to subsidize rents at 90 percent of FMR (or at higher budget-based rents in certain cases if the FMR-based rents would not cover the costs of operation). On June 27, 1996, the Subcommittee on Housing Opportunity and Community Development held a hearing on the staff’s proposals, and as of mid-July the Subcommittee was drafting a restructuring bill. In May 1995, when HUD proposed the mark-to-market initiative, the Department did not have current or complete information on the insured Section 8 portfolio upon which to base assumptions and estimates about the costs and impact of the proposal. For example, HUD lacked reliable, up-to-date information on the market rents the properties could be expected to command and the properties’ physical conditions—two variables that strongly influence how properties will be affected by the mark-to-market proposal. To obtain data to better assess the likely outcomes and costs of the mark-to-market proposal, HUD contracted with Ernst & Young LLP in 1995 for a study on HUD-insured properties with Section 8 assistance to (1) determine the market rents and physical condition of the properties and (2) develop a financial model to show how the proposal would affect the properties and to estimate the costs of subsidies and claims associated with the mark-to-market proposal. The study was conducted on a sample of 558 of 8,363 properties and extrapolated to the total population of 8,563 properties identified by HUD at that time as representing the population subject to its mark-to-market proposal. The sample was designed to be projectible to the population with a relative sampling error of no more than plus or minus 10 percent at the 90-percent confidence level. A briefing report summarizing the study’s findings was released by HUD and Ernst & Young on May 2, 1996. It provides current information on how the assisted rents at the properties compare with market rents, the physical condition of the properties, and how the properties are expected to be affected by HUD’s proposal as the proposal existed while the study was underway. As such, it is important to note that the study’s results do not reflect the changes that HUD made to its proposal in early 1996. Ernst & Young estimates that the majority of the properties have assisted rents exceeding market rents and that the properties have significant amounts of immediate deferred maintenance and short-term and long-term capital needs. Specifically, Ernst & Young’s study estimates that a majority of the properties—between 60 and 66 percent—have rents above market and between 34 and 40 percent are estimated to have below-market rents. Ernst & Young’s data also indicate a widespread need for capital—between $9.2 billion and $10.2 billion—to address current deferred maintenance needs and the short- and long-term requirements to maintain the properties. The study estimates that the properties have between $1.3 billion and $1.6 billion in replacement and cash reserves that could be used to address these capital needs, resulting in total net capital needs of between $7.7 billion and $8.7 billion. The average per-unit cost of the total capital requirements, less the reserves, is estimated to be between $9,116 and $10,366. Ernst & Young’s analysis also indicates that about 80 percent of the properties would not be able to continue operations unless their debt was restructured. Furthermore, for approximately 22 to 29 percent of the portfolio, writing the existing debt to zero would not sufficiently reduce costs for the properties to address their immediate deferred maintenance and short-term capital needs. The study estimates that between 11 and 15 percent of the portfolio would not even be able to cover operating expenses. The study was designed to use the information on market rents and the properties’ physical condition gathered by Ernst & Young, as well as financial and Section 8 assistance data from HUD’s data systems, in a financial model designed to predict the proposal’s effects on the portfolio as a whole. Specifically, the model estimates the properties’ future cash flows over a 10-year period on the basis of the assumption that they would be reengineered (marked to market) when their current Section 8 contracts expire. The model classifies the loans into four categories—performing, restructure, full write-off, and nonperforming—that reflect how the properties would be affected by HUD’s proposal. Placement in one of the four categories is based on the extent to which income from the reengineered properties would be able to cover operating costs, debt service payments, deferred maintenance costs, and short-term capital expenses. Table 1 shows the results of Ernst & Young’s analysis of how properties would be affected by HUD’s proposal. We are currently evaluating Ernst & Young’s financial model and expect to issue our report late this summer. Our preliminary assessment is that the model provides a reasonable framework for studying the overall results of portfolio reengineering, such as the number of properties that will need to have their debt restructured and to estimate the related costs of insurance claims and Section 8 subsidies. In addition, we did not identify any substantive problems with Ernst & Young’s sampling and statistical methodology. However, our preliminary assessment of the study indicates that some aspects of Ernst & Young’s financial model and its assumptions may not reflect the way in which insured Section 8 properties will actually be affected by portfolio reengineering. Also, some of the assumptions used in the model may not be apparent to readers of Ernst & Young’s May 1996 briefing report. For example, Ernst & Young’s assumptions about the transition period that properties go through in the reengineering process may be overly optimistic. During the transition, a reengineered property changes from a property with rental subsidies linked to its units to an unsubsidized property competing in the marketplace for residents. The model estimates that the entire transition will be completed within a year after the first Section 8 contract expires. In addition, the model assumes that during this year, the property’s rental income will move incrementally toward stabilization over 9 months. Lenders with whom we consulted on the reasonableness of the model’s major assumptions generally believed that a longer transition period of 1 to 2 years is more likely. They also anticipated an unstable period with less income and more costs during the transition rather than the smooth transition assumed in the model. An Ernst & Young official told us that the 9-month period was designed to reflect an average transition period for reengineered properties. While he recognized that some properties would have longer transition periods than assumed in the model, he believed that the transition periods for other properties could be shorter than 9 months. In addition, Ernst & Young’s May 1996 report does not detail all of the assumptions used in the firm’s financial model that are useful to understanding the study’s results. In particular, the model assumes that the interest subsidies some properties currently receive will be discontinued after the first Section 8 contract expires, including those in the performing category whose debts do not require restructuring. We are currently examining how the assumptions contained in the Ernst & Young study affect its estimates of the effects of portfolio reengineering. In addition, we are assessing how the use of alternative assumptions would affect the study’s results. We also observed that although Ernst & Young’s study provided information on the cost to the government of the portfolio reengineering proposal, the May report did not provide these results. We are currently examining Ernst & Young’s data and will provide cost estimates derived from Ernst & Young’s model covering changes in the Section 8 subsidy costs and FHA insurance claims. Our preliminary review of this information indicates that the costs of claims will be significant. On average, the data indicate that mortgage balances for the properties needing mortgage restructuring—including those in the full write-off and nonperforming categories that would have their mortgages totally written off—would need to be reduced by between 61 and 67 percent. This reduction would result in claims against FHA’s multifamily insurance funds. As we discussed in our testimony before this Subcommittee last year, the Congress faces a number of significant and complex issues in evaluating HUD’s portfolio reengineering proposal. Since last year there has been considerable discussion on the issues we noted, but there is still disagreement on how many of them should be addressed. New issues have also been raised. Key issues include the following. One key cause of the current problems affecting the insured Section 8 portfolio has been HUD’s inadequate management of the portfolio. HUD’s original proposal sought to address this situation by subjecting properties to the disciplines of the commercial market by converting project-based subsidies to tenant-based assistance, adjusting rents to market levels, and refinancing existing insured mortgages with smaller, uninsured mortgages if necessary for properties to operate at the new rents. However, to the extent that the final provisions of reengineering perpetuate the current system of FHA insurance and project-based subsidies, HUD’s ability to manage the portfolio will remain a key concern. Thus, it will be necessary to identify other means for addressing the limitations that impede HUD’s ability to effectively manage the portfolio, particularly in light of the planned staff reductions that will further strain HUD’s management capacity. An issue with short-term—and potentially long-term—cost implications is whether HUD should continue to provide FHA insurance on the restructured loans and, if so, under what terms and conditions. If FHA insurance is discontinued when the loans are restructured as originally planned, HUD would likely incur higher debt restructuring costs because lenders would set the terms of the new loans, such as interest rates, to reflect the risk of default that they would now assume. The primary benefits of discontinuing insurance are that (1) the government’s dual role as mortgage insurer and rent subsidy provider would end, eliminating the management conflicts associated with this dual role, and (2) the default risk borne by the government would end as loans were restructured. However, the immediate costs to the FHA insurance fund would be higher than if insurance, and the government’s liability for default costs, were continued. If, on the other hand, FHA insurance were continued, another issue is whether it needs to be provided for the whole portfolio or could be used selectively. For example, should the government insure loans only when owners cannot obtain reasonable financing without this credit enhancement? Also, if FHA insurance were continued, the terms and conditions under which it is provided would affect the government’s future costs. Some lenders have indicated that short-term (or “bridge”) financing insured by FHA may be needed while the properties make the transition to market conditions, after which time conventional financing at reasonable terms would be available. Thus, the government could insure loans for 3 to 5 years, in lieu of the current practice of bearing default risk for 40 years. Finally, the current practice of the government’s bearing 100 percent of the default risk could be changed by legislation requiring state housing finance agencies or private-sector parties to bear a portion of the insurance risk. In addressing the problems of the insured Section 8 portfolio, one of the key issues that will need to be decided is whether to continue project-based assistance, convert the portfolio to tenant-based subsidy, or use some mix of the two subsidy types. On one hand, the use of tenant-based assistance can make projects more subject to the forces of the real estate market, which can help control housing costs, foster housing quality, and promote resident choice. On the other hand, by linking subsidies directly to property units, project-based assistance can help sustain those properties in housing markets that have difficulty in supporting unsubsidized rental housing, such as inner-city and rural locations. In addition, residents who would likely have difficulty finding suitable alternative housing, such as the elderly or disabled and those living in tight housing markets, may prefer project-based assistance to the extent that it gives them greater assurance of being able to remain in their current residences. If a decision is made to convert Section 8 assistance from project-based to tenant-based as part of portfolio reengineering, decisions must also be made about whether to provide additional displacement protection for current property residents. HUD’s April 1996 reengineering strategy contains several plans to protect the residents affected by rent increases at insured properties. For example, the residents currently living in project-based Section 8 units that are converted to tenant-based subsidy would receive enhanced vouchers to pay the difference between 30 percent of their income and the market rent for the property in which they live, even if it exceeds the area’s fair market rent ceiling. The residents of reengineered properties who currently live in units without Section 8 subsidy would receive similar assistance if the properties’ new rents require them to pay more than 30 percent of income. Such provisions are clearly important to help limit residents’ rent burdens and reduce the likelihood of residents being displaced, but they also reduce Section 8 savings, at least in the short run. The Ernst & Young study’s cost estimates assume that HUD would cover Section 8 assistance costs for existing residents, even if a property’s market rents exceed fair market rent levels set by HUD. However, it does not include any costs for providing Section 8 subsidy to residents who are currently unassisted. The decision about which properties to include in portfolio reengineering will likely involve trade-offs between addressing the problem of high subsidy costs and addressing the problems of poor physical condition and exposure to default. On one hand, reengineering only those properties with rents above market levels would result in the greatest subsidy cost savings. On the other hand, HUD has indicated that also including those properties with rents currently below market levels could help improve these properties’ physical and financial condition and reduce the likelihood of default. However, including such properties would decrease estimated Section 8 subsidy cost savings. Although HUD’s latest proposal would initially focus on properties with rents above market, it notes that many of the buildings with below-market rents are in poor condition or have significant amounts of deferred maintenance which will need to be addressed at some point. Selecting a mortgage restructuring process that is feasible and that balances the interests of the various stakeholders will be an important, but difficult, task. Various approaches have been contemplated, including payment of full or partial insurance claims by HUD, mortgage sales, and the use of third parties or joint ventures to design and implement specific restructuring actions at each property. Because of concerns about HUD’s ability to carry out the restructuring process in house, HUD and others envision relying heavily on third parties, such as State Housing Financing Agencies (HFAs) or teams composed of representatives from HFAs, other state and local government entities, nonprofit organizations, asset managers, and capital partners. These third parties would be empowered to act on HUD’s behalf, and the terms of the restructuring arrangements that they work out could to a large extent determine the costs to, and future effects of restructuring on, stakeholders such as the federal government, property owners and investors, mortgage lenders, residents, and state and local government housing agencies. Some, however, have questioned whether third parties would give adequate attention to the interests of owners or to the public policy objectives of the housing. On the other hand, with the proper incentives, third parties’ financial interests could be aligned with those of the federal government to help minimize claims costs. Who should pay for needed repairs, and how much, is another important issue in setting restructuring policy. As discussed previously, Ernst & Young’s study found a substantial amount of unfunded immediate deferred maintenance and short-term capital replacement needs across the insured Section 8 portfolio, but particularly in the “older assisted” properties. Ernst & Young’s data indicate that between 22 and 29 percent of the properties in the portfolio could not cover their immediate deferred maintenance and short-term capital needs, even if their mortgage debt were fully written off. HUD proposes that a substantial portion of the rehabilitation and deferred maintenance costs associated with restructuring be paid through the affected properties’ reserve funds and through FHA insurance claims in the form of debt reduction. Others have suggested that HUD use a variety of tools, such as raising rents, restructuring debt and providing direct grants, but that per-unit dollar limits be set on the amount that the federal government pays, with the expectation that any remaining costs be paid by the property owners/investors or obtained from some other source. According to Ernst and Young’s assessment, between 22 and 29 percent of HUD’s insured portfolio would have difficulty sustaining operations if market rents replaced assisted rents. Furthermore, between 11 and 15 percent of the portfolio would not even be able to cover operating costs at market rents. If additional financial assistance is not provided to these properties, a large number of low-income residents would face displacement. While HUD has not yet developed specific plans for addressing these properties, it appears likely that different approaches may be needed, depending on a property’s specific circumstances. For example, properties in good condition in tight housing markets may warrant one approach, while properties in poor condition in weak or average housing markets may warrant another. Further analysis of these properties should assist the Department in formulating strategies for addressing them. HUD’s portfolio reengineering proposal is likely to have adverse tax consequences for some project owners. These tax consequences can potentially result from either reductions in the principal amounts of property mortgages (debt forgiveness) or actions that cause owners to lose the property (for example, as a result of foreclosure). We have not assessed the extent to which tax consequences are likely to result from portfolio reengineering. However, HUD has stated that it believes tax consequences can be a barrier to getting owners to agree to reengineer their properties proactively. While HUD has not formulated a specific proposal for dealing with the tax consequences of portfolio reengineering, it has stated that it is willing to discuss with the Congress mechanisms to take into account tax consequences related to debt forgiveness for property owners who enter into restructuring agreements. The multifamily demonstration program that HUD recently received congressional authority to implement provides for a limited testing (on up to 15,000 multifamily units) of some of the aspects of HUD’s multifamily portfolio reengineering proposal. As such, the program can provide needed data on the impacts of reengineering on properties and residents, the various approaches that may be used in implementing restructuring, and the costs to the government before a restructuring program is initiated on a broad scale. However, because of the voluntary nature of the program, it may not fully address the broad range of impacts on the properties or the range of restructuring tools that the Department could use. For example, owners may be reluctant to participate in the program if HUD plans to enter into joint ventures with third-party entities because of concerns they may lose their properties and/or suffer adverse tax consequences. Another potential limitation on the program is that the funding provided to modify the multifamily loans may not be sufficient to cover the limited number of units authorized under the demonstration program. How these issues are resolved will, to a large degree, determine the extent to which the problems that have long plagued the portfolio are corrected and prevented from recurring and the extent to which reengineering results in savings to the government. HUD’s portfolio reengineering initiative recognizes a reality that has existed for some time—namely, that the value of many of the properties in the insured Section 8 portfolio is far less than the mortgages on the properties suggest. Until now, this reality has not been recognized and the federal government has continued to subsidize the rents at many properties above the level that the properties could command in the commercial real estate market. As the Congress evaluates options for addressing this situation, it will be important to consider each of the fundamental problems that have affected the portfolio, and their underlying causes. Any approach implemented should address not only the high Section 8 subsidy costs, but also the high exposure to insurance loss, poor physical condition, and the underlying causes of these long-standing problems with the portfolio. As illustrated by several of the key issues discussed above, questions about the specific details of the reengineering process, such as which properties to include and whether or not to provide FHA insurance, will require weighing the likely effects of various options and the trade-offs involved when proposed solutions achieve progress on one problem at the expense of another. Changes to the insured Section 8 portfolio should also be considered in the context of a long-range vision for the federal government’s role in providing housing assistance, and assistance in general, to low-income individuals, and how much of a role the government is realistically able to have, given the current budgetary climate. Addressing the problems of the portfolio will inevitably be a costly and difficult process, regardless of the specific approaches implemented. The overarching objective should be to implement the process in the most efficient and cost-effective manner possible, recognizing not only the interests of the parties directly affected by restructuring but also the impact on the federal government and the American taxpayer. As indicated earlier in our statement, we are continuing to review the results of Ernst & Young’s study and other issues associated with portfolio reengineering, and we will look forward to sharing the results of our work with the Subcommittee as it is completed.

GAO discussed the Department of Housing and Urban Development's (HUD) efforts to reengineer its multifamily rental housing portfolio. GAO noted that: (1) the portfolio's excessive subsidy costs, high exposure to insurance loss, and poor physical condition stem from program design flaws, HUD dual role as loan insurer and rental subsidy provider, and weaknesses in HUD oversight and management; (3) in 1995, HUD proposed allowing property owners to set rents at market levels, terminating Federal Housing Administration (FHA) mortgage insurance, and replacing project-based rent subsidies with portable tenant-based subsidies; (4) although the proposal could lower mortgage debt, it would result in substantial FHA insurance claims; (5) HUD has made several proposal changes in 1996 due to concerns about the lack of data, effects on properties and existing residents, and the long-term financial impact on the government; (6) a 1996 contractor's report confirmed that most properties have assisted rents that are higher than estimated market rents and significant maintenance and capital improvement needs; (7) the study also indicates that most portfolio properties need to have their debt reduced to continue operating; and (8) reengineering issues requiring congressional consideration include HUD portfolio management problems, FHA insurance for restructured loans, project- versus tenant-based rent subsidies, protection for displaced households, inclusion of properties with below-market rents, mortgage restructuring, government financing of rehabilitation costs, and property owners' tax relief.

You are an expert at summarizing long articles. Proceed to summarize the following text: VA’s process for deciding veterans’ eligibility for disability compensation begins when a veteran submits a claim to VA. The claim is reviewed at one of VBA’s 56 regional offices where staff members assist the veteran by gathering any additional evidence, such as military and medical records, needed to evaluate the claim. Based on this evidence, and the results of any necessary medical examinations, VBA decides whether the veteran is entitled to compensation and, if so, how much. VBA assigns a rating of 0 to 100 percent disability in increments of 10 percentage points depending on the severity of the disability. This rating percentage then determines the monthly payment amount the veteran will receive. According to VA data, in many cases (74 percent), the veteran submitting a claim either is already a beneficiary but is seeking increased compensation, or the veteran was denied benefits previously and is claiming them again. In fiscal year 2015, VBA decided 1.4 million compensation claims and had an inventory of 363,000 claims at the end of the fiscal year. As previously noted, in fiscal year 2015, VA paid about $63.7 billion in disability compensation to about 4.1 million veterans. A veteran dissatisfied with VBA’s initial claim decision can generally appeal within one year from the date of VBA’s notification letter to the veteran. According to the Board, veterans appeal most often because they believe VBA: (1) incorrectly denied them compensation for service- connected disabilities, or (2) under-rated their service-connected disabilities. An appeal begins with the veteran filing a Notice of Disagreement (NOD). VBA then re-examines the case and generally issues a Statement of the Case (SOC) that represents its decision. A veteran who is or remains dissatisfied with VBA’s decision can file an appeal with the Board. In filing that appeal, the veteran could indicate whether they would like a Board hearing. VBA prepares the claim file for Board review and certifies it as ready for review. If the veteran requests a hearing so they can present new evidence or arguments, the Board will generally hold a hearing either by video conference or at a local VBA regional office. The Board reports to the Office of the Secretary of Veterans Affairs, and is independent of VBA. The Board’s members, also known as Veterans Law Judges (VLJ), decide appeals and are supported by attorneys and administrative staff. After the appeal is docketed at the Board, a VLJ or panel of VLJs reviews the evidence and either (1) grants the claimed benefit, (2) denies the benefit, or (3) returns (remands) the claim to VBA for additional work on one or more issues pertinent to the claim and a new decision. According to VA, the Board remands an appeal to VBA in cases where consideration of new evidence, clarification of evidence, correction of procedural defect, or any other action it deems is essential to achieve a proper decision. If the veteran is unsatisfied with the Board’s final decision, the veteran can continue an appeal beyond VA to federal court. Such an appeal begins with the U.S. Court of Appeals for Veterans Claims, then may go to the U.S. Court of Appeals for the Federal Circuit, and finally to the U.S. Supreme Court. See figure 1 for a representation of the appeals process for VA disability compensation benefit decisions. According to VA officials, the number of appeals filed has increased steadily as has the length of time needed for the agency to make a final decision. At the end of fiscal year 2015, according to VA data, VA had over 427,000 pending appeals, approximately 81,000 of which were at the Board. While the percentage of pending appeals awaiting decisions from the Board was less than a quarter of all pending appeals, the fiscal year 2015 inventory was almost double the 41,000 pending at the end of fiscal year 2011. About 20 percent of this growth occurred from fiscal year 2014 through 2015. According to Board data, timeliness has worsened since fiscal year 2011 as well. From fiscal years 2011 through 2015, the average amount of time needed for the Board to make a final decision once the appeal is docketed increased from 240 to 270 days. In addition, the proportion of cases taking the longest to resolve (from when the Board receives the certified appeal to them making a final decision)—over 600 days— increased from 10 percent in fiscal year 2011 to 14 percent in fiscal year 2015 (see fig. 2). Given that the median time for the Board to decide an appeal was 145 days in fiscal year 2015 (compared to an average of 270 days), these data suggest that a relatively small number of appeals is driving up the Board’s reported average processing times. To illustrate, VA officials noted one case where a veteran appealed 27 times over the course of 25 years before the original appeal was concluded. VA has identified three broad approaches for addressing factors that it identified as having contributed to increased appeal inventories and reduced timeliness of appeals decisions, and has already taken action on all three fronts. Citing staffing levels that have not kept pace with workloads, VA secured additional Board staff for fiscal year 2017, and analyzed options for another hiring surge in fiscal 2018. Concerned that its appeals process contributes to delays in appeals decisions—because new evidence may be submitted at any juncture and because VA may be continually required to develop or obtain additional evidence—VA developed a legislative proposal for streamlining its appeals process, including new appeals options designed to accelerate decision-making. Finally, VA has put forth plans to modernize its current, outdated, and inefficient computer system. VA has proposed increasing staff at the Board, as well as VBA, to manage its increasing inventory of appeals and to address related declines in the timeliness of appeals resolutions. VA officials stated that there is a direct and proportional correlation between the number of employees and the number of final appeals decisions, and that Board workloads especially have increased faster than the number of employees staffed to the Board. Specifically, officials have concluded that staff resources within the Board have not been sufficient to adjudicate the increasing number of appeals, ultimately lengthening appeals resolution times. According to VA, in fiscal year 2015 increases in staff (VLJs, attorneys, and support staff), as represented by full-time equivalents (FTEs), allowed the Board to make the highest number of decisions in nearly 30 years. However, despite Board staff increasing by 21 percent from fiscal years 2011 through 2015, officials said that this increase was not sufficient to address the growing inventory of pending appeals, which doubled during the same time period (see fig. 3). Although the increase in Board staff brought about a record number of appeals decisions in fiscal year 2015, according to VA data we reviewed, each appeal took an average of about 3 months (97 days) longer to reach a final decision than in fiscal year 2012. Similarly, in fiscal year 2015 one Board FTE produced an average of 86 appeals decisions, down from 91 completed per FTE in fiscal year 2011. Growing workloads and the increased complexity of cases, according to Board officials, have contributed to these longer appeal resolution times. More specifically, officials said that claims have become more complicated due to not only the number and complexity of injuries and illnesses, but also to advances in medicine that have improved survival rates from catastrophic injuries, experienced by today’s veterans. VA officials estimated that if the number of FTEs and number of appeals decided per FTE stays steady or decreases, appeals resolution times will continue to lengthen. Specifically, as of October 2016, VA projected that if nothing else changes, and if the number of FTEs hold steady at the fiscal year 2017 number (922 FTEs for the Board and 1,495 for VBA), the inventory of appeals could exceed 1 million in fiscal year 2026, which would mean that veterans would wait an average of 8.5 years for a final appeals decision. In light of this assessment, VA concluded that increasing the number of FTEs at the Board is a key step in mitigating the current and future pending inventory of appeals and ultimately improving appeals decision timeliness. In 2016, VA set a goal to decide the vast majority (90 percent) of appeals (including both those reviewed by VBA and the Board) within 1 year by 2021. As an initial step toward this goal, VA requested and received a funding amount that the agency asserted would allow it to fund an additional 242 FTEs for the Board in fiscal year 2017 (a 36 percent increase over the 680 FTEs funded in fiscal year 2016) for a total of 922 FTEs. VA also concluded, however, that this increase in staff will not be enough to reduce its appeals workload and decrease appeals processing time. Therefore, VA estimated the need for a subsequent hiring surge of up to 1,458 FTEs beginning in fiscal year 2018 to reduce the current pending appeals inventory. To understand the need for and implications of a future hiring surge, VA modeled different staffing scenarios. Initially, VA compared how increasing staff in combination with and without proposed changes to the appeals process would achieve inventory reductions, and at what cost. VA determined that by combining staff increases with a new process, it could clear pending appeals faster and at a lower cost than if it hired additional staff under the current process. In response to congressional inquiries, in September 2016 VA also modeled the cost and impact on appeals inventories of four surge options beginning in fiscal year 2018 (in addition to planned hiring in fiscal year 2017). VA estimated, for example, that projected pending appeals in fiscal year 2017 (535,726) would be cleared in 10 years under option 2, compared to a 60 percent reduction over the same time period if there were no hiring surge. See table 1 for a comparison of the four options. VA has proposed changes to its appeals process to address causes of delays in resolving appeals. The key challenge VA identified was the open-ended nature of its disability appeals process, whereby a veteran can submit additional evidence numerous times at any point during the VA appeals process, which can cause another cycle of re-adjudication. Specifically, when a veteran submits additional pertinent evidence after VA’s initial decision on their claim, VA is generally required to review the evidence, develop any other needed evidence, and issue another decision. This is the case regardless of whether the veteran submits the additional evidence to VBA or to the Board and, for appeals pending before the Board, the submission of additional evidence may result in a remand to VBA for further development. VA reported that in fiscal year 2015, the Board remanded about 46 percent of appeals to VBA for additional development. Of those remanded appeals, which may involve more than one issue, VA reported that about 60 percent of the reasons those appeals were returned to VBA were due to the open record that allows veterans to introduce new evidence at any point during the appeal. VA reported that in fiscal year 2015, it took VBA an additional 255 days on average to complete remand development and for the appeal to be re-docketed at the Board. VA also reported that in fiscal year 2015 it took the Board an average of 244 additional days to complete its subsequent review of the returned remands and decide the appeal. According to VA, this re-adjudication can occur multiple times and can add years to the time needed to reach a final decision on an appeal. Board and VSO officials also identified factors within VBA’s initial claim process—and outside of the Board’s control—that cause delays in veterans receiving final decisions on their appeal. Specifically, According to Board and VSO officials, VBA’s decision notification letters are unclear and confusing. In particular, the officials stated that these letters do not adequately explain why claims were denied and do not clearly identify the evidence a veteran needs to provide to fully support a claim on appeal. As a result, some veterans may appeal unnecessarily, or they may appeal without providing the evidence needed to support their claims. VSO officials we interviewed said that some delays are attributable to errors in VBA’s initial decisions. They suggested that errors may have occurred because VBA rushed some decisions in its initiative to reduce its backlog of claims pending more than 125 days. Such errors can lead to Board remands and VBA re-work. For example, the Board may remand an appeal because VBA failed to meet the “duty to assist” responsibilities to a veteran. According to the Board, 41 percent of the reasons for the remands in fiscal year 2015 were due to a VBA error. Board and VSO officials also cited delays in VBA’s transmittal of appeals to the Board as a possible cause for the delays in Board decisions. When a veteran files an application with VBA to appeal to the Board, VBA prepares the case file for transfer to the Board, certifies that the case file is complete and ready for Board review, and transmits the file to the Board. According to VA data on appeals decisions made by the Board in fiscal year 2015, it took on average 537 days to process the appeal from receipt to certification. Docketing appeals that had been certified to the Board added an average of 222 days to processing times for appeals decisions made in fiscal year 2015. VSOs (two of the four we interviewed) told us that they noticed these delays occurring as VA’s focus shifted to clearing the compensation benefit claims backlog. To address process-related challenges, VA’s approach has been to develop a proposal to streamline the appeals process and to ask the Congress to make changes in the laws governing the process. In April 2016, VA issued a draft summary of a proposed streamlined appeals process that reflected collaboration with its stakeholders. This summary was accompanied by draft legislation for the Congress’ consideration. If enacted into law, the draft legislation would make process changes that VA identified as needed to streamline the appeals process. According to VA, key to the proposed process changes would be replacing the current appeals process, which begins in VBA, with a process giving a veteran four options—two in VBA and two in the Board. As presented in VA’s framework, these options would be: Ask VBA to review its initial decision based on the same evidence. Under this option, the veteran would not be able to submit new evidence or request a VBA hearing, and would not be subject to VA’s “duty to assist” requirement. A VBA official (at a level higher than the official who made the initial decision) would review the record supporting the initial decision, and issue a new decision. The veteran could file a “supplemental claim” with VBA, asking VBA to review its initial decision, while providing additional evidence. Under this option, the veteran could also request a VBA hearing. Another VBA official (at the same level as the original VBA decision-maker) would review the revised record, including the additional evidence from the veteran, and issue a new decision. The veteran could file a Notice of Disagreement directly with the Board, bypassing a VBA review. The veteran would have two options with the Board: Ask the Board to review only the existing record without a hearing and then issue a decision. Alternatively, ask the Board to review additional evidence, conduct a hearing before issuing its decision, or both. See figure 4 for a representation of the options in VA’s proposed simplified appeals process. VA officials anticipate that the proposed appeals process described above will expedite appeals in a number of ways, most notably: For those appeals where no additional evidence is submitted, and no formal hearing is conducted (indicated as “VBA conducts local higher- level review” and “Board reviews record without new evidence or a hearing” in figure 4), the re-review of the original record could expedite a final appeals decision. In addition, VA’s “duty to assist” requirements would only apply to VBA for initial and supplemental claims. Unlike the current process, in which the Board may remand appeals to VBA to consider new evidence, the Board would only remand appeals under the new process in cases in which the Board found that VBA failed, in its initial or supplemental claim processing, to meet VA’s “duty to assist” the veteran. VA estimates that, once the new process is fully implemented, remands will steadily decrease and eventually occur in as few as 5 percent of appeals. When the veteran appeals directly to the Board, VBA would no longer be required to review the record (including any additional evidence), prepare statements of its findings (i.e., prepare SOCs or SSOCs), and certify appeals as ready for Board review. VA has estimated that as a result of these process changes—in combination with increased FTEs—the Board could complete cases faster, deciding many more appeals per FTE in fiscal year 2018 compared to fiscal year 2015. More specifically, VA estimated that the Board could complete an average of 180 appeals decisions per FTE without a hearing and 130 with a hearing, compared to the average of 86 total decisions per FTE in fiscal year 2015. We discuss VA’s estimates in more detail later in this report. While VA’s proposal reflects VA’s intent to expedite appeals resolutions, it also contains various protections for veterans that are intended to address stakeholders’ concerns about fairness. Notably, such protections include the following: In contrast to the “one size fits all” process, the proposed reform allows the veteran to choose an option that best fits the circumstances of a veteran’s claim. As shown in figure 2 above, a veteran could choose to have VBA review the initial decision or they could appeal directly to the Board. Also, the veteran would have the option to have either VBA or the Board review the existing record, without having to submit new evidence and/or request a formal hearing. VA expects that these options could help the veteran obtain a faster decision from VBA or the Board. Per VA’s framework, under the new process, the veteran would have up to 1 year from VBA’s initial decision to choose an option. Further, if the veteran is unsuccessful in one appeal option, the veteran could, within 1 year, choose another option. However, according to VA, an appeal for a higher-level review by VBA without new evidence cannot directly follow a Board decision. VBA would be required to provide more information in letters notifying veterans of decisions involving a denial of benefits, which could help veterans make more informed decisions on whether to appeal, which option to pursue, and what additional evidence (if any) to provide. The inclusion of additions to such notifications in VA’s proposed legislation addresses stakeholders’ concerns that veterans did not have enough information to decide whether they should appeal, or what additional evidence they needed to provide, thereby resulting in unnecessary appeals or delays in appeals. A veteran who is not fully satisfied with the result of any lane would have 1 year to seek further review, while preserving an effective date for benefits based on the date the veteran filed the original claim with VBA. This would help ensure a veteran is not penalized for pursuing an appeal to the Board. For example, under VA’s proposal, a veteran denied benefits by the Board could choose to have VBA conduct another review, by filing a supplemental claim with additional evidence. In contrast, under current law, if a veteran appeals to the Board and is denied (and does not appeal to a federal court), the veteran must generally reopen the claim, or start over, by filing another claim with VBA. If the veteran is subsequently granted benefits, the benefits would generally be awarded from the date on which the new (not original) claim was filed, which could result in the veteran not receiving retroactive compensation payments. VA has plans to modernize its current IT system, which it determined is antiquated and a source of delays in processing appeals. VA currently uses the Veterans Appeals Control and Locator System (VACOLS) to track and manage its appeals workload. VA identified a number of reasons why it believes VACOLS should be replaced, including that: The system is based on outdated technology dating from the 1990s that VA determined would be difficult to modify to meet the changing needs of VA. VA designed VACOLS around a paper-based VA claims process and as a result, VACOLS does not adequately support a fully electronic environment. According to VA, although VACOLS has been patched to some extent to handle paperless appeals, the Board relies on paper briefs to help manage its appeals workflow. VACOLS’s lack of automation, integration with other VA systems, and error checks results in mistakes and lost productivity. According to VA, individual employees spend a significant amount of time correcting data entry errors that would be avoided if cases were automatically transferred to the Board. For instance, they said that after cases are transferred to the Board, a team of employees must manually review and correct most incoming cases due to issues with labeling, mismatched dates, and missing files. Via an internal study, VA determined that up to 88 percent of cases transferred to the Board had such errors. Additionally, VA notes that data entry errors can result in instances where paperless cases are mislabeled as paper- based. These cases will not show up as certified in VACOLS and the Board will erroneously wait for a paper case that will never arrive. VACOLS is central to appeals processing, thus a system outage would halt the processing of appeals across VA, either paper or electronic, until VACOLS is repaired, according to VA. VA expects its VACOLS replacement to improve the efficiency of its appeals decisions. Its planned replacement—called Caseflow—is intended to address the limitations of VACOLS and better support processing appeals in a paperless environment. According to VA, Caseflow is being developed in an agile process in which new functions are added to the system as they are completed. In fiscal year 2016, VA developed two initial deliverables. According to VA, the first is intended to automate and introduce consistency to the process of transferring appeals to the Board. The second introduced the ability for staff to access documentation from the Veterans Benefits Management System (VBMS)—VA’s system for processing claims—which VA believes will eventually allow users to review appeals more efficiently. As of February 2017, VA officials also noted the agency is in the process of developing additional components, including document review software for VLJs and attorneys, and a component to better track appeals that are remanded to VBA. According to officials, VA’s longer term plans include a broad roadmap for continuously adding improvements to Caseflow. For instance, VA has plans to build into the system the capability to generate performance metrics, using a component called Caseflow Dashboard. VA states that the dashboard will be able to draw on various VA data systems and provide information on bottlenecks in the appeals process, quantify improvements in the appeals process—including those attributable to improved IT systems—and track the reasons for and number of remands. While Caseflow improvements are being made, VA reported it plans to maintain VACOLS as a redundant resource until the new system is fully complete, at which point VACOLS will be retired. VA acted consistently with sound planning practices in determining its need for additional staff, but it did not fully consider risks and uncertainties in its approach. Sound practices for effective planning suggest that agencies should consider alternative solutions to a problem; assess the risk of unintended consequences; and use data to analyze the problem, including unknowns. Consistent with these concepts and more specific sound workforce planning practices, VA considered various hiring options, such as hiring staff under the current versus VA proposed process, and modeling appeals inventories under four hiring surge options. VA considered a number of factors when comparing the four hiring options including historical data on the volume and complexity of appeals, estimates of future growth in appeals, and the productivity of employees in estimating the number of Board staff needed to meet its timeliness goals. For instance, the Board reviewed past data on the productivity of new staff—which is generally lower for a period of time until individuals acclimate to their jobs—and factored this into the modeling assumptions used to project the number of Board staff needed. More specifically, sound workforce planning practices suggest that agencies identify the resources needed to manage the risks of implementing new processes and conduct scenario planning to determine these needs. While VA considered a number of factors when analyzing hiring options, it initially made many assumptions using a single set of estimates instead of using a sensitivity analysis to consider a range of estimates. These assumptions could have significant implications for how accurately VA identifies needed resources. For example, in its scenario analysis VA assumed: (1) that an average of 50 percent of those veterans appealing will refile their appeal and go through two of the four appeals process options before being satisfied; and (2) that the Board will be able to decide 130 appeals per FTE, and do so within 3 years (1,095 days), for appeals with hearings and decide 180 appeals per FTE within 1 year for appeals without hearings. Because the Board did not consider alternate sets of assumptions, VA does not know the potential effect that variations in these key variables could have on staffing needs. In response to discussions with us on its scenario analyses, VA recently conducted further analyses using alternative estimates for key factors, although the agency’s analyses fell short of the previously discussed sound practices for estimating outcomes based on assumptions. Specifically, VA calculated the effect on appeals inventories and timeliness if VA decided 20 percent fewer appeals, if VA decided more claims and thus had more appeals than expected, and if the breakdown of options that veterans selected for their appeals review is different than the 50/50 split VA projected. The 20 percent reduction in productivity alone could add 2.5 years to VA’s estimate of how long it would take to clear the appeals inventory under hiring surge option 4. However, VA ran a sensitivity analysis for only one of the four hiring surge options and did not analyze the compounded effect of different assumptions together. By not comprehensively conducting sensitivity analyses, VA is hampered in its ability to anticipate and plan for different contingencies, and risks being caught off guard and potentially hiring an inappropriate number of staff. Hiring too few staff could result in it taking longer to reduce the inventory of pending appeals, while hiring too many staff could result in higher expenditures than needed and exacerbate other challenges, such as ensuring sufficient office space, training, and other supports for newly hired staff, as discussed below. VA has acknowledged that some of its assumptions, and thus projections, are based on unknowns and that it will need to continuously rerun the models with updated data. VA also identified strategies and resources needed for recruiting, hiring, and training staff in fiscal year 2017; however, aspects of VA’s workforce planning fall short of sound workforce planning practices that suggest having timely written plans with a systematic approach and detailed steps, time frames, and mitigation strategies to help identify where resources and investments should be targeted. As noted below, VA has identified strategies and taken some positive steps related to recruiting, hiring, and training staff in fiscal year 2017, although these plans sometimes lacked certain details specifically covered in sound workforce planning principles in time to inform ongoing efforts. Recruitment and Hiring: Consistent with sound workforce planning practices, officials have worked to develop a center for excellence in hiring to coordinate workforce planning and develop strategies for recruiting and hiring staff quickly. However, the center was established in the last quarter of fiscal year 2016 to support hiring beginning early in fiscal year 2017. To date, the Board developed a project to recruit recent law school graduates and alumni in fiscal year 2017, according to Board officials. It also has formed a committee of over 90 volunteers to develop recruitment materials, identify opportunities, and make contact with law schools; developed a PowerPoint presentation for the visits; and conducted a few initial presentations at law schools. However, the agency had not yet worked out specific goals such as the number of presentations or resulting applications, average time taken to recruit, and skills needed in recruits, or identified metrics (other than hiring goals) against which it would measure the effectiveness of the recruitment efforts. Also consistent with sound workforce planning practices, Board officials told us that they considered lessons learned from a 2013 hiring surge, although the agency did not provide documentation of these lessons learned. Having established a goal of hiring 25-52 new employees per month from October 2016 through April 2017, the Board subsequently faced challenges finding space for staff coming aboard in fiscal year 2017. Specifically, as of October 2016, the Board was reconfiguring its office space to accommodate the planned 242 new FTEs in fiscal year 2017, employing nearly all of its conference rooms, and developing a plan for using telework and office sharing to accommodate staff until the space is available for them, according to officials. Training: As of February 2017, VA rolled out training for newly hired attorneys in fiscal year 2017, which includes 4 weeks of training and 8 additional weeks of one-on-one mentoring. VA also stated that its Office of Knowledge Management was expanded with additional staff resources to ensure training materials were up to date. However, in November 2016, officials reported that the Board was still in the process of updating various aspects of its training curriculum, such as how to support conducting work in a virtual environment, which is consistent with the agency’s plans to increase telework as a way to manage space restrictions for new staff. In its comments to this report, VA did not provide updates on this effort, as of February 2017. As of October 2016, it was unclear how the Board’s 2017 recruiting, hiring, and training efforts will be adjusted to support the agency’s proposed hiring surges in 2018 or its proposed process reform. For example, the Board has not yet determined how it will meet the space needs for any additional growth associated with hiring surges proposed for fiscal year 2018, although more detailed planning in advance might have better prepared VA for bringing aboard 242 FTEs in fiscal year 2017. In addition, VA officials stated in February 2017 that draft training for the proposed new appeals process had been prepared based on statutory language, although these draft documents were not included in VA’s comments. Federal strategic planning guidance calls for an agency to have clear plans and goals, and regularly assess its human capital approaches through assessments, as well as through data-driven human capital management to improve its ability to maximize the value of human capital investments while managing related risks. Conversely, a lack of detailed workforce plans and mitigation strategies prior to proposed hiring surges in 2018, as well as potential process reform, further places VA at risk of not being ready to accommodate another quick and much larger increase in staff, or to train them in accordance with either the legacy or proposed reform process. VA collaborated with key stakeholders in developing its proposed appeals process reform framework and related implementation plans, which is consistent with sound practices for business process redesign. Sound redesign practices suggest coordinating with stakeholders in developing and implementing plans to obtain and maintain buy-in from start to finish and to identify and address disagreements. In developing its proposal, Board and VBA officials engaged stakeholders from 11 organizations— including VSOs that represent veterans in appeals hearings before VBA and the Board—in discussions to design a streamlined appeals process. Officials we interviewed from three of four VSOs, all of whom participated in the discussions, noted that VA’s resulting process proposal addressed both the agency’s desire to expedite appeals resolutions and stakeholder desires that the new process be fair to veterans. For example, VA identified and prioritized key concerns and found areas of consensus with VSOs. VA officials stated that they plan to continue to discuss appeals process reform (among other topics) at regular meetings with stakeholders, during which they will have an opportunity to provide feedback on previously unforeseen issues. VA officials said that as process reform is implemented, the agency will invite local VSOs to training, and share training materials and provide briefings to them and other stakeholder groups. While VA has achieved broad agreement internally and with VSOs on its proposed process reform, there are several unaddressed gaps in VA’s business case for implementation that introduce the risk of not producing the desired results, as follows. To develop a business case for implementing process change, sound redesign practices suggest first mapping and analyzing the target process to understand the cause and cost of performance breakdowns, and assessing potential barriers, costs, and benefits of alternative processes. This, in turn, would inform the selection of a feasible alternative with a high return on investment, and the development of a business case that describes benefits, costs, and risks. However, due to IT limitations, VA lacks data to inform and confirm its understanding of the root causes of lengthy time frames. For example, VA lacks complete historical data on the extent to which submission of new evidence and multiple decisions and appeals occur, and thus cannot determine the impact of its current, open- ended process on appeals decision timeliness. To shed light on root causes, VA analyzed 10 appeals decisions that it found took a long time to adjudicate to illustrate extreme examples of cases being re- reviewed under VA’s open-ended process—referred to by VA as “churning.” However, VA cannot know the full extent to which churning might be occurring because, according to VA officials, the way data are stored made it difficult, if not impossible, to assemble a complete historical picture prior to December 2012. To help develop baseline data, VA analyzed the average number of decisions per appeals phase for several recent fiscal years, and, according to VA officials, they are still endeavoring to piece together additional historical baselines for performance. Further, although it was appropriate for VA to develop its proposed reform in consultation with internal and external experts, the agency did not test alternatives using data-driven, cost-effective methods suggested by sound redesign practices. Finally, as noted previously, in modeling staff resources needed under its proposed process reform, VA relied on assumptions—about the percent of veterans who will refile, will appeal to the Board, and will submit new evidence—that have direct implications for projections of appeals workloads, time frames, and cost. However, VA did not perform sufficient sensitivity analyses to help estimate a range of potential outcomes—analyses that might help VA understand the likelihood that the new process could be more costly and time- consuming in practice than anticipated, for example, if a higher percent of veterans file with the Board, submit new evidence, and request hearings than expected. These gaps notwithstanding, VA made some progress planning for potential implementation of proposed process reform in a manner generally consistent with sound planning practices for process redesign and change management, although some important details are still absent. According to sound planning practices, implementation is the most difficult phase of business process redesign. An agency must manage human capital and technical issues as it turns an idea into reality and overcomes potential resistance to change. To ensure an orderly transition, sound planning practices suggest following a comprehensive implementation plan that includes several key activities, such as establishing a transition team and developing a comprehensive plan to manage implementation. Consistent with this, as of October 2016, the Board and VBA had identified general time frames and offices responsible for key implementation efforts. Based on its staff modeling efforts, VA also identified how many FTEs it expects it will devote to processing cases under the current process versus a new one, should it be implemented. Also, per sound planning practices, a comprehensive plan should address workforce training and redeployment issues (including working closely with employee unions to minimize potential adverse effects). Consistent with this, as of October 2016, VA had outlined general steps and time frames for training of staff and communicating with the unions. While VA’s high-level implementation plan included many components suggested by sound practices, key details had yet to be addressed. In particular, VA’s general timetables and plans to date have not addressed in any detail how it will implement a new process while simultaneously working to reduce the appeals inventory under the current process. For example, the agency has not explained how or who will track timeliness of appeals of the old compared to the new process, and how decisions will be made to ensure the agency is devoting an appropriate share of resources to both processes. The lack of a detailed plan for managing this transition exposes the agency to risk that veterans whose appeals are pending under the old process may experience significant delays relative to those under a new process. The Board recognized the need to ensure fairness to veterans with appeals pending under the current process, and indicated that while legislation is pending that would authorize a new process, it will continue to develop plans for managing the two processes in parallel. Sound practices for process redesign and change management also suggest having risk mitigation strategies—in particular, pilot testing—to ensure moving successfully to full implementation. Pilot testing provides agencies opportunities to evaluate the soundness of new processes in actual practice on a smaller scale, and to refine performance measures, collect and share implementation problems and solutions, correct problems with the new design and refine the process prior to full implementation, and build capacity among unit managers to lead change. Sound redesign and change management practices both suggest that pilot tests should be rigorously monitored and evaluated, and that further roll-out occur only after the agency’s transition team has taken any needed corrective action and determined that the new process is achieving previously identified success criteria. As noted above, pilot testing is not the only method of achieving these risk mitigation goals, but sound planning practices suggest pilot testing is an important, often necessary approach for ensuring successful implementation when undertaking significant institutional change. Contrary to sound practices, VA officials stated they do not want to pilot proposed appeals reform, even though VA’s proposed reform can be considered complex. VA’s reform plans qualify as complex because in addition to implementing a new process, the agency must still manage a large inventory of appeals under the old process while hiring and training a large number of staff and implementing IT improvements. Occurring together, these efforts involve significant change and uncertainty and will require management oversight across a broad range of efforts. In addition, VA’s proposed process reform and other initiatives affect VBA’s regional offices spread across the country, as well as the centrally located Board, thereby further increasing complexity of implementation. VA officials also stated that the proposed process reform, which has been thoroughly vetted with stakeholders, has broad support, and noted their view that the risk of fully implementing change is outweighed by the cost of delay. VA’s rationale for not pilot testing centers on what they describe as widespread consensus that the current process is “fundamentally broken” and provides “inadequate service to veterans with a high percentage of wasted effort.” VA assumed that a pilot test authorized by Congress would include a sunset date with a default reversion to the current system, which they said would introduce uncertainty into the agency’s planning efforts and a reliance on subsequent, time consuming legislation before the conclusion of the pilot. VA officials stated that piloting with a sunset date would require the agency to expend additional resources and time to conduct parallel planning for reverting to the old system upon the sunset date. VA stated that pilot testing the new process for some veterans would be perceived as inequitable, despite VA having previously supported pilot testing a new appeals process. VA officials concluded that they have not identified any risk that would justify a pilot, and indicated that they plan to mitigate risk with a strong implementation plan. While VA has made a compelling case for reforming the appeals process, as noted previously, VA’s business case for its proposed reform in some instances relies on unproven assumptions and limited analyses of its current process that introduces risk in VA’s plans for full implementation. Importantly, VA assumes that because the current framework is “fundamentally broken,” its proposed new framework will necessarily be a better option. However, VA made this decision lacking complete data on the root cause of lengthy appeals under the current process, and without analyzing barriers, costs and benefits of feasible alternatives using cost effective methods, such as computer simulations. VA correctly notes that pilot testing prior to full implementation would slow down an overhaul of the current system, thus countering the short-term net benefit that the agency expects to realize from such an overhaul. However, VA has not acknowledged that pilot testing the new process in a more limited fashion could greatly increase the probability of long-term success by decreasing the chance that a new system will experience unanticipated problems that are potentially more widespread and therefore costly to remedy. The inclusion of risk mitigation strategies such as pilot testing does not, as VA asserts, “imply that the status quo is not in dire need of sweeping reform” but rather balances the urgency of the current problem, the technical complexity of an overhaul, and the potential for unforeseeable complications. In light of this and the previously discussed inconsistencies in following sound planning practices, pushing forward with full implementation without testing how process reform unfolds and interacts with other efforts in actuality, may lead VA to experience implementation challenges and setbacks that could undermine efficiencies and other outcomes resulting from planned reforms. In contrast, if VA were to pilot test the proposed appeals process reform, implementation problems encountered could be identified and resolved prior to full implementation. This could lead to smoother implementation and better outcomes overall. Further, resources that would otherwise be diverted to full implementation of process reform across the organization could be focused on its current inventory of appeals. VA will also have additional time and managerial capacity to recruit and train new staff and develop and implement a communication and outreach strategy in time for full implementation of the new process. Finally, if risk mitigation strategies demonstrated that process reform would be more costly and detrimental to time frames and workloads than predicted, a decision to modify or fix the process at that juncture would be made with more information and less impact on the agency overall. Whether VA conducts pilot testing or not, VA has not yet developed a plan for closely monitoring implementation or developed a strategy for assessing the success of its proposed process reform. Sound planning and redesign practices suggest that the transition team develop metrics and data gathering procedures, define success criteria, measure performance carefully, and take corrective action of any pilot test before proceeding to full implementation. Sound practices also suggest the agency develop meaningful performance measures—generally a mix of outcome, output, and efficiency measures—tied to overall goals of the project, and that project goals include a mix of intermediate goals to be met at various stages during the implementation phase. That way, the agency can start to show a return on investment in the early stages of implementation. To date, VA has identified several broad metrics generally reflecting outcomes, output, and efficiency—such as veteran survey results, wait times, and inventories—that it plans to use to track and assess process improvements. VA also established separate timeliness measures for the Board and VBA that it will use in its annual performance reports. While these broad metrics and goals are appropriate, they fall short of sound practices for monitoring and assessing process change in several respects. First, VA has not developed a dashboard or balanced scorecard, or otherwise identified how it will closely monitor progress, evaluate its efficiency and effectiveness, and identify trouble spots. For example, although VA has stated that it is developing a dashboard to measure performance under its proposed appeals process, VA has not yet indicated whether, how, and with what frequency it will monitor wait times and inventories under the new versus current processes. As a result, it is not clear how VA will determine whether veterans with appeals pending under the current process are receiving equitable treatment and not experiencing significant delays relative to those under the new process. It is also unclear the extent to which VA will systematically monitor staff productivity and IT processing, which may affect its ability to determine whether assumptions are being met to help pinpoint corrective action (e.g., whether staff need more training, VA’s communication and outreach efforts are working as expected, or process reform itself is achieving desired results). Further, VA has not established interim goals or criteria for success to help determine whether initial implementation is achieving intended results. Interim goals and criteria could include specific timeliness improvements for process steps and outcomes, such as average time for VBA or the Board to reach decisions under new appeals options. If VA pursues pilot testing, such goals or success criteria will help determine whether the new process is sufficiently successful to justify full implementation. Second, although streamlining the current open-ended process was central to VA’s business case for its proposed process reform, as noted previously, VA currently lacks sufficient data to assess the extent to which process reform will improve on the open-ended nature of the current process. VA officials said that they plan to work to incorporate capabilities into Caseflow to piece together historical baselines for performance. VA also plans to develop new baseline and historical data on aspects of the appeals process that affect the timeliness of final decisions so that they can be compared to the new process. While these are positive steps, it remains to be determined how or whether VA will be able to measure the extent to which its proposed process—which would allow the veteran to appeal multiple times—is an improvement over “churning” associated with the old process. Lastly, the new timeliness measures that VA plans to report to Congress and the public lack transparency on whether overall appeals resolution timeliness is improving from the veterans’ perspective. In its fiscal year 2015 performance report, VA stopped reporting its average appeals resolution time measure, which included appeals decisions made by both VBA and the Board. VA officials said they considered this measure inadequate because neither VBA nor the Board has full control over making improvements to performance under this measure. VA officials told us the measure does not appropriately provide insight into the appeals process because of the variety of appeals paths and wait times veterans experience. However, the combined measure would provide a basis for comparing timeliness under the old versus new process, and would provide historical perspectives on changes in timeliness from the point of view of a veteran who may file appeals with both VBA and the Board before his or her case is resolved. VA officials stated the agency will continue to track this measure internally, but they will not include it in VA’s annual performance reports. Instead, they plan to report on VBA and Board timeliness separately. VA also stated that it will not use this measure to evaluate success of the new process because it considers a timeliness measure covering both VBA and the Board to be inappropriate. VA has generally planned the implementation of its Caseflow appeals system consistent with sound planning practices. Working with U.S. Digital Service at VA (DSVA)—the group tasked with developing Caseflow—VA outlined an approach that has a clear scope and purpose, which is to better process appeals in a paperless environment and improve automation and productivity. The actions consistent with sound IT planning practices include: Setting goals and objectives: VA plans clearly lay out the need for replacing VACOLS and set forth how Caseflow will address the shortcomings of VA’s current IT system. Its plans also lay out a set of broad milestones in terms of the capabilities that will be added to Caseflow in the future and the ultimate retirement of VACOLS. Identifying and mitigating potential risks: VA planning documents identify a number of risks (such as staffing shortfalls and technical delays) and strategies to mitigate them. In addition, VA is developing Caseflow in an agile process, which officials say will allow VA to continually add new capabilities and be responsive to changing agency needs. In addition, VA officials told us that rather than replace VACOLS at once, the various functions in VACOLS will be reproduced and tested in Caseflow iteratively, and each corresponding function in VACOLS will be left intact until there is reasonable assurance that there will be no impact to VA. Measuring performance: VA plans to develop metrics for each new component of Caseflow that is implemented. For instance, VA has developed metrics for the two components that were developed in fiscal year 2016—electronic transfer of cases to the Board and a system to electronically access documents from VBMS—which specifically assess the performance and effect of those components. As mentioned earlier, VA also plans to create a Caseflow dashboard that will provide metrics on the effect of IT improvements on timeliness of the appeals process. Identifying organizational roles and responsibilities: VA entered into a memorandum of understanding with DSVA and the Board that outlines priorities, and a working relationship for developing Caseflow. In addition, the memorandum states that DSVA requires all initiative partners within VA to have a single point of contact with the authority to make decisions on behalf of their component. While VA’s plans for replacing VACOLS take steps to mitigate risks, they currently do not include consideration of the timing and implications of VA’s proposed reform efforts. Federal internal control standards state that program managers, in seeking to achieve program objectives, should define objectives clearly to enable the identification of risks. This includes clearly defining what is to be achieved and the time frames for achievement. Additionally, IT investment best practices stress the need for oversight regarding a project’s progress towards predefined schedule expectations. This oversight also includes systems to make corrections regarding schedule and performance slippages. Although VA has laid out the broad capabilities it would like to incorporate into Caseflow going forward, VA has not developed a schedule for completing Caseflow. Specifically, VA could not provide us with firm time frames for when different capabilities will be active in Caseflow. As the Caseflow effort lacks time frames, VA cannot ensure that the system will be completed in time to support the implementation of proposed reforms. Further, VA’s lack of time frames for developing Caseflow may increase the risk of additional costs if the system cannot be developed as quickly as anticipated. Sound practices specific to project scheduling state that project planning is the basis for controlling and managing project performance, including managing the relationship between cost and time. In a prior GAO report on VBMS development—which was also developed in an agile process—we reported that the agency encountered some delays with its initial deployment of key functions of VBMS, and that its lack of a schedule made it difficult to hold program managers accountable for meeting time frames and demonstrating progress. In addition, VA has not started planning and determining the changes that would be needed for Caseflow if and when appeals reforms are implemented. VA staff said that the agile approach they are using allows them to quickly respond to changing needs, and VA Office of Information and Technology officials told us that they will not begin planning for such changes until reform legislation is passed. As stated earlier, sound IT planning practices suggest that implementation plans include specific time frames and approaches needed to implement new systems, as well as the consideration of potential risks and mitigation strategies. As such, and given the absence of a schedule for completing Caseflow, VA further risks having an IT system that is not completed in a timely manner or, even if in place in time, falls short of meeting VA’s needs. With an already large inventory of pending appeals—and expectations of further growth—VA has taken steps to bolster capacity and improve the efficiency and effectiveness of its disability appeals process. Specifically, VA hired and proposed hiring more staff, is moving forward with plans to upgrade its IT systems, and has proposed bold reforms to streamline its appeals process. In planning and executing these approaches, VA took several positive steps in line with sound planning practices—such as comparing different options for increasing future staffing resources, collaborating with external stakeholders to develop a streamlined process proposal, and outlining a vision for upgrading outdated IT systems. Nonetheless, VA’s plans do not account for the significant challenges that remain. Above all, its proposal to implement appeals reform at the Board and across VBA’s regional offices is ambitious, and as a result, VA may be exposing itself to unforeseen risks and setbacks that could slow progress toward improving appeals decision timeliness. More specifically, VA has proposed implementing process reform while also hiring more staff and upgrading its IT, which are challenging efforts in their own right. Additionally, VA does not have any plans to pilot test its proposal—a sound and often necessary practice for experiencing, evaluating, and refining significant institutional change on a smaller scale prior to full implementation. At the same time, VA plans for hiring more staff and upgrading IT lack key details (for example, on how VA will train and find working space for new staff, or a schedule for when and how system changes might be integrated with the proposed streamlined process), exposing VA to risks of delays, inefficiencies, or other setbacks caused by not anticipating needs or a misalignment of efforts. VA also did not sufficiently apply sensitivity analysis when projecting staffing needs with or without process reform, which could affect the agency’s ability to mitigate any potential risks if assumptions are not met. Lastly, VA lacks a robust monitoring plan to help assure that unforeseen problems will be quickly and effectively addressed, and has not yet developed a strategy with appropriate interim goals for process reform, and overall goals for appeals process timeliness, to gauge whether the agency’s efforts are having the desired result and reflect an improvement over prior practices. Until VA incorporates these sound planning practices, the agency lacks reasonable assurance that its proposed reform will improve the overall efficiency of the appeals process and timeliness of disability appeals decisions. To improve VA’s ability to successfully implement appeals process reform, Congress should consider requiring that reforms of the VA disability appeals process be subject to a pilot test. To aid in the development of such a pilot test, Congress could require the Secretary of Veterans Affairs to propose options that would allow the agency the flexibility to test and refine the new process in a cost-effective and efficient manner, while ensuring pre-established interim goals and success criteria are being met prior to full implementation. To further align efforts to address appeals workload and improve timeliness of decisions, and reduce the risk that efforts will not go as planned, we recommend that the Secretary of Veterans Affairs direct the Under Secretary for Benefits; the Chairman, Board of Veterans’ Appeals; and the Chief Information Officer, as appropriate, to: 1. Ensure development of a timely, detailed workforce plan for recruiting, hiring and training new hires. In particular, this plan should: (1) include detailed steps and timetables for updating training curriculum (such as preparing decisions in a virtual environment) and ensuring office space (such as telework guidance); and (2) incorporate risk mitigation strategies that consider how the timing of recruitment and training dovetails with uncertain time frames for implementing a new appeals process. 2. Develop a schedule for IT updates that explicitly addresses when and how any process reform will be integrated into new systems and when Caseflow will be ready to support a potential streamlined appeals process at its onset. 3. Conduct additional sensitivity analyses based on the assumptions used in projection models to more accurately estimate future appeals inventories and timeliness. In doing so, consider running additional analyses on how these factors, in conjunction with one another, may affect the timeliness and cost of deciding pending appeals. 4. Develop a more robust plan for closely monitoring implementation of process reform that includes metrics and interim goals to help track progress, evaluate efficiency and effectiveness, and identify trouble spots. To better understand whether appeals process reform, in conjunction with other efforts, has improved timeliness, we recommend the Secretary of Veterans Affairs direct the Under Secretary for Benefits; the Chairman, Board of Veterans’ Appeals; and the Chief Information Officer, as appropriate to: 5. Develop a strategy for assessing process reform—relative to the current process—that ensures transparency in reporting to Congress and the public on the extent to which VA is improving veterans’ experiences with its disability appeals process. We provided a draft of the report to VA for its review. In written comments, VA disagreed with one of our recommendations and agreed in principle with the other five. We have reproduced VA’s comments in appendix I and have incorporated them—as well as technical comments provided by VA—into the report, as appropriate. In its comments, VA agreed with us that improving the efficiency and effectiveness of its appeals process is an ambitious undertaking, and we commend VA for the many steps it has taken, including collaborating with stakeholders to develop the framework for a new process. We agree that obtaining the consensus of internal and external experts—including veterans service organizations—demonstrates important progress. We disagree, however, that such consensus negates the need for more detailed plans and robust risk mitigation strategies. While it is true that VA has made noteworthy progress developing an implementation plan to guide its efforts, we found the plan lacked important details, such as: how VA will monitor for interim success and trouble spots, including whether the agency has appropriately distributed resources among the new and old processes; how it will mitigate risk of implementation challenges or setbacks, and reduce their negative impact; and how it will measure whether the new process is improving overall appeals resolution timeliness from the veteran’s perspective. VA officials also said that VA has extensive experience in organizational change management, but it is not clear how some of the practices VA used in past transformation efforts are applicable to appeals reform, and we are concerned that VA could not provide further information on what these practices include or how they are relevant. We believe implementing all of our recommendations will increase the likelihood that VA’s efforts to improve the efficiency and effectiveness of its appeals process will be successful. For the five recommendations that VA concurred with in principle, VA described planned actions to address them and stated that it also considered the actions complete and requested we close the recommendations. However, we believe VA still needs to take actions to address those recommendations, as noted more fully below. VA disagreed with a draft recommendation that it incorporate pilot testing of its proposed appeals process into implementation plans and pursue necessary legislative authority. In its comments, VA noted that the appeals process is broken and that piloting a new process would result in further delays to veterans appealing their disability decisions. VA disagreed with GAO’s finding that it had proposed the new process without analyzing feasible alternatives, noting that the agency designed the new process based on the collective experience of internal and external experts, and that these experts reached consensus on a new design that will be beneficial to veterans, the agency, and taxpayers, among others. VA noted that it has carefully assessed risks, identified a number of risk mitigation strategies, modeled a number of different scenarios, and developed a detailed implementation plan. When we reviewed these efforts, however, we found three primary shortcomings that need to be addressed. First, VA did not have the data it needs to fully understand the extent to which the current process has contributed to lengthy appeals time frames, which raises questions about whether the proposed process will address the root cause or causes of untimely appeals decisions. Specifically, VA lacks historical data on the extent to which the introduction of new evidence increases time frames. Second, VA’s list of potential risks and risk mitigation strategies did not always include steps for mitigating the identified risks. Third, we found that VA’s implementation plans lacked details on how it will carry out key aspects of appeals reform, including how it will monitor the timeliness of appeals decisions under the old process compared to the new appeals process, while also hiring additional staff and integrating changes into the Caseflow IT system as discussed below. In VA’s comments, it also stated that piloting a new appeals process “would raise constitutional issues and prompt litigation.” We acknowledge that changing an adjudicatory process for determinations of benefits may prompt litigation. However, VA has not clearly articulated why pilot testing as a category is unconstitutional or why pilot testing poses unique constitutional issues. Further, as noted in the report and in VA’s comments, VA previously supported H.R. 800 in the 114th Congress, which would have directed VA to conduct an opt-in pilot process where a veteran could present a limited amount of new evidence and the Board, to the extent practical, would decide cases within one year. While GAO did not take a position on that bill, or its specific approach to pilot testing, changes of this magnitude in such a complex program justify some form of pilot testing to ensure process reform is implemented successfully and ultimately achieves VA’s goals. As noted in the report, pilot testing is recognized to be a sound planning practice and an important, often necessary approach for ensuring successful implementation when undertaking significant institutional changes. Until VA pilot tests its appeals reforms, it will lack data to properly plan for and overcome the challenges that will likely arise during implementation. For example, VA may encounter difficulties making needed process changes while simultaneously implementing other logistical requirements, such as hiring and training new staff and updating its IT system. By not pilot testing, VA is missing a valuable opportunity to refine its implementation strategy by first seeing how process reform will unfold on a smaller scale. We believe that the potentially negative consequences of delaying full implementation are far outweighed by the benefits that can be realized through piloting. For example, piloting could help avoid delays and expenses caused by the need to re-work the process after full scale implementation. In light of VA’s disagreement with our draft recommendation, we removed the recommendation and now pose a matter for congressional consideration. Specifically, to improve VA’s ability to successfully implement appeals process reform, Congress should consider requiring that reforms of the VA disability appeals process be subject to a pilot test. To aid in the development of such a pilot test, Congress could require the Secretary of Veterans Affairs to propose options that would allow the agency the flexibility to test and refine the new process in a cost-effective and efficient manner, while ensuring pre-established interim goals and success criteria are being met prior to full implementation. VA concurred in principle with the draft recommendation that it finalize a detailed workforce plan that includes steps for training, support, and risk mitigation strategies. VA noted that, in addition to currently implementing a fiscal year 2017 workforce plan to hire additional staff, as discussed in the report, among other efforts it has recently launched new attorney training and continues to collaborate across the agency to identify space where new staff can be located. We have incorporated these updates into our report, as appropriate. In light of these efforts, and because future steps, such as developing training materials on the new appeals process, are contingent upon appeals reform legislation, VA stated it considers this recommendation complete and requested closure. While we recognize that VA has made progress and that certain actions, such as training on a new process, is contingent upon reform legislation, we disagree that the recommendation should be closed. As noted in our report, we found that VA’s final recruiting, hiring, and training plans lacked important details. For example, VA officials were still updating training curriculum that supports work conducted in a virtual environment and which is critical for managing space restrictions for new staff. Without a detailed workforce plan in place, VA cannot assess the success of its human capital approach, maximize its investments, or fully mitigate risks. More detailed workforce plans would help VA avoid the risks that staff will not be hired in time, not be properly trained, or not have the support necessary to process appeals. Waiting until legislation is enacted magnifies these risks. We believe additional action is needed to meet the intent of this recommendation; we also clarified the recommendation language to state that VA needs a more detailed plan. VA concurred in principle with our recommendation that it develop a schedule for IT updates that lays out when and how any process reforms will be integrated into its Caseflow system. More specifically, VA noted that it will rely on the agile process to develop Caseflow—whereby new functions are continually added to the system as new user needs or policy changes arise—and does not plan to define schedules beyond 6 months. Given that Caseflow development related to the new appeals process is dependent on the enactment of new legislation, VA stated it considers this recommendation to be complete. While it is true that the agile process can help mitigate risks and avoid cost overruns and delays, we do not believe this approach precludes VA from taking additional steps to consider the scope of potential changes required by a new appeals process and have a broad plan in place to ensure that all aspects of the new process are adequately supported by Caseflow. We believe it is especially important for VA to have specific time frames for completing Caseflow considering the scope of the changes being proposed. Moreover, VA noted that components of Caseflow developed so far will not need to be significantly changed because of appeals reform legislation being enacted, but VA did not provide documentation to support this assertion. In light of these issues, we believe VA has not yet met the intent of this recommendation. VA concurred in principle with our recommendation that it should conduct additional sensitivity analyses around the assumptions used in its models. VA noted that sensitivity analyses are valuable and that it has focused its efforts on risks its staff identified as most likely, such as variations in staffing and productivity, and the effect of remands. VA stated it would continue to analyze, update, and refine its modeling, and considers this recommendation to be complete. While we recognize the logic of focusing modeling resources on key variables, VA did not fully examine three of the four hiring surge options it proposed. Moreover, VA did not assess the compound effect that would result in changing multiple assumptions at once. Given the complexity of proposed changes and the number of variables beyond VA’s control, we believe that additional analyses are needed to identify potential risks that may warrant additional mitigation strategies. In addition, if VA goes forward with appeals process reform and begins to collect real-time data, these data could improve modeling accuracy and serve as a valuable management tool. VA concurred in principle with our recommendation to develop a more robust plan for closely monitoring the implementation of its process reform, that includes metrics and interim goals to help VA track progress, evaluate efficiency and effectiveness, and pinpoint trouble spots. VA agreed that developing such a plan is valuable for monitoring the implementation of process reform, and should include metrics and interim goals. However, VA stated that it considers this recommendation complete, noting that preparing such a detailed plan depends on appeals reform legislation being enacted, and that it will incorporate specific goals and metrics as it moves towards implementation. While we recognize that VA cannot assume to know the exact provisions that may be included in future enacted legislation, nor can it predict when appeals reform might be enacted, we consider having a more robust monitoring plan to be essential to the successful implementation of a new appeals process. Moreover, the absence of such a plan raises questions as to how VA will ensure appropriate resources are devoted to managing appeals under the new versus old process, or intended results are achieved as the new process is implemented. VA concurred in principle with our recommendation to develop a strategy to transparently report to Congress and the public on veterans’ experiences with the new appeals process. VA noted that it is already developing timeliness goals for three of the four appeal options in the proposed new process, as discussed in our report. VA said it also plans to measure success of the new process with results from customer satisfaction surveys and is developing a dashboard for internal performance monitoring. VA did not agree that measuring overall appeals resolution timeliness is an appropriate a measure and believes tracking time frames for each of the options separately is more appropriate. While we agree that metrics based on the different options could be valuable for VA, the Congress, and the public, we disagree that VA’s focus on measuring timeliness by option is in the best interest of the veteran. Because veterans may pursue more than one option under VBA, the Board or both, we believe that VA’s approach does not take into account the veteran’s perspective of how long it took for them to receive a final appeal decision. Metrics from the veterans’ overall perspective would complement, not replace, metrics for VBA, the Board, and each option. Further, because VA’s approach does not allow VA to compare the new process with the old or to determine whether the new process represents an improvement over the old process, we believe it does not promote transparency in reporting to the Congress and the public. We are sending copies of this report to the appropriate congressional committees, the Secretary of Veterans Affairs, the Under Secretary for Benefits, the Chairman of the Board of Veterans Appeals, and the VA’s Chief Information Officer. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. In addition to the contact named above, Michele Grgich (Assistant Director), Melissa Jaynes (Analyst-in-Charge), Daniel Concepcion, and Greg Whitney made key contributions to this report. Other key contributors to this report include James Bennett, Mark Bird, David Chrisinger, Clifton Douglas, Alex Galuten, Mitch Karpman, Sheila R. McCoy, Claudine Pauselli, Almeta Spencer, Eric Trout, Walter Vance, and Tom Williams. For the purpose of evaluating VA’s efforts to improve its appeal processing, we identified best practices and other criteria related to staffing, process reform, and IT upgrades identified in prior GAO products and other publications. These included government-wide internal control standards; key principles for effective strategic workforce planning; business process reengineering (or redesign) best practices, and information technology planning principles. We also reviewed additional guidance on project management. Schedule Assessment Guide: Best Practices for Project Schedules. GAO-16-89G. Washington, D.C.: December 2015. Veterans Benefits Management System: Ongoing Development and Implementation Can Be Improved; Goals are Needed to Promote Increased User Satisfaction. GAO-15-582. Washington, D.C.: September 1, 2015. Standards for Internal Control in the Federal Government. GAO-14-704G. Washington, D.C.: September 2014. Human Capital: Strategies to Help Agencies Meet Their Missions in an Era of Highly Constrained Resources. GAO-14-168. Washington, D.C.: May 7, 2014. Managing For Results: Agencies Should More Fully Develop Priority Goals under the GPRA Modernization Act. GAO-13-174. Washington, D.C.: April 19, 2013. GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs. GAO-09-3SP. Washington D.C.: March 2009. Human Capital: A Guide for Assessing Strategic Training and Development Efforts in the Federal Government. GAO-04-546G. Washington, D.C.: March 2004. Information Technology Investment Management: A Framework for Assessing and Improving Process Maturity. GAO-04-394G. Washington, D.C.: March 2004. Combating Terrorism: Evaluation of Selected Characteristics in National Strategies Related to Terrorism. GAO-04-408T. Washington, D.C.: February 3, 2004. Human Capital: Key Principles for Effective Strategic Workforce Planning. GAO-04-39. Washington, D.C.: December 11, 2003. Human Capital: A Self-Assessment Checklist for Agency Leaders. GAO/OCG-00-14G. Washington, D.C.: September 2000. The Results Act: An Evaluator’s Guide to Assessing Agency Annual Performance Plans. GAO/GGD-10.1.20. Washington, D.C.: April 1998. Business Process Reengineering Assessment Guide. GAO/AIMD-10.1.15. Washington, D.C.: May 1997. Executive Guide: Effectively Implementing the Government Performance and Results Act. GAO/GGD-96-118. Washington, D.C.: June 1996. Blackburn, Simon, Sarah Ryerson, Leigh Weiss, Sarah Wilson, and Carter Wood, Insights into Organization: How Do I Implement Complex Change at Scale? Dallas, Texas: McKinsey & Company, May 2011. George, Michael L, David Rowlands, Mark Price, and John Maxey. The Lean Six Sigma Pocket Toolbook: A Quick Reference Guide to Nearly 100 Tools for Improving Process Quality, Speed, and Complexity. New York: McGraw-Hill, 2005. Office of Management and Budget. Circular No. A-11, Preparation, Submission, and Execution of the Budget. Washington, D.C.: July 1, 2016. Project Management Institute, Inc. A Guide To The Project Management Body Of Knowledge (PMBOK Guide) Newtown Square, PA.: 2013.

VA compensates veterans for disabling conditions incurred in or aggravated by military service. Veterans can appeal VBA's decisions on their compensation claims, first to VBA and then to the Board, a separate agency within VA. In fiscal year 2015, more than 427,000 appeals were pending and veterans waited over 3 years on average for decisions. Of this total, about 81,000 were pending at the Board and the average cumulative time veterans waited for a decision by the Board in 2015 was almost 5 years. This report examines VA's approaches to address challenges it identified as contributing to lengthy appeals processing times, and the extent to which those approaches are consistent with sound planning practices. GAO focused mainly on the Board, which experienced an increase in workload of about 20 percent from fiscal year 2014 to 2015. GAO reviewed VA's proposed plans and actions and compared them to sound practices relevant to workforce planning and implementing process redesign and new information technology identified in federal guidance, such as internal control standards, and prior GAO work. GAO also analyzed VA's data for fiscal years 2011-2015 (the most recent available) on appeals decision timeliness and workloads; reviewed relevant federal laws, regulations, and planning documents; and interviewed VA officials and veterans service organizations. The Department of Veterans Affairs' (VA) is taking steps to improve the timeliness of its benefit compensation appeals process, in which veterans who are dissatisfied with claims decisions by the Veterans Benefits Administration (VBA) can appeal first to VBA, and then to the Board of Veterans' Appeals (the Board). VA has taken actions related to increasing staff, reforming the process, and updating information technology (IT), which are consistent with relevant sound planning practices. However, gaps in planning exist, thereby reducing the agency's ability to ensure that these actions will improve the timeliness of disability appeals decisions. Increase staff : VA determined that staff resources have not sufficiently kept pace with increased pending appeals, and concluded that additional staff are needed, particularly at the Board, to improve timeliness and reduce its appeals inventory. The Board received approval to hire more staff in fiscal year 2017, and expects to need an additional hiring surge beginning in fiscal year 2018. As of October 2016, officials estimated that if the agency does not take any action, such as increasing staff in 2018, veterans may have to wait an average of 8.5 years by fiscal year 2026 to have their appeals resolved. Consistent with sound workforce planning practices, VA modeled different options for increasing staff levels to support its conclusion that staff increases in conjunction with process change would reduce the appeals inventory sooner. However, contrary to sound practices, VA often used fixed estimates for key variables in its models—such as staff productivity—rather than a range of estimates (sensitivity analysis) to understand the effect variation in these key variables could have on staffing needs. Also, VA's written workforce plans—which cover recruiting, hiring and training—did not include detailed steps, time frames, and mitigation strategies consistent with sound workforce planning practices. For example, while VA has established a center for excellence in hiring to focus on recruitment and hiring the agency has not finalized training or telework plans or otherwise mitigated space constraints that it encountered for hiring staff in fiscal year 2017. Without a timely, detailed workforce plan, VA risks delays in hiring and preparing staff to help manage workloads as soon as possible. Reform process: VA determined that new evidence—which a veteran can submit at any point during his or her appeal—inefficiently causes an additional round of reviews, and thus delays appeals decisions, and in response it proposed legislation (not enacted) to streamline the process. Consistent with sound practices for process redesign, VA worked with veterans service organizations (VSO) and other key stakeholders in developing the proposal, and continued to update VSOs about the development of its implementation plans. VA's proposed reform is promising, but there are several gaps in its implementation plans. In particular, VA plans to fully implement appeals process reform at the Board as well as at VBA regional offices across the country while it concurrently manages the existing appeals inventory, a hiring surge, and planned system changes discussed below. However, VA's plans run counter to sound redesign practices that suggest pilot testing the process changes in a more limited fashion before full implementation, in order to manage risks and help ensure successful implementation of significant institutional change. VA officials told GAO that pilot testing—which would require legislation to implement—will prolong a process that is fundamentally broken and delay urgently needed repairs. However, without pilot testing VA may experience challenges and setbacks on a broader scale, which could undermine planned efficiencies and other intended outcomes. In addition, VA has not sufficiently identified how it will monitor progress, evaluate efficiency and effectiveness, identify trouble spots, and otherwise know whether implementation of its proposed process change is on track and meeting expectations. The absence of a robust monitoring plan with success criteria is inconsistent with sound planning practices for redesign and places the agency at risk of not being able to quickly identify and address setbacks. In addition, the timeliness measures that VA currently plans to report to Congress and the public lack transparency because they focus on individual parts of the agency and pieces of the new process rather than overall appeals resolution time from the veterans' perspective. Without a strategy for assessing the proposed new process that includes comprehensive measures, VA, the public, and Congress cannot know the extent to which the proposed process represents an improvement over the old process. Update technology: VA determined that the computer system supporting its appeals process is outdated, prone to failures, and does not adequately support electronic claims processing. VA proposed a new IT system to reduce delays in appeals to the Board, and better integrate data from other systems. Consistent with sound practices, VA clearly laid out the scope and purpose of IT upgrades, and identified risks and strategies to mitigate them. However, the agency's plan lacks details for how and when its new system will be implemented, as suggested by sound planning practices for implementing new technology. Without a detailed schedule, VA risks not having new systems aligned with potential changes in the appeals process when they are implemented. GAO is making five recommendations to VA and one matter for congressional consideration. VA should: apply sensitivity analyses when projecting staff needs, develop a more timely and detailed workforce plan, develop a robust plan for monitoring process reform, develop a strategy for assessing process reform, and create a schedule for IT improvements that takes into account plans for potential process reform. VA concurred in principle with the five recommendations, but believes it has met the intent of those recommendations and does not need to take additional action. GAO disagrees and—while recognizing VA's ongoing efforts—believes further action is needed on all five recommendations to improve VA's ability to successfully implement reforms, as discussed in the report. VA disagreed with an additional draft recommendation that it incorporate pilot testing of its proposed appeals process into implementation plans and pursue necessary legislative authority. VA cited its perspective that the appeals process is broken and that piloting a new process would result in further delays to veterans appealing their disability decisions. GAO maintains that the benefits of pilot testing—which provides an opportunity to resolve implementation challenges and make refinements to the process on a smaller scale—outweigh the potentially negative consequences of delaying full implementation. Therefore, GAO removed the recommendation and added a matter for congressional consideration stating that Congress should consider requiring that appeals process reform be subject to a pilot test.

You are an expert at summarizing long articles. Proceed to summarize the following text: The quality data submitted by hospitals are collected from the medical records of patients admitted to the hospital. Hospital patient medical records contain many different types of information, which are organized into different sections. Frequently found examples of these sections include the face sheet, which summarizes basic demographic and billing data, including diagnostic codes; history and physicals (H&P), which record both patient medical history physician orders, which show what medications, tests, and procedures were ordered by a physician; medication administration records (MAR), which show that a specific medication was given to a patient, when it was given, and the dosage; laboratory reports, radiology reports, and test results, such as an echocardiogram reading; progress notes, in which physicians, nurses, and other clinicians record information chronologically on patient status and response to treatments during the patient’s hospital stay; operative reports for surgery patients; physician and nursing notes for patients treated in the emergency discharge summaries, in which a physician summarizes the patient’s hospital stay and records prescriptions and instructions to be given to the patient at discharge. Hospitals have discretion to determine the structure of their patient medical records, as well as to set general policies stating what, where, and how specific information should be recorded by clinicians. To guide the hospital staff in the abstraction process—that is, in finding and properly assessing the information in the patient’s medical record needed to fill in the values for the data elements—CMS and the Joint Commission have jointly issued a Specifications Manual. It contains detailed specifications that define the data elements for which the hospital staff need to collect information and determine values and the correct interpretation of those data elements. The Joint Commission also requires hospitals to submit the same data that they submit to CMS for the APU program (and some additional data) to receive Joint Commission accreditation. In many hospitals, information in a patient’s medical record is recorded and stored in a combination of paper and electronic systems. Patient medical records that clinicians record on paper may be stored in a folder in the hospital’s medical record department and contain all the different forms, reports, and notes prepared by different individuals or by different departments during the patient’s stay. Depending on the length of the patient’s hospital stay and the complexity of the care, an individual patient medical record can amount to hundreds of pages. For information stored electronically, clinicians may enter information directly into the electronic record themselves, as they do for paper records, or they may dictate their notes to be transcribed and added to the electronic record later. Information may also be recorded on paper and then scanned into the patient’s electronic record. For example, if a patient is transferred from another hospital, the paper documents from the transferring hospital may be scanned into the patient’s electronic record. The patient medical information that hospitals store electronically, rather than on paper, typically resides in multiple health IT systems. One set of IT systems usually handles administrative tasks such as patient registration and billing. Hospitals acquire other IT systems to record laboratory test results, to store digital radiological images, to process physician orders for medications, and to record notes written by physicians and nurses. Hospitals frequently build their health IT capabilities incrementally by adding new health IT systems over time. If the systems that hospitals purchase come from different companies, they are likely to be based on varying standards for how the information is stored and exchanged electronically. As a result, even in a single hospital, it can be difficult to access from one IT system clinical data stored in a different health IT system. One of the main objectives of ONC is to overcome the problem of multiple health IT systems, within and across health care providers, that store and exchange information according to varying standards. The mission of ONC is to promote the development and nationwide implementation of interoperable health IT in both the public and the private sectors in order to reduce medical errors, improve quality of care, and enhance the efficiency of health care. Health IT is interoperable when systems are able to exchange data accurately, effectively, securely, and consistently with different IT systems, software applications, and networks in such a way that the clinical or operational purposes and meaning of the data are preserved and unaltered. The case study hospitals we visited used six steps to collect and submit quality data, two of which involved complex abstraction—the process of reviewing and assessing all relevant pieces of information in a patient’s medical record to determine the appropriate value for each data element. Factors accounting for the complexity of the abstraction process included the content and organization of the medical record, the scope of information required for the data elements, and frequent changes by CMS in its data specifications. Due in part to these complexities, most of our case study hospitals relied on clinical staff to abstract the quality data. Increases in the number of required quality measures led to increased demands on clinical staff resources. However, all case study hospitals reported finding benefits in the quality data that helped to offset the demands placed on clinical staff. We found that whether patient information was recorded electronically, on paper, or as a mix of both, all the case study hospitals collected and submitted their quality data by carrying out six sequential steps (see fig. 1). These steps started with identifying the patients for whom the hospitals needed to provide quality data to CMS and continued through the process of examining each patient’s medical record, one after the other, to find the information needed to determine the appropriate values for each of the required data elements for that patient. Then, for each patient, those values were entered by computer into an electronic form or template listing each of the data elements for that condition. These forms were provided by the data vendor with which the hospital had contracted to transmit its quality data to CMS. The vendors also assisted the hospitals in checking that the data were successfully received by CMS. Finally, the hospitals sent copies of the medical records of a selected sample of patients to a CMS contractor that used those records to validate the accuracy of the quality data submitted by the hospital. Specifically, the six steps, which are summarized for each case study hospital in appendix III, table 2, were as follows: Step 1: Identify patients—The first step was to identify the patients for whom the hospitals needed to submit quality data to CMS. Staff at three case study hospitals identified these patients using information on the patient’s principal diagnosis, or principal procedure in the case of surgery patients, obtained from the hospital’s billing data. Five case study hospitals had their data vendor use the hospital’s billing data to identify the eligible patients for them. Every month, all eight hospitals that we visited identified patients discharged in the prior month for whom quality data should be collected. The hospitals identified all patients retrospectively for quality data collection because hospitals have to wait until a patient is discharged to determine the principal diagnosis. CMS permits hospitals to reduce their data collection effort by providing quality data for a representative sample of patients when the total number of patients treated for a particular condition exceeds a certain threshold. Five case study hospitals drew samples for at least one condition. The data vendor performed this task for four of those case study hospitals, and assisted the hospital in performing this task for the fifth hospital. Only one of the case study hospitals reported using nonbilling data sources to check the accuracy of the lists of patients selected for quality data collection that the hospitals drew from their billing data (see app. III, table 3). Several stated that they occasionally noted discrepancies, such as patients selected for heart attack measures who, upon review of their medical record, should not have had that as their principal diagnosis. However, the hospital officials we interviewed told us that discrepancies of this sort were likely to be minor. Officials at three hospitals noted that hospitals generally have periodic routine audits conducted of the coding practices of their medical records departments, which would include the accuracy of the principal diagnoses and procedures. Step 2: Locate information in the medical record—Steps 2 and 3 were in practice closely linked in our case study hospitals. Abstractors at the eight case study hospitals examined each selected patient’s medical record, looking for all of the discrete pieces of information that, taken together, would determine what they would decide—in step 3—was the correct value for each of the data elements. For some data elements, there was a one-to-one correspondence between the piece of information in the medical record and the value to be entered. Typical examples included a patient’s date of birth and the name of a medication administered to the patient. For other data elements, the abstractors had to check for the presence or absence of multiple pieces of information in different parts of the medical record to determine the correct value for that data element. For example, to determine if the patient did, or did not, have a contraindication for aspirin, abstractors looked in different parts of the medical record for potential contraindications, such as the presence of internal bleeding, allergies, or prescriptions for certain other medications such as Coumadin. In order for abstractors to find information in the patient’s medical record, it had to be recorded properly by the clinicians providing the patient’s care. Officials at all eight case study hospitals described efforts designed to educate physicians and nurses about the specific data elements for which they needed to provide information in each patient’s medical record. The hospital officials were particularly concerned that the clinicians not undermine the hospital’s performance on the quality measures by inadequately documenting what they had done and the reasons why. For example, one heart failure measure tracks whether a patient received each of six specific instructions at the time of discharge, but unless information was explicitly recorded in a heart failure patient’s medical record for each of the six data elements, that patient was counted by CMS as one who had not received all pertinent discharge instructions and therefore did not meet that quality measure. This particular measure was cited by officials at several hospitals as one that required a higher level of documentation than had previously been the norm at their hospital. Step 3: Determine appropriate data element values—Once abstractors had located all the relevant pieces of information pertaining to a given data element, they had to put those pieces together to arrive at the appropriate value for the data element. The relevance of that information was defined by the detailed instructions provided by the hospitals’ vendors, as well as the Specifications Manual jointly issued by CMS and the Joint Commission that serves as the basis for the vendor instructions. The Specifications Manual sets out the decision rules for choosing among the allowable values for each data element. It also identifies which parts of the patient’s medical record may or may not provide the required information, and often lists specific terms or descriptions that, if recorded in the patient’s medical record, would indicate the appropriate value for a given data element. In addition, the Specifications Manual provides abstractors with guidance on how to interpret conflicting information in the medical record, such as a note from one clinician that the patient is not a smoker and a note elsewhere in the record from another clinician that the patient does smoke. To help keep track of multiple pieces of information, many abstractors reported that they first filled in the data element values on a paper copy of the abstraction form provided by the data vendor. In this way, they could write notes in the margin to document how they came to their conclusions. Step 4: Transmit data to CMS—In order for the quality data to be accepted by the clinical data warehouse, they must pass a battery of edit checks that look for missing, invalid, or improperly formatted data element entries. All the case study hospitals contracted with data vendors to submit their quality data to CMS. They did so, in part, because all of the hospitals submitted the same data to the Joint Commission, and it requires hospitals to submit their quality data through data vendors that meet the Joint Commission’s requirements. The additional cost to the hospitals to have the data vendors also submit their quality data to CMS was generally minimal (see app. III, table 3). All of the case study hospitals submitted their data to the data vendor by filling in values for the required data elements on an electronic version of the vendor’s abstraction form. Many abstractors did this for a batch of patient records at a time, working from paper copies of the form that they had filled in previously. Some abstractors entered the data online at the same time that they reviewed the patient’s medical records. In other cases, someone other than the abstractor who filled in the paper form used the completed form to enter the data on a computer. Step 5: Ensure data have been accepted by CMS—The case study hospitals varied in the extent to which they actively monitored the acceptance of their quality data into CMS’s clinical data warehouse. After the data vendors submitted the quality data electronically, they and the hospitals could download reports from the clinical data warehouse indicating whether the submitted data had passed the screening edits for proper formatting and valid entries. The hospitals could use these reports to detect data entry errors and make corrections prior to CMS’s data submission deadline. Three case study hospitals shared this task with their data vendors, three hospitals left it for their data vendors to handle, and two hospitals received and responded to reports on data edit checks produced by their data vendors, rather than reviewing the CMS reports. Approximately 2 months after hospitals submitted their quality data, CMS released reports to the hospitals showing their performance scores on the quality measures before posting the results on its public Web site. Step 6: Supply copies of selected medical records—CMS has put in place a data validation process to ensure the accuracy of hospital quality data submissions. It requires hospitals to supply a CMS contractor with paper copies of the complete medical record for five patients selected by CMS each quarter. Officials at five hospitals noted that they check to make sure that all parts of the medical records that they used to abstract the data originally are included in the package shipped to the CMS contractor. Most of the case study hospitals relied on CMS’s data validation to ensure the accuracy of their abstractions. However, two hospitals reported that they also routinely draw their own sample of cases, which are abstracted a second time by a different abstractor in the hospital, followed by a comparison of the two sets of results (see app. III, table 3). The description by hospital officials of the processes they used to collect and submit quality data indicated that locating the relevant clinical information and determining appropriate values for the data elements (steps 2 and 3) were the most complex steps of the six identified, due to several factors. These included the content and organization of the medical record, the scope of the information encompassed by the data elements, and frequent changes in data specifications. The first complicating factor related to the medical record was that the information abstractors needed to determine the correct data element values for a given patient was generally located in many different sections of the patient’s medical record. These included documents completed for admission to the hospital, emergency department documents, laboratory and test results, operating room notes, medication administration records, nursing notes, and physician-generated documents such as history and physicals, progress notes and consults, orders for medications and tests, and discharge summaries. In addition, the abstractors may have had to look at documents that came from other providers if the patient was transferred to the hospital. Much of the clinical information needed was found in the sections of the medical record prepared by clinicians. Often the information in question, such as contraindications for aspirin or beta blockers, could be found in any of a number of places in the medical record where clinicians made entries. As a result, abstractors frequently had to read through multiple parts of the record to find the information needed to determine the correct value for just one data element. At two case study hospitals, abstractors said that they routinely read each patient’s entire medical record. Experienced abstractors often knew where they were most likely to find particular pieces of information. They nevertheless also had to check for potentially contradictory information in different parts of the medical record. For example, as noted, patients may have provided varying responses about their smoking history to different clinicians. If any of these responses indicated that the patient had smoked cigarettes in the last 12 months, the patient was considered to be a smoker according to CMS’s data specifications. Another example concerns the possibility that a heart attack or heart failure patient may have had multiple echocardiogram results recorded in different parts of the medical record. Abstractors needed to find all such results in order to apply the rules stated in the Specifications Manual for identifying which result to use in deciding whether the patient had left ventricular systolic dysfunction (LVSD). This data element is used for the quality measure assessing whether an angiotensin-converting enzyme inhibitor (ACEI) or angiotensin receptor blocker (ARB) was prescribed for LVSD at discharge. The second factor was related to the scope of the information required for certain data elements. Some of the data elements that the abstractors had to fill in represented a composite of related data and clinical judgment applied by the abstractor, not just a single discrete piece of information. Such composite data elements typically were governed by complicated rules for determining the clinical appropriateness of a specific treatment for a given patient. For example, the data element for contraindications for both ACEIs and ARBs at discharge requires abstractors to check for the presence and assess the severity of any of a range of clinical conditions that would make the use of either ACEIs or ARBs inappropriate for that patient. (See fig. 2.) These conditions may appear at any time during the patient’s hospital stay and so could appear at any of several places in the medical record. Abstractors must also look for evidence in the record from a physician linking a decision not to prescribe these drugs to one or more of those conditions. The third factor is the necessity abstractors at the case study hospitals faced to adjust to frequent changes in the data specifications set by CMS. Since CMS first released its detailed data specifications jointly with the Joint Commission in September 2004, it has issued seven new versions of the Specifications Manual. Therefore, from fall 2004 through summer 2006, roughly every 3 months hospital abstractors have had to stop and take note of what had changed in the data specifications and revamp their quality data collection procedures accordingly. Some of these changes reflected modifications in the quality measures themselves, such as the addition of ARBs for treatment of LVSD. Other changes revised or expanded the guidance provided to abstractors, often in response to questions submitted by hospitals to CMS. CMS recently changed its schedule for issuing revisions to its data specifications from every 3 months to every 6 months, but that change had not yet affected the interval between new revisions issued to hospitals at the time of our case study site visits. Case study hospitals typically used registered nurses (RN), often exclusively, to abstract quality data for the CMS quality measures (see app. III, table 3). One hospital relied on a highly experienced licensed practical nurse, and two case study hospitals used a mix of RNs and nonclinical staff. Officials at one hospital noted that RNs were familiar with both the nomenclature and the structure of the hospital’s medical records and they could more readily interact with the physicians and nurses providing the care about documentation issues. Even when using RNs, all but three of the case study hospitals had each abstractor focus on one or two medical conditions with which they had expertise. Four hospitals had tried using nonclinical staff, most often trained as medical record coders, to abstract the quality data. Officials at one of these hospitals reported that this approach posed challenges. They said that it was difficult for nonclinical staff to learn all that they needed to know to abstract quality data effectively, especially with the constant changes being made to the data specifications. At the second hospital, officials reported that using nonclinical staff for abstraction did not work at all and they switched to using clinically trained staff. At the third hospital, the chief clinician leading the quality team stated that the hospital’s nonclinical abstractors worked well enough when clinically trained colleagues were available to answer their questions. Officials at the fourth hospital cited no concerns about using staff who were not RNs to abstract quality data, but they subsequently hired an RN to abstract patient records for two of the four conditions. Case study hospitals drew on a mix of existing and new staff resources to handle the collection and submission of quality data to CMS. In two hospitals, new staff had been hired specifically to collect quality data for the Joint Commission and CMS. In other hospitals, quality data collection was assigned to staff already employed in the hospital’s quality management department or performing other functions. All the case study hospitals found that, over time, they had to increase the amount of staff resources devoted to abstracting quality data for the CMS quality measures, most notably as the number of measures on which they were submitting data expanded. Officials at the case study hospitals generally reported that the amount of staff time required for abstraction increased proportionately with the number of conditions for which they reported quality data. The hospitals had all begun to report most recently on the surgical quality measures. They found that the staff hours needed for this new set of quality measures were directly related to the number of patient records to be abstracted and the number of data elements collected. In other words, they found no “economies of scale” as they expanded the scope of quality data abstraction. At the time of our site visits, four hospitals continued to draw on existing staff resources, while others had hired additional staff. Hospital officials estimated that the amount of staff resources devoted to abstracting data for the CMS quality measures ranged from 0.7 to 2.5 full-time equivalents (FTE) (app. III, table 3). Hospital officials reported that the demands that quality data collection and submission placed on their clinical staff resources were offset by the benefits that they derived from the resulting information on their clinical performance. Each one had a process for tracking changes in their performance over time. Based on those results, they provided feedback to individual clinicians and reports to hospital administrators and trustees. Because they perceived feedback to clinicians to be much more effective when provided as soon as possible, several of the case study hospitals found ways to calculate their performance on the quality measures themselves, often on a monthly basis, rather than wait for CMS to report their results for the quarter. Officials at all eight case study hospitals pointed to specific changes they had made in their internal procedures designed to improve their performance on one or more quality measures. Most of the case study hospitals developed “standing order sets” for particular diagnoses. Such order sets provide a mechanism for standardizing both the care provided and the documentation of that care, in such areas as prescribing beta blockers and aspirin on arrival and at discharge for heart attack patients. Another common example involved prompting physicians to administer pneumococcal vaccinations to pneumonia patients. However, at most of the case study hospitals, use of many standing order sets was optional for physicians, and hospital officials reported widely varying rates of physician use, from close to 100 percent of physicians at one hospital using its order set for heart attack patients to just a few physicians using any order sets in another hospital. Case study hospitals also responded to the information generated from their quality data by adjusting their treatment protocols, especially for patients treated in their emergency departments. For example, five hospitals developed or elaborated on procedural checklists for emergency department nurses treating pneumonia patients. The objective of these changes was to more quickly identify pneumonia patients when they arrived at the emergency department and then expeditiously perform required blood tests so that the patients would score positively for the quality measure on receiving antibiotics within 4 hours of arrival at the hospital. Three hospitals strengthened their procedures to identify smokers and make sure that they received appropriate counseling. Hospital officials noted that they provided quality of care data to entities other than CMS and the Joint Commission, such as state governments and private insurers, but for the most part they reported that the CMS quality measures had two advantages. First, the CMS quality measures enabled hospitals to benchmark their performance against the performances of virtually every other hospital in the country. Second, officials at two hospitals noted that the CMS measures were based on clinical information obtained from patient medical records and therefore had greater validity as measures of quality of care than measures based solely on administrative data. Many hospital officials said that they wished that state governments and other entities collecting quality data would accept the CMS quality measures instead of requiring related quality data based on different definitions and patient populations. Hospital officials in two states reported some movement in that direction. In the case studies, existing IT systems helped hospital abstractors to complete their work more quickly, but the limitations of those IT systems meant that trained staff still had to examine the entire patient medical record and manually abstract the quality data submitted to CMS. IT systems helped abstractors obtain information from patients’ medical records, in particular by improving their accessibility and legibility, and by enabling hospitals to incorporate CMS’s required data elements into those medical records. The challenges reported by hospital officials included having a mix of paper and electronic records, which required abstractors to check multiple places to get the needed information; the prevalence of unstructured data, which made locating the information time-consuming because it was not in a prescribed place in the record; and the presence of multiple IT systems that did not share data, which required abstractors to separately access each IT system for related pieces of information that were in different parts of the medical record. While hospital officials expected the scope and functionality of their IT systems to increase over time, they projected that this would occur incrementally over a period of years. Hospitals found that their existing IT systems could facilitate the collection of quality data, but that there were limits on the advantages that the systems could provide. IT systems, and the electronic records they support, offered hospitals two key benefits: (1) improving accessibility to and legibility of the medical record, and (2) facilitating the incorporation of CMS’s required data elements into the medical record. Many hospital abstractors noted that existing electronic records helped quality data collection by improving accessibility and legibility of patient records. In general, paper records were less accessible than electronic records because it took time to find them or to have them transported if hospitals had stored them in a remote location after the patients were discharged. Also, paper records were more likely to be missing or in use by someone else. However, in one case study hospital, an abstractor noted difficulties in gaining access to a computer terminal to view electronic medical records. Many abstractors noted improvements in legibility as a fundamental benefit of electronic records. This advantage applied in particular to the many sections of the medical record that consisted of handwritten text, including history and physicals, progress notes, medication administration records, and discharge summaries. Some hospitals have used their existing IT systems to facilitate the abstraction of information by designing a number of discrete data fields that match CMS’s data elements. For example, two hospitals incorporated prompts for pneumococcal vaccination in their electronic medication ordering system. These prompts not only reminded physicians to order the vaccination (if the patient was not already vaccinated) but also helped to insure documentation of the patient’s vaccination status. One hospital developed a special electronic discharge program for heart attack and heart failure patients that had data elements for the quality measures built into it. Another hospital built a prompt into its electronically generated discharge instructions to instruct patients to measure their weight daily. This enabled the hospital to document more consistently one of the specific instructions that heart failure patients are supposed to receive on discharge but that physicians and nurses tended to overlook in their documentation. The limitations that hospital officials reported in using existing IT systems to collect quality data stemmed from having a mix of paper and electronic systems; the prevalence of data recorded in IT systems as unstructured paragraphs of narrative or text, as opposed to discrete data fields reserved for specific pieces of information; and the inability of some IT systems to access related data stored on another IT system in the same hospital. Because all but one of the case study hospitals stored clinical records in a mix of paper and electronic systems, abstractors generally had to consult both paper and electronic records to obtain all needed information. What was recorded on paper and what was recorded electronically varied from hospital to hospital (see app. III, table 4). However, admissions and billing data were electronic at all the case study hospitals. Billing data include principal diagnosis and birth date, which are among the CMS-required data elements. With regard to clinical data, all case study hospitals had test results, such as echocardiogram readings, in an electronic form. In contrast, nurse progress notes were least likely to be in electronic form at the case study hospitals. Moreover, it was not uncommon for a hospital to have the same type of clinical documentation stored partly in electronic form and partly on paper. For example, five of the eight case study hospitals had a mix of paper and electronic physician notes, reflecting the differing personal preferences of the physicians. Discharge summaries and medication administration records, on the other hand, tended to be either paper or electronic at a given hospital. Many of the data in existing IT systems were recorded in unstructured formats—that is, as paragraphs of narrative or other text, rather than in data fields designated to contain specific pieces of information—which created problems in locating the needed information. For example, physician notes and discharge summaries were often dictated and transcribed. Abstractors typically read through the entire electronic document to make sure that they had found all potentially relevant references, such as for possible contraindications for a beta blocker or an ACEI. By contrast, some of the data in existing IT systems were in structured data fields so that specific information could be found in a prescribed place in the record. One common example was a list of medication allergies, which abstractors used to quickly check for certain drug contraindications. However, officials at several hospitals said that developing and implementing structured data fields were labor intensive, both in terms of programming and in terms of educating clinical staff in their use. That is why many of the data stored in electronic records at the case study hospitals remained in unstructured formats. Another limitation with existing IT systems was the inability of some systems to access related data stored on another IT system in the same hospital. This situation affected six of the eight case study hospitals to some degree. For example, one hospital had an IT system in the emergency department and an IT system on the inpatient floors, but the two systems were independent and the information in one was not linked to the information in the other. Abstractors had to access each IT system separately to obtain related pieces of information, which made abstraction more complicated and time-consuming. Existing IT systems helped hospital abstractors to complete their work more quickly, but the limitations of those IT systems meant that, for the most part, the nature of their work remained the same. Existing IT systems enabled abstractors at several hospitals to more quickly locate the clinical information needed to determine the appropriate values for at least some of the data elements that the hospitals submitted to CMS. Where hospitals designed a discrete data field in their IT systems to match a specific CMS data element, abstractors could simply transcribe that value into the data vendor’s abstraction form. However, in all the case study hospitals there remained a large number of data elements for which there was no discrete data field in a patient’s electronic record that could provide the required value for that data element. As a result, trained staff still had to examine the medical record as a whole and manually abstract the quality data submitted to CMS, whether the information in the medical record was recorded electronically or on paper. All the case study hospitals were working to expand the scope and functionality of their IT systems, but this expansion was generally projected to occur incrementally over a period of years. Hospital officials noted that with wider use of IT systems, the advantages of these systems—including accessibility, legibility, and the use of discrete data fields—would apply to a larger proportion of the clinical records that abstractors have to search. As the case study hospitals continue to bring more of their clinical documentation into IT systems, and to link separate systems within their hospital so that data in one system can be accessed from another, it should reduce the time required to collect quality data. However, most officials at the case study hospitals viewed full-scale automation of quality data collection and submission through implementation of IT systems as, at best, a long-term prospect. They pointed to a number of challenges that hospitals would have to overcome before they could use IT systems to achieve full-scale automation of quality data collection and submission. Primary among these were overcoming physician reluctance to use IT systems to record clinical information and the intrinsic complexity of the quality data required by CMS. One hospital with unusually extensive IT systems had initiated a pilot project to see how close it could get to fully automating quality data collection for patients with heart failure. Drawing to the maximum extent on the data that were amenable to programming, which excluded unstructured physician notes, the hospital found that it could complete data collection for approximately 10 percent of cases without additional manual abstraction. Reflecting on this effort, the hospital official leading this project noted that at least some of the data elements required for heart failure patients represented “clinical judgment calls.” An official at another hospital observed that someone had to apply CMS’s complex decision rules to determine the appropriate value for the data elements. If a hospital wanted to eliminate the need for an abstractor, who currently makes those decisions retrospectively after weighing multiple pieces of information in the patient’s medical record, the same complex decisions would have to be made by the patient’s physician at the time of treatment. The official suggested that it was preferable not to ask physicians to take on that additional task when they should be focused on making appropriate treatment decisions. Another barrier to automated quality data collection mentioned by several hospital officials was the frequency of change in the data specifications. As noted above, hospitals had to invest considerable staff resources for programming and staff education to develop structured data fields for the clinical information required for the data elements. Officials at one hospital stated that it would be difficult to justify that investment without knowing how long the data specifications underlying that structured data field would remain valid. CMS has sponsored studies and joined HHS initiatives to examine and promote the current and potential use of hospital IT systems to facilitate the collection and submission of quality data, but HHS lacks detailed plans, including milestones and a time frame against which to track its progress. CMS sponsored two studies that examined the use of hospital IT systems for quality data collection and submission. Promoting the use of health IT for quality data collection is also 1 of 14 objectives that HHS has identified in its broader effort to encourage the development and nationwide implementation of interoperable IT in health care. CMS has joined this broader effort by HHS, as well as the Quality Workgroup that AHIC created in August 2006 to specify how IT could capture, aggregate, and report inpatient and outpatient quality data. Through its representation in AHIC and the Quality Workgroup, CMS has participated in decisions about the specific focus areas to be examined through contracts with nongovernmental entities. These contracts currently address the use of health IT for a range of purposes, which may also include quality data collection and submission in the near future. However, HHS has identified no detailed plans, milestones, or time frames for either its broad effort to encourage IT in health care nationwide or its specific objective to promote the use of health IT for quality data collection. Over the past several years, CMS sponsored two studies to examine the current and potential capacity of hospital IT systems to facilitate quality data collection and submission. These studies identified challenges to using existing hospital IT systems for quality data collection and submission, including gaps and inconsistencies in applicable data standards, as well as in the content of clinical information recorded in existing IT systems. Data standards create a uniform vocabulary for electronically recorded information by providing common definitions and coding conventions for a specified set of medical terms. Currently, an array of different standards apply to different aspects of patient care, including drug ordering, digital imaging, clinical laboratory results, and overall clinical terminology relating to anatomy, problems, and procedures. The studies also found that existing IT systems did not record much of the specific clinical information needed to determine the appropriate data element values that hospitals submit to CMS. To achieve CMS’s goal of enabling hospitals to transmit quality data directly from their own IT systems to CMS’s nationwide clinical database, the sets of data in the two systems should conform to a common set of data standards and capture all the data necessary for quality measures. A key element in the effort to create this congruence is the further development and implementation of data standards. In the first study, completed in March 2005, CMS contracted with the Colorado Foundation for Medical Care to test the potential for directly downloading values for data elements for CMS’s hospital quality measures using patient data from electronic medical records in three hospitals and one hospital system. The study found that numerous factors impeded this process under current conditions, including the lack of certain key types of information in the hospitals’ IT systems, such as emergency department data, prearrival data, transfer information, and information on medication contraindications. The study also noted that hospitals differed in how they coded their data, and that even when they had implemented data standards, the hospitals had used different versions of the standards or applied them in different ways. For example, the study found wide variation in the way that the hospitals recorded drug names and laboratory results in their IT systems, as none of the hospitals had implemented the existing data standards in those areas. In the second study, which was conducted by the Iowa Foundation for Medical Care and completed in February 2006, CMS examined the potential to expand its current data specifications for heart attack, heart failure, pneumonia, and surgical measures to incorporate the standards adopted by the federal Consolidated Healthcare Informatics (CHI) initiative. Unlike the first study, which focused on actual patient data in existing IT systems, this study focused on the relationship of current data standards to the data specifications for CMS’s quality data. It found that there were inconsistencies in the way that corresponding data elements were defined in the CMS/Joint Commission Specifications Manual and in the CHI standards that precluded applying those standards to all of CMS’s data elements. Moreover, it found that some of the data elements are not addressed in the CHI standards. These results suggested to CMS officials that the data standards needed to undergo further development before they could support greater use of health IT to facilitate quality data collection and submission. CMS has joined efforts by HHS to promote greater use of health IT in general and, more recently, in facilitating the use of health IT for quality data collection and submission. The overall goal of HHS’s efforts in this area, working through AHIC and ONC, is to encourage the development and nationwide implementation of interoperable health IT in both the public and the private sectors. To guide those efforts, ONC has developed a strategic framework that outlines its goals, objectives, and high-level strategies. One of the 14 objectives involves the collection of quality information. CMS, through its participation in AHIC, has taken part in the selection of specific focus areas for ONC to pursue in its initial activities to promote health IT. Those activities have largely taken place through a series of contracts with a number of nongovernmental entities. ONC has sought through these contracts to address issues affecting wider use of health IT, including standards harmonization, the certification of IT systems, and the development of a Nationwide Health Information Network. For example, the initial work on standards harmonization, conducted under contract to ONC by the Healthcare Information Technology Standards Panel (HITSP), focused on three targeted areas: biosurveillance, sharing laboratory results across institutions, and patient registration and medication history. Meanwhile, the Certification Commission for Health Information Technology (CCHIT) has worked under a separate contract with ONC to develop and apply certification criteria for electronic health record products used in physician offices, with some initial work on certification of electronic health record products for inpatient care as well. CMS is also represented on the Quality Workgroup that AHIC created in August 2006 as a first step in promoting the use of health IT for quality data collection and submission. One of seven workgroups appointed by AHIC, the Quality Workgroup received a specific charge to specify how health IT should capture, aggregate, and report inpatient as well as outpatient quality data. It plans to address this charge by adding activities related to using IT for quality data collection to the work performed by HITSP and CCHIT addressing other objectives under their ongoing ONC contracts. Members of the Quality Workgroup, along with AHIC itself, have recently begun to consider the specific focus areas to include in the directions given to HITSP and CCHIT for their activities during the coming year. Early discussions among AHIC members indicated that they would try to select focus areas that built on the work already completed by ONC’s contractors and that targeted specific improvements in quality data collection that could also support other priorities for IT development that AHIC had identified. The focus areas that AHIC selects will, over time, influence the decisions that HHS makes regarding the resources it will allocate and the specific steps it will take to overcome the limitations of existing IT systems for quality data collection and submission. In a previous report and subsequent testimony, we noted that ONC’s overall approach lacked detailed plans and milestones to ensure that the goals articulated in its strategic framework were met. We pointed out that without setting milestones and tracking progress toward completing them, HHS cannot tell if the necessary steps are in place to provide the building blocks for achieving its overall objectives. HHS concurred with our recommendation that it establish detailed plans and milestones for each phase of its health IT strategic framework, but it has not yet released any such plans, milestones, or a time frame for completion. Moreover, HHS has not announced any detailed plans or milestones or a time frame relating to the efforts of the Quality Workgroup to promote the use of health IT to capture, aggregate, and report inpatient and outpatient quality data. Without such plans, it will be difficult to assess how much the focus areas AHIC selects in the near term on its contracted activities will contribute to enabling the Quality Workgroup to fulfill its charge in a timely way. There is widespread agreement on the importance of hospital quality data. The Congress made the APU program permanent to provide a financial incentive for hospitals to submit quality data to CMS and directed the Secretary of HHS to increase the number of measures for which hospitals would have to provide data. In addition, the hospitals we visited reported finding value in the quality data they collected and submitted to CMS to improve care. Collecting quality data is a complex and labor-intensive process. Hospital officials told us that as the number of quality measures required by CMS increased, the number of clinically trained staff required to collect and submit quality data increased proportionately. They also told us that increased use of IT facilitates the collection and submission of quality data and thereby lessens the demand for greater staff resources. The degree to which existing IT systems can facilitate data collection is, however, constrained by limitations such as the prevalence of data recorded as unstructured narrative or text. Overcoming these limitations would enhance the potential of IT systems to ease the demand on hospital resources. Promoting the use of health IT for quality data collection is 1 of 14 objectives that HHS has identified in its broader effort to encourage the development and nationwide implementation of interoperable IT in health care. The extent to which HHS can overcome the limitations of existing IT systems and make progress on this objective will depend in part on where this objective falls on the list of priorities for the broader effort. To date, HHS has identified no detailed plans, milestones, or time frames for either the broad effort or the specific objective on promoting the use of health IT for collecting quality data. Without such plans, HHS cannot track its progress in promoting the use of health IT for collecting quality data, making it less likely that HHS will achieve that objective in a timely way. Our analysis indicates that unless activities to facilitate greater use of IT for quality data collection and submission proceed promptly, hospitals may have difficulty collecting and submitting quality data required for an expanded APU program. To support the expansion of quality measures for the APU program, we recommend that the Secretary of HHS take the following actions: identify the specific steps that the department plans to take to promote the use of health IT for the collection and submission of data for CMS’s hospital quality measures; and inform interested parties about those steps and the expected time frame, including milestones for completing them. In commenting on a draft of this report on behalf of HHS, CMS expressed its appreciation of our thorough analysis of the processes that hospitals use to report quality data and the role that IT systems can play in that reporting, and it concurred with our two recommendations. (CMS’s comments appear in app. V.) With respect to the recommendations, CMS stated that it will continue to participate in relevant HHS studies and workgroups, and, as appropriate, it will inform interested parties regarding progress in the implementation of health IT for the collection and submission of hospital quality data as specific steps, including time frames and milestones, are identified. In addition, as health IT is implemented, CMS anticipates that a formal plan will be developed that includes training for providers in the use of health IT for reporting quality data. CMS also provided technical comments that we incorporated where appropriate. CMS made two additional comments relating to the information provided on our case study hospitals and our discussion of patients excluded from the hospital performance assessments. CMS suggested that we describe the level of health IT adoption in the case study hospitals in table 1 of appendix III; this information was already provided in table 4 of appendix III. CMS suggested that we highlight the application of patient exclusions in adapting health IT for quality data collection and submission. We chose not to because our analysis showed that the degree of challenge depended on the nature of the information required for a given data element. Exclusions based on billing data, such as discharge status, pose much less difficulty than other exclusions, such as checking for contraindications to ACEIs and ARBs for LVSD, which require a wide range of clinical information. CMS noted that the AHIC Quality Workgroup had presented its initial set of recommendations at AHIC’s most recent meeting on March 13, 2007, and provided a copy of those recommendations as an appendix to its comments. The agency characterized these recommendations as first steps, with initial timelines, to address the complex issues that affect implementation of health IT for quality data collection and submission. Specifically with reference to collecting quality data from hospitals as well as physicians, the Quality Workgroup recommended the appointment of an expert panel that would designate a set of quality measures to have priority for standardization of their data elements, which, in turn, would enable automation of their collection and submission using electronic health records and health information exchange. The first recommendations from the expert panel are due June 5, 2007. The work of the expert panel is intended to guide subsequent efforts by HITSP to fill identified gaps in related data standards and by CCHIT to develop criteria for certifying electronic health record products. In addition, the Quality Workgroup recommended that CMS and the Agency for Healthcare Research and Quality (AHRQ) both work to bring together the developers of health quality measures and health IT vendors, so that development of future health IT systems would take greater account of the data requirements of emerging quality measures. AHIC approved these recommendations from the Quality Workgroup at its March 13 meeting. We also sent to each of the eight case study hospitals sections from the appendixes pertaining to that hospital. We asked each hospital to check that the section accurately described its processes for collecting and submitting quality data as well as related information on its characteristics and resources. Officials from four of the eight hospitals responded and provided technical comments that we incorporated where appropriate. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its issue date. At that time, we will send copies of this report to the Secretary of HHS, the Administrator of CMS, and other interested parties. We will also make copies available to others on request. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-7101 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. Angiotensin-converting enzyme inhibitor or angiotensin receptor blocker for left ventricular systolic dysfunctionBeta blocker at hospital arrivalBeta blocker prescribed at dischargeThrombolytic agent received within 30 minutes of hospital arrival Percutaneous coronary intervention received within 120 minutes of hospital arrival Angiotensin-converting enzyme inhibitor or angiotensin receptor blocker for left ventricular systolic dysfunctionInitial antibiotic received within 4 hours of hospital arrivalBlood culture performed before first antibiotic received in hospital Prophylactic antibiotic received within 1 hour prior to surgical incision Prophylactic antibiotics discontinued within 24 hours after surgery end time uality measures. Appendix II: Da Hospital Performance on a Heart Attack Quality Measure ta Elements Used to Calculate Admission rce? Trfer from nother emergency deprtment? Compte dtion of hopity in d from difference te” nd “Dichrge Dte” elementus? Contrindiction to et locker on rrivl? Bet locker received within 24 ho fter hopitrrivl? Ner of ptient who received et locker Ner of ptient for whom et locker was pproprite Included codes consist of eight different values for admission source that represent patients who were admitted from any source other than those listed in footnote b, including physician referral, skilled nursing facility, and the hospital’s emergency room. Excluded codes consist of three different values for admission source that represent patients who were transferred to this hospital from another acute care hospital, from a critical access hospital, or within the same hospital with a separate claim. different values for discharge status that represent patients who were discharged to any setting other than those listed in footnote e, including home care, skilled nursing facility, and hospice. Private insurer uality data. The Leapfrog Group is a consortium of large private and public health care purchasers that publicly recognizes hospitals that have implemented certain specific uality and safety practices, such as computerized physician order entry. The projected reduction in fiscal year 2006 and fiscal year 2007 Medicare payments (rounded to the nearest $1,000) represents the amount that the hospital’s revenue from Medicare would have decreased for that fiscal year had the hospital not submitted uality data under the Annual Payment Update program. These estimates are based on information on the number and case mix of Medicare patients served by these hospitals during the previous period. This is the information that was available to hospital administrators from CMS at the beginning of the fiscal year. The actual reduction would ultimately depend on the number and case mix of the Medicare patients that the hospital actually treated during the course of that fiscal year. The projected reduction for fiscal year 2007 was substantially larger because that was the first year in which the higher rate of reduction mandated by the Deficit Reduction Act of 2005—from 0.4 percentage points to 2.0 percentage points—took effect. Abstractor starts searching through paper records, then looks for additional information in electronic records (e.g., for echocardiogram results) Hospital copies, checks completeness of, and ships requested patient records uarter if the number of eligible patients met a certain threshold. Otherwise, the hospital was reuired to abstract uality data for all patients who met the inclusion criteria for any one of the four conditions. Hospitals could also choose not to sample, even if it were permitted under the CMS sampling procedures. Licensed practical nurse (LPN) Medical records coder and RN with physician support 20 minutes (average) None beyond reviews by CMS contractor uarters of discharges from April 2005 through March 2006. uarter of discharges from January through March 2006. To examine how hospitals collect and submit quality data, and to determine the extent to which information technology (IT) facilitates those processes, we conducted case studies of eight individual acute care hospitals that collect and submit quality data to the Centers for Medicare & Medicaid Services (CMS). We chose this approach to obtain an in-depth understanding of these processes as they are currently experienced at the hospital level. For background information on the requirements that the hospitals had to satisfy, we reviewed CMS documents relevant to the Annual Payment Update (APU) program. In particular, we examined multiple revisions of the Specifications Manual for National Hospital Quality Measures, which is issued jointly by CMS and the Joint Commission (formerly the Joint Commission on Accreditation of Healthcare Organizations). We structured our selection of hospitals for the eight case studies to provide a contrast of hospitals with highly sophisticated IT systems and hospitals with an average level of IT capability. We excluded critical access hospitals from this selection process because they are not included in the APU program. The selected hospitals varied on several hospital characteristics, including urban/rural location, size, teaching status, and membership in a system that linked multiple hospitals through shared ownership or other formal arrangements. (See app. III, table 1.) To select four hospitals with highly sophisticated IT systems, we relied on recommendations from interviews with a number of experts in the field of health IT, as well as on a recent review of the research literature on the costs and benefits of health IT and other published articles. Three of the four hospitals we chose were among those where much of the published research has taken place. They were all early adopters of health IT, and each had implemented internally developed IT systems. The fourth hospital had more recently acquired and adapted a commercially developed system. This hospital was distinguished by the extent to which it had replaced its paper medical records with an integrated system of electronic patient records. Each of these four case study hospitals was located in a different metropolitan area. We selected the four hospitals with less sophisticated IT systems from the geographic vicinity of the four hospitals already chosen, thus providing two case study hospitals from each of four metropolitan areas. We decided that one should be a rural hospital, using the Medicare definition of rural, which is located outside of a Metropolitan Statistical Area (MSA). To determine from which of the four metropolitan areas we should select a neighboring rural hospital, we analyzed data on Medicare-approved hospitals drawn from CMS’s Provider of Services (POS) file. We identified the rural hospitals located within 150 miles of each of the first four hospitals. From among those four sets of rural hospitals, we chose the set with the largest number of acute care hospitals as the set from which to choose our rural case study hospital. For each of the remaining three metropolitan areas, we used the hospitals listed in the POS file as short- term acute care hospitals located in the same MSAs as the three sets from which to choose our remaining three hospitals. We excluded hospitals located in a different state from the first hospital selected for that metropolitan area, so that all of the hospitals under consideration for that area would come under the jurisdiction of the same Quality Improvement Organization (QIO). To select the second case study hospital from among those available in or near each of the four metropolitan areas, we applied a procedure designed to produce a straightforward and unbiased selection. We began by recording the total number of cases for which each of these hospitals had reported results on CMS’s Web site for heart attack, heart failure, and pneumonia quality measures. We obtained this information from the Web site itself, running reports for each hospital that showed, for each quality measure, the number of cases that the hospital’s quality performance score was based on. Since some quality measures apply only to certain patients, we recorded the largest number of cases listed for any of the quality measures reported for a given condition. Next we summed the cases for the three conditions and rank ordered the hospitals in each of the three MSAs, and the rural hospitals in the fourth metropolitan area, from most to least total cases submitted. We then made a preliminary selection by taking the hospital with the median value in each of those lists. By selecting the hospital with the median number of cases reported, we attempted to minimize the chances of picking a hospital that would represent an outlier compared to other hospitals in the selection pool. Before selecting the final four case study hospitals, we checked to make sure that the hospitals did not happen to have an unusually high level of IT capabilities with respect to electronic patient records. To do this, we contacted each of the selected hospitals and obtained a description of its current IT systems. We compared this description to the stages of electronic medical record implementation laid out by the Healthcare Information and Management Systems Society (HIMSS). The HIMSS model identifies eight stages based on the scope and sophistication of clinical functions implemented through a hospital’s system of electronic medical records. According to HIMSS, the large majority of hospitals in the United States are at the lower three stages. Based on the descriptions of these stages, we determined that none of the prospectively selected hospitals had IT systems that exceeded the third stage. We collected information about the processes used to collect and submit quality data from each of the eight case study hospitals through on-site interviews with hospital abstractors, quality managers, IT staff, and hospital administrators. We told these officials that neither they personally nor their hospitals would be identified by name in our report. The site visits took place between mid-July and early September 2006 and ranged in duration from 3 to 8 hours. Our data collection at each hospital was guided by a protocol that specified a series of topics to cover in our interviews. These topics included a description of the processes used at each hospital and the financial and staff resources devoted to quality data collection and submission. We pretested the protocol at two hospitals not included in our set of eight case study hospitals. As part of the protocol, we asked abstractors at each hospital to explain in detail how they found the information needed to determine the appropriate values for each of the data elements required for two specific quality measures: (1) angiotensin-converting enzyme inhibitor (ACEI) or antiotensin receptor blocker (ARB) for left ventricular systolic dysfunction (LVSD) for heart failure patients and (2) initial antibiotic received within 4 hours of hospital arrival for pneumonia patients. We selected these measures because they covered a number of different types of data elements, including those involving administration of medications, determining contraindications, date and time variables, and making clinical assessments such as whether a patient had LVSD. To determine the extent to which IT facilitated these processes at the eight case study hospitals, we included several topics on IT systems in our site visit protocol. We asked about any IT systems used by the abstractors in locating relevant clinical information in patient medical records and the specific advantages and limitations they encountered in using those systems. We also asked hospital officials to assess the potential for IT systems to provide higher levels of assistance for quality data collection and submission over time. If separate IT staff were involved in the hospital’s quality data collection and submission process, we included them in the interviews. Where possible, we supplemented the information provided through interviews with direct observation of the processes used by hospitals to collect and submit quality data. We asked the case study hospitals to show us how they performed these processes, and five of the eight hospitals arranged for us to observe the collection of quality data for all or part of a patient record. We observed abstractors accessing clinical information from both paper and electronic records. We also obtained pertinent information about the case study hospitals from CMS documents and contractors. The estimated amount of dollars that the case study hospitals would have lost had they not submitted quality data to CMS, presented in appendix III, table 1, was calculated from data provided in documents made available to all hospitals at the start of each of the fiscal years. Information on the average number of patient charts abstracted quarterly by each case study hospital, shown in appendix III, table 3, was drawn from a table showing the number of patients for whom quality data were submitted to CMS’s clinical data warehouse. We obtained that table from the Iowa Foundation for Medical Care (IFMC), which is the CMS contractor that operates the clinical data warehouse. The IFMC table provided this information for all hospitals submitting quality data for discharges that occurred from April 2005 through March 2006. These were the most recent data available. The evidence that we obtained from our eight case study hospitals is specific to those hospitals. In particular, it does not offer a basis for relating any differences we observed among these individual hospitals to their differences on specific dimensions, such as size or teaching status. Nor can we generalize from the group of eight as a whole to acute care hospitals across the country. Furthermore, although we examined the processes hospitals used to collect and submit quality data and the role that IT plays in that process, we did not examine general IT adoption in the hospital industry. To obtain information on whether CMS has taken steps to promote the development of IT systems to facilitate quality data collection and submission, we interviewed CMS officials as well as CMS contractors and reviewed documents including reports on related studies funded by CMS. We also interviewed officials at the Office of the National Coordinator for Health Information Technology (ONC) regarding the plans and activities of the American Health Information Community (AHIC) quality workgroup. In addition, we downloaded relevant documents from the AHIC Web site, including meeting agendas, prepared presentations, and meeting minutes for both AHIC as a whole and its Quality Workgroup. We conducted our work from February 2006 to April 2007 in accordance with generally accepted government auditing standards. In addition to the contact named above, Linda T. Kohn, Assistant Director; Mohammad S. Khan; Eric A. Peterson; Roseanne Price; Jessica C. Smith; and Teresa F. Tucker made key contributions to this report.

Hospitals submit data in electronic form on a series of quality measures to the Centers for Medicare & Medicaid Services (CMS) and receive scores on their performance. Increasingly, the clinical information from which hospitals derive the quality data for CMS is stored in information technology (IT) systems. GAO was asked to examine (1) hospital processes to collect and submit quality data, (2) the extent to which IT facilitates hospitals' collection and submission of quality data, and (3) whether CMS has taken steps to promote the use of IT systems to facilitate the collection and submission of hospital quality data. GAO addressed these issues by conducting case studies of eight hospitals with varying levels of IT development and interviewing relevant officials at CMS and the Department of Health and Human Services (HHS). The eight case study hospitals used six steps to collect and submit quality data: (1) identify the patients, (2) locate information in their medical records, (3) determine appropriate values for the data elements, (4) transmit the quality data to CMS, (5) ensure that the quality data have been accepted by CMS, and (6) supply copies of selected medical records to CMS to validate the data. Several factors account for the complexity of abstracting all relevant information in a patient's medical record, including the content and organization of the medical record, the scope of information and the clinical judgment required for the data elements, and frequent changes by CMS in its data specifications. Due in part to these complexities, most of the case study hospitals relied on clinical staff to abstract the quality data. Increases in the number of quality measures required by CMS led to increased demands on clinical staff resources. Offsetting the demands placed on clinical staff were the benefits that case study hospitals reported finding in the quality data, such as providing feedback to clinicians and reports to hospital administrators. GAO's case studies showed that existing IT systems can help hospitals gather some quality data but are far from enabling hospitals to automate the abstraction process. IT systems helped hospital staff to abstract information from patients' medical records, in particular by improving accessibility to and legibility of the medical record. The limitations reported by officials in the case study hospitals included having a mix of paper and electronic records, which required staff to check multiple places to get the needed information; the prevalence of data recorded as unstructured narrative or text, which made locating the information time-consuming because it was not in a prescribed place in the record; and the inability of some IT systems to access related data stored in another IT system in the same hospital, which required staff to access each IT system separately to obtain related pieces of information. Hospital officials expected the scope and functionality of their IT systems to increase over time, but this process will occur over a period of years. CMS has sponsored studies and joined HHS initiatives to examine and promote the current and potential use of hospital IT systems to facilitate the collection and submission of quality data, but HHS lacks detailed plans, including milestones and a time frame against which to track its progress. CMS has joined efforts by HHS to promote the use of IT in health care, including a Quality Workgroup charged with specifying how IT could capture, aggregate, and report inpatient and outpatient quality data. HHS plans to expand the use of health IT for quality data collection and submission through contracts with nongovernmental entities that currently address the use of health IT for a range of other purposes. However, HHS has identified no detailed plans, milestones, or time frames for either its broad effort to encourage IT in health care nationwide or its specific objective to promote the use of health IT for quality data collection.

You are an expert at summarizing long articles. Proceed to summarize the following text: As part of our audit of the fiscal years 2003 and 2002 CFS, we evaluated Treasury’s financial reporting procedures and related internal control. In our report, which is included in the fiscal year 2003 Financial Report of the United States Government, we reported material deficiencies relating to Treasury’s financial reporting procedures and internal control. These material deficiencies contributed to our disclaimer of opinion on the CFS and also constitute material weaknesses in internal control, which contributed to our adverse opinion on internal control. We performed our work in accordance with U.S. generally accepted government auditing standards. This report provides the details of the additional weaknesses we identified in our audit of the fiscal year 2003 and 2002 CFS and recommendations to correct those weaknesses. We requested comments on a draft of this report from the Director of OMB and the Secretary of the Treasury or their designees. OMB’s and Treasury’s comments are reprinted in appendix III and IV, respectively, and discussed in the Agency Comments and Our Evaluation section of this report. Treasury also provided an attachment to its written comments that we did not reprint in appendix IV. This attachment was a detailed reconciliation spreadsheet that was an expanded version of the information we had already taken into account in our review of the fiscal year 2003 reconciliation statement. Statement of Federal Financial Accounting Standard (SFFAS) No. 4, Managerial Cost Accounting Standards and Concepts, states that a fundamental element of managerial cost accounting for the federal government is the use of appropriate costing methodologies to accumulate and assign costs to outputs. The standard further states that costs should be allocated on a reasonable and consistent basis. Without consistently applying an allocation methodology, the net cost amounts by federal agency, as shown on the Statement of Net Cost, may be misstated. The Statement of Net Cost is intended to present the net cost of the U.S. government’s operations. These costs are presented in the statement by individual federal agencies rather than by significant federal government program. The reported net cost amounts by federal agency include an allocated portion of the Office of Personnel Management (OPM) costs. This allocation is made to reflect the fair share of the cost of the functions performed by OPM that benefit other federal agencies, most notably, pension payments to federal retirees. As the basis for allocating OPM costs to each federal agency, Treasury’s written procedures call for the use of full-time equivalents (FTE). Those FTEs are published in the Analytical Perspectives, Budget of the United States Government, fiscal year 2005. During our fiscal year 2003 audit, we found that the FTEs used for allocating OPM costs to some of the federal agencies listed in the Statement of Net Cost did not always agree with the respective agencies’ FTEs in the Analytical Perspectives, Budget of the United States Government, fiscal year 2005. In addition, we found that there was no review of the underlying support used to compile the Statement of Net Cost by Treasury management to ensure that OPM costs were allocated accurately. Treasury was not able to explain the differences we identified. We also found that Treasury’s written procedures for allocating OPM costs on the Statement of Net Cost were not updated to reflect the changes Treasury made to its allocation methodology during fiscal year 2003. We also found that Treasury made errors in allocating OPM costs to the Department of Homeland Security (DHS). Most of the errors occurred because Treasury allocated a full year of OPM costs to DHS, even though DHS did not begin operations until March 2003. DHS was originally allocated 5.3 percent of OPM costs and after we notified Treasury of the errors we identified, DHS was correctly allocated 2.6 percent. Recommendations for Executive Action. We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to ensure that, if FTEs are used as part of Treasury’s methodology for allocating OPM costs, the FTEs used for the agencies listed on the Statement of Net Cost agree with the FTEs listed in the Analytical Perspectives, Budget of the United States Government as currently stated in Treasury’s methodology; document any changes to the stated methodology for allocating OPM costs and the rationale for these changes; and require reviews by Treasury management of the accuracy of the allocated OPM costs. As part of our fiscal year 2003 audit of the Statement of Changes in Cash Balance from Unified Budget and Other Activities (Statement of Changes in Cash Balance), we found (1) material differences between the net outlay records used by Treasury to prepare the Statement of Changes in Cash Balance and the total net outlays reported in selected federal agencies’ audited Statements of Budgetary Resources (SBR); (2) that the Statement of Changes in Cash Balance reported only the changes in the “operating” cash of the U.S. government rather than all cash, as it is reported on the U.S. government’s Balance Sheet; and (3) that the major program activities of the U.S. government relating to direct and guaranteed loans extended to the public were reported as a net amount on the Statement of Changes in Cash Balance rather than disclosed as gross amounts for receipts and disbursements of cash related to direct loans and loan guarantees. OMB Bulletin 01-09, Form and Content of Agency Financial Statements, states that outlays in federal agencies’ SBRs should agree with each agency’s net outlays reported in the budget of the U.S. government. In addition, SFFAS No. 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, requires explanation of any material differences between the information required to be disclosed (including net outlays) and the amounts described as “actual” in the budget of the U.S. government. As part of our fiscal year 2003 audit of the Statement of Changes in Cash Balance, we found material differences between the net outlay records used by Treasury to prepare the Statement of Changes in Cash Balance and the total net outlays reported in selected federal agencies’ audited SBRs. These differences totaled about $140 billion and $186 billion for fiscal years 2003 and 2002, respectively. Two agencies—Treasury and the Department of Health and Human Services (HHS)— accounted for about 83 percent and 75 percent of the differences identified in fiscal years 2003 and 2002, respectively. We found that the major cause of the differences for the two agencies was the treatment of offsetting receipts. Some offsetting receipts for these two agencies had not been included in the agencies’ SBRs, which would have reduced the agencies’ net outlays and made the amounts more consistent with Treasury records used to prepare the Statement of Changes in Cash Balance. We found that Treasury publishes offsetting receipts by agency or department monthly, including fiscal year-to-date information in the Monthly Treasury Statement. Nevertheless, material differences between the two agencies’ and Treasury’s records remained at the end of the fiscal year. For example, we found that HHS reported net outlays for fiscal year 2003 as $596 billion on its audited SBR, while the records that Treasury used to prepare the fiscal year 2003 Statement of Changes in Cash Balance showed net outlays of $505 billion for HHS. Until the differences between the total net outlays reported in the federal agencies’ SBRs and the records used to prepare the Statement of Changes in Cash Balance are reconciled, the effect of these differences on the CFS will be unknown. OMB has stated that it plans to work with the agencies to address this issue. Recommendations for Executive Action. We recommend that the Director of OMB direct the Controller of OMB, in coordination with Treasury’s Fiscal Assistant Secretary, to work with the federal agencies so that the differences between net outlays the agencies report in their SBRs and the net outlay records Treasury uses to prepare the Statement of Changes in Cash Balance are reconciled. In addition, we recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to determine and address the effects that any of the differences between net outlays the agencies report in their SBRs and Treasury’s net outlay records may have on the CFS. The Statement of Changes in Cash Balance reported only the changes in the “operating” cash of the U.S. government of $35 billion rather than the changes in all cash reported on the U.S. government’s Balance Sheet of $62.2 billion, as of September 30, 2003. We also found that the total operating cash amount reported in the Statement of Changes in Cash Balance did not link to the underlying agencies’ operating cash reported in their financial statements. For example, Treasury reported $51 billion of operating cash in Treasury’s own fiscal year 2003 audited financial statements. This amount, by itself, exceeded the $35 billion operating cash balance reported in the Statement of Changes in Cash Balance. SFFAS No. 1, Accounting for Selected Assets and Liabilities, defines nonentity cash as cash that a federal entity collects and holds on behalf of the U.S. government or other entities. In some circumstances, the entity deposits the cash in its accounts in a fiduciary capacity for Treasury or other entities. Several provisions of SFFAS No. 24, Selected Standards for the Consolidated Financial Report of the United States Government, require the Statement of Changes in Cash Balance to explain changes in the U.S. government’s cash balance. Recommendation for Executive Action. We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to develop a process that will allow full reporting of the changes in cash balance of the U.S. government. Specifically, the process should provide for reporting on the change in cash reported on the consolidated Balance Sheet, which should be linked to cash balances reported in federal agencies’ audited financial statements. We found that the major program activities of the U.S. government relating to direct and guaranteed loans extended to the public were reported as a net amount on the Statement of Changes in Cash Balance rather than disclosed as gross amounts for receipts and disbursements of cash related to direct loans and loan guarantees. In this regard, the illustrative financial statement for the Statement of Changes in Cash Balance provided in SFFAS No. 24, while not prescriptive, shows gross reporting of direct loans and guarantees activities. In addition, gross reporting is consistent with the reporting advocated in Financial Accounting Standards Board Statement No. 95, Statement of Cash Flows. Treasury does not have a process for obtaining receipt and disbursement amounts for direct and guaranteed loans. As a result, the Statement of Changes in Cash Balance does not show the magnitude of these major government loan programs. Net reporting of direct and guaranteed loan program activity does not disclose how much cash the government disbursed to promote the nation’s welfare by making these loans available to the general population or how much in related repayments the government received. For example, in fiscal year 2003, the Statement of Changes in Cash Balance reported a net $1.2 billion of direct loan activity, while the Department of Education alone disbursed approximately $18 billion in direct loans to eligible borrowers and received approximately $15 billion in loan repayments. Recommendation for Executive Action. We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to report gross amounts for receipts and disbursements of cash related to direct loans and loan guarantees. We found that the CFS did not report criminal debt, as determined through the U.S. Courts, in accordance with GAAP. SFFAS No. 1, Accounting for Selected Assets and Liabilities, and SFFAS No. 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, require that a receivable and related revenue be recognized once amounts due to the U.S. government are assessed. Further, these standards require that an allowance for uncollectible accounts be used to reduce the gross amount of the receivable and revenue to its net realizable value. Also, in accordance with OMB Circular No. A- 129, Policies for Federal Credit Programs and Non-Tax Receivables, agencies are to (1) service and collect debts in a manner that best protects the value of the U.S. government’s assets and (2) provide accounting and management information for effective stewardship, including resources entrusted to the U.S. government (e.g., for nonfederal and federal restitution). Criminal debt consists primarily of fines and restitution related to a wide range of criminal activities, including domestic and international terrorism, drug trafficking, firearms activities, and white-collar fraud. The U.S. Courts assess these debts, and the Department of Justice’s (Justice) U.S. Attorneys’ Offices throughout the country are charged with enforcing collection. Although Justice and the U.S. Courts develop unaudited annual statistical data for informational purposes, neither entity is accounting for any of these criminal debts as receivables, disclosing the debts in financial statements, or having the information subject to audit. The U.S. Courts, which serve as the assessor, depositor, and disburser of most of the funds collected, are not required to prepare financial statements or disclose criminal debt information. In addition, Justice, which enforces criminal debt collection, prepares audited financial statements but does not record or disclose receivables for criminal debt. Therefore, criminal debt outstanding is not being reported to Treasury for inclusion in the CFS. Financial statement reporting of criminal debt would increase oversight of the debt collection process because amounts would be subject to audit. Such audits would include assessments of internal control and compliance with applicable laws and regulations related to the criminal debt collection process. In our recently issued report on criminal debt, we reemphasized the need for Justice, the Administrative Office of the U.S. Courts, OMB, and Treasury to form a joint task force to develop a strategic plan that addresses managing, accounting for, and reporting criminal debt. We stated that the strategy should include (1) determining an approach for assessing the collectibility of outstanding criminal debt amounts so that a meaningful allowance for uncollectible criminal debts can be reported and used for measuring debt collection performance and (2) having OMB work with Justice and certain other executive branch agencies to ensure that these entities report and/or disclose relevant criminal debt information in their financial statements and subject such information to audit. As of the completion of our fieldwork, the task force had not yet been established and, therefore, a strategic plan had not been developed. Recommendations for Executive Action. In the interim, until the joint task force is established and a strategic plan is developed, we recommend that the Director of OMB direct the Controller of OMB, in coordination with the Fiscal Assistant Secretary of the Treasury, to work with Justice and certain other executive branch agencies to ensure that these agencies report or disclose relevant criminal debt information in conformity with GAAP in their financial statements and have such information subjected to audit. In addition, we recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to include relevant criminal debt information in the CFS or document the specific rationale for excluding such information. As we have reported in previous years’ audits, the U.S. government has not been able to determine whether loss contingencies were complete and properly reported in the CFS. Part of the problem is that Treasury has not requested all relevant information for loss contingencies required under the accounting standards from all applicable federal agencies. For fiscal year 2003, Treasury’s primary means of compiling information for the CFS was through its system called Federal Agencies’ Centralized Trial Balance System (FACTS). Under FACTS, federal agencies were instructed to enter information for legal contingencies that are assessed as both “reasonably possible” and “estimable.” Treasury does not specifically request other information for loss contingencies that is required by accounting standards, such as loss contingencies assessed (1) to be probable, (2) as reasonably possible with estimated loss ranges, or (3) as uncertain. For example, one federal agency provided Treasury with information regarding a legal claim amount of $1.7 billion for which the agency’s lawyers were unable to provide an assessment of the likelihood of an unfavorable outcome. Because FACTS does not allow for narrative descriptions of amounts provided to Treasury and only classifies loss contingencies as reasonably possible and estimable, the agency was unable to properly report to Treasury that the assessment of the likelihood of an unfavorable outcome was uncertain. Consequently, Treasury incorrectly considered this amount as reasonably possible and estimable and therefore overstated its estimated possible losses for legal contingencies in the CFS by this federal agency’s claimant amount of $1.7 billion. We notified Treasury of this error and a correction was made in the final version of the CFS. SFFAS No. 5, Accounting for Liabilities of the Federal Government, as amended by SFFAS No. 12, Recognition of Contingent Liabilities Arising from Litigation: An Amendment of SFFAS No. 5, contains accounting and reporting standards for loss contingencies, including those arising from litigation, claims, and assessments. A contingency is defined as an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an entity. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur. When a loss contingency exists, the likelihood that the future event or events will confirm the loss or impairment of an asset or the incurrence of a liability can range from probable to remote. SFFAS Nos. 5 and 12 use the terms probable, reasonably possible, and remote to identify three areas within the range of potential loss, as follows: Probable. For contingencies, the future event or events are more likely than not to occur. In addition, for contingencies related to pending or threatened litigation and unasserted claims, the future confirming event or events are those likely to occur. Reasonably possible. The chance of the future confirming event or events occurring is more than remote but less than probable. Remote. The chance of the future event or events occurring is slight. Under SFFAS Nos. 5 and 12, a liability and the related cost for an estimated loss from a loss contingency should be recognized (accrued by a charge to income) when (1) a past event or exchange transaction has occurred, (2) a future outflow or other sacrifice of resources is probable, and (3) the future outflow or sacrifice of resources is measurable. Disclosure of the nature of an accrued liability for loss contingencies, including the amount accrued, may be necessary for the financial statements not to be misleading. For example, if the amount recognized is large or unusual, disclosure should be considered. However, if no accrual is made for a loss because one or more of the conditions in SFFAS No. 12 are not met, disclosure of the contingency should be made when there is at least a reasonable possibility that a loss has been incurred. The disclosure should include the nature of the contingency and an estimate of the possible liability or range of possible liability, if estimable, or a statement that such an estimate cannot be made. Recommendation for Executive Action. Because the limited information requested through Treasury’s FACTS does not capture all the disclosure requirements under the accounting standards, the contingency note disclosure for the CFS may have been inaccurate and unreliable. For fiscal year 2004, Treasury is completing the design of and will be implementing a new system for compiling the CFS. We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to include in the new system a request for federal agencies to provide the following contingency loss information to assist Treasury in disclosing contingencies in the CFS in accordance with GAAP: contingency losses assessed as probable and for which possible losses and estimated loss ranges are measurable, contingency losses assessed as probable and for which possible losses cannot be estimated, contingency losses assessed as reasonably possible and for which losses and estimated loss ranges are measurable, contingency losses assessed as reasonably possible and for which possible losses are not measurable, and the nature and extent of significant contingency losses for which the agency is unable to provide an assessment on the likelihood of an unfavorable outcome. As we have reported in the past, Treasury’s current process for compiling the CFS did not directly link information from federal agencies’ audited financial statements to amounts reported in the CFS, and therefore Treasury could not fully ensure that the information in the CFS was consistent with the underlying information in federal agencies’ audited financial statements and other financial data. For fiscal year 2004 reporting, Treasury is planning a new process to compile the CFS. We reviewed Treasury’s plans for the new process and found that there is a plan to link most of the agencies’ audited financial statements to the consolidated financial statements through the use of a new closing package. Treasury will require each significant agency to prepare the closing package and to certify its accuracy. However, we found that the planned closing package does not require federal agencies to directly link their audited financial statement notes to the closing package notes. Treasury plans to rely on note templates it designed that call for predefined information from the federal agencies. We found that these templates are too restrictive and that important information reported at the agency level may not be included in the CFS because it is not specifically called for in the closing package. The use of such predefined templates increases the risk that Treasury will continue to produce consolidated financial statements that are not in conformity with GAAP. We also found that the planned closing package does not require the necessary information to compile all five of the required consolidated financial statements. For example, as noted earlier, we found that there were significant differences between the total net outlays reported in selected agencies’ audited financial statements and the records Treasury uses to prepare its Statement of Changes in Cash Balance from Unified Budget and Other Activities. Because the planned closing package does not call for agencies to provide information to compile this statement that is consistent with underlying information in the agencies’ audited financial statements, the risk of differences between the CFS and the underlying agency financial statements is increased. The lack of direct linkage also affects the efficiency and effectiveness of the audit of the CFS. Statement of Federal Financial Accounting Concepts No. 4, Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the United States Government, states that the consolidated financial report should be a general purpose report that is aggregated from agency reports and that it should tell users where to find information in other formats, both aggregated and disaggregated, such as in individual agency reports, on agency Web sites, and in the President’s Budget. Recommendations for Executive Action. As Treasury is still designing its new compilation process, which it expects to implement beginning with the fiscal year 2004 CFS, we recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to modify Treasury’s plans for the new closing package to require federal agencies to directly link their audited financial statement notes to the CFS notes and provide the necessary information to demonstrate that all of the five principal consolidated financial statements are consistent with the underlying information in federal agencies’ audited financial statements and other financial data. According to SFFAS No. 21, Reporting Corrections of Errors and Changes in Accounting Principles, Amending SFFAS 7, Accounting for Revenue and Other Financing Sources, an entity should restate the prior year to report correction of errors that are material and should disclose the nature of the prior period adjustments. If errors are not material, they should be included in the current year results and not cited as prior period adjustments on the Statement of Operations and Changes in Net Position, and no disclosure is required. Also, according to SFFAS No. 21, an entity should adjust the beginning balance of cumulative results of operations for changes in accounting principles and disclose the nature of those changes. Treasury did not fully comply with the requirements of SFFAS No. 21 in connection with certain identified errors relating to prior periods. Treasury did not restate the prior year to correct net errors of $2.6 billion because it determined the errors to be immaterial, which was the correct accounting treatment. However, Treasury reported the $2.6 billion amount as a prior period adjustment on the Statement of Operations and Changes in Net Position and adjusted the beginning balance of cumulative results of operations as would be required if these amounts were material. Therefore, Treasury was inconsistent when implementing the requirements of SFFAS No. 21. Treasury also did not initially comply with the requirements of SFFAS No. 21 in connection with reporting a change in accounting principle. Treasury reported in several drafts of the CFS a change in accounting principle of $383 billion as an error relating to prior periods because Treasury did not specifically require federal agencies to separately identify changes in accounting principles. Instead, Treasury allowed federal agencies to report changes in accounting principles together with prior period adjustments, which made them difficult to differentiate. Changes in accounting principles are not errors and have different reporting requirements. We brought this to Treasury’s attention and it corrected the mistake in the final version of the CFS. Recommendations for Executive Action. We recommend that the Secretary of the Treasury direct the Fiscal Assistant Secretary to report prior period adjustments in accordance with SFFAS No. 21 by (1) restating the prior year for corrections of material errors and adjusting the beginning balance of cumulative results of operations and disclosing the nature of the errors in the notes to the CFS and (2) including corrections of immaterial errors in the current year and not citing them as prior period adjustments on the Statement of Changes in Net Position and not disclosing them in the notes to the CFS and include in Treasury’s new closing package a process that will allow federal agencies to clearly distinguish between prior period adjustments and changes in accounting principles in accordance with SFFAS No. 21. As we reported as part of our fiscal year 2002 audit, and found again during our fiscal year 2003 audit, Treasury lacks an adequate process to ensure that the financial statements, related notes, stewardship, and supplemental information in the CFS are presented in conformity with GAAP. SFFAS No. 24 states that the Federal Accounting Standards Advisory Board (FASAB) standards apply to all federal agencies, including the U.S. government as a whole, unless provision is made for different accounting treatment in a current or subsequent standard. Specifically, we found that Treasury did not (1) timely identify applicable GAAP requirements; (2) make timely modifications to agency data calls to obtain information needed; (3) assess, qualitatively and quantitatively, the materiality of omitted disclosures; or (4) document decisions reached with regard to omitted disclosures and the rationale for such decisions. During our fiscal year 2002 audit, we identified 16 disclosure areas consisting of 86 specific disclosures that may not have been in conformity with applicable standards. During our fiscal year 2003 audit, we found 4 disclosure areas involving an additional 11 specific disclosures that may not have been in conformity with applicable standards. As a result of this and certain other weaknesses we identified, we were unable to determine if the missing information was material to the CFS. These additional required disclosures are described in appendix I. We did note that Treasury is requesting certain information in its planned closing package for fiscal year 2004 that may address some of the needed disclosures. Recommendations for Executive Action. We reaffirm our recommendation that the Secretary of the Treasury direct the Fiscal Assistant Secretary to establish a formal process that will allow the financial statements, related notes, stewardship information, and supplemental information in the CFS to be presented in conformity with GAAP, in all material respects. The process should timely identify GAAP requirements; make timely modifications to Treasury’s closing package requirements to obtain information needed; assess, qualitatively and quantitatively, the impact of any omitted document decisions reached and the rationale for such decisions. With respect to the 11 required disclosures identified in appendix I for which information was either not included in the CFS or was presented in a way that did not meet GAAP standards, we recommend that each of these disclosures be included in the CFS or that the specific rationale for excluding any of them be documented. OMB and Treasury provided written comments on a draft of this report; these comments are reprinted in appendixes III and IV, respectively. OMB stated that it generally concurred with the findings in the report and would work with Treasury and other executive departments and agencies to address these findings. Treasury stated that our report identified issues regarding certain federal financial reporting procedures and internal controls and provided valuable advice and recommendations for improvements. It also stated that many of the concerns we raised are in critical areas where federal financial reporting can be improved. While Treasury stated that it generally agreed with our concerns on most of the major issues, in some cases it disagreed with either our finding or our recommended approach to addressing the problem. We continue to believe that our findings and recommendations are sound. Treasury’s disagreements involve two areas of weaknesses we identified and reported on as part of our fiscal year 2003 audit and are discussed in this report (1) Statement of Changes in Cash Balance from Unified Budget and Other Activities, and (2) Treasury’s allocation methodology for certain costs in the Statement of Net Cost. In addition, Treasury disagreed with certain matters involving three areas we identified and reported on as part of our fiscal year 2002 audit (1) unreconciled transactions affecting the change in net position, (2) Reconciliation of Net Operating Cost and Unified Budget Surplus/Deficit, and (3) management representation letters. We will address each of Treasury’s points relating to these five areas, beginning with the two related to this report. Treasury expressed disagreement with certain issues we identified with the Statement of Changes in Cash Balance. Treasury disagreed with our position that it should determine and address the effects on the accuracy of the CFS of differences between net outlays the federal agencies report in their individual audited SBRs and Treasury’s net outlay records used to prepare the Statement of Changes in Cash Balance. As stated in this report, OMB and GAAP require federal agencies to report net outlays in their SBRs. The Statement of Changes in Cash Balance also reports actual unified budget outlays. Both are intended to represent the same amount and be consistent with the information in the budget of the U.S. government. We found material differences between these amounts for selected federal agencies for fiscal year 2003. Until these types of significant differences are reconciled, the effect on the CFS will be unknown. OMB has stated that it has begun working with the federal agencies to address this issue and we continue to believe that Treasury, in coordination with OMB, should work with the federal agencies on this matter as well. Treasury also stated that it believes it is not required to report both budget receipts and budget outlays in the Statement of Changes in Cash Balance but only the budget deficit or surplus, as required by SFFAS No. 24. We understand that SFFAS No. 24 calls for a financial statement that explains how the annual budget surplus or deficit relates to the change in the government’s cash, and does not prescribe the individual reporting of budget receipts and outlays. However, the budget deficit or surplus is the simple calculation of netting the budget receipt and outlay amounts. Also, Treasury does not maintain “budget deficit or surplus” records; rather Treasury maintains separate budget receipt and outlay records and relies on these records to calculate the budget deficit or surplus. As such, regardless of whether Treasury continues to separately report budget receipts and budget outlays or elects to only report the budget deficit or surplus, Treasury and OMB will still need to determine the effects of the types of net outlay differences described above on the CFS. While Treasury agreed that the illustrative statement for the Statement of Changes in Cash Balance provided in SFFAS No. 24 shows total cash and the gross amounts for receipts and disbursements of cash related to direct loans and loan guarantees, it stated that presentation of this amount of detail is not required. As such, Treasury states that, at this time, it will not report the gross amounts for receipts and disbursements of cash related to direct loans and loan guarantees as we recommend. As stated in this report, we recognize that the illustrative statement is not prescriptive. However, we also note that the gross reporting is consistent with the reporting encouraged in Financial Accounting Standards Board Statement No. 95, Statement of Cash Flows. We also stated in this report that net reporting of direct and guaranteed loan program activity does not disclose how much cash the government disbursed to promote the nation’s welfare by making these loans available to the general population or how much in related repayments the government received. Therefore, we continue to believe that gross reporting of this information is more meaningful and useful to a reader of the CFS. In its comments on a draft of this report, Treasury implied that we disagreed with Treasury for amending its methodology for allocating OPM costs in the Statement of Net Cost to reflect a new law mandating fully funded pension cost recognition at the U.S. Postal Service (USPS). We did not take issue with Treasury modifying its methodology for the change, but rather that Treasury had not updated its written procedures to reflect the modification and had made errors in applying the methodology. Specifically, as stated in our report, we found that Treasury did not update its methodology in its written procedures for allocating OPM costs to reflect the change caused by the USPS pension cost recognition and DHS’ partial year existence. Our review found that Treasury did modify its methodology for allocating OPM costs based on the changes caused by USPS; however, it was not documented in its standard operating procedures and the spreadsheet used to apply the methodology had several significant errors—none of which were identified by Treasury. One significant error was that the FTEs used by Treasury for some agencies did not agree with the respective agencies’ FTEs in the Analytical Perspectives, Budget of the United States Government as prescribed by Treasury’s methodology. As such, we continue to recommend that Treasury (1) ensure that, if FTEs are used as part of Treasury’s methodology for allocating OPM costs, the FTEs used for the agencies listed on the Statement of Net Cost agree with the FTEs listed in the Analytical Perspectives, Budget of the United States Government as currently stated in Treasury’s methodology; (2) document any changes to the stated methodology for allocating OPM costs and the rationale for these changes; and (3) require reviews by Treasury management of the accuracy of the allocated OPM costs. Treasury stated that it agreed that reconciling net position is a problem and that eliminations of intragovernmental activity and balances are not performed through balanced accounting entries but expressed concern that we are over emphasizing the elimination process. Treasury also stated that it agrees that increasing the granularity of the eliminations will help Treasury focus on where the problem exists as we reported as part of our fiscal year 2002 audit. We are not unduly emphasizing the elimination process. Our focus is on Treasury to identify and quantify all components of the activity in the net position line item and reconcile the change in the U.S. government’s net position from year to year. During our fiscal year 2002 audit, we recommended that Treasury develop reconciliation procedures that will aid in understanding and controlling the net position balance, including the need to understand the components, including intragovernmental transactions, that are presently causing the net unreconciled transactions. These actions would allow the use of balanced accounting entries to account for the change in net position rather than simple subtraction of liabilities from assets and should narrow the amount of unexplained differences that comprise the net unreconciled transactions. Treasury added that it has a new process that will involve (1) use of reciprocal categories in performing eliminations and (2) a net position tracking methodology that will identify both the nature and source of the unreconciled transactions “plug” by financial area and by agency. We will evaluate this new process as part of the fiscal year 2004 audit. Treasury stated that it does not agree with the recommendation in our report on the fiscal year 2002 audit that Treasury report “net unreconciled transactions” included in the net operating results line item as a separate reconciling activity in the Reconciliation Statement because it does not know whether it belongs in the statement. The Reconciliation Statement begins with the net operating cost amount reported in the Statement of Operations and Changes in Net Position. The fiscal year 2003 amount includes a net $24.5 billion labeled as “unreconciled transactions,” which was needed to balance the consolidated financial statements. The Reconciliation Statement ends with the budget deficit amount, and is intended to show key reconciling items between the two amounts. For fiscal year 2003, Treasury included this $24.5 billion net unreconciled transactions balance as part of the net operating cost, which indicated that this amount is attributable to fiscal year 2003 activity. We maintain that the $24.5 billion should have been included as a reconciling item in the Reconciliation Statement because the fiscal year 2003 budget deficit, the amount being reconciled to, did not include this $24.5 billion amount. While Treasury agreed that it could always improve its Reconciliation Statement, Treasury stated that it took exception to our finding that the amounts identified as changes in the balance sheet items are incorrect. We did not report such a finding. Instead, as part of the fiscal year 2002 audit, we reported that Treasury’s process for preparing the Reconciliation Statement did not ensure completeness of reporting or ascertain the consistency of all the amounts reported in the Reconciliation Statement with the related balance sheet line items, related notes, or federal agencies’ financial statements. We stated that we performed an analysis to determine whether all applicable components reported in the other statements (and related note disclosures) included in the CFS were properly reflected in the Reconciliation Statement. For the fiscal year 2002 audit, we found about $21 billion of net changes in various line item account balances on the balance sheet between fiscal year 2002 and 2001 that were not explained on either the Reconciliation Statement or the Statement of Changes in Cash Balance. For example, the Reconciliation Statement reported annual depreciation expense ($20.5 billion) and total capitalized fixed assets ($40.9 billion) as the components of the net change in property, plant, and equipment from fiscal year 2001. Although these activities accounted for a net increase of $20.4 billion, the balance sheet reflected a smaller net increase, $18 billion; Treasury was unable to explain the remaining $2.4 billion of the net change. Treasury stated that our preference for more detail flow information in the statements is not something that it plans to do. We did not state this as a preference. Instead, as part of our fiscal year 2002 audit, we reported that Treasury did not establish a reporting materiality threshold for purposes of collecting and reporting information in the Reconciliation Statement. For example, some items were reported simply as a net “increase/decrease” without considering how material, both quantitatively and qualitatively, the gross changes were. Treasury was unable to demonstrate whether material, informative amounts were netted, and pertinent information may therefore not be disclosed. Treasury disagreed with several of the statements related to management representation letters that we made in our report on the fiscal year 2002 audit. Based on Treasury’s comments, it appears that it misunderstood our primary point which is that without performing an adequate review and analysis of federal agencies’ management representation letters, Treasury and OMB management may not be fully informed of matters that may affect their representations made with respect to the audit of the CFS. For each agency financial statement audit, generally accepted government auditing standards require that agency auditors obtain written representations from agency management as part of the audit. In turn, Treasury and OMB are to receive all the required management representation letters and the related summaries of unadjusted misstatements from the federal agencies. This is important because generally accepted government auditing standards require Treasury and OMB to provide us, as their auditor, a management representation letter for the CFS. To prepare their representations on the CFS, Treasury and OMB rely on the information within agencies’ management representation letters. However, we found that Treasury and OMB did not have policies or procedures to adequately review and analyze federal agencies’ management representation letters. This report contains recommendations to you. The head of a federal agency is required by 31 U.S.C. 720 to submit a written statement on actions taken on these recommendations. You should submit your statement to the Senate Committee on Governmental Affairs and the House Committee on Government Reform within 60 days of the date of this report. A written statement must also be sent to the House and Senate Committees on Appropriations with the agency’s first request for appropriations made more than 60 days after the date of the report. We are sending copies of this report to the Chairmen and Ranking Minority Members of the Senate Committee on Governmental Affairs; the Subcommittee on Financial Management, the Budget, and International Security, Senate Committee on Governmental Affairs; the House Committee on Government Reform; and the Subcommittee on Government Efficiency and Financial Management, House Committee on Government Reform. In addition, we are sending copies to the Fiscal Assistant Secretary of the Treasury and the Controller of OMB. Copies will be made available to others upon request. This report is also available at no charge on GAO’s Web site at www.gao.gov. We acknowledge and appreciate the cooperation and assistance provided by Treasury and OMB during our audit. If you or your staff have any questions or wish to discuss this report, please contact Jeffrey C. Steinhoff, Managing Director, Financial Management and Assurance, on (202) 512- 2600 or Gary T. Engel, Director, Financial Management and Assurance, on (202) 512-3406. U.S. generally accepted accounting principles (GAAP) require the 11 disclosures described below to be included in the consolidated financial statements (CFS) or, if they are excluded, that the specific rationale for their exclusion be documented. However, the Department of the Treasury (Treasury) neither included nor documented the exclusion of these disclosures. The note disclosure for federal employee and veteran benefits payable departed from the following disclosure requirements of Statements of Federal Financial Accounting Standards (SFFAS) No. 5, Accounting for Liabilities of the Federal Government. SFFAS No. 5, paragraph 65, states that actuarial assumptions should be on the basis of the actual experience of the covered group, to the extent that credible experience data are available, but should emphasize expected long-term future trends rather than give undue weight to recent experience. However, the fiscal year 2003 military rates of inflation and projected salary increases included in the CFS were the actual fiscal year 2003 rates disclosed in the Department of Defense’s audited financial statements rather than the long-term rates. For other retirement benefits, SFFAS No. 5, paragraph 83, states that the entity should disclose the assumptions used. However, assumptions were not shown for the liability for veterans’ compensation and burial benefits. According to SFFAS No. 5, paragraph 72, the entity should report a pension expense for the net of the following components: normal costs; interest on the pension liability during the period; prior (and past) service cost from plan amendments (or the initiation of a new plan) during the period, if any; and actuarial gains and losses during the period, if any. The individual components should be disclosed. However, the CFS did not disclose prior service costs from plan amendments as a separate component. According to SFFAS No. 5, paragraph 88, the entity should report an other retirement benefits expense for the net of the following components: normal cost; interest on the other retirement benefits liability during the period; prior (and past) service costs from plan amendments (or the initiation of a new plan) during the period, if any; any gains or losses due to a change in the medical inflation rate assumption; and other actuarial gains or losses during the period, if any. The individual components should be disclosed. However, the CFS did not disclose any gains or losses due to a change in the medical inflation rate assumption for health benefits as a separate component. The CFS note disclosure for environmental and disposal liabilities departed from the requirements of paragraphs 108, 109, and 111 of SFFAS No. 6, Accounting for Property, Plant, and Equipment, in the following ways: The CFS does not disclose the method for assigning estimated total cleanup costs to current operating periods (i.e., physical capacity versus passage of time). For cleanup costs associated with general property, plant, and equipment (PP&E), the CFS does not disclose the unrecognized portion of estimated total cleanup costs. The CFS does not describe the nature of estimates and the disclosure of information regarding possible changes to the estimates resulting from inflation, deflation, technology, or applicable laws and regulations. In addition, Treasury should consider whether the reader would be interested in understanding why the environmental and disposal liabilities amount significantly changed during the year and include the explanation for the change in the note disclosure. The information in stewardship information for research and development departed from the disclosure requirements of SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 99, in the following ways: Information on the program outcomes (i.e., program outcome data or output data) for the investments in research and development are not properly reported. Outcome data are expected to consist typically of a narrative discussion of the major results achieved by the program along the lines of basic research, applied research, and development—as defined in the standard. If outcome data are not available (for example, the agency has not agreed on outcome measures for the program, the agency is unable to collect reliable outcome data, or the outcomes will not occur for several years), the outputs that best provide indications of the intended program outcomes shall be used to justify continued treatment of expenses as investments until outcome data are available. The CFS does not include a narrative description of the major results achieved through the investments in basic research, applied research, and development. The required supplemental information for deferred maintenance departed from the disclosure requirements of SFFAS No. 6, Accounting for Property, Plant, and Equipment, paragraph 83, by not disclosing the identification of each major class of asset (i.e., building and structures, furniture and fixtures, equipment, vehicles, and land) for which maintenance has been deferred. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in connection with Treasury's current compilation process and the development of Treasury's new compilation system and process, to segregate the duties of individuals who have the capability to enter, change, and delete data within the Federal Agencies' Centralized Trial Balance System and the Hyperion database and post adjustments to the consolidated financial statements (CFS). Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in connection with Treasury's current compilation process and the development of Treasury's new compilation system and process, to develop and fully document policies and procedures for the CFS preparation process so that they are proper, complete, and consistently applied by staff members. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in connection with Treasury's current compilation process and the development of Treasury's new compilation system and process, to require and document reviews by management of all procedures that result in data changes to the CFS. Closed. Management reviews were implemented in fiscal year 2003 under the current compilation environment. GAO will review management reviews in the new compilation environment. As Treasury is designing its new financial statement compilation process to begin with the fiscal year 2004 CFS, the Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of the Office of Management and Budget (OMB), to develop reconciliation procedures that will aid in understanding and controlling the net position balance as well as eliminate the plugs previously associated with compiling the CFS. Open. As Treasury is designing its new financial statement compilation process to begin with the fiscal year 2004 CFS, the Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to use balanced accounting entries to account for the change in net position rather than simple subtraction of liabilities from assets. Open. As OMB continues to make strides to address issues related to intragovernmental transactions, the Director of OMB should direct the Controller of OMB to develop policies and procedures that document how OMB will enforce the business rules provided in OMB Memorandum M-03-01, Business Rules for Intragovernmental Transactions. Open. As OMB continues to make strides to address issues related to intragovernmental transactions, the Director of OMB should direct the Controller of OMB to require that significant differences noted between business partners be resolved and the resolution be documented. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to implement the plan to require federal agencies to report in Treasury's new closing package, beginning with fiscal year 2004, intragovernmental activity and balances by trading partner and to indicate amounts that have not been reconciled with trading partners and amounts, if any, that are in dispute. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to design procedures that will account for the difference in intragovernmental assets and liabilities throughout the compilation process by means of formal consolidating and elimination accounting entries. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to develop solutions for intragovernmental activity and balance issues relating to federal agencies' accounting, reconciling, and reporting in areas other than those OMB now requires be reconciled, primarily areas relating to appropriations. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to reconcile the change in intragovernmental assets and liabilities for the fiscal year, including the amount and nature of all changes in intragovernmental assets or liabilities not attributable to cost and revenue activity recognized during the fiscal year. Examples of these differences would include capitalized purchases, such as inventory or equipment, and deferred revenue. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary to develop and implement a process that adequately identifies and reports items needed to reconcile net operating cost and unified budget surplus (or deficit). Treasury should report "net unreconciled differences" included in the net operating results line item as a separate reconciling activity in the reconciliation statement. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary to develop and implement a process that adequately identifies and reports items needed to reconcile net operating cost and unified budget surplus (or deficit). Treasury should develop policies and procedures to ensure completeness of reporting and document how all the applicable components reported in the other consolidated financial statements (and related note disclosures included in the CFS) were properly reflected in the reconciliation statement. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary to develop and implement a process that adequately identifies and reports items needed to reconcile net operating cost and unified budget surplus (or deficit). Treasury should establish reporting materiality thresholds for determining which agency financial statement activities to collect and report at the governmentwide level to assist in ensuring that the reconciliation statement is useful and conveys meaningful information. Open. If Treasury chooses to continue using information from both federal agencies' financial statements and the Central Accounting and Reporting System (STAR), Treasury should demonstrate how the amounts from STAR reconcile to federal agencies' financial statements. Open. If Treasury chooses to continue using information from both federal agencies' financial statements and from STAR, Treasury should identify and document the cause of any significant differences, if any are noted. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to develop and implement a process to ensure that the Statement of Changes in Cash Balance from Unified Budget and Other Activities properly reflects the activities reported in federal agencies' audited financial statements. Treasury should document the consistency of the significant line items on this statement to agencies' audited financial statements. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to develop and implement a process to ensure that the Statement of Changes in Cash Balance from Unified Budget and Other Activities properly reflects the activities reported in federal agencies' audited financial statements. Treasury should request, through its closing package, that federal agencies provide the net outlays reported in their Combined Statement of Budgetary Resources and explanations for any significant differences between net outlay amounts reported in the Combined Statement of Budgetary Resources and the budget of the U.S. government. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to develop and implement a process to ensure that the Statement of Changes in Cash Balance from Unified Budget and Other Activities properly reflects the activities reported in federal agencies' audited financial statements. Treasury should investigate the differences between net outlays reported in federal agencies' Combined Statement of Budgetary Resources and Treasury's records in STAR to ensure that the proper amounts are reported in the Statement of Changes in Cash Balance from Unified Budget and Other Activities. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to develop and implement a process to ensure that the Statement of Changes in Cash Balance from Unified Budget and Other Activities properly reflects the activities reported in federal agencies' audited financial statements. Treasury should explain and document the differences between the operating revenue amount reported on the Statement of Operations and Changes in Net Position and unified budget receipts reported on the Statement of Changes in Cash Balance from Unified Budget and Other Activities. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to develop and implement a process to ensure that the Statement of Changes in Cash Balance from Unified Budget and Other Activities properly reflects the activities reported in federal agencies' audited financial statements. Treasury should provide support for how the line items in the "other activities" section of this statement relate to either the underlying Balance Sheet or related notes accompanying the CFS. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to perform an assessment to define the reporting entity, including its specific components, in conformity with the criteria issued by the Federal Accounting Standards Advisory Board. Key decisions made in this assessment should be documented, including the reason for including or excluding components and the basis for concluding on any issue. Particular emphasis should be placed on demonstrating that any financial information that should be included, but is not included, is immaterial. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to provide in the financial statements all the financial information relevant to the defined reporting entity, in all material respects. Such information would include, for example, the reporting entity's assets, liabilities, and revenues. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to disclose in the financial statements all information that is necessary to inform users adequately about the reporting entity. Such disclosures should clearly describe the reporting entity and explain the reason for excluding any components that are not included in the defined reporting entity. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary to establish a formal process that will allow the financial statements, related notes, and stewardship and supplemental information in the CFS to be presented in conformity with U.S. generally accepted accounting principles (GAAP). The process should timely identify GAAP requirements. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary to establish a formal process that will allow the financial statements, related notes, and stewardship and supplemental information in the CFS to be presented in conformity with GAAP. The process should make timely modifications to Treasury's closing package requirements to obtain information needed. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary to establish a formal process that will allow the financial statements, related notes, and stewardship and supplemental information in the CFS to be presented in conformity with GAAP. The process should assess, qualitatively and quantitatively, the impact of the omitted disclosures. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary to establish a formal process that will allow the financial statements, related notes, and stewardship and supplemental information in the CFS to be presented in conformity with GAAP. The process should document decisions reached and the rationale for such decisions. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures for preparing the governmentwide management representation letter to help ensure that it is properly prepared and contains sufficient representations. Specifically, these policies and procedures should require an analysis of the agency management representations to determine if discrepancies exist between what the agency auditor reported and the representations made by the agency, including the resolution of such discrepancies. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures for preparing the governmentwide management representation letter to help ensure that it is properly prepared and contains sufficient representations. Specifically, these policies and procedures should require a determination that the agency management representation letters have been signed by the highest-level agency officials who are responsible for and knowledgeable about the matters included in the agency management representation letters. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures for preparing the governmentwide management representation letter to help ensure that it is properly prepared and contains sufficient representations. Specifically, these policies and procedures should require an assessment of the materiality thresholds used by federal agencies in their respective management representation letters. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures for preparing the governmentwide management representation letter to help ensure that it is properly prepared and contains sufficient representations. Specifically, these policies and procedures should require an assessment of the impact, if any, of federal agencies' materiality thresholds on the management representations made at the governmentwide level. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures for preparing the governmentwide management representation letter to help ensure that it is properly prepared and contains sufficient representations. Specifically, these policies and procedures should require an evaluation and assessment of the omission of representations ordinarily included in agency management representation letters. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures for preparing the governmentwide management representation letter to help ensure that it is properly prepared and contains sufficient representations. Specifically, these policies and procedures should require an analysis and aggregation of the agencies' summary of unadjusted misstatements to determine the completeness of the summaries and to ascertain the materiality, both individually and in the aggregate, of such unadjusted misstatements to the CFS taken as a whole. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to help ensure that agencies provide adequate information in their legal representation letters regarding the expected outcome of the cases. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to help ensure that agencies provide related management schedules. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures to help ensure that major treaty and other international agreement information is properly identified and reported in the CFS. Specifically, these policies and procedures should require that agencies develop a detailed schedule of all major treaties and other international agreements that obligate the U.S. government to provide cash, goods, or services, or that create other financial arrangements that are contingent on the occurrence or nonoccurrence of future events (a starting point for compiling these data could be the State Department's Treaties in Force). Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures to help ensure that major treaty and other international agreement information is properly identified and reported in the CFS. Specifically, these policies and procedures should require that agencies classify all such scheduled major treaties and other international agreements as commitments or contingencies. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures to help ensure that major treaty and other international agreement information is properly identified and reported in the CFS. Specifically, these policies and procedures should require that agencies disclose in the notes to the CFS amounts for major treaties and other international agreements that have a reasonably possible chance of resulting in a loss or claim as a contingency. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures to help ensure that major treaty and other international agreement information is properly identified and reported in the CFS. Specifically, these policies and procedures should require that agencies disclose in the notes to the CFS amounts for major treaties and other international agreements that are classified as commitments and that may require measurable future financial obligations. Open. The Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to establish written policies and procedures to help ensure that major treaty and other international agreement information is properly identified and reported in the CFS. Specifically, these policies and procedures should require that agencies take steps to prevent major treaties and other international agreements that are classified as remote from being recorded or disclosed as probable or reasonably possible in the CFS. Open. As Treasury is designing its new compilation process, which it expects to implement beginning with the fiscal year 2004 CFS, the Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to design the new compilation process to directly link information from federal agencies' audited financial statements to amounts reported in all the applicable CFS and related footnotes. Open. As Treasury is designing its new compilation process, which it expects to implement beginning with the fiscal year 2004 CFS, the Secretary of the Treasury should direct the Fiscal Assistant Secretary, in coordination with the Controller of OMB, to consider the other applicable recommendations in this report when designing and implementing the new compilation process. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of Statement of Federal Financial Accounting Standards (SFFAS) No. 3, Accounting for Inventory and Related Property, paragraph 91, which requires the reporting entity to disclose the valuation basis for foreclosed property. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 91, which requires the reporting entity to disclose the changes from the prior year's accounting methods, if any. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 91, which requires the reporting entity to disclose the restrictions on the use/disposal of property. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 91, which requires the reporting entity to disclose the balances by categories (i.e., pre-1992 and post-1991 foreclosed property). Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 91, which requires the reporting entity to disclose the number of properties held and average holding period by type or category. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 91, which requires the reporting entity to disclose the number of properties for which foreclosure proceedings are in process at the end of the period for foreclosed assets acquired in full or partial settlement of a direct or guaranteed loan. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 18, Amendments to Accounting Standards for Direct Loans and Loan Guarantees, paragraph 9, which requires credit programs to reestimate the subsidy cost allowance for outstanding direct loans and the liability for outstanding loan guarantees. There are two kinds of reestimates: (1) interest rate reestimates and (2) technical/default reestimates. Entities should measure and disclose each program's reestimates in these two components separately. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 18, Amendments to Accounting Standards for Direct Loans and Loan Guarantees, paragraph 10, which requires the reporting entity to display in the notes to the financial statements a reconciliation between the beginning and ending balances of the subsidy cost allowance for outstanding direct loans and the liability for outstanding loan guarantees reported on the entity's balance sheet. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 18, Amendments to Accounting Standards for Direct Loans and Loan Guarantees, paragraph 11, which requires disclosure of the total amount of direct or guaranteed loans disbursed for the current reporting year and the preceding reporting year. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 18, Amendments to Accounting Standards for Direct Loans and Loan Guarantees, paragraph 11, which requires disclosure of the subsidy expense by components, recognized for the direct or guaranteed loans disbursed in the current reporting year and the preceding reporting year. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 18, Amendments to Accounting Standards for Direct Loans and Loan Guarantees, paragraph 11, which requires disclosure of the subsidy reestimates by components for the current reporting year and the preceding reporting year. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 18, Amendments to Accounting Standards for Direct Loans and Loan Guarantees, paragraph 11, which requires disclosure, at the program level, of the subsidy rates for the total subsidy cost and its components for the interest subsidy costs, default costs (net of recoveries), fees and other collections, and other costs estimated for direct loans and loan guarantees in the current year's budget for the current year's cohorts. Open. The note disclosure for loans receivable and loan guarantee liabilities should meet the requirements of SFFAS No. 18, Amendments to Accounting Standards for Direct Loans and Loan Guarantees, paragraph 11, which requires the reporting entity to disclose, discuss, and explain events and changes in economic conditions, other risk factors, legislation, credit policies, and subsidy estimation methodologies and assumptions that have had a significant and measurable effect on subsidy rates, subsidy expense, and subsidy reestimates. Open. The note disclosure for inventories and operating materials and supplies should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 30, which requires the difference between the carrying amount and the expected net realizable value to be recognized as a loss or gain and either separately reported or disclosed when inventory or operating materials and supplies are declared excess, obsolete, or unserviceable. Open. The note disclosure for inventories and operating materials and supplies should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraphs 35 and 50, that require disclosure of inventory and operating materials and supplies general composition. Open. The note disclosure for inventories and operating materials and supplies should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraphs 35 and 50, that require disclosure of any changes from the prior year in accounting methods for inventory and operating materials and supplies. Open. The note disclosure for inventories and operating materials and supplies should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraphs 35 and 50, which require the disclosure of any restrictions on the sale of inventory and the use of operating materials and supplies. Open. The note disclosure for inventories and operating materials and supplies should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraphs 35 and 50, which require disclosure of any changes in the criteria for categorizing inventory and operating materials and supplies. Open. The note disclosure for stockpile material should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 56, which requires disclosure of the basis for valuing stockpile material, including valuation method and any cost flow assumptions. Open. The note disclosure for stockpile material should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 56, which requires disclosure of any changes from the prior year's accounting methods. Open. The note disclosure for stockpile material should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 56, which requires disclosure of restrictions on the use of stockpile material. Open. The note disclosure for stockpile material should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 56, which requires disclosure of the balances in each category of stockpile material (i.e., stockpile material held and held for sale). Open. The note disclosure for stockpile material should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 56, which requires disclosure of the criteria for grouping stockpile material held for sale. Open. The note disclosure for stockpile material should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 56, which requires disclosure of changes in criteria for categorizing stockpile material held for sale. Open. The note disclosure for stockpile material should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 55, which requires disclosure of any difference between the carrying amount (i.e., purchase price or cost) of stockpile material held for sale and the estimated selling price of such assets. Open. The note disclosure for seized material should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 66, which requires disclosure of the valuation method. Open. The note disclosure for seized material should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 66, which requires disclosure of any changes from the prior year's accounting methods. Open. The note disclosure for seized material should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 66, which requires disclosure of the analysis of change in seized property (including dollar value and number of seized properties) that are on hand at the beginning of the year, seized during the year, disposed of during the year, and on hand at the end of the year, as well as known liens or other claims against the property. This information should be presented by type of seizure and method of disposition, when material. Open. The note disclosure for forfeited property should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 78, which requires disclosure of the valuation method. Open. The note disclosure for forfeited property should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 78, which requires disclosure of the analysis of the changes in forfeited property by type and dollar amount that includes (1) number of forfeitures on hand at the beginning of the year, (2) additions, (3) disposals and method of disposition, and (4) end-of-year-balances. Open. The note disclosure for forfeited property should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 78, which requires disclosure of any restriction on the use or disposition of the property. Open. The note disclosure for forfeited property should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 78, which requires disclosure, if available, of an estimate of the value of property to be distributed to other federal, state, and local agencies in future reporting periods. Open. The note disclosure for goods held under price support and stabilization programs should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 98, which requires that if a contingent loss is not recognized because it is less than probable or it is not reasonably measurable, disclosure of the contingency shall be made if it is at least reasonably possible that a loss may occur. Open. The note disclosure for goods held under price support and stabilization programs should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 109, which requires disclosure of the basis for valuing commodities, including valuation method and cost flow assumptions. Open. The note disclosure for goods held under price support and stabilization programs should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 109, which requires disclosure of any changes from the prior year's accounting methods. Open. The note disclosure for goods held under price support and stabilization programs should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 109, which requires disclosure of any restrictions on the use, disposal, or sale of commodities. Open. The note disclosure for goods held under price support and stabilization programs should meet the requirements of SFFAS No. 3, Accounting for Inventory and Related Property, paragraph 109, which requires disclosure of the analysis of the change in dollar amount and volume of commodities, including those (1) on hand at the beginning of the year, (2) acquired during the year, (3) disposed of during the year listed by method of disposition, (4) on hand at the end of the year, (5) on hand at year-end and estimated to be donated or transferred during the coming period, and (6) received as a result of surrender of collateral related to nonrecourse loans outstanding. The analysis should also show the dollar value and volume of purchase agreement commitments. Open. The note disclosure for property, plant, and equipment (PP&E) should meet the disclosure requirements of SFFAS No. 6, Accounting for Property, Plant, and Equipment, paragraph 45, which requires disclosure of the estimated useful lives for each major class of PP&E. Open. The note disclosure for PP&E should meet the disclosure requirements of SFFAS No. 6, Accounting for Property, Plant, and Equipment, paragraph 45, which requires disclosure of capitalization thresholds, including any changes in thresholds during the period. Open. Open. The note disclosure for PP&E should meet the disclosure requirements of SFFAS No. 10, Accounting for Internal Use Software, paragraph 35, which requires disclosure of the cost, associated amortization, and book value of internal use software. Closed. Fiscal year 2003 CFS footnote for PP&E disclosed the cost, associated amortization, and book value of internal use software. The note disclosure for PP&E should meet the disclosure requirements of SFFAS No. 10, Accounting for Internal Use Software, paragraph 35, which requires disclosure of the estimated useful life for each major class of software for internal use software. Open. The note disclosure for PP&E should meet the disclosure requirements of SFFAS No. 10, Accounting for Internal Use Software, paragraph 35, which requires disclosure of the method of amortization for internal use software. Open. The note disclosure for PP&E should meet the disclosure requirements of SFFAS No. 16, Amendments to Accounting for Property, Plant, and Equipment, paragraph 9, which requires an appropriate PP&E note disclosure to explain that "physical quantity" information for the multiuse heritage assets is included in supplemental stewardship reporting for heritage assets. Open. The note disclosure for federal employee and veteran benefits payable should be completely and properly reported, specifically, that (1) it include a line for the valuation of plan amendments that occurred during the year and (2) the liability for military pensions and note disclosure related to the "change in actuarial accrued pension liability and components of related expenses" agree with the information presented in the Department of Defense's financial statements. Open. The note disclosure for environmental and disposal liabilities should meet the requirements of SFFAS No. 6, Accounting for Property, Plant, and Equipment, that require (1) estimation and recognition of cleanup costs associated with general PP&E at the time the PP&E is placed in service and (2) recognition of a liability for the portion of the estimated total cleanup cost attributable to that portion of the physical capacity used or that portion of the estimated useful life that has passed since the general PP&E was placed in service. Open. The note disclosure for environmental and disposal liabilities should meet the requirements of SFFAS No. 6, Accounting for Property, Plant, and Equipment, that require inclusion of material changes in total estimated cleanup costs due to changes in laws, technology, or plans. Open. The note disclosure for capital leases should meet the requirements of Federal Accounting Standards Board (FASB), Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases, paragraph 16, which requires future minimum lease payments as of the date of the latest balance sheet presented, in the aggregate and for each of the 5 succeeding fiscal years, with separate deductions from the total for the amount representing executory costs, including any profit thereon, included in the minimum lease payments, and for the amount of the imputed interest necessary to reduce the net minimum lease payments to present value. Open. The note disclosure for capital leases should meet the requirements of FASB, SFAS No. 13, Accounting for Leases, paragraph 16, which requires a summary of assets under capital lease by major asset category and the related total accumulated amortization. Open. The note disclosure for capital leases should meet the requirements of FASB, SFAS No. 13, Accounting for Leases, paragraph 16, which requires a general description of the lessee's leasing arrangements, including but not limited to (1) the basis on which contingent rental payments are determined, (2) the existence and terms of renewal or purchase options and escalation clauses, and (3) restrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing. Open. The note disclosure for life insurance liabilities should meet the requirements of SFFAS No. 5, Accounting for Liabilities of the Federal Government, paragraph 117, which requires all federal reporting entities with whole life insurance programs to follow applicable standards as prescribed in the private sector standards when reporting the liability for future policy benefits: FASB SFAS No. 60, Accounting and Reporting by Insurance Enterprises; SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments; and SFAS No. 120, Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration Participating Contracts; and American Institute of Certified Public Accountants Statement of Position 95-1, Accounting for Certain Insurance Activities of Mutual Life Insurance Enterprises. Open. The note disclosure for life insurance liabilities should meet the requirements of SFFAS No. 5, Accounting for Liabilities of the Federal Government, paragraph 5, which requires all components of the liability for future policy benefits (i.e., the net-level premium reserve for death and endowment policies and the liability for terminal dividends) to be separately disclosed in a footnote with a description of each amount and an explanation of its projected use and any other potential uses (e.g., reducing premiums, determining and declaring dividends available, and reducing federal support in the form of appropriations related to administrative cost or subsidies). Open. The note disclosure on major commitments and contingencies be consistent with disclosed information in individual agencies' financial statements. Open. The note disclosure on major commitments and contingencies disclose sufficient information (detailed discussion) regarding certain major commitments and contingencies. Open. The note disclosure for collections and refunds of federal revenue should meet the requirements of SFFAS No. 7, Concepts for Reconciling Budgetary and Financial Accounting, paragraph 64, which requires, among other things, that collecting entities disclose the basis of accounting when the application of the general rule results in a modified cash basis of accounting. Closed. The fiscal year 2003 CFS footnote for collections and refunds of federal revenue reflects that such information is accounted for using a modified cash basis of accounting. The note disclosure for collections and refunds of federal revenue should meet the requirements of SFFAS No. 7, Concepts for Reconciling Budgetary and Financial Accounting, paragraph 69.2, which requires collecting entities to provide in the other accompanying information any relevant estimates of the annual tax gap that become available as a result of federal government surveys or studies. Open. The note disclosure for dedicated collections should meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue and Other Financing Sources, paragraph 85, which requires inclusion of condensed information about assets and liabilities showing investments in Treasury securities, other assets, liabilities due and payable to beneficiaries, other liabilities, and fund balance. Open. The note disclosure for dedicated collections should meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue and Other Financing Sources, paragraph 85, which requires inclusion of condensed information on net cost and changes to fund balance, showing revenues by type (exchange/nonexchange), program expenses, other expenses, other financing sources, and other changes in fund balance. Open. The note disclosure for dedicated collections should meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue and Other Financing Sources, paragraph 85, which requires inclusion of any revenues, other financing sources, or costs attributable to the fund under accounting standards but not legally allowable as credits or charges to the fund. Open. The note disclosure for Indian trust funds should meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue and Other Financing Sources, paragraph 85, which requires a description of each fund's purpose, how the administrative entity accounts for and reports the fund, and its authority to use those collections. Open. The note disclosure for Indian trust funds should meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue and Other Financing Sources, paragraph 85, which requires disclosure of the sources of revenue or other financing for the period and an explanation of the extent to which they are inflows of resources to the government or the result of intragovernmental flows. Open. The note disclosure for Indian trust funds should meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue and Other Financing Sources, paragraph 85, which requires condensed information about assets and liabilities showing investments in Treasury securities, other assets, liabilities due and payable to beneficiaries, and other liabilities. Open. The note disclosure for Indian trust funds should meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue and Other Financing Sources, paragraph 85, which requires condensed information on net cost and changes to fund balance, showing revenues by type (exchange/nonexchange), program expenses, other expenses, other financing sources, and other changes in fund balance. Open. The note disclosure for Indian trust funds should meet the requirements of SFFAS No. 7, Part I, Accounting for Revenue and Other Financing Sources, paragraph 85, which requires disclosure of any revenues, other financing sources, or costs attributable to the fund under accounting standards, but not legally allowable as credits or charges to the fund. Open. The note disclosure for social insurance should meet the requirements of SFFAS No. 17, Accounting for Social Insurance, paragraph 31, which requires the program descriptions for Hospital Insurance and Supplementary Medical Insurance and an explanation of trends revealed in Chart 11: Estimated Railroad Retirement Income (Excluding Interest) and Expenditures 2002- 2076. Closed. The fiscal year 2003 social insurance disclosures in the CFS provided the disclosures required in this recommendation. The note disclosure for social insurance should meet the requirements of SFFAS No. 17, Accounting for Social Insurance, paragraph 24, which requires a description of statutory or other material changes, and the implications thereof, affecting the Medicare and Unemployment Insurance programs after the current fiscal year, and the implications thereof. Closed. The fiscal year 2003 social insurance disclosures in the CFS provided the disclosures required in this recommendation. The note disclosure for social insurance should meet the requirements of SFFAS No. 17, Accounting for Social Insurance, paragraph 25, which requires the significant assumptions used in making estimates and projections regarding the Black Lung and Unemployment Insurance programs. Closed. The fiscal year 2003 social insurance disclosures in the CFS provided the disclosures required in this recommendation. The note disclosure for social insurance should meet the requirements of SFFAS No. 17, Accounting for Social Insurance, paragraph 32(1)(b), which requires the total cash inflow from all sources, less net interest on intragovernmental borrowing and lending, and the total cash outflow to be shown in nominal dollars for the Hospital Insurance program. Closed. The fiscal year 2003 social insurance disclosures in the CFS provided the disclosures required in this recommendation. The note disclosure for social insurance should meet the requirements of SFFAS No. 17, Accounting for Social Insurance, paragraph 32(1)(a), which requires the narrative to accompany the cash flow data for Unemployment Insurance. The narrative should include the identification of any year or years during the projection period when cash outflow exceeds cash inflow, without interest, on intragovernmental borrowing or lending, and the presentation should include an explanation of material crossover points, if any, where cash outflow exceeds cash inflow and the possible reasons for this. Closed. The fiscal year 2003 social insurance disclosures in the CFS provided the disclosures required in this recommendation. The note disclosure for social insurance should meet the requirements of SFFAS No. 17, Accounting for Social Insurance, paragraphs 27(3)(h) and 27(3)(j), which require the estimates of the fund balances at the respective valuation dates of the social insurance programs (except Unemployment Insurance) to be included for each of the 4 preceding years. Only 1 year is shown. Closed. The fiscal year 2003 social insurance disclosures in the CFS provided the disclosures required in this recommendation. The note disclosure for social insurance should meet the requirements of SFFAS No. 17, Accounting for Social Insurance, paragraph 32(4), which requires individual program sensitivity analyses for projection period cash flow in present value dollars and annual cash flow in nominal dollars. The CFS includes only present value sensitivity analyses for Social Security and Hospital Insurance. Paragraph 32(4) states that, at a minimum, the summary should present Social Security, Hospital Insurance, and Supplementary Medical Insurance separately. Open. The note disclosure for social insurance should meet the requirements of SFFAS No. 17, Accounting for Social Insurance, paragraph 27(4)(a), which requires the individual program sensitivity analyses for Social Security and Hospital Insurance to include an analysis of assumptions regarding net immigration. Open. The note disclosure for social insurance should meet the requirements of SFFAS No. 17, Accounting for Social Insurance, paragraph 27(4)(a), which requires the individual program sensitivity analysis for Hospital Insurance to include an analysis of death rates. Closed. The fiscal year 2003 social insurance disclosures in the CFS provided the disclosures required in this recommendation. The note disclosure for social insurance should meet the requirements of SFFAS No. 17, Accounting for Social Insurance, by not including financial interchange income (intragovernmental income from Social Security) in the actuarial present value information for the Railroad Retirement Board. Closed. The fiscal year 2003 social insurance disclosures in the CFS provided the disclosures required in this recommendation. The note disclosure for nonfederal physical property included in Stewardship information should meet the requirements of SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 87, which requires disclosure of the annual investment, including a description of federally owned physical property transferred to state and local governments. This information should be provided for the year ended on the balance sheet date as well as for each of the 4 preceding years. If data for additional years would provide a better indication of investment, reporting of the additional years' data is encouraged. Reporting should be at a meaningful category or level. Open. The note disclosure for nonfederal physical property included in stewardship information should meet the requirements of SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 87, which requires a description of major programs involving federal investments in nonfederal physical property, including a description of programs or policies under which noncash assets are transferred to state and local governments. Open. The note disclosure for human capital included in stewardship information should meet the requirements of SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 94, which requires a narrative description and the full cost of the investment in human capital for the year being reported on as well as the preceding 4 years (if full cost data are not available, outlay data can be reported). Open. The note disclosure for human capital included in stewardship information should meet the requirements of SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 94, which requires the full cost or outlay data for investments in human capital at a meaningful category or level (e.g., by major program, agency, or department). Open. The note disclosure for human capital included in stewardship information should meet the requirements of SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 94, which requires a narrative description of major education and training programs considered federal investments in human capital. Open. The note disclosure for research and development included in stewardship information should meet the requirements of SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 94, which requires reporting of the annual investment made in the year ended on the balance sheet date as well as in each of the 4 years preceding that year. (As defined in this standard, "annual investment" includes more than the annual expenditure reported by character class for budget execution. Full cost shall be measured and accounted for in accordance with SFFAS No. 4, Managerial Cost Accounting Standards for the Federal Government.) If data for additional years would provide a better indication of investment, reporting of the additional years' data is encouraged. In those unusual instances when entities have no historical data, only current reporting year data need be reported. Reporting must be at a meaningful category or level, for example, a major program or department. Open. The note disclosure for research and development included in stewardship information should meet the requirements of SFFAS No. 8, Supplementary Stewardship Reporting, paragraph 94, which requires a narrative description of major research and development programs. Open. The note disclosure for deferred maintenance should meet the requirements of SFFAS No. 6, Accounting for Property, Plant, and Equipment, paragraphs 83 and 84, which require inclusion of the method of measuring deferred maintenance for each major class of PP&E. Open. The note disclosure for deferred maintenance should meet the requirements of SFFAS No. 6, Accounting for Property, Plant, and Equipment, paragraphs 83 and 84, which require that if the condition assessment survey method of measuring deferred maintenance is used, the following should be presented for each major class of PP&E: (1) description of requirements or standards for acceptable operating condition, (2) any changes in the condition requirements or standards, and (3) asset condition and a range estimate of the dollar amount of maintenance needed to return the asset to its acceptable operating condition. Open. The note disclosure for deferred maintenance should meet the requirements of SFFAS No. 6, Accounting for Property, Plant, and Equipment, paragraphs 83 and 84, which require that if the total life-cycle cost method is used, the following should be presented for each major class of PP&E: (1) the original date of the maintenance forecast and an explanation for any changes to the forecast, (2) prior year balance of the cumulative deferred maintenance amount, (3) the dollar amount of maintenance that was defined by the professionals who designed, built, or managed the PP&E as required maintenance for the reporting period, (4) the dollar amount of maintenance actually performed during the period, (5) the difference between the forecast and actual maintenance, (6) any adjustments to the scheduled amounts deemed necessary by the managers of the PP&E and (7) the ending cumulative balance for the reporting period for each major class of asset experiencing deferred maintenance. Open. The note disclosure for deferred maintenance should meet the requirements of SFFAS No. 6, Accounting for Property, Plant, and Equipment, paragraphs 83 and 84, which require that if management elects to disclose critical and noncritical amounts, the disclosure is to include management's definition of these categories. Open. The note disclosure for stewardship responsibilities related to the risk assumed for federal insurance and guarantee programs should meet the requirements of SFFAS No. 5, Accounting for Liabilities of the Federal Government, paragraph 106, which requires that when financial information pursuant to FASB standards on federal insurance and guarantee programs conducted by government corporations is incorporated in general purpose financial reports of a larger federal reporting entity, the entity should report as required supplementary information what amounts and periodic change in those amounts would be reported under the "risk assumed" approach. Open. 1. See “Agency Comments and Our Evaluation” section. 2. Treasury provided a detailed reconciliation that purports to show that prior period adjustments accounted for the majority of the differences we identified. The spreadsheet provided an expanded version of the information we had already taken into account in our review of the fiscal year 2003 reconciliation statement. Therefore, our view is unchanged. 3. As we stated last year as part of our fiscal year 2002 audit, we were not calling for Treasury to use federal agencies’ financial statements to prepare the Statement of Changes in Cash Balance. Instead, we recommended that Treasury collect certain information already reported in federal agencies’ audited financial statements and develop procedures that ensure consistency of the significant line items on the Statement of Changes in Cash Balance with the agency-reported information. As we stated in our fiscal year 2002 report, Treasury has expressed the belief that the information it maintains in its system is materially reliable. However, federal agencies also believe their amounts are materially reliable and are supported by unqualified audit opinions on their financial statements. 4. Our example is appropriate. As stated in this report, we found that the total operating cash amount reported in the Statement of Changes in Cash Balance did not link to the underlying agencies’ operating cash reported in their financial statements. Our analysis showed that Treasury reported operating cash in its own financial statements of $51 billion but reported only $35 billion of operating cash in the Statement of Changes in Cash Balance in the CFS. Treasury attributes the difference to time deposits and other cash items which are included in Treasury’s department wide financial statements as components of operating cash, but are reported in the CFS separately from operating cash. In that Treasury is the preparer of the CFS, we see this inconsistency as a relevant example. 5. As part of our audit of the fiscal year 2002 CFS, we found that 2 of the 30 federal agencies’ management representation letters we had reviewed had discrepancies between what the auditor found and what the agency represented in its management representation letter. Treasury needs to be aware of these types of discrepancies and their resolution in order to determine the effects, if any, on the representations made in the management representation letter for the CFS. 6. As part of our audit of the fiscal year 2002 CFS, we found that 8 of the 30 federal agencies’ management representation letters we had reviewed were not signed by the appropriate level of management. Treasury has a responsibility to determine that the agency management representation letters are signed by the highest-level agency officials that are responsible for and knowledgeable about the matters included in the agency management representation letter because Treasury is relying on federal agencies’ representations in the management representations letter for the CFS. 7. As part of our audit of the fiscal year 2002 CFS, we found that 25 of the 30 federal agencies’ management representation letters we had reviewed did not disclose the materiality thresholds used by management in determining items to be included in the letter. Treasury stated that the audit standards do not require these amounts to be included in the management representation letter. While we agree that the standards do not require the materiality amounts to be included, we require Treasury and OMB to include a materiality threshold in the management representation letter for the CFS. Therefore, without assessing the materiality thresholds used by federal agencies in their management representation letters, we are unsure as to how Treasury and OMB can ensure that the representations made to GAO at the governmentwide level are within the materiality thresholds they state in the management representation letter for the CFS. 8. Materiality is one of several tools the auditor uses to determine that the nature, timing, and extent of procedures are appropriate. Materiality is a matter of the auditors’ professional judgment, influenced by the needs of the reasonable person relying on the financial statements, and is not negotiated between the auditors and their clients. The management representation letter findings we reported as part of our fiscal year 2002 audit have also been communicated to agency auditors and we will continue to work with them to resolve these issues. The Government Accountability Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through GAO’s Web site (www.gao.gov). 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For the past 7 years, since the first audit of the consolidated financial statements of the U.S. government (CFS), certain material weaknesses in internal control and financial reporting have resulted in conditions that have prevented GAO from expressing an opinion on the CFS. Specifically, GAO has reported that the federal government did not have adequate systems, controls, and procedures to properly prepare the CFS. In October 2003, GAO reported on weaknesses identified during the fiscal year 2002 audit regarding financial reporting procedures and internal control over the process for preparing the CFS. The purpose of this report is to (1) discuss additional weaknesses identified during the fiscal year 2003 audit, (2) recommend improvements to address those weaknesses, and (3) provide the status of corrective actions to address the 129 open recommendations contained in the October 2003 report. Many of the weaknesses in internal control that have contributed to GAO's continuing disclaimers of opinion on the CFS were identified by agency financial statement auditors during their audits of federal agencies' financial statements and have been reported in detail with recommendations to agencies in separate reports. However, some of the weaknesses GAO reported were identified during GAO's tests of the Department of the Treasury's process for preparing the CFS. Such weaknesses impair the federal government's ability to ensure that the CFS is consistent with the underlying audited agency financial statements, properly balanced, and in conformity with U.S. generally accepted accounting principles. In addition to the compilation and reporting weaknesses that GAO reported in October 2003, GAO found additional weaknesses in the compilation and reporting process in the following seven areas during the fiscal year 2003 CFS audit: (1) allocation methodology for certain costs in the statement of net cost, (2) statement of changes in cash balance from unified budget and other activities, (3) reporting of criminal debt, (4) recording and disclosing contingencies, (5) directly linking audited federal agency financial statements to the CFS, (6) prior period adjustments, and (7) conformity with U.S. generally accepted accounting principles. GAO found that with respect to four required disclosure areas, information was either not included in the CFS or was not presented in conformity with U.S. generally accepted accounting principles. As a result of this and certain other weaknesses GAO identified, GAO was unable to determine if the missing information was material to the CFS. The four disclosure areas were (1) federal employee and veteran benefits payable, (2) environmental and disposal liabilities, (3) research and development, and (4) deferred maintenance. GAO's October 2003 report contained 129 recommendations. Of those recommendations, 118 remained open as of February 20, 2004, the end of GAO's fieldwork for the fiscal year 2003 CFS audit.

You are an expert at summarizing long articles. Proceed to summarize the following text: Pipelines transport roughly two-thirds of domestic energy supplies through approximately 2.5 million miles of pipelines throughout the United States. These pipelines carry hazardous liquids and natural gas from producing wells to end users (residences and businesses). Within this nationwide system, there are three main types of pipelines. Gathering pipelines. Gas gathering pipelines collect natural gas from production areas, while hazardous liquid gathering pipelines collect oil and other petroleum products. These pipelines then typically transport the products to processing facilities, which in turn refine and send the products to transmission pipelines. According to PHMSA officials, traditionally, gathering pipelines range in diameter from about 2 to 12 inches and operate at pressures that range from about 5 to 800 pounds per square inch (psi). These pipelines tend to be located in rural areas but can also be located in urban areas. PHMSA estimates there are 200,000 miles of gas gathering pipelines and 30,000 to 40,000 miles of hazardous liquid gathering pipelines. Transmission pipelines. Transmission pipelines carry hazardous liquid or natural gas, sometimes over hundreds of miles, to communities and large-volume users (e.g., factories). For natural gas transmission pipelines, compression stations located periodically along the pipeline maintain product pressure. Similarly, pumping stations along hazardous liquid transmission pipelines maintain product flow. Transmission pipelines tend to have the largest diameters and pressures of any type of pipeline, generally ranging from 12 inches to 42 inches in diameter and operating at pressures ranging from 400 to 1440 psi. PHMSA has estimated there are more than 400,000 miles of gas and hazardous liquid transmission pipelines. Distribution pipelines. Gas distribution pipelines continue to transport natural gas to residential, commercial, and industrial customers, splitting off from transmission pipelines. These pipelines tend to be smaller, sometimes less than 1 inch in diameter, and operate at lower pressures—0.25 to 100 psi. PHMSA has estimated there are roughly 2 million miles of distribution pipelines, most of which are intrastate pipelines. There are no hazardous liquid distribution pipelines. However, some distribution pipelines can be as large as 24 inches in diameter and operate at higher pressures (i.e., over 350 psi). Part 191 (Gas Reporting), Part 192 (Gas), Part 193 (Liquid Natural Gas), Part 194 (Liquid Facility Response Plans), and Part 195 (Hazardous Liquid) of Title 49 of the Code of Federal Regulations. Most natural gas distribution pipelines would generally be considered to be in high-consequence areas, as defined under the transmission pipelines regulations, since they are typically located in highly populated areas. PHMSA regulates hazardous liquid and natural gas gathering pipelines— using uniform, minimum standards—based on their proximity to populated and environmentally sensitive areas. For natural gas gathering pipelines,PHMSA uses class locations—the same classification system used for natural gas transmission and distribution pipelines. (See table 1.) Under this system, PHMSA generally regulates onshore natural gas gathering pipelines in Class 2, 3, or 4 locations. For hazardous liquid gathering pipelines, PHMSA regulates those pipelines in incorporated and unincorporated cities, towns, and villages; pipeline segments that cross a waterway currently used for commercial navigation; and certain rural gathering pipelines within one-quarter mile of environmentally sensitive areas. This includes high-consequence areas, as defined for the hazardous liquid integrity management program. High-consequence areas can also be in Class 1, 2, 3, or 4 locations, which can entail different reporting requirements. For example, gathering pipeline operators in high-consequence areas that are in Class 1 locations are not required to report data on pipeline-related incidents, including fatality, injury, and property damage information. Under the current regulatory system, PHMSA does not regulate most gathering pipelines in the United States based on their location. For example, out of the more than 200,000 estimated miles of natural gas gathering pipelines, PHMSA regulates roughly 20,000 miles. Similarly, of the 30,000 to 40,000 estimated miles of hazardous liquid gathering pipelines, PHMSA regulates about 4,000 miles. However, according to PHMSA officials, the agency has the authority to collect data on all onshore hazardous liquid and gas gathering pipelines, even though it generally does not regulate gas gathering pipelines in Class 1 locations or hazardous liquid gathering pipelines not located in high-consequence areas. Generally, PHMSA retains full responsibility for inspecting and enforcing regulations on interstate pipelines. However, states may be authorized to conduct inspections for interstate pipelines, as well as inspections and associated enforcement for intrastate pipelines. States can also promulgate regulations for intrastate pipelines, including gathering pipelines. PHMSA has arrangements with 48 states, the District of Columbia, and Puerto Rico to assist with overseeing interstate, intrastate, or both interstate and intrastate pipelines. These arrangements, in which states act as “agents” for PHMSA, can cover hazardous liquid pipelines only, gas pipelines only, or both (see fig. 2). State pipeline safety offices are allowed to issue regulations supplementing or extending federal regulations, but these state regulations must be at least as stringent as the minimum federal regulations. If a state wants to issue regulations that apply to pipelines that PHMSA does not regulate, such as unregulated gathering pipelines, it must do so under its own (state) authority. While gathering pipelines generally pose lower safety risks than other types of pipelines, PHMSA does not collect comprehensive data on safety risks associated with gathering pipelines. In response to GAO’s survey, state pipeline safety agencies cited construction quality, maintenance practices, unknown or uncertain locations, and limited or no information on current pipeline integrity as safety risks for federally unregulated gathering pipelines. Operators of unregulated gathering pipelines are not required by federal law to report information on such risk factors. Consequently, federal and state pipeline safety officials do not know the extent to which individual operators collect such information and use it to monitor the safety of their pipelines. In our survey of 52 state agencies, 39 agencies—10 monitoring hazardous liquid and 29 monitoring natural gas—responded that they had onshore gathering pipelines that PHMSA does not regulate located in their state. (See app. II for a summary of our survey results.) For these 39 agencies, four of the five top responses cited the following risk factors for onshore unregulated gathering pipelines as among the highest public safety risks. Construction quality. Eighteen state agencies reported that the quality of installation procedures and construction materials is a moderate or high safety risk for unregulated gathering pipelines. The construction phase of pipeline installation is critical to ensure the long-term integrity of the pipeline because the installation methods and materials used in pipeline construction affect the pipeline’s resistance to deterioration over time. For example, one inspection requirement for regulated pipelines is that they may not be installed unless they have been visually inspected at the site of installation to ensure that they are not damaged in a manner that could impair their strength or reduce their serviceability. This requirement does not currently apply to unregulated gathering pipelines. Maintenance practices. Sixteen state agencies reported that the extent to which pipeline operators maintain their pipelines is a moderate or high safety risk for unregulated gathering pipelines. According to agency officials, after a pipeline is installed and operational, periodic maintenance—such as inspecting and testing equipment—is important to prevent leaks and ruptures and could extend the operating life of a pipeline. Furthermore, preventive measures and repairs conducted on unregulated gathering pipelines, as well as a record of such activities, could provide useful information on the safety and history of a given gathering pipeline. Location. Sixteen state agencies reported that the unknown or uncertain location of unregulated gathering pipelines presents a moderate or high safety risk. Although individual operators may know the locations of unregulated pipelines, state and local safety agencies may not know or may be uncertain about the locations and mileage of unregulated pipeline infrastructure in their communities. This information is particularly useful for “Call Before You Dig” programs operated by states and localities. If unregulated gathering pipelines are unmarked and program officials do not know the location of the pipelines, businesses and citizens may damage a pipeline during excavation, which could result in an incident—including fatalities, injuries, or damage to property or the environment—as well as the shutting down of the pipeline for repair. Pipeline integrity. Sixteen state agencies reported that not knowing or having limited knowledge about the integrity—the current condition— of unregulated gathering pipelines is a moderate or high safety risk. Factors that affect the integrity of all pipelines—such as excavation damage and corrosion—also affect gathering pipelines. For example, excavation damage to a pipeline from nearby digging activities (see fig. 3) is the leading cause of pipeline incidents and, as previously noted, the uncertain location of unregulated gathering pipelines may increase the potential for such damage. Furthermore, corrosion can occur on the inside and outside of metal pipelines and is not easily identified without appropriate pipeline assessments. From 2004 through 2010, corrosion was reported as the cause of about 60 percent—or nine incidents—of regulated gas gathering pipeline incidents. Generally, pipeline experts we spoke with said limited information on the integrity of unregulated gathering pipelines prevents analysis to assess the internal and external condition of these pipelines. According to responses to our survey and interviews with industry officials and representatives, land-use changes and the increased extraction of oil and natural gas from shale deposits are two changes in the operating environments that could increase the safety risks for unregulated gathering pipelines. Land-use changes. The fifth top response reported by state pipeline safety agencies we surveyed was that increased urbanization has caused rural areas to become more densely populated and, in some cases, developments have encroached on existing pipeline rights-of- way. (See fig. 4.) Nineteen state agencies reported land-use changes as a moderate or high risk for federally unregulated gathering pipelines. Federal and state pipeline safety officials we spoke with are concerned about the safety and proximity of people who work and live near pipeline rights-of-way. For example, one state official stated that although a new housing or business development can change a location’s designation from Class 1 to a higher class that would then fall under PHMSA’s jurisdiction, the operator may not be aware of the development and therefore would not monitor and apply more stringent regulations along that pipeline. Increased extraction of oil and gas from shale deposits. According to pipeline industry officials and representatives we interviewed, the increased extraction of oil and natural gas from shale deposits poses an increased risk to the public, partly because of the development of new and larger gathering pipeline infrastructure. Deposits of oil and natural gas have become increasingly important energy sources in the United States over the past decade (see fig. 5). According to the U.S. Energy Information Administration, shale gas accounted for 16 percent of the total domestic natural gas supply in 2009 and is projected to increase to approximately 47 percent by 2035. This extraction has led to drilling and production in regions of the country that have previously seen little or no such activity. As a result of this ongoing activity, as well as future growth projections, state and federal safety officials we interviewed identified new gathering pipelines related to shale development as a potential public safety risk. The risk is primarily due to the characteristics and quantity of pipeline infrastructure required to support this new production. Specifically, some of these new gathering pipelines have larger diameters and operate at higher pressures that are equivalent to traditional transmission pipelines, but without the regulatory requirements. For instance, an October 2010 report on pipeline issues and concerns in Fort Worth stated that some gathering pipelines were as large as 24 inches in diameter with maximum allowable operating pressures similar to those for transmission pipelines. Those gathering pipelines were currently exempt from federal integrity management rules, which require some form of pipeline integrity assessment at least once every 7 years, and clearly define how and when problems found during these assessments are to be reported and repaired. PHMSA officials stated that they are considering collecting data on federally unregulated onshore gathering pipelines to better understand and evaluate the safety risks posed by these pipelines. Although PHMSA has the legal authority to collect data on unregulated gathering pipelines, the agency is not required and has not yet exercised its authority to do so. PHMSA officials reported that, instead of collecting such data, the agency was focusing on the development of integrity management requirements and improved data collection for higher-risk transmission and distribution pipelines. However, PHMSA officials reported that there is value in having data for unregulated pipelines similar to what is currently collected on regulated pipelines, such as pipeline characteristics and reportable information on incidents—including the location, cause, and consequences of these incidents. In addition, PHMSA issued Advanced Notices of Proposed Rulemakings (ANPRM) for onshore hazardous liquid and gas pipelines in October 2010 and August 2011, respectively. For these proposed rulemakings, PHMSA has sought comment on, among other things, whether to extend regulation or other requirements to currently federally unregulated gathering pipelines. Concerning potential data collection, the ANPRMs sought comment on whether to require the submission of annual, incident, and safety-related condition reports on federally unregulated gathering pipelines, as well as on whether to establish a new, risk-based regime of safety requirements for large-diameter, high-pressure gas gathering pipelines, including those pipelines in rural locations. While the ANPRMs did not seek comment on exactly what new data to collect, PHMSA officials reported that the information would likely be similar to what is currently collected on regulated gathering pipelines and that they plan to issue final rules in late 2012. In the event that reporting requirements are adopted, PHMSA officials stated that gathering pipeline data would likely be collected on a state-by-state basis, which could later be expanded to the national level. However, PHMSA’s plans for collecting data are preliminary, and the extent to which PHMSA will collect data sufficient to evaluate the potential safety risks associated with these pipelines is uncertain. Currently, PHMSA collects annual, incident, and safety-related condition data on regulated pipelines. The specific types of safety-related data collected for regulated pipelines include the operator, pipeline system description, mileage by class location, diameter size, operating pressure, incident location, number of injuries and fatalities, property damage, and assessments conducted. These data help federal and state safety officials and pipeline operators increase the safety of these pipelines by better identifying and quantifying safety risks, as well as by implementing mitigation strategies, and addressing potential regulatory needs. It is for these same reasons that PHMSA, state, and some industry officials reported that collecting similar data for unregulated gathering pipelines would be beneficial. PHMSA officials also reported that in the event the agency started collecting data on unregulated onshore gathering pipelines, their current data reporting system could accommodate such a collection and not require large changes for regulators or operators. On the other hand, a few operators and industry groups we met with expressed concerns over the burden that new data reporting would represent. Before any potential data collection reporting requirements could be enacted, PHMSA and the Office of Management and Budget would review and evaluate the value of such information and associated burdens on industry. PHMSA officials said that while many operators should already have information on their gathering pipelines readily available, it would still be important to communicate with operators and take steps to minimize burdens in collecting new gathering pipeline data. Some benefits of collecting such pipeline data can be seen through additional analysis of currently collected data. For example, PHMSA’s data on regulated pipelines indicate that more onshore reportable incidents, as well as total property damage, occur on transmission and distribution pipelines, than on regulated gathering pipelines (see figs. 6 and 7). Although the number of reportable incidents for regulated gas gathering pipelines is lower than for other regulated pipelines, the value of total property damage increased in the past few years. In 2010, these reportable incidents accounted for, on average, about $1.8 million in property damage per incident. Another benefit of collecting annual, incident, and safety-related condition pipeline data is an increased ability to assess and manage risks. We have previously reported on the importance of assessing and managing risks, including quantifying those risks using data. Data are instrumental in quantifying risks and can reduce uncertainty in assumptions and policy judgments (e.g., safety threats and the likelihood that they will be realized). PHMSA officials reported that collecting data could help to determine the safety risks associated with federally unregulated gathering pipelines, such as tracking injuries, fatalities, and property damage for new gathering pipelines associated with shale development, and whether current safety regulations are appropriate. Related to whether current regulations are appropriate, Congress recently mandated that DOT review the sufficiency of existing federal and state laws and regulations to ensure the safety of hazardous liquid and gas gathering pipelines. Two industry associations reported that such data collection could help better ensure that federal pipeline programs are appropriately targeted at mitigating safety risks, cost-effective, and not unnecessarily broad in scope. Quantitatively assessing risks could also allow for a ranking and prioritizing of safety risks facing gathering pipelines in a manner that is currently not possible. Besides PHMSA, states may collect data on unregulated gathering pipelines, but the scope and nature of this data collection can vary. Although the federal government is responsible for setting minimum pipeline safety standards, states can adopt additional or stricter safety standards for intrastate pipeline facilities and transportation—including standards for data collection. For example, Texas’s state regulation further defined that the state’s safety jurisdiction for onshore gas gathering pipelines begins after the first point of measurement—where the product is first measured to determine the volume being extracted from the well—and is based on population, which is stricter than the federal standard. Our survey revealed that only 3 of the 39 state agencies reported that they collect and analyze comprehensive pipeline spill and release data on federally unregulated pipelines. Such information can be used to help reduce future incidents. Additionally, the National Association of Pipeline Safety Representatives (NAPSR) recently conducted a nationwide surveyrequirements match or exceed federal pipeline safety requirements. The survey reported that neither states nor the District of Columbia collected comprehensive data on federally unregulated gathering pipelines, as is required for federally regulated pipelines. State pipeline safety agencies reported using five safety practices most frequently to help ensure the safety of onshore hazardous liquid and gas gathering pipelines not regulated by PHMSA, according to our survey of state agencies (see fig. 8). Several of these practices are designed to counter previously discussed safety risks; for example, implementing damage prevention programs can lower the risks of excavation damage.Although these practices were cited most frequently, one-third or less of the state pipeline safety agencies with unregulated gathering pipelines use any one of these practices. For instance, 13 of the 39 state pipeline safety agencies with unregulated gathering pipelines in their state reported using the most frequently cited safety practice—damage prevention programs. Additionally, some of the state agencies that reported using safety practices also responded that, overall, they had promulgated safety requirements for onshore gathering pipelines that were more stringent than those provided by PHMSA. Damage prevention programs. Thirteen state agenciesthey implement and enforce a damage prevention program as a practice to help ensure pipeline safety. Damage prevention programs can help mitigate risks and increase safety through a number of activities. For example, damage prevention programs can help reduce the risk of excavation damage by encouraging citizens and other parties to collect information to help identify pipeline locations before digging begins. Damage prevention programs can also include marking the rights-of-way for pipelines—including gathering pipelines—above ground to further reduce the likelihood of excavation damage (see fig. 9). States have developed or participated in damage prevention programs to help reduce instances of excavation damage, including damage to gathering pipelines. For example, Colorado has participated in the national One-Call program to reduce excavation damage. One-Call programs enable citizens and organizations to call an 811 number to notify utilities, pipeline operators, and others about the location and nature of planned digging. Utility, pipeline, or other organization members can then mark where underground pipelines run before any digging begins. Colorado pipeline safety officials reported that some calls related to the marking of regulated and unregulated gathering pipelines. As to the effectiveness of One-Call programs, the Common Ground Alliance has reported that, in 2010, when an excavator notified a call center before digging, damage occurred less than 1 percent of the time. Considering areas of highest risk. Ten state agencies reported they consider the areas of highest risk to effectively target resources as a safety practice. This approach can help address risks, such as corrosion and a lack of periodic maintenance, by directing oversight to those pipelines that could have the most serious consequences in the event of an incident. In addition, considering the areas of highest risk could help address potential safety risks from new gathering pipeline infrastructure associated with shale development. For example, considering risk factors associated with larger pipelines, operating pressures, and location could help determine the actual risks posed by these new pipelines. Indeed, some of PHMSA’s more recent pipeline safety regulations addressing integrity management and high-consequence areas account for risk factors to help determine which regulations might apply to a particular pipeline. Industry officials reported that it is more effective to target higher-risk areas than to allocate resources across all areas. Officials with the Texas Oil and Gas Association added that the risk of a pipeline incident in a heavily populated area warrants more attention than the risk of a similar incident in a sparsely populated area. This practice also acknowledges that gathering pipelines run through a wide variety of environments with varying risk levels (see fig. 10). Some states are overseeing pipelines based on identified safety risks. For example, safety compliance and enforcement staff at the Texas Railroad Commission reported that inspecting pipeline systems based on identified risks allows the state to inspect some pipelines less frequently, such as pipelines made from newer and safer materials, have advanced monitoring technology, or are located away from populations—like some rural gathering pipelines. Using these risk- based safety evaluations also enables Texas Railroad Commission inspectors to concentrate on higher-risk pipeline systems. Safety inspections. Nine state agencies reported they conduct recurring, scheduled, or unscheduled safety inspections of hazardous liquid and gas operators as another safety practice. NAPSR officials reported that safety inspections can be regularly scheduled inspections, during which inspectors check system components, specialized inspections (i.e., integrity management) aimed at higher- risk areas, or random checks. These inspections can also help address risks related to the installation and construction quality of a pipeline by ensuring that the pipeline is structurally sound and shows no evidence of questionable materials or other problems, such as corrosion and excavation damage. PHMSA has recommended that state pipeline safety agencies perform periodic surprise inspections on new pipeline construction to determine whether operators are complying with construction requirements. Inspectors with the Texas Railroad Commission, in addition to sampling on-site pipeline facilities in the field, also review pipeline operators’ records and documentation on selected pipeline systems for compliance with federal and state pipeline safety regulations. These risk-based safety evaluations have included the construction of gathering pipelines related to shale development and pipelines not regulated by PHMSA. Such evaluations also help ensure that operators maintain an up-to-date and consistent document records system for installation, operations, and emergency response (see fig. 11). Public outreach and communication. Seven state agencies reported they engage in outreach or other communication with communities and citizens to boost awareness and knowledge of pipeline safety practices they use. The Common Ground Alliance has reported on the importance of outreach, including the use of structured education programs, targeted mailings, and paid advertising. These and other outreach methods can also underscore the importance of other safety practices, such as damage prevention and One-Call programs. These outreach efforts can involve a number of methods and include educating and engaging the public. In Colorado, Damage Prevention Councils have hosted monthly meetings and participated in local community events—such as educational seminars, parades, and trade shows—to help educate citizens on pipeline safety. Another Colorado entity active in damage prevention is the Colorado Pipeline Association, which comprises pipeline operators dedicated to promoting pipeline safety by providing information for excavators, state residents, businesses, emergency responders, and public officials. In one community, according to a PHMSA official, citizens viewed state safety officials as an objective and neutral party that provided information and perspectives on the planned construction of gathering pipelines. In tandem with private operators, the state officials were able to answer citizen questions and address concerns. Enforcement. Six state agencies reported a safety practice of establishing a system of escalated enforcement to enhance and increase regulatory attention on operators that have experienced incidents. A pipeline expert we interviewed said that promoting an effective enforcement program was necessary to help ensure pipeline safety. A system of escalated enforcement can enhance and increase regulatory attention on pipeline operators with safety violations. One state pipeline safety official reported that making such attention public can bring additional pressure on and provide incentives for a company to maintain and operate its infrastructure safely. One PHMSA official reported that although many states do not have an enforcement program as elaborate as PHMSA, states with stronger enforcement programs have more of an impact on the operators to increase safety. Pipeline operators may have procedures and established contacts with local enforcement personnel in order to act appropriately to halt dangerous excavation activities that may damage pipelines and potentially cause an immediate threat to life or property. Regarding federally unregulated gathering pipelines, one Colorado official reported that because gathering pipeline companies operate pipelines and conduct excavation work, they would be subject to any necessary enforcement due to safety violations. However, sharing of information among states on the safety practices they use for unregulated gathering pipelines appears to be limited. Some state and PHMSA officials we interviewed had limited awareness of what other states were doing to help ensure the safety of gathering pipelines not regulated by PHMSA. For example, pipeline safety officials we interviewed had limited awareness of other state programs—sometimes even for an adjacent state—even if those programs were intended to address common risks, such as reducing excavation damage and corrosion. PHMSA officials were likewise unable to report on the safety practices that many states use or on states’ regulations that were more stringent than federal requirements. PHMSA’s website holds a wealth of information on various pipeline safety topics, including recent pipeline forums and industry research, incident investigations, and other information. However, information targeted at gathering pipelines, including relevant safety practices and state activities, is limited. In addition, all related information could be grouped to decrease time spent searching and scanning. Currently, there is no central PHMSA web page or resource for gathering pipelines, regulated or unregulated—possibly due, in part, to the lower safety risks that regulated gathering pipelines have posed to people and property when compared with other pipelines, like transmission pipelines. PHMSA officials said that its website also focuses on pipelines that PHMSA regulates but excludes most gathering pipelines. PHMSA has considered the development of a website to help facilitate sharing information among states. While this project is still in the planning stages and not targeted at gathering pipelines, it could be a resource to share program and safety practices among states and PHMSA. Increased communication and information sharing about pipeline safety practices could boost the use of those practices in states with unregulated gathering pipelines. As previously discussed, even the safety practice that our survey respondents reported using most frequently—implementing a damage prevention program—was used by just 13 of the 39 responding state pipeline safety agencies with unregulated gathering pipelines in their state. The other four safety practices cited are reportedly used even less. Improved information sharing among states and PHMSA could help spread information on how these safety practices—which are also used for regulated pipelines–-could be applied to unregulated gathering pipelines, thereby benefiting other states with unregulated gathering pipelines. We have previously reported on the value of organizations reporting and sharing safety information as part of encouraging a wider safety culture. Safety culture can include organizational awareness of safety and open communication. The benefits of a strong safety culture have widespread applicability, including in other transportation areas— such as aviation and transit. PHMSA could serve to facilitate feedback and evaluate safety information related to unregulated gathering pipelines in states. By collecting information on safety practices and other information relevant to unregulated gathering pipelines, PHMSA could increase the potential for identifying systemic issues, disseminating lessons learned, and improving pipeline safety across the country. PHMSA officials reported that, in the past, similar online and educational efforts in other areas have resulted in increasing education and information sharing among state pipeline safety officials. While the safety risks of federally unregulated, onshore hazardous liquid and gas gathering pipelines are generally considered to be lower than other types of pipelines, PHMSA is currently not able to determine the performance and safety of these gathering pipelines because it does not collect the necessary pipeline operator data. The agency is considering options to collect such information, which could facilitate quantitatively assessing the safety risks posed by unregulated gathering pipelines. Furthermore, these data would be critical in helping PHMSA to evaluate the sufficiency of safety regulations for gathering pipelines as required by the congressional mandate or that increasing shale development across the country might necessitate. Making data-driven, evidence-based decisions about the risks of federally unregulated gathering pipelines is especially important in a time of limited resources. The absence of an information-sharing resource focused on federally unregulated gathering pipelines means that both states and PHMSA could miss opportunities to share lessons learned and successful practices for helping to ensure pipeline safety. Sharing such lessons and related safety reporting can help support a safety culture and increase state officials’ awareness of possible safety practices or strategies that they can use to enhance pipeline safety. Lessons learned can also help states avoid the mistakes of others. Additionally, increased information sharing through such a resource would help PHMSA become more aware of state pipeline safety practices and initiatives—which in turn would assist PHMSA in sharing and supporting these safety practices, as well as in considering what state efforts may have applicability for federal programs, regulation, and guidance. To enhance the safety of unregulated onshore hazardous liquid and gas gathering pipelines, we recommend that the Secretary of Transportation direct the PHMSA Administrator to take the following two actions: Collect data from operators of federally unregulated onshore hazardous liquid and gas gathering pipelines, subsequent to an analysis of the benefits and industry burdens associated with such data collection. Data collected should be comparable to what PHMSA collects annually from operators of regulated gathering pipelines (e.g., fatalities, injuries, property damage, location, mileage, size, operating pressure, maintenance history, and the causes of incidents and consequences). Establish an online clearinghouse or other resource for states to share information on practices that can help ensure the safety of federally unregulated onshore hazardous liquid and gas gathering pipelines. This resource could include updates on related PHMSA and industry initiatives, guidance, related PHMSA rulemakings, and other information collected or shared by states. We provided the Department of Transportation with a draft of this report for review and comment. The department provided technical corrections, which we incorporated as appropriate. We are sending copies of this report to interested congressional committees and the Secretary of Transportation. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. The objectives of our review were to determine (1) the safety risks that exist, if any, with onshore hazardous liquid and natural gas gathering pipelines that are not currently under the Pipeline and Hazardous Materials Safety Administration (PHMSA) regulation and (2) the practices states are using to help ensure the safety of unregulated onshore gathering pipelines. To address our objectives, we reviewed PHMSA and other federal agency regulations, as well as available safety data on regulated pipelines. We also interviewed officials at PHMSA, state pipeline safety agencies, pipeline companies and other industry stakeholders, and related associations. We obtained data on pipelines regulated by PHMSA to understand the types of pipeline data currently collected, as well as to compare and analyze accident, injury, fatality, and other trends. We reviewed the data and conducted follow-up work as necessary to determine that the data were complete, reasonable, and sufficiently reliable for the purposes of this report. We also conducted site visits—selecting locations based on geography, pipeline infrastructure, and other factors—to interview pipeline officials and representatives in Denver, Pittsburgh, and Dallas-Fort Worth. We later identified an initial list of safety risks and safety practices through information collection and document review processes. To determine what safety risks may be associated with federally unregulated gathering pipelines—in addition to reviewing federal agency regulations, regulated pipeline safety data, and conducting various interviews—and because of the lack of historical and nationwide data, we developed and administered a web-based survey to state pipeline safety agencies in all 50 states and the District of Columbia. Our survey was intended to collect information otherwise not available from PHMSA, states, industry, or other sources on safety risks associated with onshore, federally unregulated hazardous liquid and gas gathering pipelines and related safety practices to help address those risks and ensure safety. We used the survey to identify which states had unregulated, onshore gathering pipelines and what perceived pipeline safety risks were associated with those pipelines. To identify safety practices states are using, we reviewed industry documents and conducted interviews with public and private experts and officials. Then, as part of our survey of state pipeline safety agencies, we asked officials to identify the practices they used to ensure the safety of onshore, federally unregulated hazardous liquid and gas gathering pipelines. From our survey results, we identified the most frequently cited safety practices, including additional state programs, activities, and other practices. To develop the survey questions, we conducted initial interviews with state officials and other pipeline safety stakeholders to identify safety issues regarding unregulated gathering pipelines. We also reviewed key literature to ascertain pipeline safety practices and other issues. We consulted with PHMSA officials and reviewed PHMSA documentation to identify the proper terminology for use in the survey. The survey was pretested with potential respondents from state pipeline safety agencies, as well as with the Congressional Research Service and National Association of Pipeline Safety Representatives. We did this to ensure that (1) the questions were clear and unambiguous, (2) the terms we used were precise, (3) the survey did not place an undue burden on the agency officials completing it, and (4) the survey was independent and unbiased. In addition, the survey was reviewed by an internal, independent survey expert. We took steps in survey design, data collection, and analysis to minimize nonsampling errors. For example, we worked with PHMSA officials to identify the appropriate survey respondents—state pipeline safety agencies. To minimize measurement error that might occur from respondents interpreting our questions differently from our intended purpose, we extensively pretested the survey and followed up with nonresponding units and with units whose responses violated certain validity checks. We identified only two cases where the respondents had slightly varied responses from our intended question, although the majority understood our questions as intended. Finally, to eliminate data-processing errors, we independently verified the computer program that generated the survey results. Our results are not subject to sampling error because we administered our survey to all 50 state pipeline safety agencies and the District of Columbia. The survey was conducted using self-administered electronic questionnaires posted on the World Wide Web. We sent e-mail notifications to 52 agencies responding to our survey. We also e-mailed each potential respondent a unique password and username to ensure that only members of the target population could participate in the survey. To encourage respondents to complete the survey, we sent an e-mail reminder to each nonrespondent about 2 weeks after our initial e-mail message. The survey data were collected from July through September 2011. We received responses from all 50 states and the District of Columbia, for an overall response rate of 100 percent. This “collective perspective” obtained from each of the agencies helps to mitigate individual respondent bias by aggregating information across the range of different viewpoints. For purposes of characterizing the results of our survey, we identified specific meanings for the words we used to quantify the results, as follows: “a few” means between 1 percent and 24 percent of respondents, “some” means between 25 percent and 44 percent of respondents, “about half” means between 45 percent and 55 percent of respondents, “a majority” means between 56 percent and 74 percent of respondents, “most” means between 75 percent and 94 percent of respondents, and “nearly all” means 95 percent or more of respondents. This report contains the central results from the survey (see app. II). We conducted this performance audit from February 2011 to March 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Summary Results, GAO Pipeline Safety Regulations Survey General Pipeline Safety Regulation Survey Questions YES RESPONSES Does your state have any onshore gathering pipelines outside of high consequence areas that PHMSA does not regulate? Does your agency collect any data for onshore gathering pipelines that PHMSA does not regulate? Does your state have safety requirements for onshore gathering pipelines that are more stringent than those provided by PHMSA? Subpopulation Total How great a safety risk, if at all, are the following factors for onshore hazardous liquid and gas gathering pipelines in your state that PHMSA does not regulate? MODERATE AND HIGH SAFETY RISK RESPONSES A. Limited or no annual reporting data (similar to PHMSA’s) available on these pipelines (e.g., mileage, leaks) B. Limited or no incident data available on these pipelines (e.g., spills, releases) C. Limited or no information on the integrity of these pipelines D. Unknown or uncertain locations of pipelines E. Location of these pipelines in high consequence areas F. Limited or no inspections conducted on these pipelines G. Limited or no information on the pipe size H. Limited or no information on operating pressure I. Installation/construction quality J. Periodic maintenance not conducted on these pipelines K. Quality of product (sour or non-sour, corrosive, abrasive, etc.) Does your agency use any of the following practices to ensure onshore hazardous liquid and gas pipeline safety in your state? In addition to the contact named above, other key contributors to this report were Sara Vermillion (Assistant Director), Matt Cail (Analyst-in- Charge), Aisha Cabrer, David Hooper, Stuart Kaufman, Josh Ormond, Jerome Sandau, Jeremy Sebest, Rebecca Shea, Don Watson, and Adam Yu.

Pipelines are a relatively safe mode of transportation for hazardous liquid and natural gas and are regulated by the Department of Transportation’s (DOT) Pipeline and Hazardous Materials Safety Administration (PHMSA) and state entities. Included in the nation’s pipeline network are an estimated 200,000 or more miles of onshore “gathering” pipelines, which transport products to processing facilities and larger pipelines. Many of these pipelines have not been subject to federal regulation based on their generally rural location and low operating pressures. While incidents involving gathering pipelines regulated by PHMSA have resulted in millions of dollars in property damage in recent years, comparable statistics for federally unregulated gathering pipelines are unknown. This report identifies (1) the safety risks that exist, if any, with onshore hazardous liquid and natural gas gathering pipelines that are not currently under PHMSA regulation and (2) the practices states use to help ensure the safety of these pipelines. GAO surveyed state pipeline safety agencies in all 50 states and the District of Columbia; interviewed officials at PHMSA, state pipeline safety agencies, pipeline companies, and industry associations; and analyzed data and regulations. While the safety risks of onshore gathering pipelines that are not regulated by PHMSA are generally considered to be lower than for other types of pipelines, PHMSA does not collect comprehensive data to identify the safety risks of unregulated gathering pipelines. In response to a GAO survey, state pipeline safety agencies cited construction quality, maintenance practices, unknown or uncertain locations, and limited or no information on pipeline integrity as among the highest risks for federally unregulated pipelines. Without data on these risk factors, pipeline safety officials are unable to assess and manage safety risks associated with these pipelines. Furthermore, changes in pipeline operational environments cited in response to GAO’s survey and by industry officials could also increase safety risks for federally unregulated gathering pipelines. Specifically, land-use changes are resulting in development encroaching on existing pipelines and the increased extraction of oil and natural gas from shale deposits is resulting in the development of new gathering pipelines, some of which are larger in diameter and operate at higher pressure than older pipelines. PHMSA is considering collecting data on federally unregulated gathering pipelines, but the agency’s plans are preliminary, and the extent to which PHMSA will collect data sufficient to evaluate the potential safety risks associated with these pipelines is uncertain. A small number of state pipeline safety agencies GAO surveyed reported using at least one of five practices that were most frequently cited to help ensure the safety of federally unregulated pipelines. These practices include (1) damage prevention programs, (2) considering areas of highest risk to target resources, (3) safety inspections, (4) public outreach and communication, and (5) increased regulatory attention on operators with prior spills or leaks. However, the sharing of information among states on the safety practices used appears to be limited. Some state and PHMSA officials GAO interviewed had limited awareness of safety practices used by other states. Increased communication and information sharing about pipeline safety practices could boost the use of such practices for unregulated pipelines. However, information targeted at gathering pipelines on PHMSA’s website, including relevant safety practices and state activities, is limited. DOT should (1) collect data on federally unregulated hazardous liquid and gas gathering pipelines and (2) establish an online clearinghouse or other resource for sharing information on pipeline safety practices. DOT provided technical corrections on a draft of this report.

You are an expert at summarizing long articles. Proceed to summarize the following text: Today, and in the foreseeable future, military operations require U.S. personnel, in particular Army and Marine Corps ground forces, to communicate and interact with multinational partners and local populations. DOD, and the Army and Marine Corps, have emphasized the need to build and sustain language and culture knowledge and skills in the general purpose forces. The Army and Marine Corps are providing language and culture predeployment training in support of ongoing operations. DOD relies on formal tests to measure service members’ proficiency in a foreign language. Various training and personnel systems exist within DOD at the service and department level. Departmentwide and service-level strategic plans and operating concepts emphasize the need to build and sustain language and culture knowledge and skills in the general purpose forces (see fig. 1). In particular, referring both to the near-term needs of current operations and the long-term efforts to prepare military forces for future conflicts, DOD concluded in the 2010 Quadrennial Defense Review that U.S. forces would be able to perform their missions more effectively with more and better key enabling capabilities, including language expertise. The Army and Marine Corps have also developed concepts to align headquarters and forces with geographic commands around the world and plan to provide them with specialized language and culture training prior to deployment to conduct security force assistance and irregular warfare missions, among others. In addition, the services are implementing strategies to build and reinforce language and culture knowledge and skills through training at various points of a service member’s career through formal service institutions, such as professional military education schools, and during predeployment training. For example:  Beginning in 2009, the Army Command and General Staff College began offering language courses to soldiers in targeted languages, such as Arabic, Chinese, and French, which consist of resident instruction, self-study, and distance learning in a modified year-long program. In addition, the Army updated its Captains Career Course in 2010 to include 13 hours of training in the areas of cross-cultural skill building and negotiations.  The Marine Corps has begun implementing the Regional, Culture, and Language Familiarization career development program for all marines that begins when marines enter military service and continues throughout their career. As part of the program, marines are assigned to 1 of 17 regions around the world and will be assigned an associated language. The program is organized into three broad areas of training (culture general, culture specific, and language familiarization) and functionally organized within a block structure that builds and reinforces knowledge and skills over a marine’s career. As we have previously reported, the Army and the Marine Corps have established service-specific predeployment training requirements and are providing their respective general purpose forces with language and culture training that is focused on the particular area to which a unit will deploy. Given that over the past 10 years Army and Marine Corps forces have experienced continual operational deployments to Iraq and Afghanistan with limited time to prepare between deployments, most language and culture training efforts have focused on predeployment training for ongoing operations. For example, since July 2010, the Army has required that all soldiers deploying to Afghanistan and Iraq complete a 4- to 6-hour online training program that provides basic language and culture training. In addition, commanders are required to designate at least one leader per platoon who will have regular contact with a local population to complete 16 weeks (at least 480 hours) of on-site training at one of five language training detachments on Army installations. If the designated leader does not have access to a language training detachment, that soldier is required to complete approximately 100 hours of computer-based training. Since February 2010, the Marine Corps has required that all deploying marines complete culture training which, for Afghanistan deployments, service officials reported typically consists of 1 day of training, and selected marines have been required to complete language training with the amount determined by a mission analysis. Selected marines can complete this training at one of two language training detachments on Marine Corps installations or through programs at a local community college and university. Language training detachments on Army and Marine Corps installations provide predeployment training that includes role playing, classroom instruction, and self-directed learning (see fig. 2). DOD relies on the Defense Language Proficiency Test system of tests to measure an individual’s proficiency in a foreign language. The test is administered in a Web-based format to measure proficiency in the listening and/or reading modalities. The speaking modality is tested in person or by telephone. Test scores are reported as Interagency Language Roundtable skill levels measured on a scale from 0 (no proficiency) to 5 (functionally native proficiency). DOD guidance also establishes broad regional proficiency skill level guidelines. These guidelines include culture knowledge and skills and are intended to provide DOD components with benchmarks for assessing regional proficiency needs, for developing initial and sustainment regional proficiency curricula at service and professional military education schools, and for assessing regional proficiency capabilities. Our prior work has found that DOD has not yet established a way to test or otherwise evaluate the culture knowledge and skills of service members in accordance with these guidelines. The Army and Marine Corps maintain a number of service-level training and personnel systems. At the department level, DOD maintains several additional information systems that draw upon or provide data to the services’ training and personnel systems. Table 1 provides information on key Army and Marine Corps training and personnel systems and other DOD information systems. The Army and Marine Corps have captured some information at the unit level for those service members who completed language and culture predeployment training for ongoing operations. DOD guidance requires that the services document all language and regional proficiency training, education, and experience, which includes culture, in service training and personnel systems and use this information in force management processes. Service documents also note that language and culture training completion and corresponding proficiency should be documented in service-level systems. However, we identified several factors that limited the Army’s and Marine Corps’ ability to capture information within service-level training and personnel systems on service members’ completion of language and culture training and their corresponding proficiency gained from this training. Officials with Army and Marine Corps units we spoke with who were preparing for deployments or who were deployed in Afghanistan at the time of our review reported that they documented which service members completed language and culture predeployment training on spreadsheets and paper rosters that were stored at the unit level. For example:  Officials with an Army brigade deployed in Afghanistan in December 2010 reported that its subordinate battalions recorded soldiers who completed mandatory language and culture training tasks on unit attendance rosters.  Officials from an Army brigade preparing for deployment to Afghanistan in March 2011 stated that companies and battalions within the brigade documented an individual soldier’s completion of required language and culture predeployment training on manually completed computer spreadsheets. During predeployment training, companies and battalions reported summaries of the status and completion of critical training tasks, including language and culture tasks, on a weekly basis to the brigade headquarters.  Officials from Marine Corps battalions preparing for deployment to Afghanistan in November and December 2010 stated that units used manually completed computer spreadsheets to document the number of marines who completed language and culture predeployment training requirements and unit training completion percentages were routinely reported to the regiment headquarters. Army and Marine Corps training officials reported that the approaches used to capture information on the completion of predeployment training provided unit commanders with some visibility over the number of soldiers and marines who completed language and culture predeployment training. The Army requires that all of its units use the Digital Training Management System to document soldiers’ completion of individual soldier training and collective training conducted at the unit level. Moreover, in July 2010, the Army released specific guidance that directed units to input language and culture predeployment training in the Digital Training Management System. According to an Army regulation and a Digital Training Management System information paper, the intent of capturing training information in electronic soldier records is to enable decision makers at the service level to track and monitor soldiers, ensure that training records are automatically transferred with a soldier when he or she is reassigned to another unit, and provide visibility to senior leaders that can inform force management decisions. Units we interviewed reported, however, that they did not record the completion of all mandatory language and culture predeployment training tasks within the Digital Training Management System. Although the system provides a single data field for units to record information for basic language and culture training, the Army has multiple, mandatory language and culture predeployment training requirements. Because only one field exists, units we spoke with stated that inconsistent information was recorded in that field. In some cases, units recorded basic culture training in the field but did not record predeployment language training. For example, officials with battalions preparing to deploy to Afghanistan in March 2011 reported they did not record information in this field for soldiers who completed mandatory language training at an on-site language training detachment. At the time of our review, the Army had not yet established data fields within the Digital Training Management System that would allow training officials to document soldiers’ completion of all mandatory language and culture training tasks. In bringing this fact to the attention of the Army, service headquarters officials stated that the Army has considered adding new data fields within the Digital Training Management System for all required language and culture predeployment training tasks, but as of July 2011, had not done so. Without data fields available that are clearly aligned with all mandatory training tasks, units have been unable to document which soldiers completed language and culture training. We also found that the Army had not recorded language proficiency in its primary training systems, despite the fact that these systems have data fields to record this information. In December 2010, the Army reinforced its prior guidance that directed that units record training in the Digital Training Management System and also stated that units should record training within the Army Training Requirements and Resources System to enable tracking of cultural knowledge and foreign language proficiency. Service officials reported that, as of July 2011, nearly 100 percent of the more than 800 soldiers who completed training at a language training detachment met the Army standard for language proficiency in the speaking and listening modalities. However, information on the language proficiency of these soldiers was unavailable in either of these systems. Unit officials we spoke with reported that they did not record soldiers’ language proficiency gained from training at a language training detachment within the Digital Training Management System, but rather tracked the number of soldiers who met the Army’s language proficiency standard on unit spreadsheets. Training managers responsible for inputting data in the Army Training Requirements and Resources System also reported that they did not record language proficiency data for soldiers who completed this training. Officials stated that information on language proficiency is typically documented within the Army’s personnel system. The Army’s primary personnel system (the Total Army Personnel Database) has the capability to capture language proficiency. While the Army collects some language proficiency data within this system, the Army considers these data unreliable because of weaknesses in its approach to collecting them. For all soldiers, including those who complete training at a language training detachment, the Army utilizes a paper form to document soldiers’ language proficiency. Upon completing training at a language training detachment, the Army has provided soldiers with a test to determine proficiency in the listening and speaking modalities and a testing official records the corresponding proficiency on this form. The form should then be passed on to a soldier’s local training manager and to the Army Human Resources Command. The Army Human Resources Command is required to ensure that language proficiency data are current and accessible to the Department of the Army staff and personnel managers. According to Army officials, the command updates these data in soldiers’ personnel records within the Total Army Personnel Database. However, Army officials described several weaknesses in this process that result in unreliable data. For example, the Army relies on hand-delivered hard copy forms, which introduce multiple opportunities for these forms to be lost or human error in data entry. Depending on the type of language test, language proficiency data are also reported to the Defense Manpower Data Center, which maintains personnel and manpower data for all service members, including language test scores. For Web-based tests, test scores are automatically transferred to the Defense Manpower Data Center. For in- person or telephone tests, a testing official records the test score and sends the results to the Defense Manpower Data Center. Army officials explained that a data link does not currently exist to transfer data between the Defense Manpower Data Center and the Total Army Personnel Database and therefore language proficiency data have not been routinely documented in soldiers’ personnel records. Because the Total Army Personnel Database is also intended to provide data on soldiers’ language proficiency for the department’s Language Readiness Index, officials responsible for managing the Language Readiness Index reported that departmentwide visibility over service members’ language proficiency is limited by the lack of accurate and timely service data. To better understand examples of limitations in the Army’s ability to capture information within the Army’s training and personnel systems on the completion of language and culture predeployment training and corresponding language proficiency, see figure 3. In January 2011, the Army established a task force to improve the accuracy of information on service members’ language proficiency available within the Total Army Personnel Database. At the time of our review, the Army Language Tracking Task Force had identified a number of key tasks and was at varying stages of completing its work. For example, the task force is working to establish a direct data link between the Defense Manpower Data Center where language test scores are recorded and the Total Army Personnel Database. According to a task force official, the Army plans to complete this link by early 2012. According to Marine Corps Order 3502.6, units are required to track and report information about the status of predeployment training in accordance with guidance provided by the unit’s chain of command. As discussed earlier in this report, Marine Corps units we spoke with reported that the completion of language and culture predeployment training for ongoing operations in Afghanistan was captured and tracked at the unit level using informal approaches, such as spreadsheets and paper rosters. Officials also explained that no Marine Corps service-level system is used to record the completion of predeployment training tasks. In its January 2011 strategy, the Marine Corps noted that no mechanism exists within the service to track regional and cultural skills obtained through operational experience on a servicewide basis, but that the timely identification of marines with these skills could assist the service in making force management decisions. The strategy also identifies the need for the service to develop a tracking mechanism to readily identify and leverage regional and cultural skills. As presently structured, the Marine Corps Training Information Management System enables servicewide tracking of the completion of institutional training and professional military education. During our review, Marine Corps officials stated that the service was in the process of developing a new module within this system that, when fully implemented, would allow u to document individual and unit predeployment training. However, according to officials, the Marine Corps has not determined if this new module or another system would be used to track language or culture predeployment training tasks. We also found that the Marine Corps had not provided formal language tests to marines who completed significant language training for ongoing operations in Afghanistan and, therefore, had not documented their language proficiency within its primary personnel system (the Marine Corps Total Force System) or any other system. According to officials, most marines selected for Afghan language training (about 30 marines per battalion) received approximately 40 hours of training that primarily focused on basic rapport building and memorization of survival phrases. Due to the limited number of hours of training, Marine Corps officials stated that these training programs were not designed to produce measurable language proficiency. In discussions with units preparing for deployments to Afghanistan and with training providers, we found that some marines completed more extensive language training. For example, Marine Corps officials estimated that about 15 percent of marines selected for language training completed an advanced language training program that consisted of 160 hours of live instruction at a language training detachment on Camp Lejeune or Camp Pendleton, which also included a minimum of an additional 72 hours of self-directed learning via computer-based language training. In addition, our analysis found that about 1,000 marines attended training programs at a local community college and university since 2009 that ranged from 160 to 320 hours of Afghan language training. In cases where service members complete a significant language training event as defined by DOD and service guidance, the Marine Corps is responsible for administering the Defense Language Proficiency Test system of tests to measure language proficiency. However, although several language training programs met the criteria established in DOD and service guidance, we found that the Marine Corps had not required marines who completed significant language training to take a Defense Language Proficiency Test system of tests to measure their language proficiency. Therefore, the Marine Corps does not have language proficiency data for these marines. Marine Corps officials told us that they are reviewing the potential applicability of using a new Defense Language Proficiency Test that has been specifically designed to assess lower levels of language proficiency, but formal decisions on whether to use this test for general purpose force marines who completed significant Afghan language training have not yet been made. By not capturing information within service-level training and personnel systems on the training that general purpose forces have completed and the proficiency they gained from training, the Army and Marine Corps do not have the information they need to effectively leverage the language and culture knowledge and skills of these forces when making individual assignments and assessing future operational needs. DOD and service guidance address the need to sustain language skills and the DOD strategic plan for language, regional, and culture skills calls for the services to build on existing language skills for future needs. The Army and Marine Corps have made considerable investments in time and resources to provide some service members with extensive predeployment language training, but have not developed plans to sustain language skills already acquired through this training. We found that the Army and Marine Corps had not yet determined which service members require follow-on training, the amount of training required, or appropriate mechanisms for delivering the training. DOD guidance instructs the services to develop sustainment language and regional proficiency training and education plans for language professionals and language-skilled personnel. Likewise, service documents reinforce the need to sustain language skills. For example, according to the Army’s December 2010 Culture and Foreign Language Strategy Execution Order, the Army will sustain the language skills of soldiers who achieve low levels of language proficiency. Additionally, the Marine Corps Language, Regional and Culture Strategy: 2011-2015 notes that without an effective sustainment program, the war-fighting benefits from language training will be lost, which minimizes the service’s return on investment for this training. Consequently, the strategy states that the Marine Corps must explore and leverage all cost-effective solutions to sustain language capabilities. Moreover, the Marine Corps has published guidance that states that mission accomplishment and efficiency can be enhanced if marines attain and maintain language proficiency, even at the lowest levels of proficiency. Additionally, a DOD strategy calls for the services to build on existing language skills for future needs. The Department of Defense Strategic Plan for Language Skills, Regional Expertise, and Cultural Capabilities (2011-2016) notes that in order to meet the requirements generated by an expanding global role, it is incumbent on the department to build on current language skills and invest in basic and continuing language, regional, and culture training and education. The strategy also states that by identifying language, regional, and cultural requirements and building these capabilities, DOD will be able to more effectively engage with not only partners and allies, but also with the indigenous populations in order to build rapport and establish trusting relationships. The Army and Marine Corps have made considerable investments in time and resources to provide some service members with extensive predeployment language training in order to prepare them for ongoing operations in Afghanistan. For example, according to Army documents, the Army spent about $12.3 million through August 2011 to establish and maintain language training detachment sites for Afghan language training. The Army estimated that it will spend an additional $31.6 million from fiscal year 2012 through fiscal year 2015 to maintain these sites. The Marine Corps has also funded Afghan language training courses at San Diego State University and Coastal Carolina Community College. Table 2 summarizes the number of soldiers and marines who completed selected language training programs since 2009, the length of the training, and the estimated cost of training. While informal language training programs exist, the Army and Marine Corps have not developed formal plans to sustain language skills acquired through predeployment training for ongoing operations. Officials with Army and Marine Corps units preparing for deployment and those deployed in Afghanistan reported that some informal follow-on training programs were available to service members to sustain language skills, for example, utilizing self-directed learning tools such as computer-based training programs. However, the use of informal training options to refresh and maintain language skills was voluntary and left to service members’ personal initiative. The Defense Language Institute Foreign Language Center has reported that although personal initiative is necessary, it is almost never sufficient for maintenance of such a complex skill as foreign language proficiency. We found that the Army and Marine Corps had not yet determined which service members require follow-on training to sustain language skills, the amount of training required, or appropriate mechanisms for delivering the training. Army officials stated they recognized the need to sustain language skills acquired through predeployment training with a formal training program, particularly in light of the number of service members who already received language training that will have multiple deployments to the same region. At the time of our review, the Army was evaluating various sustainment training options, but had not yet developed a formal plan or identified the resources required to provide the training. The Marine Corps is not planning to sustain the Afghan language skills of marines that were acquired through predeployment training with a formal training program. Marine Corps officials cited several reasons as the basis for this approach, for example because of the turnover of personnel within the Marine Corps from one deployment to the next. Additionally, according to current plans, the service will provide language training for a variety of languages as part of its career development program. However, we found that this program is not intended to maintain or build upon language skills already acquired by some marines through extensive predeployment Afghan language training. In the absence of formal sustainment training to maintain and build upon service members’ language skills acquired for ongoing operations at considerable expense in time and resources, the Army and Marine Corps may miss opportunities to capitalize on the investments they have already made to provide predeployment language training. DOD has recognized that its ability to identify general purpose forces that have language and culture knowledge and skills will be critical to managing these forces in the future. However, by not capturing information within service-level training and personnel systems on the completion of language and culture training and corresponding proficiency gained from training, the Army and Marine Corps do not have the information they need to effectively leverage the language and culture knowledge and skills of these forces when making individual assignments and assessing future operational needs. Further, the Army and Marine Corps face competing demands for limited training time and resources and, in this context, not all service members who acquired skills through predeployment language training may require follow-on training. Despite the fact that the Army and Marine Corps have made considerable investments to provide some service members with extensive predeployment language training, the services have not determined which service members require follow-on training to sustain language skills, the amount of training required, or appropriate mechanisms for delivering the training. As a result, the Army and Marine Corps may not fully maximize the return on investment already made for predeployment language training for current operations. We recommend the Secretary of Defense take the following five actions. To provide decision makers with greater visibility on the language and culture knowledge and skills of Army and Marine Corps general purpose forces that could inform force management processes, we recommend that the Secretary of Defense direct the Secretary of the Army to:  Establish clearly defined data fields for all mandatory language and culture training tasks within the Digital Training Management System and update Digital Training Management System records for soldiers who completed training prior to these fields being established.  Document the language proficiency for soldiers completing predeployment language training within the Digital Training Management System and the Army Training Requirements and Resources System. We further recommend that the Secretary of Defense direct the Secretary of the Navy, in consultation with the Commandant of the Marine Corps, to:  Designate which training and/or personnel systems the Marine Corps should use to document the completion of marines’ language and culture training.  Administer formal tests to marines completing a significant language training event using DOD’s agreed-upon method to measure proficiency, and ensure the results of these tests are documented in marines’ personnel records within the Marine Corps Total Force System. To capitalize on the investments in time and resources made in providing language training to service members, we recommend that the Secretary of Defense direct the Secretary of the Army and the Secretary of the Navy, in consultation with the Commandant of the Marine Corps, to:  Determine which soldiers and marines with language skills require follow-on training, the amount of training required, and appropriate mechanisms for delivering the training, and make any adjustments to training programs that may be needed. In written comments on a draft of this report, DOD concurred with two recommendations and partially concurred with three recommendations. DOD’s comments are reprinted in their entirety in appendix II. DOD also provided technical comments, which we incorporated into the report as appropriate. In addition to providing detailed responses to our recommendations, DOD provided two general comments about our report. First, DOD pointed out that our report noted the extent to which the Army and Marine Corps used service-level training and personnel systems to record service members’ proficiency gained from predeployment training that meets DOD’s definition of “significant language training.” DOD stated that, since it believed the current definition in the report may have taken the definition out of context, it would like to clarify what constitutes a “significant language training event,” noting that DOD Instruction 5160.71 defines such an event as “at least 150 hours of immersion training or 6 consecutive weeks of 5-hours-a day classroom training, or other significant event as defined by the Secretaries of the Military Departments and the Heads of Defense Agencies and DOD Field Activities.” DOD stated that this definition was not intended to be associated with the initial acquisition of a language, but rather is associated with modifying the retesting interval for someone who has already achieved a measured proficiency. In a follow-up discussion, DOD officials clarified that language training offered during predeployment training falls into the category of initial acquisition of a language, and therefore, under the instruction, testing for proficiency is not required. These officials noted, however, that the military services are not precluded from testing for language proficiency at this stage, and therefore have the option of administering tests. As we noted in our report, the Army has decided to exercise this option and is in fact testing the proficiency of its service members upon completing extensive predeployment training. Given the considerable investments that the Marine Corps is making to provide some marines with extensive language training prior to deploying to Afghanistan, we continue to believe it is prudent for the Marine Corps to take a similar approach to testing. In the absence of such action, we continue to believe that DOD may be missing an opportunity to gain greater visibility of the language skills of its forces and therefore effectively leverage this capability when making individual assignments and assessing future operational needs. Second, DOD acknowledged our recommendation to develop sustainment training programs to maintain and build upon service members’ language skills. The department noted that DOD Instruction 5160.70 emphasizes the importance of sustainment language and regional proficiency training and education programs for language professionals and language-skilled personnel. DOD stated that with an increasing number of general purpose forces attending predeployment language training at language training detachments, the department will examine ways to capitalize on the investments already made to ensure that it builds, enhances, and sustains a total force with a mix of language skills, regional expertise, and cultural capabilities to meet existing and emerging needs. DOD also provided detailed comments on each of our recommendations. DOD concurred with our recommendation that the Secretary of Defense direct the Secretary of the Army to establish clearly defined data fields for all mandatory language and culture training tasks within the Digital Training Management System and update Digital Training Management System records for soldiers that completed training prior to these fields being established. DOD stated that deficiencies within the Digital Training Management System have been identified and that the Army, in a December 2010 order, had directed the development of solutions to address these deficiencies. As stated in our report, we recognize that the Army directed that units record training in the Digital Training Management System. However, its direction did not include requiring that adjustments be made in the system. Specifically, it did not call for action to be taken to add new data fields for all required language and culture predeployment training tasks that would allow training officials to document soldiers’ completion of these tasks. Therefore, because the Army has not directed this action, we continue to believe that our recommendation has merit. DOD concurred with our recommendation that the Secretary of Defense direct the Secretary of the Army to document the language proficiency for soldiers completing predeployment language training within the Digital Training Management System and the Army Training Requirements and Resources System. DOD stated that most predeployment language training is of such short duration that language proficiency will not be measurable and that the department’s emphasis will be to document language proficiency for general purpose forces completing predeployment foundational language training (usually 16 weeks or longer) conducted at language training detachments. DOD also noted that the Total Army Personnel Database will remain the primary system for recording language proficiency of Army personnel. DOD further noted that the Army Training Requirements and Resources System already facilitates the requirement for tracking and reporting certain language and culture training courses. For example, DOD noted that the Army has, within the system, assigned specific codes for all language and culture training courses; modified functions to require a proficiency score for these courses; and assigned codes to each of the courses for a specific language. However, in its comments, DOD did not state whether the Army plans to take any actions to document language proficiency within the Digital Training Management System, as we also recommended. We continue to believe this action is needed to provide decision makers with better information on the language and culture knowledge and skills of soldiers to make individual assignments and assess future operational needs. DOD partially concurred with our recommendation that the Secretary of Defense direct the Secretary of the Navy, in consultation with the Commandant of the Marine Corps, to designate which training and/or personnel systems the Marine Corps should use to document the completion of marines’ language and culture training. DOD stated that, as outlined in our report, current Marine Corps systems, such as the Marine Corps Training Information Management System, are designed to track the completion of institutional training and professional military education, not the completion of individual and unit-level training. DOD stated that although efforts are being pursued that may eventually allow for this capability, the Marine Corps believes that a comprehensive cost-benefit analysis needs to be conducted beforehand in order to accurately capture the costs in time, fiscal resources, and infrastructure enhancements associated with implementation and determine whether those costs necessary to track the completion of language and culture training at the individual and unit levels are warranted, particularly when prioritized against other validated operational requirements in a fiscally- and time- constrained environment. We agree that the Marine Corps should consider the costs associated with documenting the completion of language and culture training beyond those already incurred at the unit level to record this information and determine whether the benefits are warranted. As part of its analysis, we would expect that the service would also consider the potential opportunity cost of not recording this information, such as how it might affect the ability of decision makers to make timely and informed decisions on assigning forces or assessing future operational needs if they do not have complete information on the knowledge and skills of their forces. DOD partially concurred with our recommendation that the Secretary of Defense direct the Secretary of the Navy, in consultation with the Commandant of the Marine Corps, to administer formal tests to marines completing a significant language training event using DOD’s agreed- upon method to measure proficiency, and ensure the results of these tests are documented in marines’ personnel records with the Marine Corps Total Force System. DOD stated that the Marine Corps’ predeployment language training programs are not specifically designed to produce a measurable language proficiency score using DOD’s agreed-upon method for measuring it. Rather, the programs are focused on the military/tactical domain, and are designed to provide marines with the communication skills necessary to accomplish a specific mission- related task/skill. DOD stated, however, that the Marine Corps is assessing the feasibility of incorporating metrics into its predeployment language training programs that would produce a proficiency score, such as using the Very Low Range series of Defense Language Proficiency Tests and oral proficiency interviews. DOD also restated the need for clarification in our report over what constitutes “significant language training,” noting that the current definition was not intended to represent initial acquisition of a language but rather is associated with modifying retesting intervals. As discussed previously, DOD officials clarified that the military services are not precluded from testing proficiency following the completion of courses that fall into the category of initial acquisition of a language, such as predeployment training. As we noted in our report, the Marine Corps has made considerable investments to provide some marines with extensive predeployment language training prior to deploying to Afghanistan. To date, the Marine Corps has not required these marines to take a Defense Language Proficiency Test system of tests to measure their language proficiency. Without this information, we continue to believe that DOD may be missing an opportunity to gain greater visibility of the language skills of its forces and therefore effectively leverage this capability when making individual assignments and assessing future operational needs. DOD partially concurred with our recommendation that the Secretary of Defense direct the Secretary of the Army and the Secretary of the Navy, in consultation with the Commandant of the Marine Corps, to determine which soldiers and marines with language skills require follow-on training, the amount of training required, and appropriate mechanisms for delivering the training, and make any adjustments to training programs that may be needed. DOD stated that the Army is formulating a plan for sustainment of language skills acquired at Army language training detachments and that such a plan would rely heavily on existing distributed learning resources. We would expect that as the Army develops this plan, it would specifically address which soldiers require additional training, the amount of training required, appropriate mechanisms for delivering the training, and whether any adjustments to existing training programs would be made. DOD also stated that the Marine Corps has made a decision to formally build and sustain language, regional, and culture skills via the Regional, Culture, and Language Familiarization program for general purpose forces that specifically targets its officer corps and enlisted ranks starting at sergeant and above. DOD noted that given high attrition rates for first-term enlisted marines, applying this program or other deliberate institutional programs designed to target the first-term enlisted population group have been deemed cost prohibitive. For these marines, language, regional, and culture skills are provided through predeployment training programs and common skills training, and sustained via informal mechanisms by providing access to language learning software and other computer- based technologies. We recognize that the Marine Corps has developed the Regional, Culture, and Language Familiarization program that is focused on its career force. However, as we stated in our report, the Marine Corps has made a considerable investment in time and resources to provide some marines with extensive predeployment language training in order to prepare them for ongoing operations in Afghanistan, but at this point, the Regional, Culture, and Language Familiarization program is not intended to maintain or build upon the language skills already acquired by these marines. In the absence of formal training to sustain these language skills, DOD may miss opportunities to capitalize on the investments already made to provide predeployment language training. We are sending copies of this report to the Secretary of Defense, the Under Secretary of Defense for Personnel and Readiness, the Secretary of Army, the Secretary of the Navy, and the Commandant of the Marine Corps. This report also is available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9619 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. To address our objectives, we met with officials from the Office of the Secretary of Defense, the Army, and the Marine Corps. To evaluate the extent to which the Army and Marine Corps captured information within service-level training and personnel systems on the completion of language and culture training and proficiency gained by personnel through training, we focused on Army and Marine Corps language and culture predeployment training programs administered since 2009 to prepare general purpose forces for ongoing operations in Afghanistan and Iraq. Therefore, for this review, we excluded service training programs for language and regional experts (e.g., foreign area officers and intelligence specialists) and special operations forces. We reviewed information available in service-level training and personnel systems and department-level information systems on service members’ completion of language and culture training and the corresponding acquisition of skills— specifically, the time frame when this training occurred and the proficiency service members had achieved. We defined “proficiency” using the Department of Defense (DOD) agreed-upon method for measuring it. We conducted interviews with Army and Marine Corps officials who are responsible for developing predeployment training programs and documenting information on training completion in service-level training and personnel systems. We also discussed the extent to which the services used these systems to record any proficiency gained from training, in particular the training that meets DOD’s definition of a significant language training event—at least 150 hours of immersion training or 6 consecutive weeks of 5-hour-a-day classroom training. We also interviewed officials with Army and Marine Corps units that were participating in predeployment training and units that were deployed in Afghanistan at the time of our review to discuss the extent to which they used service-level training and personnel systems and other processes to document the completion of language and culture predeployment training and proficiency gained from this training. In identifying Army and Marine Corps unit personnel to speak with, we selected an illustrative nongeneralizable sample of units that were deployed for contingency operations or preparing to deploy during the time frame of October 2010 through June 2011. We assessed the Army’s and Marine Corps’ efforts in light of DOD guidance that requires that the services document all language and regional proficiency training, education, and experience in training and personnel systems and Army and Marine Corps documents that state that language and culture training completion and corresponding proficiency should be documented in service-level systems. For our review, we focused on language and culture-related training, which DOD includes in its description of regional proficiency skills. We also discussed with Office of the Secretary of Defense and Army officials the content and status of ongoing departmental and Army efforts, such as the Army’s Language Tracking Task Force, which are intended to improve the accuracy of information on the language proficiency of service members available in personnel systems. To evaluate the extent to which the Army and Marine Corps have developed plans to sustain language skills acquired through predeployment training, we interviewed Army and Marine Corps training officials to discuss the extent to which the services had developed specific training programs for general purpose forces to sustain language skills. We interviewed officials with Army and Marine Corps units that were participating in predeployment training and units that were deployed in Afghanistan at the time of our review to discuss formal programs used by service members to sustain skills acquired through language training. We also discussed other informal training programs that were available to service members to sustain language skills. In identifying Army and Marine Corps unit personnel to speak with, we selected an illustrative nongeneralizable sample of units that were deployed for contingency operations or preparing to deploy during the time frame of October 2010 through June 2011. To gain an understanding of the investments associated with predeployment language training, we collected information from service training officials on the number of soldiers and marines completing training from January 2009 through July 2011, the amount of time spent in training, and the cost of these training programs. To ensure the reliability of our data, we interviewed knowledgeable officials about the data and internal controls on the systems that contain them. We determined that the data were sufficiently reliable for the purposes of this audit. We reviewed Army and Marine Corps training programs and plans in light of DOD and service guidance that emphasize the need to sustain language skills and the DOD strategic plan for language, regional, and culture skills that calls for the services to build on existing language skills for future needs. To gain insights on Army and Marine Corps units’ perspectives on capturing information on language and culture training in service-level training and personnel systems and discuss any steps taken to sustain skills acquired through language training, we interviewed officials with Army and Marine Corps units that were participating in predeployment training and that were deployed in Afghanistan at the time of our review. Specifically, we met with officials with one Army brigade combat team preparing for deployment and five subordinate combat arms and support battalions, three Marine Corps combat arms and one support battalion preparing for deployment, and through formal requests for information from the United States Forces Afghanistan staff, we received written responses from three Army combat arms and two Army support brigades deployed in Afghanistan. The team focused on combat arms units because training guidance from the battlefield commander focused on language training for these units. We interviewed officials, and where appropriate obtained documentation, at the following locations: Office of the Secretary of Defense  Office of the Under Secretary of Defense for Personnel and  Office of the Deputy Chief of Staff, G1  Office of the Deputy Chief of Staff, G2  Office of the Deputy Chief of Staff, G3/5/7  Assistant Secretary of the Army, Manpower and Reserve Affairs  Army Forces Command  Army Reserve Command  Army Training and Doctrine Command  Center for Army Lessons Learned  Combined Arms Center  Defense Language Institute Foreign Language Center  Training and Doctrine Command Culture Center  First United States Army  Marine Corps Training and Education Command  Center for Advanced Operational Culture Learning  Marine Corps Air-Ground Task Force Training Command  Marine Corps Center for Lessons Learned  Marine Corps Forces Command  Marine Corps Forces, Pacific I Marine Expeditionary Force  II Marine Expeditionary Force  III Marine Expeditionary Force   U.S. Forces Afghanistan We conducted this performance audit from June 2010 to October 2011 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. GAO DRAFT REPORT DATED SEPTEMBER 15, 2011 GAO-12-50 (GAO CODE 351506) “LANGUAGE AND CULTURE TRAINING: OPPORTUNITIES EXIST TO IMPROVE VISIBILITY AND SUSTAINMENT OF KNOWLEDGE AND SKILLS IN ARMY AND MARINE CORPS GENERAL PURPOSE FORCES” RECOMMENDATION 1: The GAO recommends that the Secretary of Defense direct the Secretary of the Army to establish clearly defined data fields for all mandatory language and culture training tasks within the Digital Training Management System and update Digital Training Management System records for soldiers that completed training prior to these fields being established. DoD RESPONSE: Concur. The deficiencies identified within the Digital Training Management System (DTMS) have been identified and the development of solutions addressing these deficiencies has been directed by HQ Department of Army Execution Order of December 2010 regarding the implementation of the Army Culture Foreign Language Strategy. RECOMMENDATION 2: The GAO recommends that the Secretary of Defense direct the Secretary of the Army to document the language proficiency for soldiers completing predeployment language training within the Digital Training Management System and the Army Training Requirements and Resources System. DoD RESPONSE: Concur. Most predeployment language training is of such short duration that language proficiency will not be measurable. Rather, emphasis will be to document language proficiency for general purpose forces (GPF) completing predeployment foundational language training (usually sixteen weeks or longer) conducted at Language Training Detachments. The Total Army Personnel Database will remain the primary system for recording language proficiency of Army personnel. The Army Training Requirements and Resources System (ATRRS) already facilitates the requirement for tracking and reporting language and culture training through completion of ATRRS managed training courses. ATRRS has assigned a specific “select code” for all identified Language Culture Training Courses for reporting purposes. ATRRS has modified Input and Graduate functions to require a proficiency score for Language Culture Training Courses. Additionally, ATRRS has assigned a Language Identification Code to each of the Language Culture Training Courses for a specific language. Finally, reports can be requested within ATRRS to track/analyze the above actions. ATRRS routinely provides training completion transactions to the Total Army Personnel Database in support of its role as the Army’s authoritative source/system of record for personnel data. RECOMMENDATION 3: The GAO recommends that the Secretary of Defense direct the Secretary of the Navy, in consultation with the Commandant of the Marine Corps, to designate which training and/or personnel systems the Marine Corps should use to document the completion of marines’ language and culture training. DoD RESPONSE: Partially concur. As outlined in the report, current Marine Corps systems such as the Marine Corps Training Information Management System (MCTIMS) are designed to track completion of institutional training and professional military education, not completion of individual/unit-level training. Though efforts are being pursued that may eventually allow for this capability, to include the possible addition of a module to MCTIMS and other efforts to track IW-related individual skills, the Marine Corps believes a comprehensive cost- benefit analysis needs to be conducted beforehand in order to: 1) accurately capture the “real costs” in time, fiscal resources, and infrastructure enhancements associated with implementation; and 2) determine whether those real costs/additional expenditures in time, resources, and funding necessary to implement tracking completion of language and culture training at the individual and unit-levels is worth the cost, particularly when prioritized against other validated operational requirements in a fiscally and time constrained environment. RECOMMENDATION 4: The GAO recommends that the Secretary of Defense direct the Secretary of the Navy, in consultation with the Commandant of the Marine Corps, to administer formal tests to marines completing a significant language training event using DOD’s agreed upon method to measure proficiency, and ensure the results of these tests are documented in marines’ personnel records with the Marine Corps Total Force System. DoD RESPONSE: Partially concur. The Marine Corps’ predeployment language training programs are not specifically designed to produce a measurable global proficiency score on the ILR scale. The program is focused on the military/tactical domain, and is designed to provide the Marine with the communication skills necessary to accomplish a specific mission related task/skill. Developing measures of effectiveness that target performance based requirements, vice global proficiency, is what is truly needed. This is accomplished by the Marine Corps during mission rehearsal exercises such as Enhanced Mojave Viper prior to deployment. With the introduction of the Very Low Range series of Defense Language Proficiency Tests (DLPT) and oral proficiency interviews, the Marine Corps is assessing the feasibility of incorporating these metrics into the predeployment language training programs. Additionally, clarification is required to determine what constitutes “significant language training.” There is concern that the current definition being utilized may have been taken out of context, and was not intended to represent initial acquisition of a language but rather is associated with modifying retesting intervals. RECOMMENDATION 5: The GAO recommends that the Secretary of Defense direct the Secretary of the Army and the Secretary of the Navy, in consultation with the Commandant of the Marine Corps, to determine which soldiers and marines with language skills require follow-on training, the amount of training required, and appropriate mechanisms for delivering the training, and make any adjustments to training programs that may be needed. DoD RESPONSE: Partially concur. The Marine Corps has made a decision to formally build and sustain language, regional, and culture skills via deliberate institutional programs for the GPF that specifically targets its Career Force. As outlined in the report, the Regional, Culture, and Language Familiarization (RCLF) Program is designed to build, enhance, and sustain these critical enablers in a focused, deliberate manner for its Career Force, comprised of its officer corps and enlisted ranks starting at sergeant and above. Given the very high first term enlisted attrition rates characteristics of the Marine Corps, robust application of the RCLF Program, or implementation of other deliberate institutional programs designed to target the first term enlisted population group, have been deemed cost prohibitive. At this level, language, regional, and culture skills are provided through predeployment training program and common skills training, and sustained via informal mechanisms by providing access to language learning software and other computer based technologies. As for the Army, it is formulating a plan for sustainment of language skills acquired at the Language Training Detachments. Such a plan would rely heavily on existing distributed learning resources. In addition to the contact named above, Patricia Lentini, Assistant Director; Nicole Harms; Mae Jones; Susan Langley; Michael Silver; Amie Steele; Matthew Ullengren; and Chris Watson made significant contributions to this report.

The Department of Defense (DOD) has emphasized the importance of developing language skills and knowledge of foreign cultures to meet current and future needs and is investing millions of dollars to provide language and culture predeployment training to its general purpose forces. DOD has also noted that such training should be viewed as a long-term investment and that training and personnel systems should better account for the knowledge and skills of service members acquired through training to help manage its forces. The committee report accompanying a proposed bill for the National Defense Authorization Act for Fiscal Year 2011 (H.R. 5136) directed GAO to review language and culture training for Army and Marine Corps general purpose forces. For this report, GAO evaluated the extent to which these services (1) captured information in training and personnel systems on the completion of language and culture predeployment training and proficiency gained from training and (2) developed plans to sustain language skills acquired through predeployment training. GAO analyzed service documents and interviewed cognizant officials. The Army and Marine Corps have documented some information at the unit level for service members who completed language and culture predeployment training, but the services have not fully captured information within service-level training and personnel systems on service members who completed training or their corresponding proficiency. DOD and service guidance require the services to document language and culture training completion and proficiency gained from training in service-level systems. However, GAO identified several factors that limited the services' ability to implement this guidance. For example, the Army's primary training system did not have data fields for all mandatory language and culture tasks and, as a result, units were unable to document the completion of this training. In addition, while the Army collects some language proficiency data within its primary personnel system, the Army considers these data unreliable because of weaknesses in its approach to collecting them. To improve the accuracy of information within this system, the Army established a task force in January 2011, which has identified a number of key tasks and is at varying stages of completing its work. The Marine Corps did not document language and culture predeployment training completion in any servicewide training or personnel system and a system has not been designated for this purpose. Further, the Marine Corps had not required marines who completed significant language training to take formal proficiency tests and, therefore, the service did not have language proficiency data for these marines. By not capturing information within service-level training and personnel systems on the training that general purpose forces have completed and the language proficiency gained from training, the Army and Marine Corps do not have the information they need to effectively leverage the language and culture knowledge and skills of these forces when making individual assignments and assessing future operational needs. The Army and Marine Corps have not developed plans to sustain language skills already acquired through predeployment training. The services have made considerable investments to provide some service members with extensive predeployment language training. For example, as of July 2011, over 800 soldiers have completed about 16 weeks of Afghan language training since 2010 at a cost of about $12 million. DOD and service guidance address the need to sustain language skills and the DOD strategic plan for language, regional, and culture skills calls for the services to build on existing language skills for future needs. However, we found that the services had not yet determined which service members require follow-on language training to sustain skills, the amount of training required, or appropriate mechanisms to deliver the training. Although informal follow-on training programs were available to sustain language skills, such as computer-based training, these programs were voluntary. In the absence of formal sustainment training programs to maintain and build upon service members' language skills, the Army and Marine Corps may miss opportunities to capitalize on the investments they have already made to provide predeployment language training for ongoing operations. GAO made recommendations intended to improve the availability of information on training completion and proficiency and help DOD plan for sustainment training. DOD generally agreed with the recommendations, but stated that the definition of significant language training was not intended to describe training for initial skills. However, DOD noted that current guidance does not preclude language proficiency testing at this stage.

You are an expert at summarizing long articles. Proceed to summarize the following text: FEHBP is available to federal employees, retirees, annuitants, and their dependents. In 1997, approximately 9 million beneficiaries participated in 374 FEHBP plans nationwide at a cost of approximately $16.3 billion—$12.1 billion paid by the government and $4.2 billion by enrollees. In comparison, DOD provided care to about 6.3 million beneficiaries in fiscal year 1997 at a total cost of approximately $15.6 billion, which also includes its costs for medical readiness and training, military deployments, veterinary services, and occupational health. See appendix III for a historical comparison of DOD and FEHBP beneficiary numbers and program costs. The federal share of the FEHBP premium is about 72 percent, not to exceed 75 percent of any plan’s premium. The types of FEHBP plans—HMOs, managed fee-for-service plans, and plans offering a point of service product—are similar to TRICARE’s three options. And although not all plans are available in all localities, each type is. FEHBP enrollees, depending on where they live, can choose from between 10 and 30 plans, including such fee-for-service plans as Blue Cross and Blue Shield and such health maintenance organizations as Kaiser Permanente. More than 85 percent of federal employees participate in FEHBP. To differing degrees, all FEHBP plans cover inpatient and outpatient care, prescription drugs, and mental health services, and many cover some dental care expenses. They also have limits on catastrophic out-of-pocket costs in the case of expensive health care problems. For Medicare-eligible beneficiaries, many FEHBP plans operate as a “wraparound” policy to Medicare, giving retirees comprehensive coverage with no or small copayments and deductibles. Along with the bills’ individual price-tags, several other key issues cut across them to extend FEHBP coverage to military beneficiaries. The issues include (1) who would be eligible and, among those, how many might be attracted to FEHBP and might choose to enroll; (2) how premiums would be set and what the cost-sharing arrangement would be; (3) whether FEHBP enrollees would be prohibited from also using military health care; and (4) whether the FEHBP option should be tested before deciding on nationwide implementation. Each FEHBP option’s first consideration, tempered by overall cost considerations, is who would receive the benefit. Many of the bills would provide eligibility only for Medicare-eligible beneficiaries aged 65 and older—approximately 1.3 million retirees, dependents, and survivors.The Military Coalition, an alliance of beneficiary associations including The Retired Officers’ Association and the National Military Family Association, favors this approach as responding to the immediate needs of persons with declining direct care system access and as a way to reduce the option’s price tag. Other bills would extend FEHBP eligibility beyond Medicare-eligibles to certain other military beneficiaries. The maximum number of eligible beneficiaries under the bills studied would range from an estimated 50,000, under the most limited demonstration bills, to almost 3 million, under the bill with the broadest eligibility definition. Projecting FEHBP enrollment under the various options requires making assumptions about beneficiaries’ behavior, including their coverage choices, cost consciousness, and risk aversion. Many TRICARE-eligible beneficiaries have care alternatives that they may find more attractive than FEHBP. For those who are most concerned with cost and are eligible for TRICARE Prime, Prime would likely be more attractive, because most FEHBP plans would cost more than TRICARE Prime’s enrollment fee. For example, FEHBP’s lowest-cost HMO is Foundation Health, available in South Florida, at $279 per year for a single enrollee and $787 per year for a family. This compares with Prime, which has no annual fee for active duty singles or families and a fee of $230 for single retirees or $460 for retiree families. And Prime’s guarantee of priority access to free care in military facilities may be more attractive to many who live near facilities than FEHBP’s plan choices. Alternatively, a beneficiary could participate in TRICARE Standard or Extra for no annual fee and make use of available free care and prescriptions at a nearby military facility. In contrast, FEHBP’s lowest-cost nationwide fee-for-service plan, Mail Handlers Standard, costs $1,030 for family coverage, and the lowest-cost point-of-service plan, United HealthCare Puerto Rico, is $1,019 per year. These plans, like TRICARE Standard and Extra, may require beneficiaries to meet an annual deductible and may charge copayments typically ranging from 20 to 30 percent of care costs. Also, persons with private insurance coverage may find their costs lower than those under FEHBP—many large employers pay a greater plan premium share than the government’s 72 percent of FEHBP premiums. However, the benefits covered under some private plans may not be as generous as FEHBP, and some studies have indicated a decline in employer coverage of retiree health benefits. Finally, for beneficiaries generally dissatisfied with their access to care or choices under TRICARE or private plans, FEHBP’s wide array of choices would likely be more attractive. FEHBP would likely be more attractive and beneficial to Medicare-eligible beneficiaries, who also may have alternative health care choices but find them less comprehensive and more costly than FEHBP. FEHBP’s advantages for senior beneficiaries include prescription drug coverage and catastrophic limits on out-of-pocket costs: Medicare covers neither. And on the basis of FEHBP’s current federal employee cost-sharing provisions, senior retirees could pay lower premiums for more coverage than they would under private Medigap policies that they purchase to supplement Medicare’s coverage. For example, in 1997 an enrollee’s share of the premium for the five largest plans in FEHBP with comprehensive coverage, including prescriptions and some dental coverage, ranged from about $370 to $1,750, compared with Medigap plans, which have premiums ranging from $750 to almost $3,000 but offer no dental benefits and limit prescription coverage to 50 percent of drug costs, after payment of a $250 deductible. Medigap plans also have maximum benefit limits on prescriptions ranging from $1,250 to $3,000. Further, for retirees with both Medicare part A (hospital) and part B (physician and laboratory services and outpatient care) coverage, most FEHBP fee-for-service plans operate as a “wraparound” policy to Medicare, providing comprehensive coverage and waiving most copayments and deductibles. For those who have Medicare part A but who have not purchased part B, FEHBP plans generally do not waive the copayments and deductibles but provide the same coverage as for non-Medicare enrollees. Alternatively, many Medicare-eligible beneficiaries can now join an HMO or other health care plan under the expanded Medicare+Choice program. Approximately 50 percent of Medicare-eligible military retirees live in a county in which 10 percent or more Medicare beneficiaries are enrolled in Medicare HMOs, indicating that they have access to at least one Medicare HMO. Many such plans offer coverage comparable to FEHBP HMOs, including prescription drugs, vision care, and even dental care at low or zero premiums. A significant unknown is the extent to which these plans’ growing availability might affect beneficiaries’ decisions to enroll in FEHBP. Further, those who already have health care insurance paid in full or in part by their current employer—about 17 percent of older retirees—might not elect FEHBP if it cost more than their current coverage. Also, some number of senior retirees will have guaranteed access to DOD health care by enrolling in the recently authorized Medicare subvention demonstration. Finally, those with high risk tolerance, in good health, and living near large military facilities may forgo FEHBP and continue taking their chances in gaining access to free space-available care. Premium-setting and cost-sharing provisions also differ under the bills and would likely affect beneficiaries’ decisions about participating in FEHBP. OPM, which administers FEHBP, would set the premiums for plans that participate in the military FEHBP option separately from the federal groups’ premiums. According to OPM, if a sizable group were added to FEHBP, it would be appropriate to keep those enrollees separate from the federal participants, called a risk pool. A separate risk pool—required under all but two of the bills (H.R. 1631 and H.R. 2100)—would protect federal participants from large changes in premiums because of a military population that may have different health care usage and cost patterns. Most of the bills stipulate separate risk pools until a cost and health care use pattern similar to that of civilian FEHBP enrollees has been established and until merging with the federal civilian pool can be safely done. Thus, military beneficiaries’ premiums could be different from those under the federal civilian program. OPM officials told us that they could not prospectively estimate military enrollees’ potential premiums without a final plan and detailed data on military beneficiaries’ historical health care use patterns. However, because not all military beneficiaries get their care from DOD, this historical use data may not be available. Despite past studies showing higher health care use by military beneficiaries than the civilian population, OPM believes that the initial military premiums would not be markedly different from the federal pool and that future use by military FEHBP enrollees, because of the premium and copayment effects on usage patterns, would approximate that of the federal pool. The bills’ provisions for sharing premium costs between DOD and enrollees also differ. Under some bills, the enrollee premium amount for military beneficiaries would be the same as for federal civilians enrolled in the same FEHBP plans, with DOD contributing the remainder, up to the total premium. Under this arrangement, DOD’s—and thus the government’s—share of the premium could be greater than the 72 percent the government now pays on average toward civilian FEHBP premiums and more in total dollars if, under separate risk pools, the military premiums are higher than civilian premiums. Other bills could move the cost burden to beneficiaries by limiting DOD’s share to what is now paid on civilian FEHBP enrollees’ behalf. Thus, should the military program’s premiums be higher than in the federal civilian plan, beneficiaries would likely pay more than civilian enrollees. Another bill’s premium-sharing arrangement would have the total premium set at civilian FEHBP levels and allow DOD to determine its premium share. Under this arrangement, DOD could set different shares for different beneficiary groups such as families of enlisted personnel and officers or active duty families and retirees and their families. Another key issue is whether military FEHBP participants would also be allowed to continue using military facilities on a space-available basis or enroll in TRICARE or both. In commenting on past proposals similar to the bills, OPM has stated that military enrollees should be clearly committed to FEHBP and that it should be their exclusive vehicle for health care coverage. Also, OPM officials told us that military beneficiaries who enroll in FEHBP should, if they disenroll, be prevented from reenrolling in FEHBP. Disenrollment is allowed under each of the bills, and most bills propose that FEHBP cancellation be irrevocable. Nonetheless, all but three would allow concurrent DOD and FEHBP care use. Current law allows eligible military beneficiaries access to space-available military facility care and TRICARE civilian care, regardless of other insurance coverage. Also, military retirees who are now active or retired federal employees and are FEHBP enrollees have both benefits—although neither OPM nor DOD has analyzed how much they use either care source. Such dual use and the lack of a total enrolled population have exacerbated the MHS’s recurring problems with respect to estimating and budgeting for care use and containing costs. DOD estimates that about two-thirds of eligible beneficiaries who are not active duty members rely on the DOD system, although the numbers of those who partially use the system along with other benefits is likely much larger. Should concurrent DOD and FEHBP use be allowed, the government would in effect be providing affected beneficiaries with coverage that is duplicative and unnecessarily costly. If beneficiaries were required to elect either FEHBP or DOD care, such benefit redundancy and associated costs could be guarded against. Precedent for such a requirement already exists in DOD’s Uniformed Services Treatment Facilities (USTF) managed care program, under which enrollees agree to receive all their care from that program and forgo DOD care and Medicare. Allowing concurrent FEHBP and DOD care use also has DOD sizing and readiness implications. Should many current DOD care users switch to FEHBP, prohibiting concurrent use would allow DOD to downsize or close additional military facilities to help fund FEHBP costs. As it is, DOD’s $15.6 billion annual MHS appropriation is not sufficient to fund care for all DOD-eligible beneficiaries; it will fund only those now using the system. Therefore, should FEHBP attract beneficiaries not now using DOD, then system downsizing may not be feasible and the added costs could be significant. Should concurrent use be allowed, however, some revenue could be generated by DOD’s collecting third-party payments from FEHBP plans. FEHBP plans are now permitted to reimburse MTFs that provide care to dually eligible beneficiaries. In such cases, the FEHBP plan is the primary insurer. In contrast, when a Medicare-eligible beneficiary is also enrolled in FEHBP, Medicare is usually the primary payer and the FEHBP plan is the secondary payer. Because MTFs are currently prohibited by law from billing Medicare (except under the Medicare subvention demonstration), revenue from Medicare-eligibles enrolled in FEHBP plans would be less than that from younger beneficiaries. Also, DOD facilities are usually not part of FEHBP HMOs’ provider networks and thus would likely receive reimbursement only for providing emergency care to DOD eligibles enrolled in those plans. Moreover, should large numbers of DOD beneficiaries enroll in FEHBP and reduce their DOD care use without consequent direct care downsizing, DOD might need to seek out FEHBP enrollees who are also DOD beneficiaries in order to maintain facility use levels and might need to continue to aggressively seek FEHBP plan reimbursement to help offset its overall costs. In creating the TRICARE Prime benefit, members of the Congress and DOD sought reduced out-of-pocket costs for all beneficiaries, including an enrollment fee of zero for active duty members and their families and low fees for retirees and their dependents. The resulting TRICARE Prime fees are two-tiered. Active duty members and their families pay no annual fees or deductibles, while retirees annually pay $230 per individual or $460 per family. Most of the bills we reviewed would structure the FEHBP option such that military enrollees would pay the same dollar amount as similarly situated federal enrollees—that is, no payment differential would be made based on grade or position. Currently, civilian enrollees in FEHBP plans pay the same amount per plan regardless of their grade or position. Other bills would authorize DOD to determine the premium share that it would pay, thus enabling it, should it choose, to structure premiums so that they account for enrollees’ beneficiary category, such as is done in TRICARE.The premium amounts charged to military beneficiaries would likely have significant effects on how many chose to enroll in FEHBP. Moreover, beneficiary groups have expressed concern that FEHBP plans may be less affordable for enlisted members than for officers. Nonetheless, such groups believe that many beneficiaries would be willing to pay the added FEHBP costs for its choice and care availability. Some of the bills authorize a demonstration program before deciding on full implementation. In our view, this would be prudent, particularly with respect to determining the extent of beneficiaries’ interest in the program and, thus, providing a better basis for estimating program costs. But enough carefully chosen sites will be needed so that the results might be generally representative of a program implemented nationwide. Health care use and choices tend to be relatively local and, thus, a test with too few localities and types of health care options could have results that would not be replicated across the country. However, limiting enrollment and sites would allow the test to be appropriately isolated, would allow its results to be compared with control sites, and would otherwise allow it to be properly studied. The demonstration’s evaluation would be critical to determining whether to authorize more widespread use of the program. Such an evaluation, however, would need to have open access to all enrollment, use, and cost records of DOD, OPM, and the participating FEHBP plans. Officials from DOD and OPM provided oral comments on a draft of this report. DOD and OPM generally agreed with our representation of the facts and related issues. They provided technical comments that we have incorporated where appropriate. Major contributors to this report were Catherine O’Hara, Evaluator-in-Charge, and Mary Reich, Office of the General Counsel. If you have any questions or would like to discuss the matters further, please call me at (202) 512-7101 or Dan Brier, Assistant Director, at (202) 512-6803. We reviewed nine bills introduced in the 105th Congress that would authorize enrollment in FEHBP plans for selected military beneficiary groups. In this appendix, we provide our detailed analysis of each bill, including eligibility and premium-sharing provisions, whether concurrent use of DOD health care is allowed, and the implications for MHS operations and beneficiary costs. This bill allows nationwide FEHBP participation by certain Medicare-eligible military beneficiaries. There are approximately 1.3 million such beneficiaries; however, the bill allows OPM to limit enrollment if it deems this necessary for managing the program. The bill also allows enrollees to continue receiving services from military medical facilities, DOD’s civilian TRICARE network, and TRICARE Standard providers—while permitting DOD to bill FEHBP plans for care from any such sources. Military enrollees would be a separate risk pool with separately calculated premiums. Beneficiaries would pay the same dollar amount toward plan premiums as similarly situated federal employees, and DOD would pay the amount remaining in the total premium after the enrollees’ contribution. A beneficiary’s decision to disenroll from FEHBP would mean that he or she could not return to FEHBP. With disenrollees barred from reenrolling, the system’s stability would be maintained. Finally, the bill requires an extensive evaluation to measure participation, out-of-pocket costs, and overall government costs, as well as an analysis of the program’s effects on the military health care system’s cost and access and use rates. While military beneficiary groups in the Military Coalition extensively support the enactment of legislation authorizing nationwide FEHBP participation immediately, they believe that the approach’s high potential cost would likely doom any bill’s passage. Thus, they have chosen to support Representative Moran’s more limited demonstration legislation, H.R. 1766, to gather evidence that the program is cost-effective. This bill approves nationwide FEHBP participation for Medicare-eligible military beneficiaries, other beneficiaries who cannot enroll in TRICARE because of capacity or geographic limits, and those who are not guaranteed care access under TRICARE Standard comparable to the FEHBP plan with the most generous benefit, such as the Blue Cross and Blue Shield high-option plan. Premium-setting and sharing provisions are the same as for H.R. 76. Also, the bill contains reporting requirements identical to those in H.R. 76. In addition, the bill mandates that TRICARE Standard benefits be comparable to the highest benefits offered under FEHBP and that provider reimbursement rates be the same as the highest FEHBP plan. Provisions requiring that TRICARE Standard benefits and reimbursements be equal to those of the highest FEHBP plan’s level would be difficult and costly to implement. While the benefit package offered under a plan such as FEHBP’s Blue Cross and Blue Shield high option may be more generous than TRICARE in terms of covered services and copayments, the option’s total premium cost—at $7,250 annually for a family (enrollee pays $3,551, government pays $3,699)—is one of FEHBP’s highest. And participation in TRICARE Standard and Extra requires no premiums. Thus, improving the TRICARE Standard benefit without a comparable increase in beneficiary contributions would be likely to increase DOD’s total cost. Further, requiring that provider reimbursements be equal to the highest option under FEHBP would entail determining actual provider reimbursements under FEHBP. This would be extremely difficult because of the wide range of reimbursement methods across plans, because plans guard this information as proprietary, and because OPM does not maintain records on this type of information. Further, if current rates are bringing about desired care access and quality outcomes, then increasing them to coincide with the highest FEHBP rates becomes cost-ineffective. Eligibility under this bill’s provisions would also be likely to extend to few active duty dependents or younger retirees, because the required benefit change would mean that no TRICARE-eligible beneficiary would have a benefit level less than Blue Cross and Blue Shield high option. Further, where TRICARE Prime is available, according to DOD, no eligible beneficiary has been refused enrollment. Also, TRICARE Prime availability is expanding and is now available in 90 percent of the zip codes in many regions, and new contracts require coverage wherever active duty members live. Thus, only Medicare-eligible beneficiaries would be likely to be eligible for FEHBP under the bill’s terms. Beneficiary associations affiliated with the Veterans’ Alliance, such as the National Association of the Uniformed Services, favor Representative Watts’s bill because it would restore the TRICARE Standard benefit level to that in the legislation authorizing the civilian health insurance benefit for military beneficiaries—the Dependents’ Medical Care Act of 1956. Further, they support immediate enactment and nationwide FEHBP implementation instead of an initial demonstration because many senior beneficiaries would benefit immediately rather than in a phased-in way through a demonstration. This bill authorizes nationwide FEHBP participation for about 1.3 million Medicare-eligible military retirees, dependents, and survivors at the same contribution amount as federal employees and retirees. There would be a separate risk pool, and DOD would pay the difference between enrollees’ contributions and the total premiums. FEHBP enrollees would continue to be eligible for military facilities’ space-available care, and DOD would be permitted to bill FEHBP plans for care that its facilities provided to those enrollees. Also, the bill authorizes Medicare reimbursement for Medicare-eligible beneficiaries cared for in the military medical care system—known as Medicare subvention. Further, the bill requires DOD to pay the late-enrollment penalties for beneficiaries who fail to enroll in Medicare part B, the Medicare portion covering physicians’ visits, outpatient care, laboratory tests, and home medical equipment. This bill requires that DOD and OPM conduct an annual study of the FEHBP provisions and that improvements be made to the TRICARE program similar to those under H.R. 1356. If those changes are not made, the bill requires that beneficiaries other than Medicare-eligibles be allowed to participate in FEHBP as well. The 1997 Balanced Budget Act authorized a 3-year demonstration of Medicare subvention at six sites beginning in 1998. The passage of H.R. 1456, therefore, would likely supersede the demonstration before its viability and cost-effectiveness data could be studied. We are now evaluating this demonstration and are required to provide annual reports to the Congress during its 3-year duration. Our June 1997 report on alternatives for military retirees’ health care analyzed the Medicare subvention approach to providing senior retirees’ care at military facilities and compared that approach with the FEHBP option, among others. Enrollment in Medicare part B is voluntary. However, if beneficiaries do not enroll at age 65, when they are first eligible, they must pay a penalty should they later do so. That penalty is substantial, calculated at 10 percent of the monthly premium for each year past the first year of eligibility. Thus, a 65-year-old beneficiary who does not enroll and chooses to do so at age 70 faces a monthly premium 50-percent higher than the normal premium. According to a recent DOD survey, approximately 10 percent of military retirees aged 65 and older do not have Medicare part B. FEHBP participation does not require that Medicare-eligible beneficiaries be enrolled in part B, and neither does this bill. However, because each fee-for-service FEHBP plan waives its hospital and medical deductibles and copayment for members enrolled in part A and part B, if beneficiaries do have part B and choose such a plan as Blue Cross and Blue Shield, they would have nearly 100-percent coverage. Because part B is not required but adds to the benefit for enrollees, having DOD pay the part B penalties would seem to be an unnecessary expense for DOD. This bill authorizes FEHBP participation for all active duty dependents, retirees and their dependents, and survivors. It also extends the FEHBP option to certain former spouses of military members and retirees and to persons eligible for continued DOD health care system coverage. We estimate that about 6.5 million beneficiaries would be eligible for participation. The bill, however, temporarily limits the total number of program participants to 100,000 the first year, 200,000 the second year, and 400,000 the third year, with participants to be selected randomly from all those who are eligible and seeking to enroll. The FEHBP enrollees are ineligible for military facility care or TRICARE and must stay in FEHBP for a minimum of 3 years. However, the bill does permit DOD to contract with plans to provide certain services to military beneficiaries enrolled in FEHBP plans. If FEHBP coverage is dropped, beneficiaries could not reenroll in FEHBP until the 3-year period passes. Further, eligibility for DOD care cannot be restored until the 3-year period passes. Thus, beneficiaries who disenrolled from FEHBP before the end of the 3-year enrollment term would be without DOD or FEHBP health care coverage until the end of that period. The total FEHBP premium charges are the same as in the civilian federal program. Beneficiaries’ premium charges are based on the contribution made by DOD. The bill does not require DOD to contribute a particular amount toward the FEHBP plan but allows the Secretary of Defense to determine the amount of DOD’s contribution. Comparatively, this bill offers the least restrictive eligibility, and it would be phased in over 3 years. The phase-in period would allow for testing and needed program refinements before full implementation. Further, requiring beneficiaries to elect either the military care system or FEHBP would help stabilize both programs’ beneficiary population and aid in forecasting costs and care use. This bill authorizes FEHBP participation for the 1.3 million Medicare-eligible DOD beneficiaries and prohibits concurrent eligibility for military facility care, but FEHBP disenrollment is irrevocable. Beneficiaries’ FEHBP premium share is the same amount as for similarly situated federal employees, and a separate military enrollee risk pool would be established. DOD would contribute the remaining amount up to the total premium. Like all the bills but H.R. 1631 and H.R. 2100, it requires DOD and OPM to extensively study the program each year of its operation. Representative Stearns has also introduced a bill, H.R. 2100, that authorizes an FEHBP demonstration. This bill authorizes FEHBP participation by Medicare-eligible beneficiaries in lieu of DOD facility care. The bill allows OPM to limit enrollment if necessary for management purposes. Enrollees’ FEHBP premiums are the same amount as for similarly situated federal employees, and a separate military enrollee risk pool would be established. DOD would contribute the remaining amount up to the total premium. Beneficiaries who disenrolled from FEHBP and returned to the DOD system would not be permitted to reenroll in FEHBP. Annual DOD and OPM reports, similar to those of H.R. 2128, would also be required. These two bills are identical and authorize a 2- to 3-year demonstration program for Medicare-eligible beneficiaries at two sites. The bills set forth that the sites should be (1) an area that includes one or more military medical facilities and contains fewer than 25,000 eligible beneficiaries and (2) an area that does not include any military medical facility but contains fewer than 25,000 who are eligible. Enrollees do not need Medicare part B coverage, but the bills require that enrollees with such coverage retain it throughout the demonstration. A separate risk pool would be established, and DOD’s premium share could not exceed that paid for a civilian FEHBP enrollee in the same plan. Therefore, if their total premiums were higher, military enrollees might pay more for FEHBP plans than civilians. Those who disenrolled from FEHBP could not reenroll during the demonstration. These bills also require annual DOD and OPM studies to address participation rates, beneficiary and government costs, and a cost comparison with other care alternatives. Limiting enrollment under these demonstration bills limits the government’s cost and provides some evidence of military beneficiaries’ interest in the program. But using only two test sites might limit the usefulness for predicting the effects of nationwide implementation. Because Medicare and FEHBP choices vary widely in different areas of the country and because military facilities also differ markedly, it would be difficult to select sites from among those meeting the bills’ proposed criteria where results would be representative of the country as a whole. Only the San Diego Naval Hospital, California, and MacDill Air Force Base, Florida, catchment areas and six noncatchment areas—northern and southern California, eastern Florida, eastern Texas, and the states of Georgia and Pennsylvania—have more than 25,000 Medicare-eligible beneficiaries. Thus, all other areas in the continental United States would be possible test sites. This bill authorizes a 2-year FEHBP test in at least one DOD health care region for all Medicare-eligible beneficiaries in the test area and active duty dependents and retirees under age 65 who live in the test region but outside the TRICARE Prime option’s availability range. The bill does not address cost-sharing requirements, whether concurrent eligibility for military facility care would be allowed, or whether separate risk pools would be established. Unlike the other bills, demonstration participants could also use medical savings accounts. Participants are allowed up to a 25-percent tax credit for payments made annually to their medical savings accounts. The bill requires DOD, in consultation with the Treasury Department, to prepare a demonstration implementation plan within 6 months of enactment. Testing the program in one or more DOD health care regions might provide a better basis for determining participation rates and program costs than would the more limited H.R. 1766 and S. 1334 tests, but it might not be possible to choose regions that typify all DOD’s regions. Which regions are selected would also determine how many younger beneficiaries would be eligible for the demonstration, because TRICARE Prime availability still varies markedly from region to region. In regions that saw early implementation of TRICARE, offering the Prime benefit was generally not required outside military facility catchment areas. Prudential HealthCare HMO (Mid-Atlantic) $1,500 self $3,000 family $3,308 self; $8,593 family $5 primary; $10 specialty $25 copayment and charges not covered $25 copayment and charges not covered $50 copayment and charges not covered $10/individual or $5/group therapy; 40-visit limit 20% visit 1-5; 35% visit 6-30; 50% visit 31+ $5 (30-day supply retail); $4 (90-day supply, mail-order) $9 (30-day supply retail); $8 (90-day supply, mail-order) $5 generic drugs; $10 brand name drugs $11 ($25 minimum) $11 ($25 minimum) Blue Cross and Blue Shield Standard Option Plan (Non-PPO/PPO) From a high in 1992, both DOD and FEHBP have experienced recent declines in beneficiary numbers (see fig. III.1). Not all persons eligible for DOD care actually use it, because they live too far from military facilities, have other sources of health insurance and health care, or face resource limits in gaining access to military facilities. DOD has estimated that about 75 percent of eligible beneficiaries use the DOD system. More than 85 percent of federal employees participate in FEHBP. Like the private health care industry, both DOD and FEHBP have experienced increases in their costs since 1984 (see fig. III.2). In the past 5 years, however, DOD’s costs have increased almost 4 percent, while FEHBP’s have grown by almost 14 percent. On a per person basis, DOD and FEHBP have both experienced increases of more than 100 percent since 1984 (see fig. III.3). In the past 5 years, DOD’s cost per user has risen by about 10 percent, while FEHBP’s has grown almost 16 percent. Defense Health Care: Reimbursement Rates Appropriately Set; Other Problems Concern Physicians (GAO/HEHS-98-80, Feb. 26, 1998). Defense Health Care: DOD Could Improve Its Beneficiary Feedback Approaches (GAO/HEHS-98-51, Feb. 6, 1998). Defense Health Care: TRICARE Resource Sharing Program Failing to Achieve Expected Savings (GAO/HEHS-97-130, Aug. 22, 1997). Defense Health Care: Actions Under Way to Address Many TRICARE Contract Change Order Problems (GAO/HEHS-97-141, July 14, 1997). Military Retirees’ Health Care: Costs and Other Implications of Options to Enhance Older Retirees’ Benefits (GAO/HEHS-97-134, June 20, 1997). Defense Health Care: Limits to Older Retirees’ Access to Care and Proposals for Change (GAO/T-HEHS-97-84, Feb. 27, 1997). Defense Health Care: New Managed Care Plan Progressing, but Cost and Performance Issues Remain (GAO/HEHS-96-128, June 14, 1996). Defense Health Care: Medicare Costs and Other Issues May Affect Uniformed Services Treatment Facilities’ Future (GAO/HEHS-96-124, May 17, 1996). Defense Health Care: Effects of Mandated Cost Sharing on Uniformed Services Treatment Facilities Likely to Be Minor (GAO/HEHS-96-141, May 13, 1996). Defense Health Care: TRICARE Progressing, but Some Cost and Performance Issues Remain (GAO/T-HEHS-96-100, Mar. 7, 1996). Defense Health Care: Despite TRICARE Procurement Improvements, Problems Remain (GAO/HEHS-95-142, Aug. 3, 1995). Defense Health Care: DOD’s Managed Care Program Continues to Face Challenges (GAO/T-HEHS-95-117, Mar. 28, 1995). Defense Health Care: Issues and Challenges Confronting Military Medicine (GAO/HEHS-95-104, Mar. 22, 1995). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. 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Pursuant to a congressional request, GAO reviewed nine bills introduced in the 105th Congress to authorize the Federal Employees Health Benefits Program (FEHBP) for military beneficiaries, focusing on: (1) issues that cut across the various bills, such as potential effects on beneficiary costs, eligibility, and the military health system (MHS) generally; and (2) the bills' key features, highlighting their similarities and differences. GAO noted that: (1) GAO's analysis of the nine bills show that their different features could affect the numbers of beneficiaries who would be attracted to participate in the FEHBP, total government and beneficiary costs, and MHS operations; (2) FEHBP coverage would likely vary in attractiveness, depending on beneficiaries' current health care costs and military care eligibility and access and their other health care coverage; (3) the various bills' premium-setting and cost-sharing features would affect not only whether beneficiaries' chose to participate but also the Department of Defense's (DOD) potential added costs; (4) most proposals would set military enrollees' premiums separately from the federal FEHBP group's to shield the federal group's premiums should the military group have higher care usage and costs and thus a higher total premium; (5) whether military FEHBP enrollees should be allowed concurrent use of the MHS is both a cost issue and a military readiness issue; (6) allowing concurrent use of FEHBP and DOD care would create a system of overlapping coverage for younger beneficiaries who already have priority access to DOD-funded care through military facilities and civilian providers; (7) but those aged 65 and older, who have lower priority access to military health care, FEHBP would be far less duplicative; (8) prohibiting concurrent DOD and FEHBP care use might enable DOD to more appropriately size its system, facilitate downsizing of unneeded capacity, and thus have savings for use in helping to fund FEHBP enrollment; (9) the size and patient mix of the DOD medical system, however, are also affected by readiness needs; (10) DOD officials have stated that retaining sufficient numbers and an appropriate mix of patients in the DOD system is critical to recruiting, retaining, and training military physicians and support staff for wartime readiness; (11) yet some experts believe that military facilities' current patient mix is not sufficient to ensure physicians' wartime readiness; (12) to better assess a FEHBP option's attractiveness and potential effects on government costs and the MHS's operation, some bills would authorize a test of the program in a few areas of the country; and (13) such sites would include areas with military medical facilities and those far from such facilities and areas where a variety of FEHBP plans and such other health care options as Medicare health maintenance organization's are alternatively available.

You are an expert at summarizing long articles. Proceed to summarize the following text: Grants constitute one form of federal assistance consisting of payments in cash or in kind to a state or local government or a nongovernmental recipient for a specified purpose.programs are extremely diverse. They can vary greatly in numerous ways including size, the nature of their recipients, and the type of programs they fund. Grant programs can also vary in two important dimensions— the amount of discretion they give to the recipient in how the funds will be used, and the way they are allocated or awarded. Typically, grants are grouped into three types based on the amount of discretion given to the recipient for the use of funds: categorical grants, block grants, and general purpose grants. Taken as a whole, federal grant Categorical grants are the most restricted, permitting funds to be used only for specific activities related to their purpose, such as funding for the narrowly defined purpose of nutrition for the elderly. Block grants are less restrictive, funding broader categories of activities, such as community development or public health, and generally give greater discretion to recipients in identifying problems and designing programs to address those problems. General purpose grants, such as revenue sharing, offer the greatest amount of discretion to the recipient, as they require only that the funds be spent for government purposes. However, grant categories with regard to categorical grants and block grants are not rigid and sometimes overlap occurs. Each of these grants strikes a different balance between the interests of the federal grant- making agency that funds be used efficiently and effectively to meet national objectives, and the interests of the recipient to use the funds to meet local priorities and to minimize the administrative burdens associated with accepting the grant. Grant programs also vary in the methods they use to allocate or award funds, that is, by formula or through discretionary project grants. Formula grants allocate funds based on distribution formulas prescribed by legislation or administrative regulation. Project grants are generally awarded on a competitive basis to eligible applicants for specific projects. OMB has emphasized the use of competitive grants as a means of increasing innovation in grant proposals. While these labels help classify grants based on prominent characteristics, they should not be understood to be mutually exclusive definitions, as more than one can apply to a given grant program. For example, the federal government distributes Community Development Block Grant funds to states using a formula, but states redistribute the funds to localities, sometimes as project grants. While there is substantial variation among grant types, competitive grants generally follow a life cycle that includes announcement, application, award, post-award, and closeout, as seen in figure 1. Once a grant program is established through legislation, which may specify particular objectives, eligibility, and other requirements, a grant-making agency may impose additional requirements on it. For competitive grant programs, the public is notified of the grant opportunity through an announcement, and potential recipients must submit applications for agency review. In the award stage, the agency identifies successful applicants or legislatively defined grant recipients and awards funding. The implementation stage includes payment processing, agency monitoring, and recipient reporting, which may include financial and performance information. The closeout phase includes preparation of final reports, financial reconciliation, and any required accounting for property. Audits may occur multiple times during the life cycle of the grant and after closeout. Federal agencies do not have inherent authority to enter into grant agreements without affirmative legislative authorization. In authorizing grant programs, federal laws identify the types of activities that can be funded and the purposes to be accomplished through the funding. Legislation establishing a grant program frequently will define the program objectives and leave the administering agency to fill in the details by regulation. Grant programs are typically subject to a wide range of accountability requirements under their authorizing legislation or appropriation and implementing regulations so that funding is spent for its intended purpose. For example, the Department of Housing and Urban Development (HUD) administers grants to aid states and localities in providing affordable housing for low-income families. Congress mandated that HUD administer these grant programs in a manner that furthers fair housing. HUD regulations direct grant recipients to prepare planning documents and maintain certain records proving the legislation’s fair housing requirements as a condition to receiving funds. Congress may also impose requirements on specific funding for grant programs. The American Recovery and Reinvestment Act of 2009 (Recovery Act) required increased reporting and oversight on both grant-making agencies and recipients for many different grant programs receiving additional funding under the Recovery Act. In addition, grant programs are also subject to cross-cutting requirements applicable to most assistance programs (see table 1 for more information). For example, recipients of grant funds are prohibited from using those funds to lobby members and employees of Congress and executive agency employees. OMB is responsible for developing government-wide policies to ensure that grants are managed properly and that grant funds are spent in accordance with applicable laws and regulations. For many decades, OMB has published guidance in various circulars to aid grant-making agencies with such subjects as audit and record keeping and the allowability of costs. For a detailed discussion of grants management legislation and OMB’s role in developing grants policy, see appendix III. Grants are an important tool used by the federal government to provide program funding to state and local governments. OMB has previously estimated that grants to state and local governments represent roughly 80 percent of all federal grant funding, with the remaining approximately 20 percent going to recipients such as nonprofit organizations, research institutions, or individuals. Federal outlays for grants to state and local governments totaled more than $606 billion in fiscal year 2011, equivalent to 4.1 percent of the gross domestic product (GDP) in that year. For comparison, federal outlays for national defense were 4.7 percent of GDP during the same period. With outlays of $275 billion in fiscal year 2011, Medicaid is by far the federal government’s largest single grant program and by itself accounted for 45 percent of federal grant outlays to state and local governments in that year. The Department of Health and Human Services (HHS), which administers the Medicaid program, is the largest grant-making agency, with grant outlays of almost $348 billion in fiscal year 2011, or about 57 percent of the total federal grant outlays to state and local governments. However, even when Medicaid is excluded, HHS remains the largest federal grant-making agency. While many federal agencies award grants, the large majority of grant outlays to state and local governments are made by just a few agencies, with the top five accounting for more than 90 percent of those grant outlays in fiscal year 2011. Following HHS, the next four agencies with the largest amount of grant outlays to state and local governments in fiscal year 2011 were the Departments of Education (Education), Transportation, HUD, and Agriculture. Figure 2 shows the amount of, and percentage of, grant outlays to state and local governments for the top 5 grant-making agencies. Federal outlays for grants to state and local governments increased from $91 billion in fiscal year 1980 (about $221 billion in 2011 constant dollars) to more than $606 billion in fiscal year 2011. Figure 3 shows the total federal outlays for grants to state and local governments over the period from fiscal years 1980 to 2011, in constant dollars, and the increasing amount of this total that went to Medicaid over time. While the past three decades have witnessed a dramatic growth in federal grants to state and local governments in absolute dollar terms, the same is not true when one considers these grant outlays as a proportion of total federal spending. As shown in figure 4, grant outlays to state and local governments as a percentage of total federal outlays in fiscal year 2011 were at a roughly comparable level to what they were more than 30 years earlier (16.8 percent versus 15.5 percent). However, during this period the proportion of federal grant outlays to state and local governments dedicated to Medicaid more than tripled, rising from 2.4 percent of all federal outlays in 1980 to 7.6 percent in 2011. The increase in outlays for Medicaid and other health-related grant programs was offset by an approximately equivalent decrease in the share of outlays for other grants to state and local governments. The dip in federal grant outlays to state and local governments as a percentage of total outlays during the 1980s, seen in figure 4, was likely due to a variety of factors, including efforts undertaken at the time to merge categorical grant programs in several functional areas into block grants and also reduce funding levels. For example, as part of the Omnibus Budget Reconciliation Act of 1981, nine block grants were created from about 50 of the 534 categorical programs in effect at that time. Overall, funding for the categorical grants bundled into these block grants was reduced 12 percent, about $1 billion, from their combined funding level the previous year. State officials believed that funding reductions would not result in the loss of services for recipients because the reductions would be offset by administrative efficiencies, although in our subsequent work we found that the administrative cost savings were difficult to quantify. Figure 4 also shows the upturn in federal grant outlays in 2009 and 2010 that were the result of the Recovery Act. Grant outlays can also be analyzed historically using OMB’s grant programs’ functional categories. In fiscal year 2011, the five largest grant program categories by government function were health; income security; education, training, employment, and social services; transportation; and community and regional development. Figure 5 shows federal grant outlays to state and local governments broken out by these five governmental functions, from fiscal year 1980 to fiscal year 2011. Health function grant outlays were 17 percent of total grant outlays to state and local governments in fiscal year 1980—lower than either income security or education. By fiscal year 2011, outlays for health- related grant functions increased to almost 50 percent of these total grant outlays. While outlays for health-related grants experienced a relatively steady increase in the last three decades—more than doubling in 30 years—outlays for other grant functions generally decreased relative to the total of all federal grants to state and local governments during the same period. OMB and others have noted that the relative growth and contraction of grant outlays for different purposes reflects a broader shift in the focus of federal outlays for grant programs. According to OMB data, since the 1980s, funding has shifted from providing grants to state and local governments for physical capital and societal activities (e.g., highways, mass transit, sewage treatment plants, public education, government administration and community development), toward grants for payments for the benefit of individuals or families. These grants benefitting individuals are primarily entitlement programs such as Medicaid, Temporary Assistance for Needy Families, child nutrition programs, and housing assistance. In fiscal year 1980, the percentage of grant outlays for the benefit of individuals and families was just under 36 percent. By fiscal year 2011, federal outlays for grants benefitting individuals and families, a major component of which is Medicaid, had grown to almost two-thirds (64 percent) of all grant outlays to state and local governments. There are various sources for data on the amount the federal government spends on grants, including OMB budget data, USAspending.gov, and Census Bureau surveys of state and local governments. See appendix II for more detail about these data sources and their differences. The various differences in each data source can create challenges for those examining federal grants management issues and for congressional oversight of grants administration. Our prior work and the work of others have shown that the number of federal grant programs to state and local governments has generally increased over the last three decades. However, determining a definitive number of federal grant programs presents certain difficulties. Efforts to accurately track the number of federal grant programs over time have been complicated by the fact that different entities have counted grant programs differently for decades. Both OMB and the former U.S. Advisory Commission on Intergovernmental Relations (ACIR) periodically published counts of the total number of federally funded grant programs during the 1980s and 1990s, but because they used different methodologies to determine which grant programs to include, they came up with different results. For example, in 1995 OMB identified 608 federally funded grant programs compared to ACIR’s count of 633.no longer issues formal counts of federally funded grant programs and there is no current consensus on the methodology used to count federal grant programs. As of the end of May 2012, the CFDA listed a total of 2,240 federal assistance programs, including 239 items under a search for formula grants and 1,530 items under a search for project grants. CFDA data are available on the Web at http://www.CFDA.gov. the number of federal grant programs using the information included in the CFDA database. Over time, growth of both the numbers of grant programs for state and local governments and their level of funding has created greater diversity and complexity in federal grants management. Substantial variation in the way federal agencies administer these programs has further increased their complexity. As a result, the management of grants to state and local governments presents both grant-making agencies and grant recipients with a variety of challenges. We and others have previously reported on many of these issues which can be grouped into the following broad themes: (1) challenges related to effectively measuring grant performance; (2) uncoordinated program creation; (3) need for better collaboration; (4) internal control weaknesses in grants management and oversight; and (5) lack of agency or recipient capacity. In our past work, we have reported that effective performance accountability provisions are of fundamental importance in assuring the proper and effective use of federal funds and determining if grant program goals are met. Two issues that we have previously identified as important for effectively reporting on grant performance are having appropriate, high-quality performance measures and accurate performance data. GAO, Agencies’ Annual Performance Plans under the Results Act: An Assessment Guide to Facilitate Congressional Decisionmaking, GAO/GGD/AIMD-10.1.18 (Washington, D.C.: February 1998); and The Results Act: An Evaluator’s Guide to Assessing Agency Annual Performance Plans, GAO/GGD-10.1.20 (Washington, D.C.: April 1998). measurable targets; and be objective, reliable, and balanced. However, we have found that while agencies may implement measures with some of these attributes, other key attributes may not be incorporated. For example, the Department of Justice (Justice) developed and implemented 86 new performance measures for the Edward Byrne Memorial Justice Assistance Grant (JAG) funds to state and local governments for criminal justice activities in 2009. While Justice continued to make efforts to improve these measures in 2009, we reported that 19 of the JAG performance measures we reviewed generally lacked, in varying degrees, several key attributes of successful performance measurement systems, including clarity, linkages with strategic or programmatic goals, objectivity, reliability, and the measurability of targets. Specifically, we found that 14 of the 19 measures were not clearly defined; 14 of the 19 measures were not linked to Justice’s strategic or programmatic goals; 13 of the 19 measures were not reliable; and 17 of the 19 measures did not have measurable targets. Our report noted that by more fully incorporating such attributes of effective performance measures into its performance measurement and reporting system, Justice could facilitate accountability, be better positioned to monitor and assess results, and subsequently improve its grants management. We recommended that Justice should, in revising its performance measures, consider incorporating key attributes of successful performance measurement systems, such as clarity, reliability, linkage, objectivity, and measurable targets. Justice concurred with the recommendations in our report and they have actions underway that address the recommendations. In another example of an agency’s publishing measures that do not necessarily contribute to its ability to assess grant program effectiveness, Department of Homeland Security (DHS) implemented some performance measures for the State Homeland Security Program (SHSP) and Urban Areas Security Initiative (UASI) in the fiscal year 2011 grant guidance. However, the type of measures DHS published in the SHSP and UASI guidance did not contribute to DHS’s ability to assess the effectiveness of these grant programs, but instead provided DHS with information to help it measure completion of tasks or activities. We recommended, among other things, that DHS revise its plan to ensure the timely implementation of performance measures to assess the effectiveness of these grants. According to DHS, it has efforts under way to develop additional measures to help it assess grant program effectiveness; however, until these measures are implemented, it will be difficult for DHS to determine the effectiveness of these grant-funded projects, which totaled $20.3 billion from fiscal years 2002 through 2011. As we have previously reported, performance measures that evaluate program results can help Congress make more informed policy decisions regarding program achievements and performance. Agencies could facilitate accountability, be better positioned to monitor and assess results, and subsequently improve their grants management by including key attributes of successful performance measurement systems in their performance measure revisions. Data Collection and Validation Challenges. Grant programs often rely on recipients’ administrative systems to provide performance information. Our prior work has shown that agencies relying on third parties for performance data can have difficulty collecting the data as well as ascertaining its accuracy and quality. In past work, we have also found that the availability and credibility of performance data has been a long- standing weakness. An example of this can be seen in our November 2011 report on federal “green building” initiatives that foster—in part through the use of grant funds—construction and maintenance practices designed to make efficient use of resources, reduce environmental problems, and provide long-term financial and health benefits in the nonfederal sector. Eleven agencies implemented 94 federal initiatives, 47 of which were funded by grants. Agency officials reported that they may not have had information on the results of green building initiatives for the nonfederal sector, in part because they faced several challenges in gathering appropriate and reliable performance data, such as utility usage data for multifamily properties. These difficulties included obtaining the resources necessary to develop systems for accurate data collection, a lack of industry standards for performance data collection, third party utility companies’ diverse policies governing data sharing, as well as the utility companies’ wide-ranging capacities to collect data. In particular, HUD officials told us the quality of utility data can vary by utility company, especially for water consumption data—which can be incomplete and inaccurate and is often not available in electronic form. In other instances, actual performance data may not be available until after the completion of the grant project. For example, Department of Energy (DOE) officials said that for the Energy Efficiency and Conservation Block Grant program (EECBG) actual energy savings data are generally available only after a project is completed; therefore, to comply with the program’s reporting requirements, most recipients reported estimates calculated using the Environmental Protection Agency’s Portfolio Manager tool. While DOE officials said they had anecdotal examples of program successes, DOE had experienced challenges in assessing the reasonableness of the energy-savings estimates provided by recipients because DOE did not require recipients to use the most up-to-date estimating tool when calculating and reporting energy-savings estimates. Consequently, DOE could not identify instances where recipients’ estimates may need to be more carefully We recommended, among other things, that DOE should reviewed. solicit information on recipients’ methods for estimating energy savings and verify that recipients use the most recent version of the estimating tool. To address our recommendation, DOE issued guidance effective June 23, 2011, that eliminates the requirement for grant recipients to calculate and report estimated energy savings. DOE officials said the calculation of estimated impact metrics will now be performed centrally by DOE by applying known national standards to existing grantee-reported performance metrics. Based on DOE’s action, we concluded that DOE has addressed the intent of this recommendation. Even in federal grants with designs that favor performance accountability, challenges related to collecting and reporting performance data can affect the extent to which performance accountability can be achieved. GAO-11-379. In our 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue, we reported on examples of how multiple federal grant programs, created without coordinated purposes and scopes, can result in structural grants management challenges. One example involved four DHS grant programs—the State Homeland Security Program, the Urban Areas Security Initiative, the Port Security Grant Program, and the Transit Security Grant Program. DHS’s Federal Emergency Management Agency (FEMA) allocated about $20.3 billion to recipients through the four programs from fiscal years 2002 through 2011. These four grant programs have similar goals and fund similar activities in overlapping jurisdictions. For instance, many jurisdictions within designated Urban Areas Security Initiative regions also apply for and receive State Homeland Security Program funding. Similarly, port stakeholders in urban areas could receive funding for equipment such as patrol boats through both the Port Security Grant Program and the Urban Areas Security Initiative, and a transit agency could purchase surveillance equipment with Transit Security Grant Program or Urban Areas Security Initiative funding. We, as well as DHS’s IG, concluded that FEMA should use more specific project-level data in making grant award decisions in order to identify and mitigate potential duplication. Our work, and the work of the DHS IG, concluded that coordinating the review of grant projects internally would give FEMA more complete information about applications across the four grant programs that could help FEMA identify and mitigate the risk of unnecessary duplication across grant applications. We recommended in February 2012, among other things, that FEMA take steps to ensure that it collects project information with the level of detail needed to better position the agency to identify any potential unnecessary duplication within and across the four grant programs. DHS concurred with our recommendation in this area. In another example of this challenge, we found instances where Justice could improve how it targets nearly $3.9 billion to reduce the risk of potentially unnecessary duplication across more than 11,000 grant awards it makes annually. Justice’s grant-making agencies had awarded funds from different grant programs to the same applicants whose applications described similar—and in some cases, the same—purposes for using the grant funds. While we acknowledged that there may be times when Justice’s decision to fund recipients in this manner is warranted, our work found that Justice made grant award decisions without visibility over whether the funds supported similar or the same purposes, thus potentially resulting in unintended, and unnecessary, duplication. We found that Justice had not assessed its grant programs to determine the extent to which they may overlap with one another and determine if consolidation of grant programs may be appropriate. Further, Justice’s grant-making agencies had not established consistent policies and procedures for sharing grant application information that could help them identify and mitigate unnecessary duplication in how recipients intend to use their grant awards. We recommended that Justice should conduct an assessment to better understand the extent to which the department’s grant programs overlap with one another and determine if grant programs may be consolidated to mitigate the risk of unnecessary duplication. To the extent that Justice identifies any statutory obstacles to consolidating its grant programs, it should work with Congress to address them, as needed. Justice concurred with our recommendations in this area. Addressing structural challenges such as these may achieve cost savings, enhance revenue, and could result in greater efficiencies in grant programs. The process of distributing federal assistance through grants is complicated and involves many different parties—both public and private—with different organizational structures, sizes, and missions. In previous work, we have identified lack of collaboration among and between federal agencies, state and local governments, and nongovernmental grant participants as a challenge to effective grant implementation. Because grants management can be complex, collaboration among the grant participants, particularly with regard to information sharing, is important. With this in mind, we have identified key practices to enhance and sustain collaboration among federal agencies. We have also recommended these same key practices to strengthen partnerships between government and nongovernmental entities, such as nonprofit organizations. In that same report, we describe an example related to hurricane recovery that involves difficulties in collaboration between federal agencies and state and local case management providers. Disaster case management is a process that assists people in identifying their service needs, locating and arranging services, and coordinating the services of multiple providers to help people recover from a disaster. State and local agencies providing federally funded disaster case management services faced challenges in, among other things, obtaining timely and accurate information from the federal agencies overseeing the disaster case management programs. While FEMA had a lead role in coordinating other types of disaster assistance after Hurricanes Katrina and Rita, its role for coordinating disaster case management was not explicit. Initial coordination activities among federal agencies and case management providers were minimal following the hurricanes. As a result, we found that some victims may not have received case management services while others may have received services from multiple providers. We recommended, among other things, that FEMA establish a time line for developing a disaster case management program that includes practices to enhance coordination among stakeholders involved in this program. FEMA agreed with our recommendations in this area and reported that it would take steps to coordinate with stakeholders. Among other actions, FEMA has since held a disaster case management summit, and participants made recommendations for improving coordination among federal and nonfederal stakeholders that will be included in the disaster case management program guidance. GAO, Transportation-Disadvantaged Populations: Federal Coordination Efforts Could Be Further Strengthened, GAO-12-647, (Washington, D.C.: June 20, 2012). were developing guidance and technical assistance for transportation coordination, other federal departments still had more work to do in identifying and assessing their transportation programs, working with other federal departments to identify opportunities for additional collaboration, and developing and disseminating policies and recipient guidance for coordinating transportation services. In June 2012, we reported that several state and local officials told us that there was not sufficient federal leadership and guidance on how to coordinate transportation services for the disadvantaged and that varying federal program requirements may hinder coordination of transportation services, acting as barriers to collaboration. In that report, we recommended that in order to promote and enhance federal, state, and local coordination activities, the Secretary of Transportation as the chair of the Coordinating Council, as well as the member agencies of the Coordinating Council, should complete and publish a strategic plan and report on their progress in implementing their recommendations. Education and Veterans Affairs generally agreed with our report, while HHS, HUD, and the Department of Transportation neither agreed nor disagreed. When awarding and managing federal grants, effective oversight and internal control is important to provide reasonable assurance to federal managers and taxpayers that grants are awarded properly, recipients are eligible, and federal grant funds are used as intended and in accordance with applicable laws and regulations. Internal control comprises the plans, methods, and procedures agencies use to be reasonably assured that their missions, goals, and objectives can be met. In numerous reviews over the years, we and agency IGs have identified weaknesses in agencies’ internal controls for managing and overseeing grants. When such controls are weak, federal grant-making agencies face challenges in achieving grant program goals and assuring the proper and effective use of federal funds which can help avoid improper payments. Control Weaknesses in Monitoring and Overseeing Grant Programs. Agencies are responsible for overseeing and monitoring implementation of their grant programs to help ensure that recipients are meeting program and accountability requirements. Oversight procedures for monitoring the recipients’ use of awarded funds, including site visits and review of recipient reports, can help agencies determine whether recipients are operating efficiently and effectively and whether program funds are being spent appropriately. Risk-based monitoring programs can help identify those areas in need of oversight resources. When agencies do not consider certain risk factors when selecting recipients for site visits, they may not know where to focus their monitoring resources. For example, in February 2011, the IG at the National Archives and Records Administration (NARA) reported that NARA, among other things, had not developed a risk-based process for monitoring and determining which grants to review. The IG found that NARA did not consider relevant factors, such as a program’s age or size, or the experience of the recipient. The IG concluded that without a more structured process for determining and assessing risk, NARA could not provide adequate assurance that risks associated with its grant programs are properly addressed and mitigated. According to the IG, NARA subsequently took corrective actions, including developing selection criteria for grantee site visits and desk audits and determining their frequency. Federal agencies award grant funds to recipients, often states and local governments, and then those grant recipients may award, or pass through, subgrants to subrecipients. identify, prioritize, and manage potential at-risk subrecipients to ensure that grant goals are reached and funds are used properly. In April 2011, we reported on DOE’s use of Recovery Act funds for the EECBG program. We found that EECBG recipients used various methods to monitor sub-recipients, with some recipients providing more rigorous monitoring than others. DOE officials acknowledged that many recipients are resource constrained, limiting their ability to monitor subrecipients and ensure compliance with applicable federal requirements. DOE gathered specific information on recipient monitoring practices during on-site visits. A subrecipient is an entity that receives a grant award from the prime recipient of an award and is accountable to the prime recipient for the use of the federal funds provided by the subaward. However, because not all recipients were to receive site visits, DOE did not have specific information on monitoring for many recipients, and therefore, did not know whether those monitoring activities were sufficiently rigorous to ensure compliance with federal requirements. We recommended that DOE explore a means to capture information on the monitoring processes of all recipients to make certain that recipients have effective monitoring practices. DOE has taken some actions to increase their monitoring efforts; however, the actions may not result in capturing information on the monitoring practices of all recipients. Medicaid, the largest federal grant program, has also been the subject of numerous reviews. The challenges faced by HHS’s Centers for Medicare & Medicaid Services (CMS) in overseeing fiscal management of the Medicaid program have been well-documented in our past work. Because of concerns about the program’s fiscal management, size, growth, and diversity, Medicaid has been on our list of high-risk programs. Areas of concern in the Medicaid program include improper payments and inconsistent reviews of managed care rate setting by CMS. Government-wide Issues. Our work has identified weaknesses in grant oversight and accountability issues that span the government, including challenges in oversight of undisbursed grant award balances and significant levels of improper payments in grant programs. We have found issues and raised concerns about timely grant closeouts, including undisbursed funds remaining in grant accounts, across the federal government. For grant programs with a defined end date, closeout procedures help ensure that grant recipients have met all financial requirements, provided final reports, and returned any unused funds. We have reported that some agencies lack adequate systems or policies to properly monitor grant closeouts or did not deobligate funds from grants eligible for closeout in a timely manner. When agencies do not conduct closeout procedures in a timely manner, unused funds can be prevented from being used to help address the purpose of the grant. Further, failure to close out a grant and deobligate any unspent balances can allow recipients to continue to draw down federal funds even after the grant’s period of availability to the recipient has ended, making these funds more susceptible to waste, fraud, or mismanagement. In April 2012, we reported that, as of September 30, 2011, more than $794 million remained in expired grant accounts in the Payment Management System, the largest civilian federal payment system which made 68 percent of all federal grant disbursements in fiscal year 2010. These accounts were more than 3 months past the grant end date and had no activity for 9 months or more, with some balances remaining in grant accounts several years past their expiration date. Subsequently, OMB issued guidance instructing federal agencies to take appropriate action to close out grants in a timely manner. Federal agencies reported an estimated $115.3 billion in improper payments in fiscal year 2011. Many of the programs reporting improper payments were federal grant programs, including Medicaid and the National School Lunch program. Strong preventive controls are important as they serve as the front-line defense against improper payments, and effective monitoring and reporting are important to help detect emerging improper payment issues. In March 2012, we reported that many agencies and programs are in the process of implementing preventive controls that involve activities such as training, which can be a key element in any effort to prevent improper payments from occurring. example, CMS’s Medicaid Integrity Group trains state-level staff and sponsors education programs for beneficiaries and providers. Along with strong preventive controls, effective detection techniques, such as data mining and recovery auditing to quickly identify and recover improper payments, are important for reducing improper payments. GAO, Improper Payments: Remaining Challenges and Strategies for Government-wide Reduction Efforts, GAO-12-573T (Washington, D.C.: Mar. 28, 2012). the U.S. Government. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. We reported that these internal control deficiencies could adversely affect the federal government’s ability to ensure that grant funds are being spent in accordance with applicable program laws and regulations. We based our finding on audits of agencies’ fiscal year 2011 financial statements, where auditors at several federal agencies found grants management internal control deficiencies, primarily regarding inadequate monitoring and oversight of grant programs. For example, the auditor at HUD reported issues regarding timely action and follow-up with noncompliant recipients, as well as inadequate procedures to identify noncompliant recipients. We reported that these internal control deficiencies could adversely affect the federal government’s ability to ensure that grant funds are being spent in accordance with applicable program laws and regulations. The capacity of grant-making agencies and recipients is a key issue in grants management which can impact program success. Capacity involves both the maintenance of appropriate resources and the ability to effectively manage those resources. Building sufficient capacity is a challenge that may involve significant costs or tradeoffs. Three relevant types of capacity are organizational, human capital, and financial. Organizational capacity captures the degree to which the grant-making agency or recipient is institutionally prepared for grants management and implementation. This may include having appropriate leadership, management structure, and size to efficiently and effectively implement the program and adapt as needed. For example, we recently reported that capacity was a concern for states, school districts, and schools in the School Improvement Grant program.to develop the necessary staff capacity to successfully support and oversee the program implementation because of resource constraints. Officials from Education and several states told us that the grant required states to support local reform efforts to a much greater extent than they had in the past, and staff in some states had not yet developed the knowledge base to fulfill these responsibilities. Some states noted that such capacity limitations meant that time staff could devote to administering the program and monitoring district implementation was significantly limited. States and districts both struggled Human capital capacity measures the extent to which an organization has sufficient staff, knowledge, and technical skills to effectively meet its program goals. Human capital needs shift over time as programs change and face new challenges. Human capital needs also shift as new technology is implemented and the organization finds new ways to leverage expertise. Human capital challenges at the federal, state, and local level can underlie the operational difficulties faced during program implementation. For example, we have previously reported that during the initial phases of Gulf Coast rebuilding following the hurricanes in 2005, officials at both the federal and state level initially lacked the human capital capacity to administer the public assistance grant program. addition, local applicants initially lacked the staff to fully participate as partners in the program. Shortages of staff with the right skills and abilities, as well as the lack of continuity among rotating FEMA staff, contributed to delays in developing public assistance projects in Louisiana and Mississippi. GAO, Disaster Recovery: FEMA’s Public Assistance Grant Program Experienced Challenges with Gulf Coast Rebuilding, GAO-09-129 (Washington, D.C.: Dec. 18, 2008). reported that because many nonprofits view cuts in clients served or services offered as unpalatable, they have reported that they often compromise vital “back-office” functions, which over time can affect their ability to meet their missions. Further, nonprofits’ strained resources limit their ability to build a financial safety net, which can create a precarious financial situation for them. Absent a sufficient safety net, nonprofits that experience delays in receiving their federal funding may be inhibited in their ability to bridge funding gaps. When funding is delayed, some nonprofits have reported that they either borrow funds on a line of credit or use cash reserves to provide services and pay bills until their grant awards are received. Collectively, these issues place stress on the nonprofit sector, diminishing its ability to continue to effectively partner with the federal government to provide services to vulnerable populations. Since this report does not contain any new audit work that evaluates the policies or operations of any federal agency in this report, we did not seek agency comments. However, because of the role of OMB and GSA in producing or managing data on grant outlays and the number of grant programs, we shared drafts of relevant excerpts of this report with cognizant officials at these agencies and we made technical clarifications where appropriate. We are sending copies of this report to other interested congressional committees, the Acting Director of OMB, and the Acting Administrator of GSA. This report is available at no charge on the GAO website at http://www.gao.gov. If you have any questions about this report, please contact Stanley J. Czerwinski at (202) 512-6806 or [email protected], or Beryl H. Davis at (202) 512-2623 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV. Our objectives were to describe (1) the amount of grant funding to state and local governments for fiscal year 2011, how grant funding to state and local governments has changed over the last three decades, and difficulties related to identifying the number of such grant programs; and (2) selected grant challenges involving federal grants to state and local governments that have been identified in our previous work and that of federal inspectors general (IG) over the last several years. In scoping the research objectives for this work we decided to limit our review to federal grants involving state and local governments because reliable historical data exist for this group of grants and, according to the Office of Management and Budget (OMB), such grants represent roughly 80 percent of all federal grant funding. We could not identify a similarly- reliable data source for the wider universe of all federal grants. To do this work we took the actions described below and we discussed various issues related to federal grants and data on grants funding and programs with officials at the OMB and the General Services Administration (GSA), as these agencies have government-wide responsibilities related to grants, grants management, and grants data. To determine key information regarding grant funding for fiscal year 2011, the growth in grant funding over the last three decades, and shifts in the focus of grant funding during that time, we used OMB data, specifically, OMB’s Historical Table 12.3, Total Outlays for Grants to State and Local Governments, by Function, Agency, and Program: 1940 – 2013 and Table 12.2, Total Outlays for Grants to State and Local Governments, by Function and Fund Group: 1940 – 2017. We extracted the data for fiscal years 1980 through 2011 and converted each fiscal year’s outlay amount to 2011 constant dollars which reflect adjustments for inflation. We sorted the data by agency and budget function (i.e., purpose of the spending) to identify the top five grant-making agencies and the top five functions for which grants were awarded. To determine grant outlays as a percentage of total outlays, we also used OMB’s Historical Table 6.1, Composition of Outlays: 1940-2017. As these are budget data that has undergone rigorous review by OMB, they are generally considered sufficiently reliable for most of our purposes. Therefore, we determined the data were sufficiently reliable for the purposes of this report. To describe issues related to identifying the number of grant programs, we reviewed our prior work and the work of others on federal grants and the Catalog of Federal Domestic Assistance (CFDA), the single authoritative, government-wide compendium and source for descriptions of federal programs that provide assistance or benefits to the American public. We reviewed research regarding methodologies used to count grant programs published by the Congressional Research Service (CRS). We discussed issues related to CFDA numbers and their relationship to the number of grant programs with GSA, the agency responsible for maintaining CFDA. We also inquired into issues regarding counting the number of grant programs with OMB. The on-line version, www.CFDA.gov, allows one to search for assistance programs using a number of search options, including the federal agency providing the assistance, program name, and assistance type. In addition to the OMB data described above, we identified other sources of data for information on the amounts of federal grants funding, including USASpending.gov and Census Bureau data. We analyzed and compared the different sources and describe how the data elements in each source differ. We discussed issues relating to USASpending.gov, including the reliability of the data, with GSA, the agency responsible for maintaining it. See appendix II for details about the data sources we identified and how they differ. To identify key issues and challenges related to the structure and operation of grants management, we reviewed previous relevant reports and audits by us, federal inspectors general (IG), and others. We searched GAO’s online database for grants management-related reports from 1995 to the present, and reviewed selected relevant reports. To identify more recent issues and challenges for the examples in this report, we reviewed selected GAO reports from 2006 to 2012. For IG reports, we searched websites for IGs of large and small grant-making agencies for reports related to grants management and financial statement audit reports where internal control weaknesses are identified. We determined whether the issues and challenges we identified still existed by reviewing our recommendation follow up work. For reports by others, we researched follow up work by the applicable IGs. We also searched various federal, public policy, and research organizations’ websites, including those for the CRS and OMB, to identify relevant reports and other literature regarding federal grant programs and how they are structured and managed. We shared drafts of the relevant sections of this report with cognizant officials at OMB and GSA. They generally agreed with the contents of this report and we incorporated their technical clarifications where appropriate. Various sources exist for data on the amount the federal government spends on grants, including Office of Management and Budget (OMB) budget data, USASpending.gov, and Census Bureau surveys of state and local governments. Each source was established and is used for slightly different purposes and contains different data elements. The various differences in each data source can create challenges for those examining federal grants management issues when trying to identify the scope of federal spending on grants. This appendix explains the purposes for and the differences in data contained in each source. OMB Budget Data. OMB collects data from federal agencies each year to prepare the President’s budget. OMB uses this data for a number of purposes related to the budget, including producing Historical Tables and Analytical Perspectives. One series of Historical Tables contains information on federal outlays for grants to state and local governments. According to OMB, the purpose of this series of Historical Tables is to identify federal government outlays that constitute income to state and local governments to help finance their services. Analytical Perspectives, according to OMB, is designed to highlight specific subject areas or provide other presentations of budget data that put the budget in context. USASpending.gov. In response to the Federal Funding Accountability and Transparency Act (FFATA), OMB established USASpending.gov in December 2007 to enhance the transparency of government expenditures. FFATA required that OMB establish a publicly available online database that would allow users to search for detailed information about entities that are awarded federal grants, loans, contracts, and other forms of financial assistance. The Congressional Research Service (CRS) reported that the premise of the law was that by making details of federal spending available to the public, government officials would be less likely to fund projects that might be perceived as wasteful. In addition, the new database required by the law would also help citizens better understand how the government distributes funds. For grant awards, federal agencies report the amount of obligations they incur and information on the recipients of those awards, starting in fiscal year 2007, in accordance with OMB guidance for agency data submissions.490,000 grant-related transactions were reported by federal agencies for fiscal year 2011. Census Bureau Surveys. The Census Bureau collects data from state and local governments, including data on grants provided by the federal government. This census of governments is one component of the nation’s economic census required by law, things, periodic and comprehensive statistics about governments and their financial activities. and provides, among other Consolidated Federal Funds Report. Prior to fiscal year 2011, the annual Consolidated Federal Funds Report (CFFR) was prepared by the Census Bureau from data submitted by federal agencies to the Federal Assistance Awards Data System (FAADS) and other selected agency data. With the enactment of FFATA, which required agencies to report data elements in addition to those that were captured by FAADS, and due to funding issues, the Census Bureau stopped publishing the CFFR after the fiscal year 2010 report. The information is now available for the public to review on USASpending.gov. Table 2 summarizes data elements included and not included in these data sources and provides more information about them. 13 U.S.C. § 161. Cooperative agreements are another form of financial assistance similar to grants, but where the federal agency is more involved with the recipient in implementing the program. An obligation is a definite commitment that creates a legal liability of the government for payment of goods and services ordered or received. An agency incurs an obligation, for example, when it awards a grant. OMB’s guidance for submitting data to USASpending.gov states that, under the Recovery Act, agencies are required to report all transactions, but can aggregate amounts under $25,000, and that agencies should begin to include aggregate information for all funding types. GSA officials told us agencies are not required by FFATA to include awards under $25,000 related to non-Recovery Act spending. Federal grants are typically subject to a wide range of substantive and other requirements under the particular program statutes as well as implementing agency regulations and other guidance that applies to them. They are also governed by many additional cross-cutting requirements that are common to most federal assistance programs. Figure 6 shows the relevant grant-related public laws that are discussed below. The Office of Management and Budget (OMB) has long been involved in grants management in the executive branch since its reorganization within the Executive Office of the President in 1970.published standards for establishing consistency and uniformity in the administration of grants and other types of financial assistance to state In 1971, OMB and local governments and certain Indian tribunals. However, even with the publication of OMB’s circular for grant administration, the Commission on Government Procurement studying federal spending practices in the early 1970s found that “federal grant-type activities are a vast and complex collection of assistance programs, functioning with little central guidance in a variety of ways that are often inconsistent even for similar programs and projects.” The Commission also found that because there were no statutory guidelines for executive agencies to distinguish between assistance relationships, such as grants and procurement relationships with nonfederal entities, agencies were inappropriately using grants to avoid competition and certain requirements that apply to the procurement system. Thereafter, Congress enacted the Federal Grant and Cooperative Agreement Act of 1977 to establish standards for executive agencies in selecting the most appropriate funding vehicle. The act directed OMB to provide guidance to executive agencies to promote consistent and efficient use of funding vehicles, and in 1978, OMB issued supplementary interpretive guidelines to help agencies distinguish between assistance programs and procurement relationships. In 1984, the Administration created the President’s Council on Management Improvement, assigning the Deputy Director of OMB as Chairman of the Council. While the Council’s role was to review overall management of government programs, several interagency task forces were created under the Council to review various aspects of grants management. Based on recommendations of one task force, the President issued Executive Order No. 12549 in 1986 requiring agencies to participate in a government-wide nonprocurement debarment and suspension system. Thereafter, OMB issued guidelines prescribing the program coverage, government-wide criteria, minimum due process procedures, and other guidance for the system. Another interagency task force explored streamlining the existing guidance for managing federal aid programs, and based on that review, in 1987, the President directed OMB to revise Circular No. A-102, “Grants and Cooperative Agreements with State and Local Governments” to specify uniform, government-wide terms and conditions for grants to state and local governments. The President further directed executive agencies to propose and issue common regulations adopting the terms and conditions set out by OMB verbatim, modified where necessary to reflect inconsistent statutory requirements. In Executive Order No. 12549 (51 Fed. Reg. 6370 (Feb. 21, 1986)), the President directed the establishment of a common system for debarment and suspension for assistance programs. common rules are largely identical regulations that are binding on their grantees. There were several grant-related laws enacted during the 1980s that focused on promoting accountability and transparency, and preventing abuse, within federal assistance programs. The Single Audit Act, as amended, provides uniform requirements for annual audits of nonfederal entities that expend more than $500,000 in federal awards annually. Prior to this act’s enactment, there were no uniform audit requirements for state and local government grantees, and these grantees were often subject to overlapping and conflicting audit requirements associated with each of the assistance programs in which they participated. Congress enacted other federal statutory provisions applicable to all recipients of federal funds, including the prohibition against lobbying with grant funds under the “Byrd Amendment” and the requirement to maintain a drug-free workplace as a precondition of receiving grant funding. Subsequent to the enactment of each of these acts, OMB issued guidance for agencies to implement the requirements of the acts. One of the key efforts to make government operations more efficient and effective and to prevent waste, fraud, abuse, and financial mismanagement came with the passage of the Chief Financial Officers The act builds off other legislative initiatives, such as the Act of 1990. Single Audit Act, to improve financial management practices in the federal government. The Chief Financial Officers Act created within OMB the Office of Federal Financial Management with specific statutory responsibility for financial management policy, including grants management, for the federal government.the lead role in financial management, no entity had been statutorily vested with the responsibility to coordinate financial management practices in the federal government. While OMB had long taken Along with the executive branch’s efforts to streamline and simplify grants management in the 1980s and 1990s, Congress enacted the Federal Financial Assistance Management Improvement Act of 1999, commonly known as “Public Law 106-107,” which required each federal grant- making agency to develop and implement a plan that simplifies the application, administration, and reporting procedures for financial assistance programs. coming up with a common application and reporting system. Following Public Law 106-107 and the President’s announcement of the E- government initiative in his 2002 Fiscal Year Management Agenda, OMB established Grants.gov as a central storehouse for information on thousands of grant. To further improve transparency and provide the public with information on federal spending, Congress enacted the Federal Funding Accountability and Transparency Act of 2006. The Act directed OMB to ensure the existence and operation of a single searchable website to be used by the public that shows the name of the entity receiving a federal award, the amount of the award, information on the award, and other information.2007 to fulfill the Act’s requirements. Pub. L. No. 106-107, 113 Stat. 1486 (Nov. 20, 1999). OMB consolidated its grants-related circulars as well as the agency common rules into Title 2 of the Code of Federal Regulations. Currently, OMB is in the process of re-issuing guidance for each of the common rules under Title 2, allowing federal grant-making agencies to simply adopt the regulations and thereby create a central point for all grantees to locate all grant government-wide requirements. Concurrent to the streamlining effort, OMB is also working with other stakeholders to evaluate potential reforms in federal grant policies. In an effort to reduce improper payments, OMB created the Single Audit Workgroup with federal and state members who studied a variety of options for improving the effectiveness of single audits. In February 2012, OMB published an advanced notice of proposed guidance detailing a series of reform ideas that would standardize information collection across agencies, adopt a risk-based model for single audits, and provide new administrative approaches for determining and monitoring the allocation of federal funds. The comment period closed at the end of March 2012; OMB has not yet issued proposed guidance based on comments received. Until the fall of 2011, OMB coordinated grants management policy through two federal boards: the Grants Policy Committee, which was established in 1999, and the Grants Executive Board, which was established in 2004. The Grants Executive Board oversaw the implementation work groups and the Grants.gov initiative while the Grants Policy Committee was composed of grants policy experts from across the federal government whose mission it was to simplify and streamline grant administration policies. In October 2011, OMB announced the creation of the Council on Financial Assistance Reform (COFAR) which replaced these two federal grant bodies. The COFAR is charged with identifying emerging issues, challenges, and opportunities in grants management and policy and providing recommendations to OMB on policies and actions to improve grants administration. According to OMB officials, the COFAR is also expected to serve as a clearinghouse of information on innovations and best practices in grants management. In contrast to the Grants Policy Committee and the Grants Executive Board, which together included members from 26 agencies, the COFAR is made up of the OMB Controller, representatives from the largest eight grant-making agencies, and a representative from one of the smaller federal grant-making agencies. The latter serves a rotating two-year term. Also unlike the Grants Policy Committee, which largely consisted of program level grants staff, the membership of the COFAR is at a higher level, being made up of the Chief Financial Officers of participating agencies. OMB officials told us that the COFAR is now working toward identifying priorities in grants management that may include various initiatives that were started by the defunct Grants Policy Committee and Grants Executive Board. Details on these have yet to be decided. In addition to the individuals named above, Peter Del Toro, Assistant Director, Kimberly A. McGatlin, Assistant Director, Laura M. Bednar, Maria C. Belaval, Anthony M. Bova, Amy R. Bowser, Melissa L. King, and Diane N. Morris were the major contributors to this report. Additionally, Virginia A. Chanley, Jason Kelly, and Robert Robinson also made key contributions. Green Building: Federal Initiatives for the Nonfederal Sector Could Benefit from More Interagency Collaboration. GAO-12-79. Washington, D.C.: November 2, 2011. Recovery Act: Energy Efficiency and Conservation Block Grant Recipients Face Challenges Meeting Legislative and Program Goals and Requirements. GAO-11-379. Washington, D.C.: April 7, 2011. School Improvement Grants: Education Should Take Additional Steps to Enhance Accountability for Schools and Contractors. GAO-12-373. Washington, D.C.: April 11, 2012. School Improvement Grants: Early Implementation Under Way, but Reforms Affected by Short Time Frames. GAO-11-741. Washington, D.C.: July 25, 2011. Recovery Act: Head Start Grantees Expand Services, but More Consistent Communication Could Improve Accountability and Decisions about Spending. GAO-11-166. Washington, D.C.: December 15, 2010. District of Columbia Public Education: Agencies Have Enhanced Internal Controls Over Federal Payments for School Improvement, But More Consistent Monitoring Needed. GAO-11-16. Washington, D.C.: November 18, 2010. University Research: Policies for the Reimbursement of Indirect Costs Need to Be Updated. GAO-10-937. Washington, D.C.: September 8, 2010. Grant Monitoring: Department of Education Could Improve Its Processes with Greater Focus on Assessing Risks, Acquiring Financial Skills, and Sharing Information. GAO-10-57. Washington, D.C.: November 19, 2009. Discretionary Grants: Further Tightening of Education’s Procedures for Making Awards Could Improve Transparency and Accountability. GAO-06-268. Washington, D.C.: February 21, 2006. Medicaid: Federal Oversight of Payments and Program Integrity Needs Improvement. GAO-12-674T. Washington, D.C.: April 25, 2012. National Institutes of Health: Awarding Process, Awarding Criteria, and Characteristics of Extramural Grants Made with Recovery Act Funding. GAO-10-848. Washington, D.C.: August 6, 2010. National Institutes of Health: Completion of Comprehensive Risk Management Program Essential to Effective Oversight. GAO-09-687. Washington, D.C.: September 11, 2009. Justice Grant Programs: DOJ Should Do More to Reduce the Risk of Unnecessary Duplication and Enhance Program Assessment. GAO-12-517. Washington, D.C.: July 12, 2012. Managing Preparedness Grants and Assessing National Capabilities: Continuing Challenges Impede FEMA’s Progress. GAO-12-526T. Washington, D.C.: March 20, 2012. Homeland Security: DHS Needs Better Project Information and Coordination among Four Overlapping Grant Programs. GAO-12-303. Washington, D.C.: February 28, 2012. Recovery Act: Department of Justice Could Better Assess Justice Assistance Grant Program Impact. GAO-11-87. Washington, D.C.: October 15, 2010. Hurricane Recovery: Federal Government Provided a Range of Assistance to Nonprofits following Hurricanes Katrina and Rita. GAO-10-800. Washington, D.C.: July 30, 2010. Disaster Recovery: FEMA’s Long-term Assistance Was Helpful to State and Local Governments but Had Some Limitations. GAO-10-404. Washington, D.C.: March 30, 2010. Disaster Assistance: Greater Coordination and an Evaluation of Programs’ Outcomes Could Improve Disaster Case Management. GAO-09-561. Washington, D.C.: July 8, 2009. Disaster Recovery: FEMA’s Public Assistance Grant Program Experienced Challenges with Gulf Coast Rebuilding. GAO-09-129. Washington, D.C.: December 18, 2008. Transportation-Disadvantaged Populations: Federal Coordination Efforts Could Be Further Strengthened. GAO-12-647. Washington, D.C.: June 20, 2012. Surface Transportation: Competitive Grant Programs Could Benefit from Increased Performance Focus and Better Documentation of Key Decisions. GAO-11-234. Washington, D.C.: March 30, 2011. Intercity Passenger Rail: Recording Clearer Reasons for Awards Decisions Would Improve Otherwise Good Grant-making Practices. GAO-11-283. Washington, D.C.: March 10, 2011. Metropolitan Planning Organizations: Options Exist to Enhance Transportation Planning Capacity and Federal Oversight. GAO-09-868. Washington, D.C.: September 9, 2009. Transportation-Disadvantaged Populations: Some Coordination Efforts Among Programs Providing Transportation Services, but Obstacles Persist. GAO-03-697. Washington, D.C.: June 30, 2003. Grants Management: Action Needed to Improve the Timeliness of Grant Closeouts by Federal Agencies. GAO-12-360. Washington, D.C.: April 16, 2012. Improper Payments: Remaining Challenges and Strategies for Government-wide Reduction Efforts. GAO-12-573T. Washington, D.C.: March 28, 2012. 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue. GAO-12-342SP. Washington, D.C.: February 28, 2012. Federal Grants: Improvements Needed in Oversight and Accountability Processes. GAO-11-773T. Washington, D.C.: June 23, 2011. Grants.gov: Additional Action Needed to Address Persistent Governance and Funding Challenges. GAO-11-478. Washington, D.C.: May 6, 2011. Government Performance: GPRA Modernization Act Provides Opportunities to Help Address Fiscal, Performance, and Management Challenges. GAO-11-466T. Washington, D.C.: March 16, 2011. Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011. Recovery Act: Opportunities to Improve Management and Strengthen Accountability over States’ and Localities’ Uses of Funds. GAO-10-999. Washington, D.C.: September 20, 2010. Recovery Act: Further Opportunities Exist to Strengthen Oversight of Broadband Stimulus Programs. GAO-10-823. Washington, D.C.: August 4, 2010. State and Local Governments: Fiscal Pressures Could Have Implications for Future Delivery of Intergovernmental Programs. GAO-10-899. Washington, D.C.: July 30, 2010. Legal Services Corporation: Improvements Needed in Controls over Grant Awards and Grantee Effectiveness. GAO-10-540. Washington, D.C.: June 11, 2010. Nonprofit Sector: Treatment and Reimbursement of Indirect Costs Vary among Grants, and Depend Significantly on Federal, State, and Local Government Practices. GAO-10-477. Washington, D.C.: May 18, 2010. Streamlining Government: Opportunities Exist to Strengthen OMB’s Approach to Improving Efficiency. GAO-10-394. Washington, D.C.: May 7, 2010. Electronic Government: Implementation of the Federal Funding Accountability and Transparency Act of 2006. GAO-10-365. Washington, D.C.: March 12, 2010. Recovery Act: Status of States’ and Localities’ Use of Funds and Efforts to Ensure Accountability. GAO-10-231. Washington, D.C.: December 10, 2009. Grants Management: Grants.gov Has Systemic Weaknesses That Require Attention. GAO-09-589. Washington, D.C.: July 15, 2009. Recovery Act: Consistent Policies Needed to Ensure Equal Consideration of Grant Applications. GAO-09-590R. Washington, D.C.: April 29, 2009. Single Audit: Opportunities Exist to Improve the Single Audit Process and Oversight. GAO-09-307R. Washington, D.C.: March 13, 2009. Nonprofit Sector: Significant Federal Funds Reach the Sector through Various Mechanisms, but More Complete and Reliable Funding Data Are Needed. GAO-09-193. Washington, D.C.: February 26, 2009. Grants Management: Attention Needed to Address Undisbursed Balances in Expired Grant Accounts. GAO-08-432. Washington, D.C.: August 29, 2008. Grants Management: Enhancing Performance Accountability Provisions Could Lead to Better Results. GAO-06-1046. Washington, D.C.: September 29, 2006. Grants Management: Grantees’ Concerns with Efforts to Streamline and Simplify Processes. GAO-06-566. Washington, D.C.: July 28, 2006. Principles of Federal Appropriations Law: Third Edition, Volume II. GAO-06-382SP. Washington, D.C.: February 2006. Grants Management: Additional Actions Needed to Streamline and Simplify Processes. GAO-05-335. Washington, D.C.: April 18, 2005. Federal Assistance: Grant System Continues to Be Highly Fragmented. GAO-03-718T. Washington, D.C.: April 29, 2003. Grant Programs: Design Features Shape Flexibility, Accountability, and Performance Information. GAO/GGD-98-137. Washington, D.C.: June 22, 1998. Federal Grants: Design Improvement Could Help Federal Resources Go Further. GAO/AIMD-97-7. Washington, D.C.: December 18, 1996. Block Grants: Issues in Designing Accountability Provisions. GAO/AIMD-95-226. Washington, D.C.: September 1, 1995. Block Grants: Characteristics, Experience, and Lessons Learned. GAO/HEHS-95-74. Washington, D.C.: February 9, 1995.

Grants are a form of federal assistance consisting of payments in cash or in kind for a specified purpose and they represent an important tool for achieving national objectives. They vary greatly, including in the types of programs they fund, the methods they use to allocate funds to recipients, and the amount of discretion they give to the grant recipient on how the funds are spent. The Office of Management and Budget (OMB) has previously estimated that grants to state and local governments represent roughly 80 percent of all federal grant funding, with the balance going to recipients such as nonprofit organizations, research institutions, or individuals. In a time of fiscal constraint, continuing to support the current scope and breadth of federal grants to state and local governments will be a challenge. In response to a request, this report (1) provides information regarding the amount of grant funding to state and local governments for fiscal year 2011, how such funding has changed over the last three decades, and difficulties related to identifying the exact number of such grant programs; and (2) identifies selected grants management challenges that have been identified in previous work by GAO and federal IGs over the last several years. Towards this end, GAO analyzed data from OMB and the Catalog of Federal Domestic Assistance and conducted a review of previous reports from GAO and federal IGs. Federal outlays for grants to state and local governments totaled more than $606 billion in fiscal year 2011. Over the last three decades, these grants have consistently been a significant component of federal spending, but the focus of this spending has changed over time. For example, during this period the proportion of federal outlays to state and local governments dedicated to Medicaid grants more than tripled, rising from 2.4 percent of total federal government outlays in 1980 to 7.6 percent in 2011. The increase in federal outlays for Medicaid and other health-related grant programs was offset by an approximately equivalent decrease in grants to state and local governments targeted for other areas such as transportation, education, and regional development. GAO’s prior work and the work of others have also shown that the number of federal grant programs directed to state and local governments has generally increased over the last three decades. However, definitively determining the number of such grant programs presents difficulties. The lack of consensus on a methodology for how to define and count grant programs and data limitations in the Catalog of Federal Domestic Assistance further complicates this effort. GAO and federal inspectors general (IG) have previously reported on a variety of management challenges involving federal grants to state and local governments, many of which can be grouped into the following five topic areas: Challenges related to effectively measuring grant performance: A lack of appropriate performance measures and accurate data can limit agencies’ ability to effectively measure grant program performance. This can affect the ability of federal agencies to ensure that grant funds are effectively spent. Uncoordinated grant program creation: Numerous federal grant programs have been created over time without coordinated purposes or scope. This can result in grants management challenges such as unnecessary duplication across grant programs and unnecessary overlap in funding. Need for better collaboration: A lack of collaboration among grant program participants can impede effective grant implementation in areas such as knowledge sharing and defining clear leadership roles. Internal control weaknesses: When internal controls in grants management and oversight are weak, federal grant-making agencies face challenges in achieving program goals and assuring the proper and effective use of federal funds. Effective controls can help to avoid improper grant payments. Lack of agency or recipient capacity: Capacity reflects the organizational, financial, and human capital resources available for the implementation of grant programs. A lack of capacity can adversely impact an agency’s or recipient’s ability to manage and implement grant programs. GAO is not making any recommendations in this report.

You are an expert at summarizing long articles. Proceed to summarize the following text: OMB plays a central role in setting federal financial management policy and guidance. The CFO Act of 1990 established OMB’s Office of Federal Financial Management (OFFM), which has responsibility to provide overall direction and leadership to the executive branch on financial management matters by establishing financial management policies and requirements, and by monitoring the establishment and operation of federal government financial management systems. Among the key issues OFFM addresses in addition to financial management systems, are agency and governmentwide financial reporting, asset management, grants management, improper payments, performance measurement, single audits, and travel and purchase cards. Within OFFM, the Federal Financial Systems Branch is responsible for orchestrating all of the elements of the financial systems governmentwide into a coherent, coordinated architecture. These elements include agency financial management systems and JFMIP standards; interfaces between agency financial systems and other systems that support business processes (e.g., human resources systems, procurement systems, databases supporting performance management); common financial management services, including e-Travel, e-Learning, Contractor Central Registry, Intragovernmental Payment and Collection System, and Electronic Certification System; and governmentwide accounting and other data consolidation systems. Another office in OMB, the Office of Electronic Government and Information Technology, has responsibility for providing overall leadership and direction to the executive branch on electronic government. In particular, this OMB office oversees implementation of IT throughout the federal government, including monitoring and consulting on agency technology efforts; advising the OMB Director on the performance of IT investments, as well as identifying opportunities for joint agency and governmentwide IT projects; and overseeing the development of enterprise architectures within and across agencies, which is being fulfilled through the Federal Enterprise Architecture. This office also shares statutory IT management responsibilities with the Office of Information and Regulatory Affairs, which OMB was required to establish under the Paperwork Reduction Act of 1995. Finally, OMB is the preparer of the President’s budget and provides instructions to executive branch agencies to submit budget-related information in accordance with the requirements of OMB Circular No. A-11, Preparation, Submission and Execution of the Budget. OMB is responsible for reviewing and evaluating IT spending across the federal government and uses the IT spending information submitted by the agencies during the budget formulation process to review requests for agency financial management systems and other IT spending. Major agency IT investments are reported to OMB individually. OMB Circular No. A-11 defines a major IT investment as a system or project that requires special management attention because of its importance to an agency’s mission, or has significant program or policy implications, among other criteria. Financial management systems costing more than $500,000 annually are considered major IT investments. OMB Circular No. A-11 also requires agencies to use Exhibit 300, Capital Asset Plan and Business Case, to describe the business case for the investment, which serves as the primary means of justifying IT investment proposals as well as managing IT investments once they are funded. Best practices are tried and proven methods, processes, techniques, and activities that organizations define and use to minimize risks and maximize chances for success. As we have previously reported, using best practices related to IT acquisitions can result in better outcomes—including cost savings, improved service and product quality, and ultimately, a better return on investment. We and others, such as the Software Engineering Institute (SEI), have identified and promoted the use of a number of best practices associated with acquiring IT systems. For the purposes of this report, we have identified various elements of IT management and categorized them as disciplined processes, human capital and other IT management practices that are critical elements for minimizing the risks related to financial management system implementations. These areas are interrelated and interdependent, collectively providing an agency with a comprehensive understanding both of current business approaches and of efforts (under way or planned) to change these approaches and a means to implement those changes. Understanding the relationships among these areas can help an agency determine how it is applying its resources, analyze how to redirect these resources in the face of change, implement such redirections, and measure success. With this decision-making capability, the agency is better positioned to deploy financial management systems and direct appropriate responses to unexpected changes in its environment. The following sections provide additional background information on the key elements of IT management discussed in this report, including disciplined processes, human capital and other IT management practices. Disciplined processes are fundamental to successful systems implementation efforts and have been shown to reduce the risks associated with software development and acquisition to acceptable levels. A disciplined software development and acquisition process can maximize the likelihood of achieving the intended results (performance) within established resources (costs) on schedule. Although there is no standard set of practices that will ever guarantee success, several organizations, such as the SEI and the Institute of Electrical and Electronic Engineers (IEEE), as well as individual experts, have identified and developed the types of policies, procedures, and practices that have been demonstrated to reduce development time and enhance effectiveness. The key to having a disciplined system development effort is to have disciplined processes in multiple areas, including requirements management, testing, data conversion and system interfaces, configuration, risk and project management, and quality assurance. Effective processes should be implemented in each of these areas throughout the project life cycle because change is constant. Effectively implementing the disciplined processes necessary to reduce project risks to acceptable levels is difficult to achieve because a project must effectively implement several best practices, and inadequate implementation of any one may significantly reduce or even negate the positive benefits of the others. Figure 1 shows how organizations that do not effectively implement the disciplined processes lose the productive benefits of their efforts as a project continues through its development and implementation cycle. Although undisciplined projects show a great deal of what appears to be productive work at the beginning of the project, the rework associated with defects begins to consume more and more resources. In response, processes are adopted in the hopes of managing what later turns out, in reality, to have been unproductive work. Generally, these processes are “too little, too late” because sufficient foundations for building the systems were not done or not done adequately. Experience in both the private sector and the government has shown that projects for which disciplined processes are not implemented at the beginning then must be implemented later, when it takes more time and they are less effective. As shown in figure 1, a major consumer of project resources in undisciplined efforts is rework (also known as thrashing). Rework occurs when the original work has defects or is no longer needed because of changes in project direction. Disciplined organizations focus their efforts on reducing the amount of rework because it is expensive. Fixing a requirements defect after the system is released costs anywhere from 10 to 100 times the cost of fixing it when the requirements are defined. Projects that do not successfully address rework will eventually spend even more effort on rework and the associated processes rather than on productive work. In other words, the project will continually require reworking items. People—human capital—are a critical element to transforming organizations to meet the challenges of the 21st century. Recognizing this, we first added strategic human capital management as a governmentwide high-risk issue in January 2001, and although progress has been made, continued to include it on the latest high-risk list issued in January 2005. Strategic human capital management for financial management projects includes organizational planning, staff acquisition, and team development. Human capital planning is necessary for all stages of the system implementation. It is important that agencies incorporate strategic workforce planning by (1) aligning an organization’s human capital program with its current and emerging mission and programmatic goals and (2) developing long-term strategies for acquiring, developing, and retaining an organization’s total workforce to meet the needs of the future. This incorporates a range of activities from identifying and defining roles and responsibilities, to identifying team members, to developing individual competencies that enhance performance. It is essential that an agency take the necessary steps to ensure that it has the human resources to design, implement, and operate a financial management system. In addition, organizational change management, which is the process of preparing users for the business process changes that usually accompany implementation of a new system, is another important human capital element. Strategic workforce planning is essential for achieving the mission and goals of financial management system projects. As we have reported, there are five key principles that strategic workforce planning should address: Involve top management, employees, and other stakeholders in developing, communicating, and implementing the strategic workforce plan. Determine the critical skills and competencies that will be needed to achieve current and future programmatic results. Develop strategies that are tailored to address gaps in the number, deployment, and alignment of human capital approaches for enabling and sustaining the contributions of all critical skills and competencies. Build the capability needed to address administrative, educational, and other requirements important to support workforce planning strategies. Monitor and evaluate the agency’s progress toward its human capital goals and the contribution that human capital results have made toward achieving programmatic results. Having adequate and sufficient human resources with the requisite training and experience to successfully implement a financial management system is another critical success factor. According to OMB, qualified federal IT project managers are our first line of defense against the cost overruns, schedule slippage, and poor performance that threaten agencies’ ability to deliver efficient and effective services to citizens. In July 2004, OMB issued a memorandum to help agencies comply with fiscal year 2005 budget guidance that instructed agencies to ensure “by September 30, 2004, all major projects are managed by project managers qualified in accordance with CIO Council guidance.” The CIO Council’s Federal IT Project Manager Guidance Matrix and Federal IT Project Management Validation define levels of complexity for IT projects/systems, identify appropriate competencies and experience, suggest education and training sources, and serve as a tool for validating IT project manager credentials. IT project managers are expected to achieve and demonstrate baseline skills in applicable competency areas listed in the Office of Personnel Management (OPM) Interpretive Guidance for Project Manager Positions. The OMB memorandum also required agencies to submit a plan to meet the guidance on project manager qualifications and document the approach, milestones, and schedule. The plans should also follow OPM’s Workforce Planning Model and Human Capital Assessment and Accountability Framework. Changing an organization’s business processes is not an easy task. Managing culture and process change in large, diverse, organizationally and geographically decentralized agencies is a much greater challenge. Frequently, the greatest difficulties lie not in managing the technical or operational aspects of change, but in managing the human dimensions of change. Some experts caution that unless planning and accountability for change management are given a separate focus, the efforts will not be managed well. Management roles in implementing a new system include establishing business goals, realistic expectations, accountability, and leading cultural change necessary to accept the capabilities of a new system. During the implementation phase especially, agency executives must be in the forefront in dealing with the social, psychological, and political resistance to changing the way work is done. Executives must also recognize that their own roles and responsibilities may need to undergo change as well. Weaknesses in other IT management processes also increase the risks associated with financial management system implementation efforts. Developing an enterprise architecture, establishing IT investment management policies, and addressing information security weaknesses are critical to ensuring successful system implementation. OMB Circular No. A-130, which establishes executive branch policies pursuant to the Paperwork Reduction Act of 1995 and the Clinger-Cohen Act of 1996 among other laws, requires agencies to use architectures. A well-defined enterprise architecture provides a clear and comprehensive picture of the structure of any enterprise by providing models that describe in business and technology terms how the entity operates today and predicts how it will operate in the future. It also includes a plan for transitioning to this future state. Enterprise architectures are integral to managing large-scale programs. Managed properly, an enterprise architecture can clarify and help optimize the interdependencies and relationships among an organization’s business operations and the underlying IT infrastructure and applications that support these operations. Employed in concert with other important management controls, architectures can greatly increase the chances that organizations’ operational and IT environments will be configured to optimize mission performance. To aid agencies in assessing and improving enterprise architecture management, we issued guidance establishing an enterprise architecture management framework. The underpinning of this framework is a five-stage maturity model outlining steps toward achieving a stable and mature process for managing the development, maintenance, and implementation of an enterprise architecture. IT investment management provides for the continuous identification, selection, control, life-cycle management, and evaluation of IT investments. The Clinger-Cohen Act lays out specific aspects of the process that agency heads are to implement to maximize the value of the agency’s IT investments. In addition, OMB and GAO have issued guidance for agencies to use in implementing the Clinger-Cohen Act requirements for IT investment management. For example, we issued guidance establishing an IT investment management framework. This framework is also a maturity model composed of five progressive stages of maturity that an agency can achieve in its IT investment management capabilities. These stages range from creating investment awareness to developing a complete investment portfolio to leveraging IT for strategic outcomes. The framework can be used both to assess the maturity of an agency’s investment management processes and as a tool for organizational improvement. The Federal Information Security Management Act of 2002 provides the overall framework for ensuring the effectiveness of information security controls that support federal operations and assets and requires agencies and OMB to report annually to the Congress on their information security programs. OMB Circular No. A-130 also requires agencies to protect information commensurate with the risk and magnitude of the harm that would result from the loss, misuse, or unauthorized access to or modification of such information. The reliability of operating environments, computerized data, and the systems that process, maintain, and report these data is a major concern to federal entities that have distributed networks that enable multiple computer processing units to communicate with each other. Such distributed networks increase the risk of unauthorized access to computer resources and possible data alteration. Effective departmentwide information security controls will help reduce the risk of loss due to errors, fraud, and other illegal acts, disasters, or incidents that cause systems to be unavailable. Inadequate security and controls can adversely affect the reliability of the operating environments in which financial management systems and their applications operate. We reviewed numerous prior GAO and IG reports and identified several problems related to agencies’ implementation of financial management systems in three recurring and overarching themes: disciplined processes, human capital and other IT management practices. Simply put, the agencies were not following best practices in these three critical areas. The predictable result of not effectively addressing these three areas has been numerous agency systems throughout the federal government that did not meet their cost, schedule, and performance objectives. We have issued governmentwide reports on other IT management practices including agencies’ enterprise architecture, IT investment management, and information security and therefore will not be addressing those issues further in this report. However, broad-based actions are needed to address the problems repeatedly experienced at the agencies as they continue to struggle to implement new financial management systems. Many of the systems we reviewed had at least one problem in each of the three critical areas. While there was some overlap in these three areas, we selected examples that best illustrate the specific problems in each area. From our review of over 40 prior reports, we identified a number of key problem areas in disciplined processes related to requirements management, testing, data conversion and system interfaces, risk management, and project management activities. Inadequate implementation of disciplined processes can manifest itself in many ways when implementing a financial management system and the failure to properly implement disciplined processes in one area can undermine the work in all the other areas and cause significant problems. Table 2 summarizes and provides examples for some of the problems we identified from prior reports that can be expected when agencies do not effectively implement the disciplined processes necessary to manage their financial management system implementation projects. The following provides more specific details on three of the examples of financial management system implementation problems related to the lack of disciplined processes. In May 2004, we first reported our concerns with the requirements management and testing processes used by the Army in the implementation of the Logistics Modernization Program and the problems being encountered after it became operational in July 2003. At the time of our initial report, the Army decided that future deployments would not go forward until they had reasonable assurance that the deployed system would operate as expected for a given deployment. However, as we reported in June 2005, the Army had not effectively addressed its requirements management and testing problems and data conversion weaknesses had hampered the Army’s ability to address the problems that need to be corrected before the system can be fielded to other locations. For example, the system cannot properly recognize revenue nor bill customers. Data conversion problems resulted in general ledger account balances that were not properly converted to the new system in July 2003, and these differences remained unresolved almost 18 months later. These weaknesses adversely affected the Army’s ability to set the prices for the work performed at the Tobyhanna Army Depot. In addition, data conversion problems resulted in excess items being ordered and shipped to Tobyhanna. As noted in our June 2005 report, three truckloads of locking washers (for bolts) were mistakenly ordered and received, and subsequently returned, because of data conversion problems. As a result of the problems, the Army has implemented error-prone, time-consuming manual workarounds as a means to minimize disruption to critical operations; however, the depot’s financial management operations continue to be adversely affected by systems problems. NASA has struggled to implement a modern integrated financial management system. After two failed efforts over 12 years and about $180 million, NASA embarked on a third effort that is expected to cost about $983 million. We have previously identified problems and made recommendations to NASA related to requirements, testing, and project management as well as problems with human capital and other IT management issues related to this effort. For example, NASA had not implemented quantitative metrics to help gauge the effectiveness of its requirements management process. Such metrics would be particularly important for NASA to address the root causes of system defects and be reasonably assured that its processes would result in a system that meets its business needs. However, in our September 2005 report, we found that overall progress implementing our recommendations had been slow. From our perspective, of the 45 recommendations we made in prior reports, NASA had taken sufficient action to close 3 recommendations and had partially implemented 13, but 29 recommendations remained open. Furthermore, in November 2004, NASA’s independent auditor reported that NASA’s new financial system, which was implemented in June 2003, could not produce auditable financial statements for fiscal year 2004 and did not comply with the requirements of FFMIA. Key areas of concern included the core financial module’s inability to (1) produce transaction-level detail in support of financial statement account balances, (2) identify adjustments or correcting entries, and (3) correctly and consistently post transactions to the right accounts. In August 2004, the VA IG reported that the effect of transferring inaccurate data to its new core financial system at a pilot location interrupted patient care and medical center operations. This raised concerns that similar conversion problems would occur at other VA facilities if the conditions identified were not addressed and resolved nationwide prior to roll out. Some of the specific conditions the IG noted were that contracting and monitoring of the project were not adequate, and the deployment of the new system encountered multiple problems including those related to software testing, data conversion and system interfaces, and project management. When the new financial system was deployed at the pilot location in October 2003, it did not function as project managers had expected because of inaccurate or incomplete vendor and inventory system data. As a result of these problems, patient care was interrupted by supply outages and other problems. The inability to provide sterile equipment and needed supplies to the operating room resulted in the cancelation of 81 elective surgeries for a week in both November 2003 and February 2004. In addition, the operating room was forced to operate at two-thirds of its prior capacity. Because of the serious nature of the problems raised with the new system, VA management decided to focus on transitioning back to the previous financial management software at the pilot location and assemble a senior leadership team to examine the results of the pilot and make recommendations to the VA Secretary regarding the future of the system. Effective human capital management is critical to the success of systems implementations. As we previously reported in our Executive Guide: Creating Value Through World-class Financial Management, having staff with the appropriate skills is key to achieving financial management improvements, and managing an organization’s employees is essential to achieving results. By not identifying staff with the requisite skills to implement such systems and by not identifying gaps in needed skills and filling them, agencies reduce their chances of successfully implementing and operating new financial management systems. For example, in our prior report on building the IT workforce, we found that in the 1990s the initial rounds of downsizing were set in motion without considering the longer-term effects on agencies’ IT performance capacity. Additionally, a number of individual agencies drastically reduced or froze their hiring efforts for extended periods. Consequently, following a decade of downsizing and curtailed investments in human capital, federal agencies face skills, knowledge, and experience imbalances, especially in their IT workforces. Without corrective action, this situation will worsen, especially in light of the numbers of federal civilian workers becoming eligible to retire in the coming years. In this regard, we are emphasizing the need for additional focus on key problem areas we identified from prior reports including strategic workforce planning, human resources, and change management. Examples for some of the human capital management problems we identified in prior reports that hamper the implementation of new financial management systems are summarized in table 3. The following provides more specific details on two of the examples of the types of human capital management problems we found. In May 2002, we first reported that the Customs Modernization Office did not have the people in place to perform critical system acquisition functions and did not have an effective strategy for meeting its human capital needs. Customs had decided to compress its time frame for delivering its new system from 5 to 4 years and was taking a schedule- driven approach to acquiring the system because of the system’s national importance. This exacerbated the level of project risk by introducing more overlap among incremental system releases and stretching critical resources. In our most recent report issued in March 2005, we found that although Customs had developed a staffing plan, it had not been approved and was already out of date because the modernization office subsequently implemented a reorganization that transferred government and contractor personnel to the modernization office. We also observed that changes in roles and responsibilities had the modernization office and the contractor sharing development duties of the new system. Finally, Customs developed a revised organizational change approach with new change management activities, but key actions associated with the revised approach were not planned for implementation because the funding request for fiscal year 2005 did not fully reflect the revised approach. In July 2004, Customs extended delivery of the last release from fiscal year 2007 to fiscal year 2010, adding a new release for screening and targeting, and increasing the life-cycle cost estimate by about $1 billion to $3.1 billion. The new schedule reflected less overlap between future releases. While Customs, which is now under the Department of Homeland Security, has taken important actions to help address release-by-release cost and schedule overruns that we previously identified, we concluded that it was unlikely that these actions would prevent the past pattern of overruns from recurring because the Department of Homeland Security had relaxed system quality standards, so that milestones were being passed despite material system defects, and because correcting these defects will ultimately require the program to expend resources, such as people and test environments, at the expense of later system releases (some of which are now under way). We reported, in September 2004, that staff shortages and limited strategic workforce planning resulted in HHS not having the resources needed to effectively design and operate its new financial management system. HHS had taken the first steps in strategic workforce planning. For example, the Centers for Disease Control and Prevention (CDC), where the first deployment was scheduled, was the only operating division that had prepared a competency report, but a skills gap analysis and training plan for CDC had not been completed. In addition, many government and contractor positions on the implementation project were not filled as planned. For example, an independent verification and validation contractor reported that some key personnel filled multiple positions and their actual available time was inadequate to perform the allocated tasks. As a result, some personnel were overworked, which, according to the independent verification and validation contractor could lead to poor morale. The organization chart for the project showed that the project team was understaffed and that several integral positions were vacant or filled with part-time detailees. While HHS and the systems integrator had taken measures to acquire additional human resources for the implementation of the new financial management system, we concluded that scarce resources could significantly jeopardize the project’s success and lead to several key deliverables being significantly behind schedule. In September 2004, HHS decided to delay its first scheduled deployment at CDC by 6 months in order to address these and other issues identified with the project. We identified a number of key problems related to other IT management practices. Specifically, we found that in planning and developing new financial management systems, agencies had not adequately considered their existing IT management processes and framework. Through our research into IT management best practices and our evaluation of agency IT management performance, we have identified a set of essential and complementary management disciplines. These include key areas where we found problems such as enterprise architecture, investment management, and information security, among others. Using the results of this research and evaluation, we have developed various management frameworks and guides and reported on numerous IT management weaknesses at individual agencies. Table 4 summarizes and provides examples for some of the key problems we found described in prior reports on financial management system implementations related to other IT management areas not previously discussed. The following provides more specific details on two of the examples of other problems related to IT management that have had an impact on financial management system implementation projects. For several years, we have reported that deficiencies in DOD’s enterprise architecture and IT investment management policies are contributing factors to DOD’s stovepiped, duplicative, and nonintegrated systems environment. In May 2004, we reported that we had not seen any significant change in the content of DOD’s architecture or in DOD’s approach to investing billions of dollars annually in existing and new systems. Few actions had been taken to address prior recommendations, which were aimed at improving DOD’s plans for developing the next version of the architecture and implementing the institutional means for selecting and controlling both planned and ongoing business systems investments. In April 2005, we reported that DOD still did not have an effective departmentwide management structure for controlling business investments despite DOD requesting over $13 billion in fiscal year 2005 to operate, maintain, and modernize its existing duplicative business systems. In addition, because DOD lacked a well-defined business enterprise architecture and transition plan, billions of dollars continued to be at risk of being spent on systems that would be duplicative, not interoperable, cost more to maintain than necessary, and would not optimize mission performance and accountability. In July 2005, we reported that despite spending almost 4 years and about $318 million, DOD still did not have an effective architecture program, and as a result its modernization program remained a high risk. We reported, in February 2005, that OPM had implemented selected processes in the areas of systems acquisition, investment management, and information security; however, many processes were not sufficiently developed, were still under development, or were planned for future development. Although OPM had an executive steering committee chaired by the deputy associate director of the Center for Retirement and Insurance Services that acted as an IT investment management board for the new retirement system, program officials were not aware of formal policies or procedures guiding the board’s oversight responsibilities or activities. Agency officials stated that they would define such a governance structure for the retirement system project during the contract award process. In addition, the agency had not yet developed security plans for the licensed technology and data conversion portions of the new system. Agency officials said they did not have detailed security requirements for the licensed technology portion of the new system, although the request for proposals identified the need for high-level security requirements. They planned to develop detailed security requirements after awarding the licensed technology contract to a vendor. Without fully developed security plans and security requirements for the licensed technology and data conversion portions of the new system, OPM increased the risk that both it and its vendors would not meet information security needs for these portions of the program expected to be implemented in fiscal year 2008. As the federal organization with key responsibility for federal financial management systems, OMB has undertaken a number of initiatives related to acquiring and implementing financial management system capabilities. Some of these initiatives are in collaboration with the CIO and CFO Councils and are broad-based attempts to reform financial management operations across the federal government. While reforming federal financial management is an undertaking of tremendous complexity, it presents great opportunities for improvements in financial management system implementations and related business operations. Notably, OMB has developed and continues to evolve governmentwide Federal Enterprise Architecture products and has required a mapping of agency architectures to this federal architecture as part of the budget review process. Another key OMB initiative is referred to as the lines of business and promotes streamlining common systems to enhance the government’s performance and services, such as establishing centers of excellence to consolidate financial management activities for major agencies through cross-servicing arrangements. The advantages of this approach are many, including the implementation of standard business processes and focusing system acquisition, development, and maintenance activities at select agencies or entities with experience that have the necessary resources to reduce the risks associated with such efforts. Furthermore, certain activities and responsibilities performed by JFMIP prior to its termination have been reassigned to OMB’s OFFM, the Financial Systems Integration Office, and a CFO Council Committee providing guidance and oversight. However, as discussed in the next section, we identified four key concepts that are not yet fully developed and integrated in OMB’s initiatives and related processes. Table 5 highlights some of the foremost initiatives under way at OMB and their potential strengths. In 2002, OMB established the Federal Enterprise Architecture Program Management Office to develop a Federal Enterprise Architecture according to a collection of five reference models. These models are intended to facilitate governmentwide improvement through cross-agency analysis and the identification of duplicative investments, gaps, and opportunities for collaboration, interoperability, and integration within and across government agencies. According to OMB, the result will be a more citizen-centered, customer-focused government that maximizes technology investments to better achieve mission outcomes. The Federal Enterprise Architecture reference models are summarized in table 6. In May 2005, the five reference models were combined into the Consolidated Reference Model document to compose a framework for describing important elements of the Federal Enterprise Architecture in a common and consistent way. OMB views the Federal Enterprise Architecture not as a static model, but as a program, built into the annual budget process to repeatedly and consistently improve all aspects of government service delivery. OMB officials acknowledged that they are still mapping out the Federal Enterprise Architecture and making it more robust and recognized that some lines of business have fleshed out their areas in more detail than others. In prior testimony on the Federal Enterprise Architecture, we recognized that OMB and the CIO Council have made important progress, but that hard work lies ahead to ensure that the Federal Enterprise Architecture is appropriately described, matured, and used. The development of the Federal Enterprise Architecture has continued to evolve and OMB has been promoting the adoption of the Federal Enterprise Architecture. For example, for the fiscal year 2007 budget submission, agencies will be required to use predetermined codes to link their major IT investments on Exhibit 53 to the Federal Enterprise Architecture. For fiscal year 2005, agencies were required to use the Federal Enterprise Architecture Performance Reference Model to identify performance measurements for each new major IT investment. As we have previously testified, questions remain regarding the nature of the Federal Enterprise Architecture, the relationship of agency enterprise architectures to the Federal Enterprise Architecture, and the security aspects of the Federal Enterprise Architecture. Therefore, we will not be addressing these issues further from a governmentwide perspective in this report. Building upon the efforts of the Federal Enterprise Architecture program, OMB and designated agency task forces have launched the lines of business initiative. This initiative seeks to develop business-driven common solutions for six lines of business that span across the federal government. OMB and the lines of business task forces plan to use enterprise architecture-based principles and best practices to identify common solutions for business processes or technology-based shared services to be made available to government agencies. Driven from a business perspective rather than a technology focus, the solutions are expected to address distinct business improvements to enhance the government’s performance and services for citizens. The end results of the lines of business efforts are expected to save taxpayer dollars, reduce administrative burden, and significantly improve service delivery. We have long supported and called for such initiatives to standardize and streamline common systems, which can reduce costs and, if done correctly, can also improve accountability. OMB officials from both OFFM and the Electronic Government office told us that they worked collaboratively to develop the financial management line of business along with an interagency task force. The interagency task force recommended the establishment of governmentwide service providers in the areas of financial management and human resources management. The financial management line of business raises a number of issues that have far- reaching implications for the government and private sector application service providers. This concept has commonly been used in the private sector where application service providers provide services such as payroll, sales force automation, and human resource applications to many corporate clients. The interagency task force analysis estimated that savings of more than $5 billion can be expected over a 10-year time frame through consolidation of financial management and human resources systems and the standardization and optimization of associated business processes and functions. To help realize these benefits, OMB evaluated agencies’ business cases submitted as part of the fiscal year 2006 budget process. On the basis of the review, the following four agencies were designated as governmentwide financial management application service providers, which OMB refers to as centers of excellence. Department of the Interior (National Business Center) General Services Administration Department of the Treasury (Bureau of the Public Debt’s Administrative Resource Center) Department of Transportation (Enterprise Services Center) The National Business Center, the General Services Administration, and the Bureau of the Public Debt have significant experience providing financial management services to other federal entities. For a number of years, these entities have provided financial management services— primarily to smaller federal agencies such as the Nuclear Regulatory Commission, the Office of Government Ethics, and the Panama Canal Commission. The Department of Transportation plans to utilize its newly implemented financial management system to provide services to other agencies. OMB officials told us that, at a minimum, centers of excellence must be able to support, or must use, core financial system software that has passed the most recent qualification test of the Financial Systems Integration Office, which is the current entity that performs many of the roles and responsibilities of the former JFMIP Program Management Office as we discuss below. Centers of excellence may provide related maintenance, interfaces with feeder systems, and transaction processing. Other services may also be offered, including hosting and other financial applications such as payroll and travel. OMB also indicated that it plans to explore using private sector application service providers to serve as centers of excellence. OMB expects to manage the migrations of agencies to centers of excellence using the agencies’ business cases submitted as part of the annual budget process. According to OMB, agencies that submit business cases with proposals to develop new financial systems or significantly update or enhance current financial systems are prime candidates for moving to a financial management center of excellence. The general principle OMB plans to follow is that agencies should migrate to a financial management center of excellence when it is cost effective to do so and they have maximized the return on investment in the current system, which averages about 5 to 7 years. OMB officials told us that several major executive branch agencies are considering moving to a financial management center of excellence. In August 2005, OPM was the first large agency to announce its plans to move to a designated center of excellence. At the time of our review, OPM was still in the planning phase; although it had selected the Bureau of the Public Debt as the provider, it did not yet have a project plan. OPM officials recognized that moving to a center of excellence at the beginning of a fiscal year and not converting mid-year was a best practice they planned to follow. In addition, at the time of our review, the Environmental Protection Agency was in the planning and acquisition phase of its Financial System Modernization Project. As part of its best- value determination, the Environmental Protection Agency was considering the designated centers of excellence as well as private sector providers for software, integration, and hosting and had issued a draft request for quotations. Also, OMB officials stated that they helped the National Gallery of Art in preparing its solicitation for a new system, and the agency recently selected a private sector firm as its application service provider. OMB expects that most agencies will move to a center of excellence or private sector firm within the next 7 to 8 years. In OMB Circular No. A-11, for fiscal year 2007 OMB has asked agencies to provide an overview of their current and future financial management systems framework, including migration strategies for moving to a financial management center of excellence. In an effort to eliminate duplicative roles and streamline financial management improvement efforts, the four principals of JFMIP agreed to realign JFMIP’s responsibilities for financial management policy and oversight as described in a December 2004 OMB memorandum. Some of the former responsibilities of JFMIP, such as issuing systems requirements, were to be placed under the authority of OFFM and a renamed CFO Council committee—the Financial Systems Integration Committee. As a result of the realignment, JFMIP ceased to exist as a separate organization, although the principals will continue to meet at their discretion consistent with the Budget and Accounting Procedures Act of 1950 (codified, in part, at 31 U.S.C. §3511(d)). Under the realignment announced in December 2004, the JFMIP Program Management Office was to report to the chair of the CFO Council’s Financial Systems Integration Committee. This reporting relationship subsequently changed. At the request of the OMB Controller, the CFO at the Department of Labor now chairs the Financial Systems Integration Committee and is the leading agency sponsor of the financial management line of business. Two subcommittees were also established under the announced realignment: Configuration Control Subcommittee—to focus on interface Transaction Processing Standardization Subcommittee—to support interagency development of functional requirements for the software certification process. OMB officials indicated that the roles and responsibilities of the two subcommittees under the Financial Systems Integration Committee will likely continue to evolve. However, the full committee will periodically evaluate the subcommittees and whether they are well aligned and still needed or if additional subcommittees are needed. Other significant responsibilities of the former JFMIP Program Management Office, which was previously managed by the JFMIP executive director using funds provided by the CFO Council, were shifted to the Financial Systems Integration Office (FSIO), which was established with staff from the original JFMIP Program Management Office. The FSIO will now report to the FSIO executive director, who will report to the OMB Controller. Before the realignment, the JFMIP Program Management Office was responsible for the testing and certification of commercial off- the-shelf (COTS) core financial systems for use by federal agencies and coordinating the development and publication of functional requirements for financial management systems, among other things. OMB officials expect that the FSIO will continue to focus on core financial systems and still be responsible for certification and testing of core systems, but they plan to evaluate the effectiveness of the certification and testing function. In addition, OMB has recognized the need for standardization and the inclusion of key stakeholders in developing systems requirements and processes, but considers it a long-term goal. The FSIO will develop systems requirements and the Financial Systems Integration Committee will be responsible for advising OFFM on the systems requirements. OFFM will now be responsible for issuing new systems requirements. According to OMB officials, the FSIO is reassessing the realignment plan described in the December 2004 OMB memorandum and recently developed foundational materials including the mission statement, goals, objectives, performance indicators, scope of activities, prioritization of work, budget, organizational chart, and communication plan. According to OMB officials, resources at FSIO will be aligned under the priorities identified and the office will be structured according to the new priorities. The FSIO will identify its needs for additional staff and determine how many are needed and what skill sets are appropriate. The FSIO will continue defining its priorities and evaluating the effectiveness of processes and its plans will continue to evolve. While OMB has taken steps to accomplish the Federal Enterprise Architecture, lines of business, and JFMIP realignment initiatives, as discussed in the next section, it is generally at the early stages of implementation and a firm foundation has not yet been established to address the long-standing problems that have impeded success. The key for federal agencies to avoid the long-standing problems that have plagued financial management system improvement efforts is to address the foremost causes of those problems and adopt solutions that reduce the risks associated with these efforts to acceptable levels. Although OMB has articulated an approach for reforming financial management systems governmentwide under its financial management line of business and JFMIP realignment initiatives, implementing these initiatives will be complex and challenging. OMB has correctly recognized that enhancing the government’s ability to implement financial management systems that are capable of providing accurate, reliable, and timely information on the results of operations needs to be addressed as a governmentwide solution, rather than as individual agency stove-piped efforts designed to meet a given entity’s needs. However, OMB has not yet fully defined and implemented the processes needed to successfully complete these initiatives. Specifically, based on industry best practices, we identified four key concepts that are not yet fully developed and integrated in OMB’s initiatives and related processes. While OMB has addressed certain elements of these best practices in its initiatives, many specific steps are not yet completed. Careful consideration of these four concepts, each one building upon the next, will be integral to the success of OMB’s initiatives and will help break the cycle of failure in implementing financial management systems. The four concepts are (1) developing a concept of operations, (2) defining standard business processes, (3) developing a strategy for ensuring that agencies are migrated to a limited number of application service providers in accordance with OMB’s stated approach, and (4) defining and effectively implementing disciplined processes necessary to properly manage the specific projects. The following sections highlight the key issues to be considered for each of the four areas. What is considered a financial management system? Who will be responsible for developing a governmentwide concept of operations and what process will be used to ensure that the resulting document reflects the governmentwide solution rather than individual agency stove-piped efforts? How will the concept of operations be linked to the Federal Enterprise Architecture? How can the federal government obtain reliable information on the costs of its financial management systems investments? A concept of operations defines how an organization’s day-to-day operations are (or will be) carried out to meet mission needs. The concept of operations includes high-level descriptions of information systems, their interrelationships, and information flows. It also describes the operations that must be performed, who must perform them, and where and how the operations will be carried out. Further, it provides the foundation on which requirements definitions and the rest of the systems planning process are built. Normally, a concept of operations document is one of the first documents to be produced during a disciplined development effort and flows from both the vision statement and the enterprise architecture. According to the IEEE standards, a concept of operations is a user-oriented document that describes the characteristics of a proposed system from the users’ viewpoint. The key elements that should be included in a concept of operations are major system components, interfaces to external systems, and performance characteristics such as speed and volume. In the case of federal financial management systems, another key element for the concept of operations would be a clear definition and scope of the financial management activities to be included. One problem with the current OMB approach for reporting is that systems that have historically been considered part of financial management, such as payroll and inventory management, are not captured under the financial management line of business when a particular agency reports IT investments to OMB as part of the annual budget submission for inclusion in the Budget of the United States Government. This is because the Federal Enterprise Architecture coding structure for agencies to use when transmitting IT investment information to OMB calls for only IT investments that support certain financial system functions to be identified as a financial management system. An effective concept of operations would help identify these omissions. Financial management systems are defined by OMB in Circulars No. A-11 and A-127 in similar terms to that found in statutes such as FFMIA. This definition is also similar to that used by DOD to define a defense business system as provided by the fiscal year 2005 Defense Authorization Act. These various sources generally consider financial management systems to be financial systems and the financial portion of mixed systems that support the interrelationships and interdependencies between budget, cost, and management functions, and the information associated with business activities. A mixed system is an information system that supports both financial and nonfinancial functions of the federal government. At DOD, for example, an estimated 80 percent of the information needed to prepare annual financial statements comes from mixed systems such as logistics, personnel, and procurement systems that are outside of the responsibility of the DOD CFO. In contrast, the Federal Enterprise Architecture’s Business Reference Model defines a financial management system as one that uses financial information to measure, operate, and predict the effectiveness and efficiency of an entity’s activities in relation to its objectives. These differences illustrate that a consistent definition of financial management systems is not being used across the federal government. One of the key challenges faced by OMB when evaluating financial management system implementation efforts is capturing all financial management system investments and their related costs. The fiscal year 2006 budget requests for IT spending totaled about $65.2 billion. Our analysis showed that, of this amount, only $3.9 billion, less than 6 percent, is reflected under the financial management mission as defined by OMB using the definition of a financial management system in its Federal Enterprise Architecture. A more comprehensive analysis of financial management system investments using the definition in OMB Circular No. A-127 that includes mixed systems such as payroll and inventory and including those considered by DOD as business systems brings the total to about $20 billion. Payroll and inventory management systems clearly support financial management activities, but these systems are not included in the financial management line of business within the Federal Enterprise Architecture framework. The payroll and inventory systems are reflected under the human resource management and supply chain management lines of business, respectively. Because of these differing definitions, the total number of systems and the respective costs associated with financial management system implementation efforts are difficult to capture. OMB officials stated that they are currently revising OMB Circular No. A-127 and will consider clarifying the definition to ensure that it is consistent with FFMIA. In addition, an effective concept of operations would help bridge this gap and facilitate the monitoring of the activity related to financial management systems. Addressing this issue would be a key factor in developing a foundation for the lines of business initiative to consolidate federal financial management systems under a limited number of application service providers. An effective concept of operations would describe, at a high level (1) how all of the various elements of federal financial systems and mixed systems relate to each other, and (2) how information flows from and through these systems. Further, a concept of operations would provide a useful tool to explain how financial management systems at the agency and governmentwide levels can operate cohesively. It would be geared to a governmentwide solution rather than individual agency stove-piped efforts. Further, it would provide a road map that can be used to (1) measure progress and (2) focus future efforts. OMB officials told us that they had developed a concept of operations, but did not know when it would be released or if it meets the criteria in the IEEE standards. Because the federal government has lacked such a document, a clear understanding of the interrelationships among federal financial systems and how the application service provider concept fits into this framework has not yet been achieved. While the Federal Enterprise Architecture, when fully populated, could provide some of this perspective, a concept of operations document presents these items from a user’s viewpoint in nontechnical terms. Such a document would be invaluable in getting various stakeholders, including those at the agency and governmentwide levels, the software vendors, and the three branches of the federal government, to understand how the financial systems are expected to operate cohesively and how they fit into “the big picture.” A concept of operations from this perspective would clarify which financial management systems should be operated at an agency level and which ones would be handled at a governmentwide level and how those two would integrate. In addition, it could identify the nature and extent of skills needed to effectively operate these systems. This would play a part in resolving some of the human capital management problems discussed previously. Another key element of a concept of operations is a transition strategy that is useful for developing an understanding of how and when changes will occur. Not only is this needed from an investment management point of view, it is a key element in the human capital problems discussed previously that revolved around change management strategies. Describing how to implement OMB’s approach for outsourcing financial management systems and the process that will be used to deactivate legacy systems that will be replaced or interfaced with a new financial management system are key aspects that need to be addressed in a transition strategy. This, in turn, allows the agencies to begin taking the necessary actions to integrate this approach into their investment management and change management processes. How can governmentwide standard business processes be developed to meet the needs of federal agencies? How can agencies be encouraged to adopt new processes, rather than selecting other methods that result in simply automating old ways of doing business? How will the standard business processes be implemented by the application service providers to provide consistency across government agencies and among the application service providers? What process will be used to determine and validate the processes needed for agencies that have unique needs? Business process models provide a way of expressing the procedures, activities, and behaviors needed to accomplish an organization’s mission and are helpful tools to document and understand complex systems. Business processes are the various steps that must be followed to perform a certain activity. For example, the procurement process would start when the agency defines its needs, issues a solicitation for goods or services and would continue through contract award, receipt of goods and services, and would end when the vendor properly receives payment. The identification of preferred business processes would be critical for standardization of applications and training and portability of staff, as well as for the software vendor community to use for software design and implementation purposes. Without standard processes, the federal government will continue to spend funds to develop individual agency stove-piped efforts that may or may not meet a given entity’s needs. To maximize the success of a new system acquisition, organizations need to consider the redesign of current business processes. As we noted in our Executive Guide: Creating Value Through World-class Financial Management, leading finance organizations have found that productivity gains typically result from more efficient processes, not from simply automating old processes. Moreover, the Clinger-Cohen Act of 1996 requires agencies to analyze the missions of the agency and, based on the analysis, revise mission-related and administrative processes, as appropriate, before making significant investments in information technology used to support those missions. Another benefit of what is often called business process modeling is that it generates better system requirements, since the business process models drive the creation of information systems that fit in the organization and will be used by end users. Other benefits include (1) providing a foundation for agency efforts to describe the business processes needed for unique missions, or to develop subprocesses to support those at the governmentwide level and (2) describing the business processes of the federal government to the vendor community for standardization. While in many cases, government business processes will be identical or very similar to processes used by the private sector, these standards should also describe processes unique to federal accounting. However, according to OMB officials, the lines of business initiative is moving forward even though this important key issue has not yet been addressed. OMB officials believed that for standardized processes, it is important to get buy-in as the processes are developed, and not force the process from the top. OMB officials we talked with recognized that standardization of business processes is important, but they did not want to wait to deploy the financial management line of business initiative until standard business processes had been developed. OMB planned to task the newly created CFO Council Transaction Processing Standardization Subcommittee with the responsibility for developing standard federal business processes. Because this key issue has not been addressed, and the other key issues flow from it, little has been done to address those important considerations. From our perspective, adopting standardized processes is a fundamental step needed for all financial system implementations, but especially for making the financial management line of business initiative successful. Otherwise, we believe that there is a much greater risk of the continued proliferation of nonstandard business processes that would not result in a marked improvement from the current environment. What guidance will be provided to assist agencies in adopting a change management strategy that reduces the risks of moving to the application service provider approach? What processes will be put in place to ensure that agency financial management system investment decisions focus on the benefits of standard processes and application service providers? What process will be used to facilitate the decision-making process used by agencies to select a given provider? How will agencies incorporate strategic workforce planning in the implementation of the application service provider approach? Although OMB has a goal of migrating agencies to a limited number of application service providers within the next 7 to 8 years to deliver the standard business processes, rather than funding individual agency efforts, it has not yet articulated a clear and measurable strategy for achieving this goal. This is important because there has been a historical tendency for agencies and units within agencies to view their needs as urgent and resist standardization. Decisive action will be needed to ensure that agencies adopt the application service provider concept and that agencies do not continue to attempt to develop and implement their own financial management systems. OMB has been proactive since the beginning of the financial management line of business initiative in describing the goals of the initiative by making speeches, discussing the initiative with the media, including it in the President’s budget request, and highlighting it on its Web site. However, there are limited tools and guidance available and OMB has not provided centers of excellence with standard document templates needed to minimize risk, provide assurance, and develop understandings with customers on topics such as service level agreements and concept of operations. A service level agreement is critical for both the application service providers and the agencies to be held accountable for their respective parts of the agreement. Much work remains to develop a change management strategy that addresses key activities needed to minimize the risk associated with the implementation of the financial management line of business initiative. Change management in the context of migrating federal agencies to an application service provider will need to include activities such as (1) developing specific criteria for requiring agencies to migrate to an application service provider rather than attempting to develop and implement their own stove-piped business systems; (2) providing the necessary information for an agency to make a selection of an application service provider; (3) defining and instilling new values, norms, and behaviors within agencies that support new ways of doing work and overcoming resistance to change; (4) building consensus among customers and stakeholders on specific changes designed to better meet their needs; and (5) planning, testing, and implementing all aspects of the transition from one organizational structure and business process to another. According to leading IT organizations, organizational change management is the process of preparing users for the business process changes that will accompany implementation of a new system. An effective organizational change management process includes project plans and training that prepare users for impacts the new system might have on their roles and responsibilities and a process to manage those changes. We have reported on various problems with agencies’ change management including the failure to develop transition plans, reengineer business processes, and limit customization. In addition, one CFO Council member told us that from his perspective systems do not fail, but there is an implementation failure because of (1) ineffective coordination and communication between the CFO and CIO offices, (2) excessive modification of COTS systems, (3) business processes not being reengineered correctly, completely, or timely, and (4) a lack of authority and leadership for the CFO and project management offices to make the implementation work. With regard to establishing criteria for transitioning agencies to an application service provider, we note that providing governmentwide financial services is not a new concept to the federal government. One of the 24 Presidential Electronic Government initiatives is e-payroll, which was intended to consolidate 22 federal payroll systems into 4 federal payroll providers to simplify and standardize federal human resources/payroll policies and procedures to better integrate payroll, human resources, and finance functions. Numerous agencies had targeted their payroll operations for costly modernizations, and according to OMB, by consolidating duplicative payroll modernization efforts, an estimated $1.1 billion can be saved over the next decade in future IT investments given the economies of scale and cost avoidance. Federal agencies already have or will be migrating to one of the four selected payroll providers to process payroll and pay employees. OMB officials told us they learned from the e-payroll initiative that directing and forcing change as they had done with the e-payroll effort was not palatable to federal agencies. The agencies preferred having choices on timing the move and on having options for various providers. As a result, for the financial management line of business initiative, they do not plan to establish a migration path or time table. Further, processes have not been put in place to facilitate agency decisions on selecting a provider or focusing investment decisions on the benefits of standard processes and application service providers. It is not clear how this will impact the adoption of this initiative. Given the pressures to reduce budgets, discipline with respect to following a clear migration path will be essential. Without such a migration path, while some agencies may readily migrate to a center of excellence or application service provider to minimize the tremendous undertaking of implementing or significantly upgrading a financial system, other agencies will likely perpetuate the waste of taxpayer dollars previously described related to failed system implementation efforts. The need for clear criteria on migrating agencies to the financial management line of business initiative is highlighted by the following example. In fiscal year 2004, the Department of Justice embarked on implementing a new core financial system and is not planning to move to a center of excellence. OMB officials stated that they were not requiring Justice to move to a center of excellence because it had unique needs and was already far enough along in its attempt to modernize and consolidate the financial systems used throughout the agency. OMB officials also speculated that Justice might eventually become a center of excellence that focuses on law enforcement agencies and addresses the law enforcement community’s unique needs. According to a supporting document of the Analytical Perspectives, Budget of the United States Government, Fiscal Year 2006, Justice spent about $6.9 million on modernizing its core financial system in fiscal year 2004. Further, Justice planned to spend $23.1 million for modernization during fiscal year 2005, and expects fiscal year 2006 modernization costs to more than triple to $72.5 million. In October 2004, the IG reported that little progress had been made in implementing the new system and continued to report financial management and systems as a top management challenge. Thus, it is not clear why Justice should continue with its financial systems development project when the cost is expected to significantly escalate and significant challenges remain. Further, the application service provider concept will still require that agencies address long-standing human capital problems by incorporating elements of strategic workforce planning such as (1) aligning an organization’s human capital program with its current and emerging mission and programmatic goals and (2) developing long-term strategies for acquiring, developing, and retaining an organization’s total workforce to meet the needs of the future. This includes a range of activities from identifying and defining roles and responsibilities, to identifying team members, to developing individual competencies that enhance performance. To maintain and enhance the capabilities of IT staff, organizations should develop and implement a human capital strategy that, among other things, includes assessing competencies and skills needed to effectively perform IT operations to support agency mission and goals, inventorying the competencies and skills of current IT staff to identify gaps in needed capabilities, and developing and implementing plans to fill the gap between requirements and current staffing. As we have testified, having sufficient numbers of people on board with the right mix of knowledge and skills can make the difference between success and failure. This is especially true in the IT area, where widespread shortfalls in human capital have contributed to demonstrable shortfalls in agency and program performance. According to Building the Work Force Capacity to Successfully Implement Financial Systems, the roles needed on an implementation team are consistent across financial system implementation projects and include a project manager, systems integrator, functional experts, information technology manager, and IT analysts. Many of these roles require the dedication of full-time staff for one or more of the project’s phases. Finally, sustained leadership will be key to a successful strategy for moving federal agencies towards consolidated financial management systems. In our Executive Guide: Creating Value Through World-class Financial Management, we found that leading organizations made financial management improvement an entitywide priority by, among other things, providing clear, strong executive leadership. We also reported that making financial management a priority throughout the federal government involves changing the organizational culture of federal agencies. Although the views about how an organization can change its culture can vary considerably, leadership (executive support) is often viewed as the most important factor in successfully making cultural changes. Top management must be totally committed in both words and actions to changing the culture, and this commitment must be sustained and demonstrated to staff. In addition, a recent best practice guide on shared services stated that it is not enough for management to merely support the financial operations’ shared service implementation—top management must provide the leadership structure to ensure that the transition is successful. Because the tenure of political appointees is relatively short, the current and future administrations must continue a strong emphasis on top-notch financial management. How can existing industry standards and best practices be incorporated into governmentwide guidance related to financial management system implementation efforts, including migrating to an application service provider? What actions will be taken to reduce the risks and costs associated with data conversion and interface efforts? What oversight process will be used to ensure that modernization efforts effectively implement the prescribed policies and procedures? Once the concept of operations and standard business processes have been defined and a migration strategy is in place, individual agencies will have to work closely with the selected application service provider or systems integrator to help ensure that the implementation is successful. Although application service providers may provide a COTS solution, effective implementation and testing processes are still required to ensure that the system delivers the desired functionality on time and within budget. As previously discussed, a partnership between the CIO and CFO offices, as well as with those program management offices responsible for financial or mixed systems such as payroll and inventory, is critical for success. Agencies have frequently struggled to implement key best practices when implementing COTS financial management systems. The key to avoiding these long-standing implementation problems is to provide specific guidance to agencies for financial management system implementations, incorporating the best practices identified by the SEI, the IEEE, the Project Management Institute, and other experts that have been proven to reduce risk in implementing systems. Such guidance should include the various disciplined processes such as requirements management, testing, data conversion and system interfaces, risk and project management, and related activities, which have been problematic in the financial systems implementation projects we reviewed. Disciplined processes have been shown to reduce the risks associated with software development and acquisition efforts to acceptable levels and are fundamental to successful system implementations. The principles of disciplined IT systems development and acquisition of services apply to shared services implementation. A disciplined software implementation process can maximize the likelihood of achieving the intended results (performance) within established resources (costs) on schedule. For example, disciplined processes should be in place to address the areas of data conversion and interfaces, two of the many critical elements necessary to successfully implement a new system that have contributed to the failure of previous agency efforts. The former JFMIP provided guidance on data conversion, and the Configuration Control Subcommittee under the CFO Council’s Financial Systems Integration Committee was tasked with focusing on interface requirements. However, a standard set of practices will be needed to guide the migration from legacy systems to new systems and application service providers. Further details on disciplined processes needed can be found in appendix III. In addition, oversight to help ensure that the disciplined processes are in place and operating as intended will be a critical factor in the success of the implementation of new and consolidated financial management systems. Currently, OMB guidance requires agencies to have qualified project managers and to use earned value management tools for major IT investments. However, OMB only performs limited reviews of agencies’ financial management systems implementations. OFFM officials told us that these reviews vary considerably in scope and that one of their goals is to provide more structure to the reviews. OMB’s review depends on the agency and the phase of the project, and generally does not focus on implementation of the disciplined processes used. Industry experts agree that the best indicator of whether risks have been reduced to an acceptable level is an assessment of the disciplined processes in place. For example, in the area of requirements management, disciplined processes would help ensure (1) the requirements document contains all the requirements identified by the customer, as well as those needed for the definition of the system, (2) the requirements fully describe the software functionality to be delivered, (3) the requirements are stated in clear terms that allow for quantitative evaluation, and (4) traceability among various documents is maintained. Proper oversight would entail verification of these requirements-related disciplined processes. In addition to problems with the structure and scope of OMB’s current system reviews, we noted that OFFM has a staff of only four employees dedicated to reviewing federal executive branch agency projects to implement financial management systems. These four staff also have other time-consuming duties such as developing a coherent, coordinated architecture and issuing federal financial system requirements. As a result, the current level of detail in the existing system reviews is necessarily limited. Moreover, there is limited follow-up by OMB on suggested improvements they have made to agency officials, and there is not any impetus for agencies to implement suggested improvements. For example, OFFM officials told us that they advised an agency that there were numerous disadvantages to deploying a new financial management system mid-year. Nonetheless, the agency deployed the system at mid-year and has faced problems by doing so. The FSIO also has a limited number of staff to perform its numerous financial management policy and oversight activities and is currently reassessing its priorities and available resources. Given the range of OMB’s leadership roles and its relatively small size as part of the Executive Office of the President, it is not realistic to expect OMB to be able to carry out a comprehensive review function. Instead, agencies could be required to have their financial management system projects undergo independent verification and validation reviews to ensure that the projects adequately implemented the disciplined processes needed to manage the risks to acceptable levels. OMB could then review reports produced as a result of the independent verification and validation process to leverage its oversight efforts. Accordingly, OMB could then focus its oversight efforts on the projects with the greatest risks. Because the federal government is one of the largest and most complex organizations in the world, operating, maintaining, and modernizing its financial management systems represent a monumental challenge— technically and cost-wise. The past paradigm must be changed from one in which each federal agency attempts to implement systems that, in many cases, are to perform redundant functions and have all too often resulted in failure, have been delayed, and cost too much. Thus, a more holistic governmentwide approach as OMB has been advocating is necessary to address the key causes of failure. OMB has recognized the seriousness of the problems. Its primary initiative related to the use of a limited number of application service providers is a step in the right direction. This initiative is in the early stage and does not yet include basic elements that are integral to its success. Based on industry best practices, the following four concepts would help ensure a sound foundation for developing and implementing a governmentwide solution for long-standing financial management system implementation failures: (1) developing a concept of operations that ties in other systems, (2) defining standard business processes, (3) developing a strategy for ensuring that agencies are migrated to a limited number of application service providers, and (4) defining and effectively implementing applicable disciplined processes. As pressure mounts to do more with less, to increase accountability, and to reduce fraud, waste, abuse, and mismanagement, and efforts to reduce federal spending intensify, sustained and committed leadership will be a key factor in the successful implementation of these governmentwide initiatives. However, regardless of the approach taken, the adherence to disciplined processes in systems development and acquisition will be at the core of successfully addressing the key causes of financial management system implementation failures. To help reduce the risks associated with financial management system implementation efforts and facilitate the implementation of the financial management line of business and JFMIP realignment initiatives across the government, we recommend that the Director of OMB take the following 18 actions. This would entail placing a high priority on fully integrating into its approach the following concepts and underlying key issues, all of which are related to the fundamental disciplines in systems implementation: Developing a concept of operations. This would include identifying the interrelationships among federal financial systems and how the application service provider concept fits into this framework, prescribing which financial management systems should be operated at an agency level and which should be operated at a governmentwide level and how those would integrate, and defining financial management systems in the Federal Enterprise Architecture to be more consistent with the similar definitions used in FFMIA and OMB Circulars No. A-11 and No. A-127. Defining standard business processes. This would include describing the standard business processes that are needed to meet federal agencies’ needs, developing a process to identify those that are needed to meet unique agency needs, requiring application service providers to adopt standard business processes to provide consistency, and encouraging agencies to embrace new processes. Developing a strategy for ensuring that agencies are migrated to a limited number of application service providers in accordance with OMB’s stated approach. This would include articulating a clear goal and criteria for ensuring agencies are subject to the application service provider concept and cannot continue developing and implementing their own stove-piped systems, establishing a migration path or time table for when agencies should migrate to an application service provider, providing the necessary information for an agency to select an application service provider, and developing guidance to assist agencies in adopting a change management strategy for moving to application service providers. Defining and effectively implementing disciplined processes necessary to properly manage the specific projects. This would include providing specific guidance to agencies on disciplined processes for providing a standard set of practices to guide the migrations from legacy systems to new systems and application service providers, and developing processes to facilitate oversight and review that allow for a more structured review and follow-up of agencies’ financial system implementation projects. We received written comments on a draft of this report from the Controller of OMB, which are reprinted in appendix IV. The Controller agreed with our recommendations and described the approach and steps that OMB is taking to improve financial management system modernization efforts. As OMB moves forward to address the recommendations in our report, it is important that it prioritize its efforts and focus on the concepts and underlying key issues we discussed, such as adequately defining and implementing disciplined processes. We are encouraged that OMB plans to issue additional guidance outlining the fundamental risk-reduction approaches that agencies can implement when acquiring and implementing financial systems. It will be critical that the guidance stresses the importance of this standard set of practices. We continue to believe that careful consideration of all the building blocks and key issues we identified will be integral to the success of OMB’s initiatives. OMB also provided additional oral comments which we incorporated as appropriate. We are sending copies of this report to the Chairman and Ranking Minority Member, Senate Committee on Homeland Security and Governmental Affairs, and other interested congressional committees. We are also sending a copy to the Director of OMB. Copies will also be made available to others upon request. The report will also be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact McCoy Williams, Director, Financial Management and Assurance, who may be reached at (202) 512-9095 or by e-mail at [email protected], or Keith A. Rhodes, Chief Technologist, Applied Research and Methods, who may be reached at (202) 512-6412 or by e-mail at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V. To determine the key causes for financial management system implementation failures, we conducted database searches of GAO and inspector general (IG) Web sites to identify reports issued by any GAO teams or IGs that could be relevant. We summarized and analyzed prior GAO reports on commercial off-the-shelf financial management system implementations within the last 5 years. We performed a content analysis of the GAO and IG reports to determine if causes for the financial management system implementation problems were included. We discussed the relevant GAO report findings and current status with the key staff that worked on the reports. In addition, we identified other potential data sources, such as key industry groups and well-known national experts for information they had on this topic. We also interviewed key Office of Management and Budget (OMB) officials and had discussions with other interested parties such as Chief Financial Officers (CFO) Council representatives. To identify the significant governmentwide initiatives that are currently under way that impact financial management systems implementation failures, we interviewed key OMB officials and reviewed relevant OMB policies, guidance, and memorandums related to the initiatives. We also interviewed CFO Council representatives to discuss the initiatives to reform federal financial management systems. In addition, we interviewed Office of Personnel Management officials to discuss their plans to migrate to a financial management center of excellence. We also reviewed reports from various authors and governmentwide forums where participants provided their perspectives on governmentwide initiatives. To provide our views on actions that can be taken to help improve the management and control of agency financial management system modernization efforts, we analyzed the GAO and IG reports we had identified as relevant to the topic to highlight the actions called for in those reports. Further, we reviewed material from key industry groups and national experts to identify any potential solutions posed by those groups, lessons learned, and relevant best practices. We took into consideration those governmentwide initiatives that were currently under way and the perspectives provided by authors and participants in governmentwide forums. In addition, during our consultations with various GAO stakeholders, and external groups such as OMB and the CFO Council, we obtained their perspectives on the actions needed to address the problems. We conducted our work in Washington, D.C., from January 2005 through October 2005, in accordance with U.S. generally accepted government auditing standards. We did not evaluate the federal government’s overall IT strategy or whether a particular agency selected the most appropriate financial management system. Because we have previously provided agencies with specific recommendations in individual reports, we are not making additional recommendations to them in this report. We requested comments on a draft of this report from the Director of OMB or his designee. Written comments from OMB are reprinted in appendix IV and evaluated in the Agency Comments and Our Evaluation section. Department of the Treasury Office of Inspector General. The Modernization Program Is Establishing a Requirements Management Office to Address Development and Management Problems. Reference No. 2005-20-023. Washington, D.C.: January 19, 2005. Department of Transportation Office of Inspector General. Consolidated Financial Statements for Fiscal Years 2004 and 2003. Report FI-2005- 009. Washington, D.C.: November 15, 2004. Department of Housing and Urban Development Office of Inspector General. Fiscal Year 2004 Review of Information Systems Controls in Support of the Financial Statements Audit. Report 2005-DP-0001. Washington, D.C.: October 19, 2004. Department of Justice Office of Inspector General. The Drug Enforcement Administration’s Management of Enterprise Architecture and Information Technology Investments. Report 04-36. Washington, D.C.: September 2004. Department of Veterans Affairs Office of Inspector General. Issues at VA Medical Center Bay Pines, Florida and Procurement and Deployment of the Core Financial and Logistics System. Report 04-01371-177. Washington, D.C.: August 11, 2004. Department of Energy Office of Inspector General. Management of the Federal Energy Regulatory Commission’s Information Technology Program. Report DOE/IG-0652. Washington, D.C.: June 2004. Department of Justice Office of Inspector General. The Federal Bureau of Investigation’s Implementation of Information Technology Recommendations. Report 03-36. Washington, D.C.: September 2003. Small Business Administration Office of Inspector General. Audit of SBA’s Acquisition, Development and Implementation of the Joint Accounting and Administrative Management System. Report 3-32. Washington, D.C.: June 30, 2003. Department of Energy Office of Inspector General. Audit Report on Business Management Information System. Report DOE/IG-0572. Washington, D.C.: November 2002. Department of the Interior Office of Inspector General. Developing the Department of the Interior’s Information Technology Capital Investment Process: A Framework for Action. Report 2002-I-0038. Washington, D.C.: August 2002. Department of Defense Office of Inspector General. Development of the Defense Finance and Accounting Service Corporate Database and other Financial Management Systems. Report D-2002-014. Washington, D.C.: November 7, 2001. Department of Transportation Office of Inspector General. Implementing a New Financial Management System. Report FI-2001-074. Washington, D.C.: August 7, 2001. Disciplined processes have been shown to reduce the risks associated with software development and acquisition efforts to acceptable levels and are fundamental to successful system implementations. A disciplined software implementation process can maximize the likelihood of achieving the intended results (performance) within established resources (costs) on schedule. Although a standard set of practices that will guarantee success does not exist, several organizations, such as the Software Engineering Institute (SEI) and the Institute of Electrical and Electronic Engineers (IEEE), and individual experts, have identified and developed the types of policies, procedures, and practices that have been demonstrated to reduce development time and enhance effectiveness. The key to having a disciplined system development effort is to have disciplined processes in multiple areas, including requirements management, testing, data conversion and system interfaces, configuration management, risk management, project management, and quality assurance. Requirements are the specifications that system developers and program managers use to design, develop, and acquire a system. They need to be carefully defined, consistent with one another, verifiable, and directly traceable to higher-level business or functional requirements. It is critical that they flow directly from the organization’s concept of operations (how the organization’s day-to-day operations are or will be carried out to meet mission needs). According to the IEEE, a leader in defining the best practices for such efforts, good requirements have several characteristics, including the following: The requirements fully describe the software functionality to be delivered. Functionality is a defined objective or characteristic action of a system or component. For example, for grants management, a key functionality includes knowing (1) the funds obligated to a grantee for a specific purpose, (2) the cost incurred by the grantee, and (3) the funds provided in accordance with federal accounting standards. The requirements are stated in clear terms that allow for quantitative evaluation. Specifically, all readers of a requirement should arrive at a single, consistent interpretation of it. Traceability among various requirement documents is maintained. Requirements for projects can be expressed at various levels depending on user needs. They range from agencywide business requirements to increasingly detailed functional requirements that eventually permit the software project managers and other technicians to design and build the required functionality in the new system. Adequate traceability ensures that a requirement in one document is consistent with and linked to applicable requirements in another document. The requirements document contains all of the requirements identified by the customer, as well as those needed for the definition of the system. Studies have shown that problems associated with requirements definition are key factors in software projects that do not meet their cost, schedule, and performance goals. Examples include the following: A 1988 study found that getting a requirement right in the first place costs 50 to 200 times less than waiting until after the system is implemented to get it right. A 1994 survey of more than 8,000 software projects found that the top three reasons that projects were delivered late, over budget, and with less functionality than desired all had to do with requirements management. A 1994 study found that, on average, there is about a 25-percent increase in requirements over a project’s lifetime, which translates into at least a 25-percent increase in the schedule. A 1997 study noted that between 40 and 60 percent of all defects found in a software project could be traced back to errors made during the requirements development stage. Testing is the process of executing a program with the intent of finding errors. Because requirements provide the foundation for system testing, they must be complete, clear, and well documented to design and implement an effective testing program. Absent this, an organization is taking a significant risk that substantial defects will not be detected until after the system is implemented. As shown in figure 2, there is a direct relationship between requirements and testing. Although the actual testing occurs late in the development cycle, test planning can help disciplined activities reduce requirements-related defects. For example, developing conceptual test cases based on the requirements derived from the concept of operations and functional requirements stages can identify errors, omissions, and ambiguities long before any code is written or a system is configured. Disciplined organizations also recognize that planning the testing activities in coordination with the requirements development process has major benefits. Although well-defined requirements are critical for implementing a successful testing program, disciplined testing efforts for projects have several characteristics, which include the following: Testers who assume that the program has errors are likely to find a greater percentage of the defects present in the system. This is commonly called the testing mindset. Test plans and scripts that clearly define what the expected results should be when the test case is properly executed and the program does not have a defect that would be detected by the test case. This helps to ensure that defects are not mistakenly accepted. Processes that ensure test results are thoroughly inspected. Test cases that include exposing the system to invalid and unexpected conditions as well as the valid and expected conditions. This is commonly referred to as boundary condition testing. Testing processes that determine if a program has unwanted side effects. For example, a process should update the proper records correctly but should not delete other records. Systematic gathering, tracking, and analyzing statistics on the defects identified during testing. Although these processes may appear obvious, they are often overlooked in testing activities. Data conversion is defined as the modification of existing data to enable them to operate with similar functional capability in a different environment. It is one of the many critical elements necessary to successfully implement a new system. Because of the difficulty and complexity associated with financial systems data conversion, highly skilled staff are needed. There are three primary phases in a data conversion: 1. Pre-conversion activities prior to and leading up to the conversion, such as determining the scope and approach or method, developing the conversion plan, performing data cleanup and validation, ensuring data integrity, and conducting necessary analysis and testing. 2. Cutover activities to convert the legacy data to the new system, such as testing system process and data edits, testing system interfaces (both incoming and outgoing), managing the critical path, supervising workload completion, and reconciliation. 3. Post-installation activities such as verifying data integrity, conducting final disposition of the legacy system data, and monitoring the first reporting cycle. There are also specific issues that apply uniquely to converting data as part of the replacement of a financial system, including identifying specific open transactions and balances to be established, analyzing and reconciling transactions for validation purposes, and establishing transactions and balances in the new system through an automated or manual process. Further, consideration of various data conversion approaches and implications are important. Some considerations to be taken into account for the system conversion are the timing of the conversion (beginning-of- the-year, mid-year, or incremental) and other options such as direct or flash conversions, parallel operations, and pilot conversions. In addition, agencies should consider different data conversion options for different categories of data when determining the scope and time lines such as opting not to conduct a data conversion, processing new transactions and activity only, establishing transaction balances in the new system for reporting converting open transactions from the legacy system, and recording new activity on closed prior year transactions. Validation and adjustment of open transactions and data in the legacy system are essential prerequisites to the conversion process and have often been problematic. When data conversion is done right, the new system can flourish. However, converting data incorrectly has lengthy and long-term repercussions. System interfaces operate on an ongoing basis linking various systems and provide data that are critical to day-to-day operations, such as obligations, disbursements, purchase orders, requisitions, and other procurement activities. Testing the system interfaces in an end-to-end manner is necessary so agencies can have reasonable assurance that the system will be capable of providing the intended functionality. Systems that lack appropriate system interfaces often rely on manual reentry of data into multiple systems, convoluted systems, or both. According to the SEI, a widely recognized model for evaluating the interoperability of systems is the Levels of Information System Interoperability. This model focuses on the increasing levels of sophistication of system interoperability. Efforts at the highest level of this model—enterprise-based interoperability—are systems that can provide multiple users access to complex data simultaneously, data and applications are fully shared and distributed, and data have a common interpretation regardless of format. This is in contrast to the traditional interface strategies that are more aligned with the lowest level of the SEI model. Data exchanged at this level rely on electronic links that result in a simple electronic exchange of data. Configuration Management According to the SEI, configuration management is defined as a discipline applying technical and administrative direction and surveillance to (1) identify and document the functional and physical characteristics of a configuration item, (2) control changes to those characteristics, (3) record and report change processing and implementation status, and (4) verify compliance with specified requirements. The purpose of configuration management is to establish and maintain the integrity of work products. Configuration management involves the processes of identifying the configuration of selected work products that compose the baselines at given points in time, controlling changes to configuration items, building or providing specifications to build work products from the maintaining the integrity of baselines, and providing accurate status and current configuration data to developers, integrators, and end users. The work products placed under configuration management include the products that are delivered to the customer, designated internal work products, acquired products, tools, and other items that are used in creating and describing these work products. For COTS systems, configuration management focuses on ensuring that changes to the requirements or components of a system are strictly controlled to ensure the integrity and consistency of system requirements or components. Two of the key activities for configuration management include ensuring that (1) project plans explicitly provide for evaluation, acquisition, and implementation of new, often frequent, product releases and (2) modification or upgrades to deployed versions of system components are centrally controlled, and unilateral user release changes are precluded. Configuration management recognizes that when using COTS products, it is the vendor, not the acquisition or implementing organization, that controls the release of new versions and that new versions are frequently released. Risk and opportunity are inextricably related. Although developing software is a risky endeavor, risk management processes should be used to manage the project’s risks to acceptable levels by taking the actions necessary to mitigate the adverse effects of significant risks before they threaten the project’s success. If a project does not effectively manage its risks, then the risks will manage the project. Risk management is a set of activities for identifying, analyzing, planning, tracking, and controlling risks. Risk management starts with identifying the risks before they can become problems. If this step is not performed well, then the entire risk management process may become a useless exercise since one cannot manage something that one does not know anything about. As with the other disciplined processes, risk management is designed to eliminate the effects of undesirable events at the earliest possible stage to avoid the costly consequences of rework. After the risks are identified, they need to be analyzed so that they can be better understood and decisions can be made about what actions, if any, will be taken to address them. Basically, this step includes activities such as evaluating the impact on the project if the risk does occur, determining the probability of the event occurring, and prioritizing the risk against the other risks. Once the risks are analyzed, a risk management plan is developed that outlines the information known about the risks and the actions, if any, which will be taken to mitigate those risks. Risk monitoring is a continuous process because both the risks and actions planned to address identified risks need to be monitored to ensure that the risks are being properly controlled and that new risks are identified as early as possible. If the actions envisioned in the plan are not adequate, then additional controls are needed to correct the deficiencies identified. Effective project management is the process for planning and managing all project-related activities, such as defining how components are interrelated, defining tasks, estimating and obtaining resources, and scheduling activities. Project management allows the performance, cost, and schedule of the overall program to be continually measured, compared with planned objectives, and controlled. Project management activities include planning, monitoring, and controlling the project. Project planning is the process used to establish reasonable plans for carrying out and managing the software project. This includes (1) developing estimates of the resources needed for the work to be performed, (2) establishing the necessary commitments, and (3) defining the plan necessary to perform the work. Effective planning is needed to identify and resolve problems as soon as possible, when it is the cheapest to fix them. According to one author, the average project expends about 80 percent of the time on unplanned rework—fixing mistakes that were made earlier in the project. Recognizing that mistakes will be made in a project is an important part of planning. According to this author, successful system development activities are designed so that the project team makes a carefully planned series of small mistakes to avoid making large, unplanned mistakes. For example, spending the time to adequately analyze three design alternatives before selecting one results in time spent analyzing two alternatives that were not selected. However, discovering that a design is inadequate after development can result in code that must be rewritten, at a cost greater than analyzing the three alternatives in the first place. This same author notes that a good rule of thumb is that each hour a developer spends reviewing project requirements and architecture saves 3 to 10 hours later in the project. Project monitoring and control help to understand the progress of the project and determine when corrective actions are needed based on the project’s performance. Best business practices indicate that a key facet of project management and oversight is the ability to effectively monitor and evaluate a project’s actual performance, cost, and schedule against what was planned. In order to perform this critical task, the accumulation of quantitative data or metrics is required and can be used to evaluate a project’s performance. An effective project management and oversight process uses quantitative data or metrics to understand matters such as (1) whether the project plan needs to be adjusted and (2) oversight actions that may be needed to ensure that the project meets its stated goals and complies with agency guidance. For example, an earned value management system is one metric that can be employed to better manage and oversee a system project. An earned value management system attempts to compare the value of work accomplished during a given period with the work scheduled for that period. With ineffective project oversight, management can only respond to problems as they arise. Agency management can also perform oversight functions, such as project reviews and participation in key meetings, to help ensure that the project will meet the agency needs. Management can use independent verification and validation reviews to provide it with assessments of the project’s software deliverables and processes. Although independent of the developer, verification and validation is an integral part of the overall development program and helps management mitigate risks. This core element involves having an independent third party—such as an internal audit function or a contractor that is not involved with any of the system implementation efforts—verify and validate that the systems were implemented in accordance with the established business processes and standards. Doing so provides agencies with needed assurance about the quality of the system, which is discussed in more detail in the following section. Quality assurance is defined as a set of procedures designed to ensure that quality standards and processes are adhered to and that the final product meets or exceeds the required technical and performance requirements. Quality assurance is a widely used approach in the software industry to improve upon product delivery and the meeting of customer requirements and expectations. The SEI indicates that quality assurance should begin in the early phases of a project to establish plans, processes, standards, and procedures that will add value to the project and satisfy the requirements of the project and the organizational policies. Quality assurance provides independent assessments, typically performed by an independent verification and validation or internal audit team, of whether management process requirements are being followed and whether product standards and requirements are being satisfied. Some of the widely used quality assurance activities include defect tracking, technical reviews, and system testing. Defect tracking–keeping a record of each defect found, its source, when it was detected, when it was resolved, how it was resolved (fixed or not), and so on. Technical reviews–reviewing user interface prototypes, requirements specifications, architecture, designs, and all other technical work products. System testing–executing software for the purpose of finding defects, typically performed by an independent test organization or quality assurance group. According to one author, quality assurance activities might seem to result in a lot of overhead, but in actuality, exactly the opposite is true. If defects can be prevented or removed early, a significant schedule benefit can be realized. For example, studies have shown that reworking defective requirements, design, and code typically consumes 40 to 50 percent of the total costs of software development projects. An effective quality assurance approach is to detect as many defects as possible as early as possible to keep the costs of corrections down. However, enormous amounts of time can be saved by detecting defects earlier than during system testing. Appendix IV: Comments from the Office of Management and Budget o Facilitate stronger internal controls that ensure integrity in accounting and other o Reduce costs by providing a competitive alternative for agencies to acquire, develop, implement, and operate financial management systems through shared service solutions; o Standardize systems, business processes and data elements; and o Provide for seamless data exchange between and among Federal agencies by implementing a common language and structure for financial information and system interfaces. 3. What are the critical milestones that must be accomplished in order to achieve the vision and goals of the FMLOB? Federal agencies have begun implementing the FMLOB initiative by actively migrating to shared service providers and initiating solutions to integrate financial data among and between agency business systems. Nothing in this memorandum changes the expectation that agencies will continue to take all the necessary steps (in the earliest possible timeframes) to meet FMLOB objectives. The milestones described below, therefore, are intended to facilitate, not delay, agency efforts. As depicted in Attachment 1, the critical milestones of the FMLOB can be broken down into three stages – (i) transparency and standardization; (ii) competitive environment and seamless data integration; and (iii) results. Stage 1: Transparency and Standardization. In order to enable a competitive environment where agencies have more options and leverage in choosing a financial system, and in order to facilitate seamless integration of financial data among agency business systems, additional transparency and standardization is required. Transparency: In determining the best options available when modernizing financial systems, the Federal financial community must have clarity on how to evaluate the performance and cost of shared service alternatives (i.e., Centers of Excellence (COE)) as well as clarity on what steps Federal agencies are expected to undertake in order to migrate to a COE. As described in more detail below, a COE is a shared service solution where a single entity provides financial management services for multiple organizations. In order to achieve additional transparency, two specific projects (with associated milestones) will be undertaken: Establishment of Common Performance Measures – This project will result in standard quality and cost measures for agencies to benchmark and compare the performance of financial system alternatives. Development of Migration Planning Guidance – This project will result in comprehensive guidance that helps Federal agencies describe, prepare for, and manage an agency’s migration to a COE. This guidance will also include a definition of the full range of services to be provided by all COEs and a description of the “rules of 2 engagement,” including templates for service level agreements outlining provider and client responsibilities. Standardization: In order to mitigate the cost and risk of migrations to a COE and to ensure that financial data can be shared across agency business systems, the Federal government must ensure greater standardization of business processes, interfaces, and data. To this end, two specific projects (with associated milestones) will be undertaken: Development of Standard Business Processes – This project will result in government- wide common business rules, data components, and policies for funds control, accounts payable, accounts receivable, and fixed assets. Creation of a Common Government-wide Accounting Code – This project will result in a uniform accounting code structure, layout, and definitions. Once established, all agencies will be expected to adopt these common processes on a schedule agreed upon between the agency and OMB. See Attachment 2 for additional details on the priority projects related to the transparency and standardization initiatives described above. Stage 2: Competitive Environment and Seamless Data Integration. In order to enable improved performance of financial systems, the FMLOB envisions more competitive alternatives for financial systems and an environment where financial data can be more easily compared and aggregated across agencies. Competitive Environment: To enable improved cost, quality, and performance of financial systems, Federal agencies must have competitive options available for financial systems. The COE framework is intended to help achieve these results. A COE is a shared service solution where a single entity provides financial management services for multiple organizations. When the FMLOB is successful, there will be a limited number of stable and high performing COEs that provide competitive alternatives for agencies investing in financial system modernizations. The economies of scale and skill of a COE will allow it to provide Federal agencies with a lower risk, lower cost, and increased service quality alternative for financial system modernization efforts. Notably, a competitive environment is sustainable if Federal agencies have the ability to migrate from one solution to a more competitive or better performing alternative that is offered. The transparency and standardization efforts described above will lay the foundation for facilitating better portability of agency systems from one solution to another. Seamless Data Integration: The standardization efforts, associated with Stage 1 of the FMLOB initiative, will enable financial data to be easily compared and aggregated across agencies. For 3 example, the development of a common government-wide accounting code will assist in the intra-governmental reconciliation process by requiring that all common types of financial data be accounted for in a similar format. A common structure will also enable easier transmission of financial reports to OMB and Treasury and assist these central agencies with aggregating similar-type data on a government-wide basis. Seamless and standardized data exchange will enable the government to streamline operations through more efficient information management and increased data accuracy. In addition, seamless data integration will reduce the costs and risks of establishing interfaces between agency business systems. By requiring standard core business processes, rules, data definitions, and a common government-wide accounting code, interfacing systems, such as travel, will not have to be specifically designed for each agency. This will save agencies money and enable them to more easily migrate between different system solutions. Stage 3: Results. When the FMLOB is fully realized, agencies’ data will be more timely and accurate for decision-making and there will be improved government-wide stewardship and accounting. More timely and accurate data will result from the standardization and seamless data integration efforts, including the implementation of centralized interfaces between core financial systems and other systems. These efforts will focus on promoting strong internal controls and ensuring the integrity of accounting data. The easy exchange of data between federal agencies will increase federal managers’ stewardship abilities. There will also be a reduction of government-wide information technology costs and risks. These benefits will be the result of shared-service solutions, also assisted by the standardization and seamless data integration efforts. Shared-service solutions will enable economies of scale by centrally locating, or consolidating, solution assets and reusing Federal and commercial subject matter expertise through common acquisitions, interface development, and application management. The reduction in the number of agencies implementing their own systems will reduce the risks, and associated costs, of systems implementations. 4. What governance structure will be in place to ensure accountability for successful completion of priority FMLOB initiatives? As depicted in Attachment 3, FSIO will have direct responsibility for completing priority projects under the FMLOB. OMB, in consultation with the Financial Systems Integration Committee (FSIC) of the CFO Council, will provide oversight and guidance to FSIO on priorities and expected performance in meeting these priorities. OMB will continue its role as Executive Sponsors of the FMLOB. The FSIC chair will be the lead agency sponsor for the FMLOB. A liaison from the CIO community and the Executive Director of FSIO will serve on the FSIC and support the FSIC chair in his/her responsibilities as they relate to the FMLOB. Going forward, FSIO will coordinate the collection and expenditure of FMLOB funds. 4 The FSIC will assist OMB in evaluating and monitoring FSIO’s progress in completing FMLOB projects and provide feedback to OMB and FSIO. As appropriate, members of the FSIC will participate in working groups to assist FSIO with completing deliverables. The FSIC will evaluate its current subcommittee structure to assess whether changes are needed to best meet these objectives. The updated governance structure ensures that the FSIO, FMLOB, and the FSIC do not operate in separate stovepipes. In addition, responsibility for work products will now rest with FSIO, where full time dedicated staff will be held accountable for achieving FMLOB milestones. 5. What is the status of the realignment of JFMIP to FSIO? In December of 2004, the JFMIP Principals voted to modify the roles and responsibilities of the JFMIP Program Office, now FSIO. As a result, OMB and the FSIC were given an increased management and oversight role in the activities of FSIO. OMB and the FSIC have worked closely with FSIO staff to update FSIO’s mission statement and define FSIO’s scope of activities and priorities for FY 2006. In terms of mission and scope, FSIO has three major areas of responsibilities: (a) continuing its primary role of core financial system requirements development, testing, and certification; (b) providing support to the Federal financial community by taking on special priority projects as determined by the OMB Controller, CFO Council, and the FSIO Executive Director, and (c) conducting outreach through the annual financial management conference and other related activities. Most importantly, the projects that FSIO undertakes will directly reflect the priorities of the CFO Community and OMB. As noted above, the priority projects to be undertaken in the near term will relate to the transparency and standardization initiatives of the FMLOB. Other projects that were previously under FSIO’s purview – acquisition, budget formulation, and property system requirements – have been transitioned to the Chief Acquisition Council, the Budget Officers Advisory Council, and the Federal Real Property Council, respectively, for their consideration and completion. Also, effective January 2006, the FSIO office will be transferred from the General Service Administration’s (GSA) Office of the Chief Financial Officer to the Office of Government-wide Policy, Office of Technology Strategy (OTS). There are several significant benefits of this move: lower administrative cost through shared resources (rent, supplies, equipment, etc.) permanent SES in place to provide leadership to FSIO staff access to immediate resources and expertise on IT, administrative management, contract management, testing, etc. fits well with current mission and stakeholder focused model of OTS 5 6. What specific actions are expected of Federal agencies? As described above, a central goal of the FMLOB is that financial system investments will be at lower risk and lower cost as agencies leverage the economies offered by shared service solutions (i.e., COEs). To this end, OMB has instituted a policy that agencies seeking to modernize their financial system must either be designated a public COE or must migrate to a COE (public, private, or a combination of both). Although exceptions to this policy will be made in limited situations when an agency demonstrates compelling evidence of a best value and lower risk alternative, it is OMB’s intent to avoid investments in “in-house” solutions wherever possible so that the shared service framework can fully achieve potential and anticipated returns. To the extent we require any specific action on your part to carry out the priority initiatives and milestones outlined above, we will communicate such requests through subsequent memos from OMB or the FSIC. 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Project Description: Develop Project Description: Develop Project Description: Develop Project Description: Develop Project Description: Develop Project Description: Develop a standard set of business a standard set of business a standard set of business a standard set of business a standard set of business a standard set of business practices for core financial practices for core financial practices for core financial practices for core financial practices for core financial practices for core financial management functions (funds, management functions (funds, management functions (funds, management functions (funds, management functions (funds, management functions (funds, payments, receipts, fixed payments, receipts, fixed payments, receipts, fixed payments, receipts, fixed payments, receipts, fixed payments, receipts, fixed assets) to be adopted by all assets) to be adopted by all assets) to be adopted by all assets) to be adopted by all assets) to be adopted by all assets) to be adopted by all federal agencies. 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In addition to the contacts named above, Kay Daly, Assistant Director; Chris Martin, Senior-Level Technologist; Francine DelVecchio; Mike LaForge; and Chanetta Reed made key contributions to this report. DOD Business Systems Modernization: Navy ERP Adherence to Best Business Practices Critical to Avoid Past Failures. GAO-05-858. Washington, D.C.: September 29, 2005. Financial Management: Achieving FFMIA Compliance Continues to Challenge Agencies. GAO-05-881. Washington, D.C.: September 20, 2005. Business Modernization: Some Progress Made toward Implementing GAO Recommendations Related to NASA’s Integrated Financial Management Program. GAO-05-799R. Washington, D.C.: September 9, 2005. Business Systems Modernization: Internal Revenue Service’s Fiscal Year 2005 Expenditure Plan. GAO-05-774. Washington, D.C.: July 22, 2005. DOD Business Systems Modernization: Long-standing Weaknesses in Enterprise Architecture Development Need to Be Addressed. GAO-05-702. Washington, D.C.: July 22, 2005. Army Depot Maintenance: Ineffective Oversight of Depot Maintenance Operations and System Implementation Efforts. GAO-05-441. Washington, D.C.: June 30, 2005. DOD Business Systems Modernization: Billions Being Invested without Adequate Oversight. GAO-05-381. Washington, D.C.: April 29, 2005. Internal Revenue Service: Assessment of the Fiscal Year 2006 Budget Request. GAO-05-566. Washington, D.C.: April 27, 2005. Information Technology: OMB Can Make More Effective Use of Its Investment Reviews. GAO-05-276. Washington, D.C.: April 15, 2005. Information Technology: Customs Automated Commercial Environment Program Progressing, but Need for Management Improvements Continues. GAO-05-267. Washington, D.C.: March 14, 2005. Office of Personnel Management: Retirement Systems Modernization Program Faces Numerous Challenges. GAO-05-237. Washington, D.C.: February 28, 2005. DOD Systems Modernization: Management of Integrated Military Human Capital Program Needs Additional Improvements. GAO-05-189. Washington, D.C.: February 11, 2005. Department of Defense: Further Actions Are Needed to Effectively Address Business Management Problems and Overcome Key Business Transformation Challenges. GAO-05-140T. Washington, D.C.: November 18, 2004. Business Systems Modernization: IRS’s Fiscal Year 2004 Expenditure Plan. GAO-05-46. Washington, D.C.: November 17, 2004. Financial Management: Improved Financial Systems Are Key to FFMIA Compliance. GAO-05-20. Washington, D.C.: October 1, 2004. Financial Management Systems: HHS Faces Many Challenges in Implementing Its Unified Financial Management System. GAO-04- 1089T. Washington, D.C.: September 30, 2004. Financial Management Systems: Lack of Disciplined Processes Puts Implementation of HHS’ Financial System at Risk. GAO-04-1008. Washington, D.C.: September 23, 2004. Information Technology: DOD’s Acquisition Policies and Guidance Need to Incorporate Additional Best Practices and Controls. GAO-04-722. Washington, D.C.: July 30, 2004. Department of Defense: Financial and Business Management Transformation Hindered by Long-standing Problems. GAO-04-941T. Washington, D.C.: July 8, 2004. Information Security: Agencies Need to Implement Consistent Processes in Authorizing Systems for Operation. GAO-04-376. Washington, D.C.: June 28, 2004. DOD Business Systems Modernization: Billions Continue to Be Invested with Inadequate Management Oversight and Accountability. GAO-04- 615. Washington, D.C.: May 27, 2004. Information Technology: The Federal Enterprise Architecture and Agencies’ Enterprise Architectures Are Still Maturing. GAO-04-798T. Washington, D.C.: May 19, 2004. National Aeronautics and Space Administration: Significant Actions Needed to Address Long-standing Financial Management Problems. GAO-04-754T. Washington, D.C.: May 19, 2004. DOD Business Systems Modernization: Limited Progress in Development of Business Enterprise Architecture and Oversight of Information Technology Investments. GAO-04-731R. Washington, D.C.: May 17, 2004. Information Technology: Early Releases of Customs Trade System Operating, but Pattern of Cost and Schedule Problems Needs to Be Addressed. GAO-04-719. Washington, D.C.: May 14, 2004. Information Technology Investment Management: A Framework for Assessing and Improving Process Maturity (Version 1.1). GAO-04-394G. Washington, D.C.: March 2004. Information Technology Management: Governmentwide Strategic Planning, Performance Measurement, and Investment Management Can Be Further Improved. GAO-04-49. Washington, D.C.: January 12, 2004. Human Capital: Key Principles for Effective Strategic Workforce Planning. GAO-04-39. Washington, D.C.: December 11, 2003. Business Modernization: NASA’s Challenges in Managing Its Integrated Financial Management Program. GAO-04-255. Washington, D.C.: November 21, 2003. Business Modernization: NASA’s Integrated Financial Management Program Does Not Fully Address Agency’s External Reporting Issues. GAO-04-151. Washington, D.C.: November 21, 2003. Business Modernization: Disciplined Processes Needed to Better Manage NASA’s Integrated Financial Management Program. GAO-04-118. Washington, D.C.: November 21, 2003. Information Technology: Architecture Needed to Guide NASA’s Financial Management Modernization. GAO-04-43. Washington, D.C.: November 21, 2003. Information Technology: Leadership Remains Key to Agencies Making Progress on Enterprise Architecture Efforts. GAO-04-40. Washington, D.C.: November 17, 2003. DOD Business Systems Modernization: Important Progress Made to Develop Business Enterprise Architecture, but Much Work Remains. GAO-03-1018. Washington, D.C.: September 19, 2003. Business Systems Modernization: IRS Has Made Significant Progress in Improving Its Management Controls, but Risks Remain. GAO-03-768. Washington, D.C.: June 27, 2003. Business Modernization: Improvements Needed in Management of NASA’s Integrated Financial Management Program. GAO-03-507. Washington, D.C.: April 30, 2003. Department of Housing and Urban Development: Status of Efforts to Implement an Integrated Financial Management System. GAO-03-447R. Washington, D.C.: April 9, 2003. Information Technology: A Framework for Assessing and Improving Enterprise Architecture Management (Version 1.1). GAO-03-584G. Washington, D.C.: April 2003. DOD Business Systems Modernization: Continued Investment in Key Accounting Systems Needs to be Justified. GAO-03-465. Washington, D.C.: March 28, 2003. DOD Business Systems Modernization: Improvements to Enterprise Architecture Development and Implementation Efforts Needed. GAO-03- 458. Washington, D.C.: February 28, 2003. Customs Service Modernization: Automated Commercial Environment Progressing, but Further Acquisition Management Improvements Needed. GAO-03-406. Washington, D.C.: February 28, 2003. Customs Service Modernization: Third Expenditure Plan Meets Legislative Conditions, but Cost Estimating Improvements Needed. GAO-02-908. Washington, D.C.: August 9, 2002. DOD Financial Management: Important Steps Underway but Reform Will Require a Long-term Commitment. GAO-02-784T. Washington, D.C.: June 4, 2002. Customs Service Modernization: Management Improvements Needed on High-Risk Automated Commercial Environment Project. GAO-02-545. Washington, D.C.: May 13, 2002. Tax Administration: IRS Continues to Face Management Challenges in its Business Practices and Modernization Efforts. GAO-02-619T. Washington, D.C.: April 15, 2002. Business Systems Modernization: IRS Needs to Better Balance Management Capacity with Systems Acquisition Workload. GAO-02-356. Washington, D.C.: February 28, 2002. Human Capital: Building the Information Technology Workforce to Achieve Results. GAO-01-1007T. Washington, D.C.: July 31, 2001. Business Systems Modernization: Results of Review of IRS’ March 2001 Expenditure Plan. GAO-01-716. Washington, D.C.: June 29, 2001. Information Technology: DLA Should Strengthen Business Systems Modernization Architecture and Investment Activities. GAO-01-631. Washington, D.C.: June 29, 2001. Customs Service Modernization: Results of Review of First Automated Commercial Environment Expenditure Plan. GAO-01-696. Washington, D.C.: June 5, 2001. Information Technology: Architecture Needed to Guide Modernization of DOD’s Financial Operations. GAO-01-525. Washington, D.C.: May 17, 2001. District of Columbia: Weaknesses in Financial Management System Implementation. GAO-01-489. Washington, D.C.: April 30, 2001. Tax Systems Modernization: Results of Review of IRS’ Third Expenditure Plan. GAO-01-227. Washington, D.C.: January 22, 2001. Tax Systems Modernization: Results of Review of IRS’ August 2000 Interim Spending Plan. GAO-01-91. Washington, D.C.: November 8, 2000. Indian Trust Funds: Improvements Made in Acquisition of New Asset and Accounting System But Significant Risks Remain. GAO/AIMD-00- 259. Washington, D.C.: September 15, 2000. Tax Systems Modernization: Results of Review of IRS’ March 7, 2000, Expenditure Plan. GAO/AIMD-00-175. Washington, D.C.: May 24, 2000. Executive Guide: Creating Value Through World-class Financial Management. GAO/AIMD-00-134. Washington, D.C.: April 2000. Indian Trust Funds: Interior Lacks Assurance That Trust Improvement Plan Will Be Effective. GAO/AIMD-99-53. Washington, D.C.: April 28, 1999. Federal Information System Controls Audit Manual, Volume I: Financial Statement Audits. GAO/AIMD-12.19.6. Washington, D.C.: January 1999. District of Columbia: Status of Efforts to Develop a New Financial Management System. GAO/AIMD-97-101R. Washington, D.C.: July 9, 1997. Information Security: Opportunities for Improved OMB Oversight of Agency Practices. GAO/AIMD-96-110. Washington, D.C.: September 24, 1996.

Billions of dollars have been spent governmentwide to modernize financial management systems that have often exceeded budgeted cost, resulted in delays in delivery dates and did not provide the anticipated system functionality when implemented. GAO was asked to identify (1) the key causes for financial management system implementation failures, and (2) the significant governmentwide initiatives currently under way that are intended to address the key causes of financial management system implementation failures. GAO was also asked to provide its views on actions that can be taken to help improve the management and control of agency financial management system modernization efforts. GAO's work has linked financial management system implementation failures to three recurring themes: (1) disciplined processes, (2) human capital management, and (3) other information technology (IT) management practices. The predictable result of not effectively addressing these three areas has been numerous agency systems throughout the federal government that did not meet their cost, schedule, and performance objectives. Problems related to disciplined processes included requirements management, testing, data conversion and system interfaces, and risk and project management. Human capital management issues included strategic workforce planning, human resources, and change management. Other areas of IT management identified as problems included enterprise architecture, investment management, and information security. The Office of Management and Budget (OMB) has undertaken a number of initiatives to reduce the risks associated with acquiring and implementing financial management systems and addressing long-standing financial management problems. Some of these initiatives are in collaboration with others and are broad-based attempts to reform financial management operations governmentwide. First, OMB has developed and continues to evolve Federal Enterprise Architecture products and has required a mapping of agency architectures to this federal architecture. Another key OMB initiative is referred to as the financial management line of business which established centers of excellence to consolidate financial management activities for major agencies through cross-servicing arrangements. Finally, certain financial management activities and responsibilities have been reassigned to OMB, the Financial Systems Integration Office, and a Chief Financial Officers Council Committee. OMB's initiatives for reforming financial management systems governmentwide could help address the key causes of system implementation failures, but further actions are needed to fully define and implement the processes necessary to successfully complete these initiatives. OMB has correctly recognized the need to implement financial management systems as a governmentwide solution, rather than individual agency stove-piped efforts designed to meet a given entity's needs. Based on industry best practices, GAO believes that four concepts are integral to OMB's approach and key to successfully implementing financial management systems: a concept of operations provides the foundation, standard business processes promote consistency, a strategy for implementing the financial management line of business, and disciplined processes to help ensure successful implementations. GAO recognizes that implementing these concepts is a complex undertaking and raises a number of issues that have far-reaching implications for the government and private sector application service providers.

You are an expert at summarizing long articles. Proceed to summarize the following text: Older industrial U.S. cities that have experienced steady, long-term population declines and job losses, called legacy cities, also have diminished revenues and ability to provide services, such as drinking water and wastewater services, according to recent studies. These cities are largely scattered across the Midwest and Northeast regions. Two studies identified a number of factors that have contributed to the cities’ decline, including the loss of major industries, suburban flight, and reduced housing market demand. These factors have contributed to such effects as decayed buildings and neighborhoods, or blight; increased vacant land; and increased rates of poverty. The two studies also noted that fiscal and other challenges for cities with declining populations were created by a combination of decreased revenues and increased costs of city services. With most legacy cities having experienced peak population levels in the 1950s and 1960s, they have experienced such declines for a long and sustained period and may have greater fiscal challenges than other cities. Many older U.S. cities, including legacy cities, also face water and wastewater infrastructure problems, including lead pipes in drinking water service lines that connect the main pipeline in the street to an individual home or apartment building. In the late 19th and early 20th centuries in the United States, lead was often used in the construction of drinking water service lines because of its malleability and ease of use, among other factors, as described in a National Bureau of Economic Research study. According to the results of a 2016 American Water Works Association survey, about 7 percent of the total population served by U.S. drinking water utilities has either full or partial lead service lines serving their homes. The survey results also indicate that the highest percentages of systems with lead service lines are located in the Midwest and Northeast. Ingesting lead may cause irreversible neurological damage as well as renal disease, cardiovascular effects, and reproductive toxicity. In addition, older U.S. cities, primarily in the Midwest and Northeast, have wastewater systems constructed as combined sewer systems and face challenges controlling overflows from these systems, called combined sewer overflows, during storms. Combined sewer systems collect stormwater runoff, domestic sewage, and industrial wastewater into one pipe, unlike sanitary sewer systems that collect domestic sewage and industrial wastewater in sewer lines that are separated from stormwater pipelines. Both types of systems may overflow during storm events. Under normal conditions, the wastewater collected in combined sewer pipes is transported to a wastewater treatment plant for treatment and then discharged into a nearby stream, river, lake, or other water body. However, during heavy rain or snow storms, when the volume of the wastewater can exceed a treatment plant’s capacity, combined sewer systems release excess untreated wastewater directly into nearby water bodies. According to EPA documents, as of September 2015, 859 communities across the country, primarily in the Northeast and Midwest, have combined sewer systems. According to the results of EPA’s 2012 survey of clean water infrastructure needs, projects to prevent or control combined sewer overflows, which involve building large holding tanks or tunnels, will cost about $48 billion over the next 20 years. The federal government works in partnership with states to help ensure drinking water is safe and to protect the quality of the nation’s rivers, streams, lakes, and other waters. As required by the Safe Drinking Water Act, EPA sets standards for public drinking water utilities that generally limit the levels of specific contaminants in drinking water that can adversely affect the public’s health. Under the Clean Water Act, EPA regulates point source pollution—that is, pollution such as wastewater coming from a discrete point, for example, an industrial facility or a wastewater treatment plant. Most states have primary responsibility for enforcing the applicable requirements of the Safe Drinking Water Act and administering the applicable requirements under the Clean Water Act, and EPA also has oversight and enforcement authority. Generally speaking, states and EPA may take administrative action, such as issuing administrative orders, or judicial action, such as suing an alleged violator in court, to enforce environmental laws such as the Safe Drinking Water Act and Clean Water Act. An administrative action may be issued as a consent order, which is an enforceable agreement among all parties involved, and a judicial action may result in a consent decree, which is also an enforceable agreement signed by all parties to the action. The federal government and states also provide financial assistance for water and wastewater infrastructure, either through grants to states or grants and loans to cities. EPA’s Drinking Water SRF and Clean Water SRF programs provide annual grants to states, which states use, among other things, to make low- or no-interest loans to local communities and utilities for various water and wastewater infrastructure projects. States are required to match the federal grants by providing an amount equal to at least 20 percent of the federal grants. EPA has provided about $18.3 billion to states for the Drinking Water SRF from 1997 through 2015 and about $39.5 billion for the Clean Water SRF from 1988 through 2015. In those same periods, states provided about $3.3 billion to the states’ Drinking Water SRF programs and about $7.4 billion to the states’ Clean Water SRF programs. In addition to the SRF programs, the federal government can provide financial assistance for water and wastewater infrastructure projects through two programs that primarily serve a range of purposes, including assistance with public works projects and providing housing assistance or economic development assistance. The first program is HUD’s Community Development Block Grant Program, which provides federal funding to cities, counties, other communities, and states for housing, economic development, neighborhood revitalization, and other community development activities, including water and wastewater infrastructure. The second program is the Department of Commerce’s Economic Development Administration’s Public Works Program, which awards grants to economically distressed areas, including cities that meet the statutory and regulatory eligibility criteria, to help rehabilitate, expand, and improve their public works facilities, among other things. In addition, FEMA’s Public Assistance Grant Program and Hazard Mitigation Grant Program may provide funding for water and wastewater infrastructure projects in certain circumstances when the President has declared a major disaster. In addition to the funds they use to match federal grants, if required, states can also provide assistance to help water and wastewater utilities address infrastructure needs. More specifically, some states have special programs or funds to pay for water and wastewater projects, and others use their state bonding authority to provide funds to utilities for projects. For example, Georgia has the Georgia Fund, which provides low-interest loans to water and wastewater utilities for water, wastewater, and solid waste infrastructure projects. Ohio and West Virginia sell bonds to support utility projects. Water and wastewater utilities are generally subject to requirements under the Safe Drinking Water Act and Clean Water Act, respectively, and are responsible for managing and funding the infrastructure needed to meet requirements under these acts. To pay for general operations, maintenance, repair, and replacement of water and wastewater infrastructure, utilities generally follow a strategy of raising revenues by charging rates to their customers, according to an American Water Works Association document. More specifically, utilities charge users a rate for the water or wastewater service provided, raising these rates as needed. Utilities generally develop long-term capital improvement plans—from 5 to 20 years—to identify the infrastructure they will need to repair and replace pipes, plants, and other facilities. To pay for large capital projects, utilities generally issue or sell tax-exempt municipal bonds in the bond market or get loans from banks, their state governments, or federal lenders. According to a 2016 Congressional Research Service report, in 2014, at least 70 percent of water and wastewater utilities relied on municipal bonds or other debt to finance their infrastructure needs and sold bonds totaling about $34 billion, to pay for their infrastructure projects. Utility bonds are rated by the three major ratings agencies, Moody’s, Fitch, and Standard and Poor’s. As water and wastewater utilities increase rates to pay for maintaining old and building new infrastructure, according to government and industry groups, rate affordability is a concern, particularly for low-income customers. According to a 2010 Water Research Foundation study, one-third of customers in the lowest 20th percentile income level have had months where they could not pay all their utility bills on time and are three times more likely to have their service disconnected. The study also found, when household budgets near poverty thresholds as defined by the Census Bureau, competing needs may determine whether a household can pay its utility bills. Furthermore, according to a 2016 Water Research Foundation study, utility revenues are affected by a reduction in the average per household indoor water use, which has declined nationally by 22 percent since 1999 with the increased use of water conservation appliances like low-flow toilets and clothes washers. EPA addresses the affordability of water and wastewater utility rates in several different ways, including the following. The Safe Drinking Water Act authorizes states to provide additional subsidization to disadvantaged communities, which are service areas that meet state-established affordability criteria. Under the Safe Drinking Water Act, EPA must under some circumstances identify variance technology that is available and affordable for public water systems serving a population of 10,000 or fewer to meet new drinking water standards. As established in EPA’s 1998 variance technology findings, its most recent policy regarding drinking water affordability, EPA continues to use drinking water bills above a national-level 2.5 percent of median household income as affordability criteria to identify affordable compliance technologies. The Clean Water Act authorizes states to provide additional subsidization to benefit certain municipalities, including those that meet state affordability criteria, in certain circumstances. We refer to municipalities that meet the affordability criteria as disadvantaged communities in this report. In 1994, EPA issued its Combined Sewer Overflow Control Policy, which remains in effect, to provide guidance for permitting and enforcement authorities to ensure that controls for combined sewer overflows are cost-effective and meet the objectives of the Clean Water Act. Under the policy, implementation of combined sewer overflow controls may be phased in over time depending on several factors, including the financial capability of the wastewater utility. EPA issued guidance in 1997 on how to assess a city’s financial capability as a part of negotiating schedules for implementing Clean Water Act requirements. The guidance considers wastewater costs per household that are below 2.0 percent of median household income to have a low or midrange effect on households. In 2016, EPA’s Water Infrastructure and Resiliency Finance Center, which was created in 2015 to provide expertise and guidance on water infrastructure financing, published a report on customer assistance programs that utilities across the United States have developed to help their low-income customers pay their bills. EPA’s Environmental Financial Advisory Board (a group created to provide expert advice on funding environmental programs and projects), the U.S. Conference of Mayors, industry groups, and others have critiqued EPA’s definition of affordability and have suggested that EPA use other measures to assess the effect of water and wastewater bills on low-income households and a community’s overall financial capability. For example, in 2007 and again in 2014, EPA’s Environmental Financial Advisory Board recommended that EPA use the lowest 20th percentile of income—as opposed to 2.5 percent of median household income—as a measure of a household’s ability to afford a rate increase, when assessing the affordability of infrastructure to control combined sewer overflows on low-income customers. In 2013, the U.S. Conference of Mayors issued a tool for assessing affordability that using EPA policies considers a cost increase of less than 4.5 percent for water and wastewater bill as affordable. Based on discussions with local governments and in response to these critiques, EPA has taken steps to clarify its guidance with memorandums issued in 2012 and 2014, which describe flexibilities in applying affordability indicators. Legislation has been introduced to address the affordability of increases in utility rates. One bill, the Water Resources and Development Act of 2016, introduced in the Senate in April 2016, would provide a definition of affordability that differs from current EPA definitions and would require EPA to update its financial capability guidance after a National Academy of Public Administration study on affordability. Another bill would provide federal assistance to help low-income households maintain access to sanitation services, including wastewater services. According to industry reports about the proposed legislation, the proposed program is similar to the Department of Health and Human Services’ Low Income Home Energy Assistance Program that provides assistance to low-income households to help pay their heating bills. Midsize and large cities with declining populations are generally more economically distressed, with higher poverty and unemployment rates and lower per capita income than growing cities. Little research has been done on the water and wastewater infrastructure needs of cities with declining populations, but the needs of 10 selected midsize and large cities we reviewed generally reflected the needs of cities nationally. Of the 674 midsize and large cities across the nation that had a 2010 population greater than 50,000, 99 (15 percent) experienced some level of population decline from 1980 to 2010. As shown in figure 1, about half of these 99 midsize and large cities (50) are in the Midwest; 28 percent (28) are located in the Northeast; and 21 percent (21) are located in the South. None of these midsize and large cities with declining populations was located in the western states. Michigan and Ohio have the largest numbers of midsize and large cities with declining populations—each with 14 cities. Based on our analysis of the Census Bureau’s American Community Survey data (5-year estimates for 2010 through 2014), cities with declining populations have had significantly higher rates of poverty and unemployment and lower household income—characteristics of economic distress—compared with growing cities of the same size. Compared with midsize and large cities that had growing populations over the same time, cities with declining populations had higher estimated poverty rates (23.6 percent compared with 16.5 percent), higher estimated levels of unemployment (12.5 percent compared with 9.2 percent), and lower estimated median household income ($40,993 compared with $57,729),as shown in table 1. These differences become more stark when cities with the greatest rates of population loss are compared with cities with the greatest rates of growth. Specifically, the 19 cities that lost 20 percent or more of their population had an average poverty rate of 31.4 percent compared with an average of 16.3 percent for cities with 20 percent or more growth. Moreover, unemployment in cities with the greatest estimated population loss was 16.5 percent compared with 9.1 percent in highest growth cities, and median household income was $32,242 compared with $58,140. Another distinguishing factor for cities with declining populations is high levels of vacant housing and low median home values. On average, cities with declining populations had 13.5 percent of their housing stock vacant, and growing cities had vacancy rates of 8.6 percent. Cities with the greatest population loss had nearly 20 percent vacant housing stock (19.7 percent), compared with 8.5 percent in cities with the most population growth. Cities with declining populations also had much older housing stock (average house being built in 1954 compared with 1976) and lower median home values ($137,263 compared with $253,522). Cities with declining populations also had some significantly different demographic characteristics than cities with growing populations. The 99 cities with declining populations had a higher estimated share of African American residents than cities with growing populations (28.5 percent compared with 11.1 percent) and a lower estimated share of the population with bachelor degrees (24.4 percent compared with 32.5 percent). (See table 2 for details on characteristics.) Academic research on U.S. cities with declining populations has been conducted for over a decade but has not focused on the water and wastewater infrastructure needs of these cities. The few studies and EPA reports we identified on water and wastewater infrastructure needs in cities with declining populations focused on the feasibility and challenges of rightsizing infrastructure, that is, downsizing or eliminating underutilized infrastructure to meet reduced demands. Among other challenges to rightsizing infrastructure, the studies described significant capital costs in decommissioning existing infrastructure and physical difficulty in removing components in depopulated areas without affecting the entire water or wastewater system. These studies also provided information on other strategies for maintaining underutilized water infrastructure in cities with declining populations. These strategies include using asset management to establish maintenance priorities and repair schedules; coordinating projects for water, wastewater, road, and other infrastructure to gain cost efficiencies; and using vacant lands for stormwater management generally and to help control sewer overflows as part of rightsizing. In addition, the studies highlighted the financial challenges of utilities managing water and wastewater infrastructure in cities with declining populations, resulting from decreasing revenues from fewer ratepayers, and personnel challenges of these utilities because of reductions in personnel to achieve cost savings. EPA’s 2011 drinking water needs survey found that nationally, the largest infrastructure needs identified, by estimated costs, addressed two areas: distribution and transmission systems and drinking water treatment infrastructure. Distribution and transmission systems include pipelines that carry drinking water from a water source to the treatment plant or from the treatment plant to the customer. Drinking water treatment infrastructure includes equipment that treats water or removes contaminants. Consistent with EPA’s national estimates, representatives we interviewed from seven of nine drinking water utilities for the 10 cities identified pipeline repair and replacement as a major need. For example, representatives from one utility told us that its distribution pipelines were approximately 80 years old and that within the next 15 to 20 years almost all of them will need to be updated. Representatives from another utility said that almost all 740 miles of the utility’s pipelines need to be replaced. At roughly $100 per foot, replacing all pipelines will cost more than $390 million. Representatives from seven of the nine drinking water utilities said that their utilities had high leakage rates (sometimes reflected in estimates of nonrevenue water), ranging from about 18 to 60 percent, above the 10 to 15 percent maximum water loss considered acceptable in most states according to an EPA document and indicating the need for pipeline repair or replacement. (See app. III for details of utilities’ drinking water infrastructure needs for the 10 cities.) Of the 10 utilities we reviewed that were responsible for drinking water infrastructure, representatives from 6 noted that they were aware that some portions of their or their customer-owned portions of service lines connecting individual houses or apartment buildings to the main water lines contain or may contain lead, although most of these utilities did not express concern about the risk of lead in their water. In addition, representatives we interviewed from 5 drinking water utilities out of the 10 we reviewed named treatment plant repair and replacement as one of their greatest needs. Representatives from one utility told us that the utility’s water treatment plant is over 100 years old and is in need of replacement or backup, which they said would cost an estimated $68.6 million. The clear well in the plant, that is, the storage tank used to disinfect filtered water, was built in 1908. If the tank fails, the main source of potable water for customers would be interrupted, leaving the community without water. EPA’s 2012 wastewater needs survey found that the largest infrastructure needs for wastewater systems fell into three categories: combined sewer overflow correction (i.e., control of overflows in combined sewer systems); wastewater treatment, or infrastructure needed to meet treatment under EPA standards; and conveyance system repair, or the infrastructure needed to repair or replace sewer pipelines and connected components to maintain structural integrity of the system or to address inflow of groundwater into the sewer system. Consistent with EPA’s national estimates, utilities serving 7 of the 10 cities we reviewed face high costs to control combined sewer overflows. (See app. IV for details of utilities’ wastewater infrastructure needs for the 10 cities.) According to EPA’s wastewater needs survey, estimated costs for infrastructure improvements to control combined sewer overflows for wastewater utilities serving 7 of the 10 cities we reviewed ranged from $7.1 million to $1.98 billion. In addition, representatives we interviewed from wastewater utilities that serve 5 of the 10 cities we reviewed said that they needed to repair or replace their treatment plants. For example, representatives from one utility said that 90 percent of the utility’s original wastewater treatment plant, which was built in 1938, was still in place and required constant attention to keep it running. Finally, representatives we interviewed from wastewater utilities providing services to 9 of the 10 cities we reviewed discussed collection system repair as a major need. For example, representatives from one utility said that the city sewer lines date back to the mid-1800s. They recently replaced two blocks of the oldest section of sewer lines for $3 million. Our sample of 14 utilities in the 10 cities we reviewed used the traditional strategy of raising rates to increase revenues to address their infrastructure needs, although representatives from half of them said that they had concerns about rate affordability and their future ability to raise rates. All utilities we reviewed also had developed one or more types of customer assistance programs, a strategy to help low-income customers pay their bills. In addition, most utilities were using or had plans to use one or more cost control strategies to address their infrastructure needs, such as asset management (i.e., identifying and prioritizing assets for routine repair or replacement versus emergency repair) or rightsizing to physically change infrastructure to meet current demands (e.g., reducing treatment capacity or decommissioning water lines and sewer lines in vacant areas). Our sample of 14 utilities in the 10 cities we reviewed used the traditional strategy of increasing revenue—raising rates as needed and selling bonds to pay for their infrastructure needs. Of the 14 utilities we reviewed, most raised rates annually, and all but 2 utilities had raised rates at least once since 2012. (See app. V for utilities’ operating revenues, operating expenses, and rate changes.) In addition, according to our review of the utilities’ financial statements, 11 of 14 experienced a decline in revenues in 1 of the years from 2012 through 2014, and over these years raised utility rates, which helped make up for lost revenues or cover increasing operation and maintenance costs. In contrast, the remaining 3 utilities for which we reviewed available financial statements had increasing revenues over the same period. Of the 3 utilities, 2 also raised rates by more than 9 percent or greater in 2 or more consecutive years from 2012 through 2014; the other utility was privately owned and operated and maintained steady revenues with an overall increase of less than 1 percent. Most of the 14 utilities we reviewed used a common rate structure through which customers were charged a modest base rate plus a larger variable rate by volume of water used, according to studies conducted on utility rates. Such a rate structure produces reduced revenues as the amount of water used and sold decreases. In addition to the decline in water use and revenues that many utilities are experiencing nationally, utilities with declining populations are further affected by reduced water sales to fewer ratepayers and face additional declines in revenues. Furthermore, according to representatives we interviewed from some of the utilities, declining populations resulted in operational changes that increased operating costs for their utilities. For example, utility representatives told us that when water sits for extended periods, such as in storage, it may lose its chlorine residual, which allows bacteria and viruses to grow and multiply. For wastewater systems, reduced water flow during dry weather has resulted in stronger sewage sludge and solid deposits that require an adjustment of wastewater treatment processes, according to utility representatives. Even with increased rates, many of the utilities we reviewed deferred planned repair and replacement projects and consequently expended resources on addressing emergencies, such as repairing water pipeline breaks. One water utility management professional estimated that emergency repairs can cost three to four times more than regular repairs. Specifically, representatives we interviewed from half of the utilities willing to speak with us (6 of 12) described themselves as being more reactive in repair and replacement of drinking water and wastewater infrastructure. Representatives from these utilities also told us that they do not have sufficient funding to meet their repair and replacement needs, and some noted large backlogs of planned repair and replacement projects. For example, representatives from one of the utilities we reviewed told us that the utility’s current level of investment would result in the replacement of its water and wastewater infrastructure in 400 years, versus replacement within the industry standard of up to a100 years (or a replacement schedule at 1 percent of infrastructure per year). The 5-year capital plan for another utility we reviewed deferred nearly two-thirds of the listed capital improvement projects because of lack of funding. Representatives from another utility described plans to spend about $8 million to replace water pipelines, but learned that they should be investing about twice as much to maintain their existing service levels, based on recent modeling of the system. With increased rates, representatives we interviewed from more than half of the utilities willing to speak with us identified concerns with keeping customer rates affordable. Specifically, representatives we interviewed from 7 of 12 utilities expressed concern about the affordability of future rate increases for low-income households (i.e., those that have incomes in the lowest 20th percentile income level). Affordability of water and wastewater bills is commonly measured by the average residential bill as a percentage of median-income households. Our analysis of the water and wastewater rates charged in fiscal year 2015 by the 14 utilities we reviewed showed that rates for both water and wastewater bills were considered affordable for customers at or above median-income households. However, these rates were higher than the amount considered to be affordable for low-income customers in 9 of 10 cities we reviewed (see fig. 2). The U.S. Conference of Mayors estimated combined annual water and wastewater bills of more than 4.5 percent of income as unaffordable based on EPA policies. In 4 of the 10 cities we reviewed, the average water and wastewater bill was more than 8 percent of income for low-income households. While they are generally concerned about affordability of rates, representatives from few of the utilities we interviewed said that they planned to change their rate structures, although changes can generate a more reliable and predictable revenue stream to cover costs, according to a 2014 utility study. Of the representatives we interviewed from 12 of the 14 utilities, representatives for 2 utilities said that they were interested in making rate structure changes that would increase cost recovery and that they planned to make incremental changes over time. In addition, 1 utility—Jefferson County, which provides wastewater services to Birmingham—had already made significant changes to its rate structure to stabilize revenues and to meet requirements for exiting bankruptcy. This utility replaced the minimum charge with a monthly base charge scaled by meter size for all customers. The utility also altered its rate structure for the volume of water used for residential customers from a flat fee per volume of water used to an increasing block rate structure where higher fees are charged for incremental blocks of increased water usage. A 2014 Water Resource Foundation study stated that utility representatives hesitate to make rate structure changes because of the potential to significantly alter customers’ monthly bills, and highlighted the need for stakeholders and utility board members to undertake an education and communication strategy when making such changes. In addition to their concerns about the affordability of rates, a few representatives we interviewed said that they expect to have future challenges using bond funding because of the rate increases needed to pay for them. Specifically, representatives we interviewed from 2 of the 12 utilities willing to speak with us—Gary Sanitary District and the city of Youngstown—said that they expected the increased rates would be difficult to afford for residents of the two cities where the median household income is about half the national average and the poverty rate is above 37 percent. All 12 of the utilities whose representatives we interviewed have used bond funding to help finance their water and wastewater infrastructure needs. Of the 14 utilities we reviewed, 10 had strong to very strong ability to pay long-term debt as indicated by fiscal year 2014 debt service coverage ratios we calculated, 2 had moderate ability, and 2 had poor or weak ability. In addition, for 8 of the 14 utilities, their bonds as of June 2016 were ranked within an A level range by the ratings agencies, indicating that they were expected to be able to cover the annual payments for these bonds (see app. VI for the utilities’ financial indicators). All 14 of the utilities we reviewed had developed one or more types of customer assistance programs as a strategy to make rates more affordable for customers who had financial difficulty paying their bills. For 5 of the 14 utilities we reviewed, more than 25 percent of their customers were late in paying their bills. Two of the utilities—Detroit Water and Sewerage Department and Gary Sanitary District—had particularly large numbers of customers who were unable to pay their bills, which was reflected in the lower estimated revenue collection rates of about 86 percent of in-city customers in Detroit and 69 percent of Gary Sanitary District customers, respectively, compared with collection rates averaging 98 percent by the other 8 utilities we reviewed where data were available. For both of these utilities, collecting payments from customers was a challenge, and shut off of water and wastewater services was not uncommon. For example, Detroit Water and Sewerage Department representatives told us that they were still struggling with collections and had lost from $40 million to $50 million in forgone revenues annually for the past few years because of the low collection rate, and had budgeted an additional $1.6 million in fiscal year 2016 to cover expenses related to collecting on delinquent accounts. Similarly, a Gary Sanitary District representative told us that even with rate increases of 30 percent in 2011, revenues had not increased correspondingly and water service shutoffs had increased because customers were unable to pay their bills. According to collections information provided by Gary Sanitary District, in fiscal year 2015, approximately 21 percent of accounts were shut off because of nonpayment. (See app. VII for details on rates and billing collections information for the 14 utilities we reviewed.) At a minimum, nearly all of the utilities we reviewed (13 of 14) entered into payment plans or agreements with customers with unpaid bills (see table 3). In some cases, payment plan assistance was described as more informal or ad hoc, with flexibility to develop a plan that is agreeable to the customer and the utility, depending on the customer’s ability to pay. Other utilities had formalized payment plan programs or policies, requiring a customer to make an initial minimum payment on the outstanding bills, and then accepting payment of the remaining amount in monthly installments over a period of time. In addition, overall, half of the utilities we reviewed (7 of 14) offered direct assistance to low-income, elderly, or disabled customers through bill discounts or assistance to eligible customers in good standing, short-term assistance with unpaid bills (e.g., credit for payment of outstanding water and wastewater bills) and with minor plumbing repairs (e.g., for leaks that can increase water use and monthly bills), or some combination of these three types of assistance. Different rate structures, such as a lifeline rate or reducing fixed charges, can assist low-income or financially constrained customers, according to a 2010 Water Research Foundation Study and EPA’s 2016 report on customer assistance programs, but few of the 14 utilities we reviewed use such structures. For example, through a lifeline rate, a utility can provide its customers with a minimum amount of water to cover basic needs at a fixed base charge. When a customer uses more water than the minimum allotment, the utility increases the rate charged, which in turn increases the customer’s bill. Lifeline or other alternative rates may be targeted to low-income customers, but none of the utilities we reviewed provided special rates based on income. Representatives we interviewed from one utility said that they consciously revised the utility’s rate structure to include lifeline rates to address the needs of customers who could not afford higher rates. An additional 3 of the 14 utilities we reviewed had rate structures that included some volume of water usage with their fixed base charge. Representatives we interviewed from a few utilities (3 of 12) told us that charging special rates for low-income customers is not an option because of local or state laws that do not allow the utilities to differentiate rates among customers. For example, Detroit’s Blue Ribbon Panel on Affordability’s February 2016 report noted potential legal constraints in the state of Michigan in implementing an income-based rate structure, where customers pay a percentage of their income toward their water bills. Most of the utilities (13 of 14) we reviewed were using or had plans to use one or more strategies to address their water and wastewater infrastructure needs by controlling costs or increasing the efficiency of the physical infrastructure or overall management of the utility. For example, asset management can help utilities more efficiently identify, prioritize, and plan for routine repair or replacement of its assets, versus facing costly emergency repairs. Table 4 shows the strategies used by the 14 utilities we reviewed, including asset management, major reorganization, and rightsizing physical infrastructure to meet current demands. Overall, the most common cost control and efficiency strategy used by the 14 water and wastewater utilities we reviewed was asset management. Some of the utilities (4 of 14) had asset management programs in place, and most of the remaining utilities had plans for or were in initial stages of implementing the strategy. In contrast, we found that the other strategies—rightsizing, major reorganization, expanding the utility’s customer base, and public-private partnerships—were used to a limited extent by the utilities we reviewed. In particular, rightsizing was among the least-used strategies. Many of the utility representatives we interviewed told us that rightsizing was not practical or feasible. For example, even with vacant housing averaging 21 percent in these cities, according to American Community Survey data (5-year estimates, 2010 through 2014), representatives of some utilities reviewed (6 of 14) told us that decommissioning water and sewer lines was not practical or feasible because they did not have entirely vacant blocks or needed to maintain lines to reach houses that were farther away. However, as part of rightsizing, representatives we interviewed for five wastewater utilities said that they have incorporated in their plans, or were considering using, vacant lands for green infrastructure to help control stormwater runoff that can lead to sewer overflows. Green infrastructure uses a range of controls, such as vegetated areas, stormwater collection, or permeable pavement, to enhance storage, infiltration, evapotranspiration, or reuse of stormwater on the site where it is generated. (See app. VIII for information on utilities’ use of cost control strategies). While not specifically designed to address the water infrastructure needs of midsize and large cities with declining populations, six federal programs and one policy we reviewed could provide these cities with some assistance. As of June 2016, none of the six federal programs we reviewed administered by the four agencies that fund water and wastewater infrastructure needs were specifically designed to assist such cities in addressing their water infrastructure needs. Yet most of the 14 utilities we reviewed received funding from one or more of these programs for their water and wastewater infrastructure projects. In addition to these programs, under EPA’s 1994 Combined Sewer Overflow Policy, cities or utilities meeting eligibility criteria can take a phased approach over an extended period to build the needed infrastructure to correct combined sewer overflows and comply with the Clean Water Act. None of the six federal programs we reviewed that can fund water and wastewater infrastructure needs were specifically designed to provide funds to cities with declining populations for water and wastewater infrastructure projects. The programs are as follows: Drinking Water and Clean Water SRF programs. Under the Safe Drinking Water Act and Clean Water Act, EPA provides annual grants to states to capitalize their state-level Drinking Water and Clean Water SRF programs, and states can use the grants to provide funding assistance to utilities, including low- or no-interest loans, among other things. Overall, the state Drinking Water SRF and Clean Water SRF programs help reduce utilities’ infrastructure costs, increase access to low-cost financing, and help keep customer rates affordable. The federal laws establishing the SRF programs do not specifically address cities with declining populations, although states are generally authorized to use a percentage of their capitalization grants to provide additional subsidies to disadvantaged communities. States provide additional subsidies in the form of principal forgiveness or negative interest rates, which reduce loan repayment amounts. The amounts that states set aside for additional subsidies vary from year to year based on requirements in annual appropriations acts and state funding decisions. Most of the 10 states in which the 10 cities in our review were located used median household income as one indicator for disadvantaged communities for both Drinking Water and Clean Water SRF programs. HUD Community Development Block Grants. HUD provides federal funding, through the Community Development Block Grant program, for housing, economic development, neighborhood revitalization, and other community development activities, including water and wastewater infrastructure. The department provides block grant funding to metropolitan cities and urban counties across the country, known as entitlement communities, and to states for distribution to non-entitlement communities. Federal law requires that not less than 70 percent of the total Community Development Block Grant funding will be used for activities that benefit low- and moderate-income persons. In 2015, HUD provided $2.3 billion in block grant funding to entitlement communities, including midsize and large cities. However, according to department officials we interviewed, entitlement communities choose to use only a small portion of the grant funding to support water and wastewater infrastructure projects. In fiscal year 2015, according to HUD data, about $43.8 million, or 1.9 percent of block grant funding provided to entitlement communities, including midsize and large cities, was used for water and wastewater infrastructure projects. Economic Development Administration Public Works program. The administration’s Public Works program awards grants competitively to economically distressed areas, including cities that meet the eligibility criteria, to help rehabilitate, expand, and improve their public works facilities, among other things. A Public Works grant is awarded if, among other things, a project will improve opportunities for the successful establishment or expansion of industrial or commercial facilities, assist in the creation of additional long-term employment opportunities, or primarily benefit the long-term unemployed and members of low-income families in the region. In fiscal year 2015, according to Economic Development Administration data, the agency provided $101 million as Public Works grants, of which about $14.9 million or 14.7 percent was used for water or wastewater infrastructure projects. Agency officials told us that the program’s main priority is enabling distressed communities to attract new industry, encourage business expansion, diversify local economies, and generate or retain long-term jobs in the private sector. As a result, projects funded with Public Works grants may include a water infrastructure project, but that water infrastructure project would be a secondary effect of an economic development project. Agency officials said that a common water and wastewater infrastructure project funded by Public Works program grants involves installing a main drinking water pipeline or sewer line to a new or renovated industrial park. FEMA Public Assistance and Hazard Mitigation grant programs. FEMA’s Public Assistance and Hazard Mitigation grant programs may provide funding for water and wastewater infrastructure projects when the President has declared a major disaster, but these programs are not specifically designed to assist cities with declining populations. The agency’s Public Assistance program provides grants to states and others for the repair, restoration, reconstruction, or replacement of public facilities, including water and wastewater infrastructure damaged or destroyed by such a disaster. In fiscal year 2015, FEMA awarded about $6.5 billion for public assistance projects; however, the agency was unable to determine the portion of public assistance funding that was used for water and wastewater infrastructure projects. The agency’s Hazard Mitigation grant program provides grants for certain hazard mitigation projects to substantially reduce the risk of future damage, hardship, loss, or suffering in any area affected by a major disaster. In fiscal year 2015, FEMA awarded about $1.2 billion in grants to states and communities for mitigation projects. Of that amount, about $8.1 million, or 0.7 percent, was awarded for water and wastewater mitigation projects, according to Hazard Mitigation grant program data. Hazard Mitigation grants do not need to be used for a project within the designated disaster area as long as the project has a beneficial effect on that area. The grants are competitively awarded to states, which identify in their applications the mitigation projects that would be funded with the grants. Cities, including those with declining populations, can submit applications to the state for Hazard Mitigation projects for their water and wastewater facilities, which the state may choose to include its Hazard Mitigation grant application to FEMA. While these six programs were not specifically designed to provide funding to cities with declining populations, such cities or their related utilities can receive funding from these programs for water and wastewater infrastructure projects. Table 5 shows the funding that each of the utilities in our 10 selected cities received from the programs from fiscal years 2010 through 2015. In total, cities received almost $984 million from the federal agencies. As shown in table 5, 11 of the 14 utilities we reviewed received Drinking Water or Clean Water SRF funding from fiscal years 2010 through 2015, and 1 utility was awarded additional subsidies. Specifically, the Birmingham Water Works Board received $1.7 million (out of $11.6 million) from the Drinking Water SRF program as an additional subsidy in the form of principal forgiveness for green projects, or water infrastructure projects that include energy and water efficiency improvements, green infrastructure, or other environmentally innovative activities. According to most of the representatives we interviewed from 12 utilities, SRF funding is the most common federal funding they receive for water and wastewater infrastructure projects. Overall, in fiscal year 2015, 41 states provided about $416 million, or 23 percent, of their Drinking Water SRF program funds for water and wastewater infrastructure projects in disadvantaged communities, and 31 states provided about $648 million, or 12 percent, of their Clean Water SRF program funds for such projects (see fig. 3). Representatives we interviewed from some utilities said that it is difficult to use SRF funding because the total amount of funding available statewide is limited; states restrict the amount of funding available to individual projects; and states prioritize projects that address Safe Drinking Water Act and Clean Water Act compliance issues, such as acute violations of drinking water standards or health advisory levels. Also shown in table 5, 1 of the 14 utilities we reviewed, the Sewerage and Water Board of New Orleans, received Community Development Block Grant funds for water and wastewater infrastructure projects from fiscal years 2010 through 2015. Officials in Youngstown, Ohio, also told us that some block grant funding was awarded to faith-based organizations to provide low-income residents with various types of housing and other assistance, which may include assistance with paying utility bills. None of the 14 utilities we reviewed received the Economic Development Administration’s Public Works funding for water or wastewater infrastructure projects from fiscal years 2010 through 2015. The FEMA programs—Public Assistance and Hazard Mitigation—provided nearly 50 percent of total federal funding for water and wastewater infrastructure received by cities we reviewed in fiscal years 2010 through 2015. Specifically, 2 of the 14 utilities we reviewed—the Sewerage and Water Board of New Orleans and the Charleston Sanitary Board—received Public Assistance grants from FEMA after flood events in fiscal years 2010 through 2015. In addition, 2 of the 14 utilities we reviewed—the Birmingham Water Works Board and the Sewerage and Water Board of New Orleans—received Hazard Mitigation grants. In addition to providing assistance through SRF funding, EPA has a policy—the Combined Sewer Overflow Policy—that could help cities with declining populations. The policy, adopted in 1994, allows a city or utility to extend its implementation schedule—the period of time it has to build the necessary infrastructure to control combined or sanitary sewer overflows—under consent decrees entered into with EPA or the state, or administrative orders issued by EPA or state permitting authorities. An extended implementation schedule spreads the costs of planned infrastructure projects over time and helps make wastewater rate increases required to pay for the infrastructure projects more affordable for a utility and its customers. EPA’s financial capability assessment guidance, issued in 1997, uses a two-phase approach to assess a city or utility’s financial capability based on: (1) the combined impact of wastewater and combined sewer overflow control costs on individual households (residential indicator) and (2) the socioeconomic and financial conditions of a city or utility (financial capability indicator). Each city or utility is ranked as low, medium, or high for the residential indictor and weak, midrange, or strong for the financial capability indicator. The combined indicators show the overall financial burden—low, medium, or high—resulting from the estimated costs for the planned infrastructure projects. Cities or utilities with a high financial burden—those with a high residential indicator and low-to-midrange financial capability indicators— are generally expected to implement combined sewer overflow control projects within 15 years to 20 years of the consent decree. EPA and states can also apply this two-phase approach to determine appropriate implementation schedules for cities or wastewater utilities to address other Clean Water Act requirements, including control of sanitary sewer overflows. According to EPA officials, implementation schedules can be negotiated past 20 years if infrastructure projects are large and complex, or if the necessary user rate increases put too great a burden on customers with incomes below median household income. EPA issued a memorandum in 2012 that provided guidance on developing and implementing effective integrated planning for cities and utilities building wastewater and stormwater management programs. According to the 2012 memorandum, under integrated planning, cities and utilities prioritize the wastewater and stormwater infrastructure projects that should be completed first. According to EPA documents, cities and utilities may use integrated planning to prioritize required wastewater and stormwater projects over a potentially longer time frame, helping to keep customer rates more affordable. Building on its 2012 memorandum, EPA issued a memorandum in 2014 to provide greater clarity on the flexibilities built into the existing financial capability guidance. The 2014 memorandum identifies key elements EPA uses in working with cities and utilities to evaluate how their financial capability should influence implementation schedules in both permits and enforcement actions. It also includes examples of additional information that may be submitted to provide a more accurate and complete picture of a city’s or utility’s financial capability. Overall, 9 of the 14 utilities providing wastewater services to the 10 cities we reviewed are under consent decrees entered into with EPA or administrative orders from a state agency to address combined sewer overflows or sanitary sewer overflows, according to EPA, state, and utility officials. Specifically, according to these officials, 7 utilities are under consent decrees or administrative orders to address combined sewer overflows; some of these decrees or orders are also required to address sanitary sewer overflows. The remaining 2 utilities are under consent decrees to address sanitary sewer overflows, according to these officials. According to utility representatives we interviewed and documents we reviewed, these 9 utilities or the cities they serve expect to spend an estimated $10.5 billion to comply with consent decrees and administrative orders to enforce Clean Water Act requirements. According to EPA officials, 4 utilities we reviewed had consent decrees with EPA that fell within the high financial burden category and had implementation schedules extending more than 15 years: Pittsburgh’s implementation schedule was for 19 years; Youngstown’s schedule was for 31 years, St. Louis’s schedule was for 23 years, and New Orleans’ schedule was for 27 years. One of the 10 cities we reviewed, New Orleans, had a consent decree with integrated planning, and officials from 2 additional cities said that they were discussing the use of integrated planning with EPA. We provided a draft of this report to the Environmental Protection Agency, the Economic Development Administration, and the Department of Housing and Urban Development for review and comment. None of the agencies provided written comments or stated whether they agreed with the findings in the report, but all three agencies provided technical comments that we incorporated, as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Administrator of the Environmental Protection Agency, the Administrator of the Economic Development Administration, the Secretary of Housing and Urban Development, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made key contributions to this report are listed in appendix IX. Our objectives were to examine (1) what is known about the economic characteristics of midsize and large cities with declining populations and their drinking water and wastewater infrastructure needs; (2) strategies that selected midsize and large cities with declining populations and their associated utilities used to address their infrastructure needs and the affordability of their drinking water and wastewater rates; and (3) what existing federal programs and policies, if any, could assist midsize and large cities with declining populations, and their associated utilities, in addressing their water infrastructure needs. To examine what is known about the economic characteristics of midsize and large cities with declining populations, we reviewed relevant studies and interviewed experts about cities that have experienced population declines and water and wastewater infrastructure needs. We identified the studies and experts through a literature review and referrals from Environmental Protection Agency (EPA) officials, representatives of water and wastewater industry associations, and academic and nonprofit experts. We contacted nine experts—individuals in academia and the nonprofit sector with expertise in water and wastewater utility management, finance, engineering, and urban planning. For this report, we used U.S. Census Bureau and National League of Cities definitions for midsize cities—those with populations from 50,000 to 99,999—and large cities—those with populations of 100,000 and greater. We identified the number and size of midsize and large cities with sustained population declines by analyzing decennial census population data for midsize and large cities from 1980 through 2010, which we found to be the most extended period for reliable decennial census data related to our review of the consistency of data coding over time. To describe the economic and demographic characteristics of cities with declining populations, we analyzed the Census Bureau’s American Community Survey 5-year estimates for 2010 through 2014, which according to the bureau contain the most precise and current data available for cities and communities of all population sizes. We analyzed the survey data for all cities with population over 50,000 and compared the data for cities with declining populations to those for cities that did not experience a decline during this period. To do this, we created categories of decline and growth, in increments of 9.9 percent or less, 10 to 19.9 percent, or 20 percent and greater, in order to have a minimum number of cities within each category, using decennial census population data. To determine whether cities with declining populations experienced significantly greater levels of economic distress than cities with increasing populations, we performed statistical comparisons of all key economic and demographic characteristics from the American Community Survey data (5-year estimates for 2010 through 2014), following American Community Survey methodology on statistical tests. Specific economic and demographic characteristics that we analyzed included the following: poverty rate percentage, percentage of unemployment, median household income, per capita income, percentage of vacant housing, median housing value, median year housing stock was built, percentage of households receiving Supplemental Nutrition Assistance Program benefits, percentage of white residents, percentage of African American residents, percentage of residents of other races, percentage of residents over 65 years old, percentage of residents with at least a high school diploma, and percentage of residents with a bachelor’s degree. We reviewed Census Bureau documentation for data collection and quality, and determined the decennial data to be sufficiently reliable for our purposes of categorizing cities based on the extent of population growth or decline, and the American Community Survey data sufficiently reliable for analyzing economic and demographic data on midsize and large cities. Because the American Community Survey 5-year data followed a probability procedure based on random selections, the sample selected is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 90 percent confidence interval. This is the interval that would contain the actual population value for 90 percent of the samples we could have drawn. All 5-year American Community Survey percentage estimates presented have margins of error at the 90 percent confidence level of plus or minus 10 percentage points or less, unless otherwise noted. All non- percentage estimates presented using the 5-year American Community Survey had data within 20 percent of the estimate itself, unless otherwise noted. As part of our work for all three objectives, we selected a nonprobability sample of 10 cities that experienced the greatest percentages of population decline from 1980 through 2010 for further review. Using our analysis of decennial census population data from 1980 through 2010, we selected the 10 cities with the greatest declines in population for that period, without repeating cities in any state to allow for geographic distribution. We also selected for size, choosing 5 midsize and 5 large cities. The 10 cities, their 2010 populations, and their percentage declines in population are listed in table 6. This sample of cities is not generalizable to all cities that experienced population declines over this period; however, it highlights the issues faced by a geographically diverse range of cities and corresponding utilities that have experienced the greatest population losses in recent decades. To analyze information on water and wastewater needs for cities with declining populations, we compared national drinking water and wastewater needs data that EPA collected by to information on needs we collected for the utilities providing services to the 10 cities we selected. Because cities may be served by multiple utilities, our sample included the 14 utilities from the 10 selected cities—the 6 that were responsible for both water and wastewater infrastructure, 4 that were responsible solely for drinking water infrastructure, and 4 others that were responsible solely for wastewater infrastructure. We obtained EPA’s data on drinking water infrastructure needs from its 2011 Drinking Water Infrastructure Needs Survey and Assessment and wastewater infrastructure needs from its 2012 Clean Watersheds Needs Survey. EPA obtains these data through surveys of the 50 states, the District of Columbia, and U.S. territories, which for the drinking water needs assessment involves collecting information from a sample of drinking water systems in each state. We assessed the reliability of these data by reviewing the methodologies that EPA used to conduct these surveys and by interviewing EPA officials to understand the appropriate use of the data. We determined that both the drinking water and wastewater needs identified at the national, or aggregate, level were sufficiently reliable for purpose of reporting national needs estimates. However, the fact that some utilities serve multiple cities and counties, and that some cities are served by multiple utilities or multiple treatment facilities, prevented us from uniquely matching utilities and treatment facilities to cities. Therefore, we could not estimate the total drinking water and wastewater needs of utilities in cities with declining populations and instead identified the water and wastewater needs for each of the 14 utilities for the cities in our sample. To do this, we analyzed relevant utility documents, such as capital improvement plans and master plans, and conducted interviews with utility representatives, including executive directors, finance directors, and operations managers, about their water and wastewater infrastructure condition, their greatest infrastructure needs, and their top challenges in addressing their infrastructure needs. We also reviewed EPA wastewater needs data for utilities serving the 10 selected cities, which we found sufficiently reliable to report at the individual utility level based on reviews of documentation and interviews with knowledgeable EPA officials. However, we were unable report EPA drinking water needs data at the individual utility level for the 10 selected cities because of the way that EPA and states collect and extrapolate the data: EPA uses a statistical cost modeling approach to calculate state and national estimates using local data; as a result, the local data may be a modeled result and not actual reported data. To examine the strategies that selected midsize and large cities with declining populations, and their associated utilities, used to address their infrastructure needs, we reviewed relevant reports and studies on utility management and interviewed city and utility representatives for the 10 cities and 14 utilities in our sample. We conducted semistructured interviews with representatives from 12 of the 14 drinking water and wastewater utilities willing to speak with us to gather information on changes in populations served and effects of declining population on system operations, if any; infrastructure needs and condition; financing and management strategies; challenges in managing water and wastewater infrastructure; and their perspectives on the research and assistance needed for utilities serving cities with declining populations. We also collected capital improvement plans, master plans, recent rate studies, and financial statements for fiscal years 2012 through 2014, which we analyzed to determine infrastructure condition, short-term and long-term capital needs, rate structure changes and rate increases, and changes in operating revenues and expenses. To help ensure that we collected the correct information for each city and utility, we clarified our understanding of these documents through interviews with utility officials, follow-up correspondence, and review of draft materials provided by utility officials. Nine of the selected 10 cities are under orders from EPA or the state to correct combined sewer overflows or sanitary sewer overflows (which result in discharge of raw sewage to streams and surrounding areas), or both, from their systems. For these cities, we collected any consent decrees they have with EPA and long-term plans to address their combined sewer overflow controls. We also collected written responses to questions from city officials on basic water and wastewater system information, including estimated population served, number of customer accounts and types of customers (e.g., residential versus industrial), average residential water rate, and billing collections information. For the 2 utilities that declined an interview with us, we reviewed publicly available documents and relevant websites. For all 10 cities, we interviewed city planning officials about population and demographic trends, land use planning, infrastructure planning and strategies, access to funding and resources, and challenges they face in managing their cities with declining populations and revenues. We conducted site visits to 6 of the 10 selected cities, considering geographic distribution and size of the cities, and conducted interviews with the remaining city and utility officials by telephone. Specifically, we visited Gary, Indiana; Youngstown, Ohio; Detroit, Michigan; New Orleans, Louisiana; Niagara Falls, New York; and Macon, Georgia. During site visits, we also interviewed city planning officials; water utility representatives; and relevant stakeholders, including officials from other city departments, such as representatives of Gary’s Department of Environmental Affairs and Green Urbanism and New Orleans’s Resiliency Office. We also met with representatives of nongovernmental organizations working with cities and utilities on water and wastewater infrastructure issues, including the Center for Community Progress, Detroit Future City, and the Greater New Orleans Foundation. As part of our review of utilities and the strategies they used, we reviewed financial statements for fiscal years 2012, 2013, and 2014 for all 14 utilities. Specifically, we reviewed total operating revenues and total operating expenses, excluding depreciation over these 3 years. We then used these data to calculate several basic indicators of utility financial health. We calculated indicators that reflect each utility’s ability to pay its long-term debt, sufficiency to cover operating costs and asset depreciation, the remaining years of the utility’s asset life, and its long- term debt per customer. We selected these indicators based on our review of indicators used by rating agencies, including Moody’s and Fitch, two agencies that rate utilities and the utility sector, and interviews with utility finance experts that EPA identified. We then compared these indicators to scoring systems and median indicators for water and wastewater utilities, used and gathered by Moody’s and Fitch where available, to help describe the extent of existing long-term debt, strength of a utility’s financial condition, and potential future capital needs. In addition, to gauge the financial burden of water and wastewater utility bills for median-income households and low-income households in each of our 10 selected cities, we compared the average annual utility bill as a share of income to levels EPA and the U.S. Conference of Mayors have estimated are affordable. We calculated rates as a share of income in the 10 selected cities using the average residential rate information reported by the cities’ utilities and the median household income and income for the 20th percentile for that city reported in the American Community Survey data (5-year estimates for 2010 through 2014). To examine the federal programs and policies that could be used by midsize and large cities with declining populations, and their associated utilities, to help address their water infrastructure needs, we reviewed relevant laws, regulations, and policies of the federal agencies that fund water and wastewater infrastructure needs. To identify the federal programs, we used our past reports that identified federal funding for water and wastewater infrastructure. Specifically, we reviewed funding information and eligibility requirements for the following six federal programs: EPA’s Drinking Water State Revolving Fund (SRF) program, EPA’s Clean Water SRF program, the Department of Housing and Urban Development’s (HUD) Community Development Block Grant program, the Economic Development Administration’s Public Works program, and the Federal Emergency Management Agency’s (FEMA) Public Assistance and Hazard Mitigation Grant Programs. Because we found that none of the programs was specifically designed to assist cities with declining populations, we reviewed program eligibility requirements to determine if funding assistance was awarded based on the cost of infrastructure projects and a project user’s ability to pay for the projects. Under the Drinking Water and Clean Water SRF programs, states establish affordability criteria for eligibility to receive additional subsidization, and so we also reviewed states’ intended use plans, the plans they develop annually to identify candidates for SRF loans. We also interviewed agency officials from EPA, HUD, and the Economic Development Administration about the programs, and gathered information from FEMA from another GAO team. For each federal funding program we reviewed, we collected funding data for water and wastewater infrastructure projects from federal fiscal years 2010 through 2015, to the extent the data were available. Specifically, we reviewed congressional appropriations and congressional budget justifications for each federal agency to determine the total available funding for each program. To determine expenditures for water and wastewater infrastructure projects, we reviewed EPA’s National Information Management System reports; HUD’s Community Development Block Grant expenditure reports; the Economic Development Administration’s annual reports to Congress; and data provided by FEMA from its Integrated Financial Management Information System. To assess the reliability of the data, we reviewed documentation and gathered information from knowledgeable agency officials about the reliability of the data and found them to be sufficiently reliable to characterize overall national expenditures. In addition to national data, we gathered information from our 10 selected cities and from 12 of the 14 drinking water and wastewater utilities on federal, state, and other funding they received to help address their water and wastewater infrastructure needs from state fiscal years 2010 through 2015. In reviewing policies of the six federal agencies that could help cities and utilities address their water and wastewater needs, we identified EPA’s Combined Sewer Overflow Control policy as one policy that could help wastewater utilities in cities with declining populations address their needs. Specifically, the policy allows a city or utility to phase in combined sewer overflow controls over time, which helps to keep customers’ rates affordable. We reviewed EPA’s policy, first issued in 1994 and updated in 2012 and 2014, to determine how the policy could help cities with declining populations and their wastewater utilities keep wastewater rates affordable. Nine of the 10 cities we reviewed had wastewater utilities under consent decrees or administrative orders to comply with specified Clean Water Act requirements. These include 7 utilities under consent decrees or administrative orders requiring them to address combined sewer overflows; some of these utilities are also required to address sanitary sewer overflows, and 2 utilities are under consent decrees requiring them to address sanitary sewer overflows, according to EPA, city, and utility officials. We collected information from these cities and their utilities on the use of extended implementation schedules and reviewed the consent decrees filed in federal court or administrative orders, and the long-term control plans that the cities developed to correct problems, to the extent the documents were available. We obtained information from city and utility officials on the estimated costs to comply with the consent decrees and administrative orders. We also obtained and reviewed EPA’s list of cities that had consent decrees with extended implementation schedules. We conducted this performance audit from July 2015 to September 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. This appendix provides economic and demographic characteristics for the 10 cities in our review using the U.S. Census Bureau’s American Community Survey 5-year estimates, 2010 through 2014, the most recently available data as of July 2016. Table 7 provides the economic characteristics of the 10 cities that we selected for review. Table 8 provides demographic characteristics for the 10 cities that we selected for review. This appendix presents data on general system characteristics and infrastructure needs of drinking water utilities serving 10 selected cities with declining populations (see table 9). Data were compiled from written responses and oral responses from drinking water utility representatives, annual reports, planning documents, and capital improvement plans, when available. This appendix presents data on general system characteristics and infrastructure needs of wastewater utilities serving 10 selected cities with declining populations (see table 10). Data were compiled from written responses and oral responses from wastewater utility officials; annual reports; planning documents; capital improvement plans; and the Environmental Protection Agency’s Wastewater Needs Survey, when available. This appendix presents data on operating revenues and expenses for the 14 drinking water and wastewater utilities serving the 10 cities with declining populations that we selected for review (see table 11). Data are compiled from financial statements from fiscal years 2012 through 2014. In addition, information on frequency of rate increases and rate increases from 2012 through 2014 is provided. No single indicator or set of indicators is definitive in describing a utility’s financial condition. Financial indicators that reflect the financial strength of a utility’s operations, along with other primary factors—such as the size and health of the system, its service area, the state laws, municipal ordinances, and charters governing its management—and the strength of its rate management and its regulatory compliance drive a utility’s financial condition. The three major rating agencies—Moody’s, Standard and Poor, and Fitch—use many and varying quantitative and qualitative financial indicators to evaluate a utility’s financial condition and associated bond rating. This appendix contains selected financial indicators for utilities serving 10 selected cities with declining populations. The indicators, shown in table 12, were calculated using data from the utilities’ fiscal year 2014 financial statements. These indicators were selected to reflect current and future financial condition, considering current and future debt to address infrastructure needs. A description of each indicator and method of calculation is described below. Debt service coverage ratio is a measure of a utility’s ability to pay its long-term debts. This financial indicator is a key measure in evaluating a utility’s revenue system and is used by all three rating agencies. According to the agencies, a debt service coverage ratio greater than 1.0 indicates that the utility has additional revenue available to cover additional debt payments, if needed. The magnitude by which net revenues are sufficient to cover additional debt, or debt service, indicates the utility’s margin for tolerating business risks or declines in demand, while still assuring repayment of debt. For example, a higher debt service coverage level indicates greater flexibility to withstand customer resistance to higher rates. A debt coverage ratio less than 1.0 indicates that the utility has insufficient revenues to make annual principal and interest payments on long-term debt. Formula: Annual net operating revenues (calculated by subtracting total operating expenses, excluding depreciation from total operating revenues) divided by the annual principal and interest payments (on all long-term debt). Better operating ratio is a measure of a utility’s ability to raise revenues to pay for its operating costs, including depreciation of existing infrastructure. Including depreciation means that a utility’s ability to replace its infrastructure, or capital assets, as they depreciate is also part of the calculation. A better operating ratio greater than 1.0 indicates that the utility has revenues sufficient to cover operation and maintenance expenses, as well as the cost of replacing current capital assets. Formula: Total operating revenues divided by the total operating expenses (including depreciation). Remaining years of useful asset life is a measure of the quality of existing capital assets and overall asset condition. Formula: Total asset useful life (calculated by asset value divided by depreciation) minus the age of the asset in years (calculated by total accumulative depreciation divided by annual depreciation). Long-term debt per customer account is a measure of average debt burden per ratepayer. Utilities are taking on more debt than they have in previous years, according to a Water Research Foundation study. Fitch’s 2016 Water and Sewer Medians report also indicates an increasing trend in median long-term debt per customer for rated utilities over the last 10 years from 2007 through 2016 by 84 percent. Formula: Long-term debt divided by the total number of utility customers (for a combined utility, the aggregate number of water and sewer accounts are used). Recent bond rating is an assessment by a rating agency of a utility’s ability to repay new debt, using all the quantitative and qualitative information that the agency has gathered on the utility’s financial and operating circumstances. A rating is derived from quantitative factors, such as values of financial indicators of past financial condition, and from forecasts of future financial performance. It also depends on qualitative factors, such as utility management’s success in rate setting, complying with environmental regulations, budgeting for annual expenditures, and planning for future capital spending. In addition, a utility’s rating is affected by the rate covenants and debt service reserve requirements it has agreed to in order to issue bonds. This appendix presents data on water and wastewater rates and billings collection information for 14 utilities we reviewed serving 10 selected cities with declining populations (see table 13). Data were compiled from data and information collected from utility officials and American Community Survey data. This appendix describes the use of five cost control strategies by 14 water and wastewater utilities providing service to the 10 cities with declining populations that we reviewed. The five strategies are rightsizing to meet current demands (i.e., reducing treatment capacity or decommissioning water lines and sewer lines in vacant areas), major reorganization, expanding the utility’s customer base, public-private partnerships, and asset management. (See table 4 for corresponding summary table.) Three of the 14 utilities we reviewed have undertaken rightsizing. Representatives we interviewed from 2 of those utilities—Detroit Water and Sewerage Department and Gary Sanitary District—said that they were considering large-scale rightsizing of their water infrastructure to more appropriately meet current demands. According to Environmental Protection Agency (EPA) reports, rightsizing can potentially improve the overall efficiency of the system and reduce long-term maintenance costs. Detroit officials said that they were planning to downsize their water treatment capacity from 1,720 to 1,040 million gallons per day to address reduced water demand experienced in recent years. According to its 2015 updated water master plan, downsizing water treatment capacity will result in a life cycle cost savings of about $450 million to align with projected water demand, which declined by 32 percent from 2000 through 2014, in part because of population decline in the region. Detroit is also investigating selective retirement of water pipelines in vacant areas of the city as part of a long-term strategy to reduce system renewal and rehabilitation costs. Similarly, according to city officials and a utility representative, the city of Gary, in collaboration with the Gary Sanitary District, was in the process of developing a new land use plan and city rezoning that will identify areas appropriate for decommissioning services, including wastewater services, to some neighborhoods with high vacancies. As of November 2015, of approximately 13,000 blighted properties in Gary, about 8,000 were vacant and occupied large portions of neighborhoods on the periphery of the city, according to city planning officials we interviewed. According to a utility representative we interviewed, some areas in the city were in obvious need of rightsizing, and the utility had already shut off water and wastewater service to some streets and city blocks. Many of the utility representatives we interviewed told us that rightsizing was not practical or feasible, which is consistent with the findings from several studies and EPA reports on rightsizing that we identified. For example, the representatives told us that they did not have entirely vacant blocks that would make decommissioning service lines possible—usually a few occupied houses remained. In addition, water and sewer lines must often be kept to maintain service to remaining houses that are further away. Utility and city planning officials we interviewed also noted the political challenges associated with any displacements necessary to decommission water or wastewater services to a neighborhood, or to reduce water infrastructure capacity in a way that might limit growth in the future. As part of considering rightsizing their infrastructures, 5 wastewater utilities we reviewed—Detroit Water and Sewerage Department and Gary Sanitary District and 3 other wastewater utilities we reviewed—indicated that they have incorporated in their plans, or were considering using, green infrastructure to help reduce sewer overflows. Green infrastructure uses a range of controls, such as vegetated areas, stormwater collection, or permeable pavement, to enhance infiltration, evapotranspiration, or reuse of stormwater on the site where it is generated. The use of green infrastructure can help reduce the amount of stormwater that enters the sewer system, preventing sewer overflow events, and is a potentially less costly approach to helping control combined sewer overflows, according to Natural Resources Defense Council reports. Some utility representatives and city planning officials we interviewed said that green infrastructure is an opportunity for improving blighted and vacant areas within their cities. The 10 cities with declining populations we reviewed had housing vacancy rates averaging 21 percent, based on our analysis of American Community Survey data, 5-year estimates 2010 through 2014. According to a study we reviewed, placement of green infrastructure on vacant properties can provide environmental, social, and economic benefits and help address problems created by vacant housing, which when left undemolished contributes to blight, crime, and the further abandonment of neighboring properties and adds debris to the sewer system and contributes to the combined sewer overflow problem. All 5 utilities that had incorporated green infrastructure in their plans to help control sewer overflows, or were considering using green infrastructure, were collaborating with city planners and others on implementation, and three of the 5 utilities collectively committed more than $150 million for green infrastructure, including funding for demolitions in areas targeted for green infrastructure, according to planning documents we reviewed. Challenges to implementing green infrastructure approaches, according to some representatives from utilities and city planning officials, include establishing responsibilities for and funding of maintenance of green infrastructure; proving the effectiveness of green infrastructure approaches; and breaking silos of organizations (e.g., utilities, city departments, and community organizations) that may benefit from supporting green infrastructure. Funding for demolition is also needed to facilitate the repurposing of these properties for green infrastructure and to address the backlog of properties on current city demolition lists, according to a few of the city officials we interviewed. Representatives we interviewed from some of the 14 utilities in our review described undertaking a major reorganization to reduce costs and improve management efficiencies, including the creation of new organizations to manage water and wastewater infrastructure and major staff reduction, and optimization efforts, such as revised organizational structure and job descriptions, within the existing organization. Specifically, 5 utilities we reviewed, undertook major reorganizations. Three of the reorganized utilities created entirely new organizations, independent from their city governments, to manage drinking water and wastewater infrastructure in cases where the cities faced financial challenges. For example, in September 2014 the city of Detroit and surrounding counties entered into an agreement to establish the Great Lakes Water Authority to operate the water supply and sewage disposal system, which were owned by the city of Detroit and operated by the Detroit Water and Sewerage Department. Under the agreement, the Detroit Water and Sewerage Department will operate and maintain the water and sewer lines that provide service to customers within the city boundaries. In addition, the Great Lakes Water Authority will pay the city of Detroit $50 million annually to lease the regional facilities it operates; the Detroit Water and Sewerage Department will use the funds for capital improvements to city-managed infrastructure, among other things. The Great Lakes Water Authority will also dedicate 0.5 percent of revenues annually to fund a regional water assistance program for low-income residents throughout the authority’s service area. Two of the 14 utilities, including one that reorganized, downsized staffing by about 30 percent and 40 percent, respectively, after reorganizing to reduce operational costs and create efficiencies. A fifth utility created a new organizational structure, among other things, to facilitate alignment of work processes between the utility and the city to more efficiently and cost effectively replace water, sewer, and drainage infrastructure alongside the rebuilding of roads. By expanding their customer bases, utilities can take advantage of excess treatment capacity to generate additional revenue. They can also take advantage of economies of scale to spread their costs across a greater number of customers, resulting in lower costs per customer and a stronger financial condition for the utility. Representatives we interviewed from half of the utilities (7 of 14) we reviewed already served a regional area, with a correspondingly larger customer base, well beyond the boundaries of the cities that they serve—some provide service county- wide, some provide service across multiple counties, and a few provide service statewide. According to representatives we spoke with, some (5 of 14) of the utilities we reviewed were looking to expand their customer bases by widening their service areas (e.g., regionalizing), to attract commercial or industrial businesses to locate within their existing service areas, or both. Specifically, 2 utilities were actively seeking opportunities to expand their service areas. These 2 utilities had taken steps such as setting aside funding to support water and sewer packages and benefits for businesses or encouraging business placement within their service areas. One utility was using both approaches to expand its customer base. Many utilities—including some that were already taking steps to expand their customer bases—noted various limitations to doing so. For instance, a few utilities noted competition from other cities trying to attract industry and commercial businesses. In addition, surrounding communities may already have their own water and wastewater infrastructure and utilities, so expanding service areas means convincing existing utilities and their customers of the benefits of receiving services from another utility. For example, one utility representative told us that the utility’s board was discussing the possibility of providing service to a neighboring area, but the cost of connection is $12 million, more than the neighboring city would like to pay. A representative from another utility said that it had attempted to consolidate with neighboring communities but that there was a lack of interest on the part of other communities. Of the 14 utilities we reviewed, few used public-private partnerships as a strategy to help address infrastructure needs. Such partnerships typically involve a government agency contracting with a private partner to construct, operate, maintain, or manage a facility or system, in part or in whole, that provides a public service. Public-private partnerships can take different forms short of a private company purchasing the utility and its facilities, including long-term contractual agreements between a public and a private entity to provide day-to-day operational or management services of facilities or contracting for management consulting services. Of the 14 utilities we reviewed, 4 had some experience with public-private partnerships. One utility had—over the last 25 years—an ongoing contract with a private company to manage the day-to-day operations of its wastewater facility. In the past, another utility had a similar contract with a private company to manage daily operations of its wastewater facility. The third utility hired a private company to work with the utility’s management for several years to identify cost reduction opportunities. Finally, according to the 2015 annual report of its parent company, 1 of the 2 privately owned utilities we reviewed had a series of agreements with public entities for the construction and financing of utility infrastructure, which was leased to its public partners. Of the remaining 10 utilities that did not have experience with public- private partnerships, a few shared varying perspectives on public-private partnerships. Representatives from 1 said that the utility was open to using the strategy. However, representatives from 2 others said that their utilities preferred to be self-reliant because of public perception that private contractors would not take as great care of the facility as the public utility. In addition, representatives from 1 of these privately owned utilities highlighted the benefit to the community of enhanced economies of scale and additional resources provided by a large private utility, such as its parent company, including investor support and shared laboratories for water quality testing. Of the 12 utilities whose representatives we interviewed, representatives from 4 utilities told us that they had asset management systems in place. Asset management is a framework for providing the best level of service at the lowest appropriate cost and involves identifying and prioritizing assets for routine repair or replacement (versus emergency repair). It is a widely recognized tool used across a variety of sectors to manage physical assets, such as highways, machinery, and buildings; in the case of water and wastewater infrastructure, key assets are pipelines, tanks, pumps, and other facilities. Representatives from 1 of the 12 utilities we interviewed, Macon Water Authority, said that it had fully integrated the use of asset management in physical and financial management of the utility. Macon representatives said that they integrated information from their asset management program into a 10-year long-range planning model used to estimate needed income and revenue requirements to manage day-to-day operations, fund replacement of infrastructure, fund normal repairs, and fund maintenance and upgrades. The utility has done this, according to the representatives, while keeping rates low, and representatives acknowledged that receiving a $93.5 million grant from the Federal Emergency Management Agency to replace the utility’s drinking water treatment plant also helped to keep rates low. Representatives we interviewed from 7 of the remaining utilities said that they had partially implemented or were in the initial stages of developing asset management inventories and plans. A few utility representatives we spoke with acknowledged the value of the strategy in identifying priorities for spending. One utility did not have an asset management plan and was not developing one because, according to its officials, it tracks locations of breaks and other maintenance needs and focuses resources on repairing those. In addition to the contact named above, Susan Iott (Assistant Director), Mark Braza, John Delicath, Kaitlan Doying, Holly Halifax, John Mingus, Robert Sharpe, Jeanette Soares, Anne Stevens, Sara Sullivan, Kiki Theodoropoulos, and Swati Sheladia Thomas made key contributions to this report.

Many midsize and large cities throughout the United States, including the Midwest and Northeast, have lost a substantial percentage of their population. These cities face the challenge of a corresponding decline in utility revenues from a loss of ratepayers, which makes it difficult to address their water infrastructure needs. Overall, water and wastewater utilities across the United States face substantial costs to maintain, upgrade, or replace aging and deteriorating infrastructure—approximately $655 billion for water and wastewater utilities over the next 20 years according to EPA's most recent estimates. GAO was asked to review the water and wastewater infrastructure needs in midsize and large cities with declining populations. This report examines (1) the economic characteristics of such cities and their water and wastewater infrastructure needs; (2) strategies that selected cities and utilities have used to address their infrastructure needs and the affordability of their water and wastewater rates; and (3) what existing federal programs and policies, if any, could assist such cities in addressing their needs. GAO analyzed decennial census and American Community Survey data, relevant studies, and utility financial statements for 10 cities with the largest population declines from 1980 through 2010 and 14 water and wastewater utilities in those cities. GAO also reviewed laws, regulations, policies, and guidance for six federal programs; analyzed program and city and utility funding data; and interviewed agency and city officials and representatives from 12 of the 14 utilities. Midsize cities (with populations from 50,000 to 99,999) and large cities (with populations of 100,000 and greater) that have experienced a population decline are generally more economically distressed than growing cities. Specifically, GAO's review of American Community Survey data for 674 midsize and large cities showed that the 99 cities with declining population had higher poverty and unemployment rates and lower median income than cities with growing populations. Little research has been done about these cities' overall water and wastewater infrastructure needs, but the needs of the 10 midsize and large cities that GAO reviewed generally reflected the needs of cities nationally, as identified in needs assessments conducted by the Environmental Protection Agency (EPA). Water and wastewater utility representatives whom GAO interviewed described major infrastructure needs, including pipeline repair and replacement and wastewater improvements to control combined sewer overflows (i.e., wastewater discharges to streams and other water bodies during storms). Utilities for the 10 cities GAO reviewed used the strategy of raising rates to increase revenues to address water and wastewater infrastructure needs and used other strategies to address concerns about rate affordability for low-income customers. Most of the 14 utilities GAO reviewed raised rates annually to cover declines in revenues related, in part, to decreasing water use from declining populations, or to pay for rising operating and capital expenses. To help address rate affordability concerns, all of the utilities reviewed had developed customer assistance programs, a strategy to make rates more affordable, for example, by developing a payment plan agreeable to the customer and the utility. In addition, most utilities were using or had plans to use one or more cost-control strategies to address needs, such as rightsizing system infrastructure to fit current demands (i.e., reducing treatment capacity or decommissioning water or sewer lines in vacant areas). For example, as part of rightsizing, representatives GAO interviewed for 5 wastewater utilities said that they planned or were considering using vacant areas for green infrastructure (vegetated areas that enhance on-site infiltration) to help control stormwater that can lead to sewer overflows. As of June 2016, six federal programs and one policy could assist midsize and large cities with declining populations in addressing their water and wastewater infrastructure needs. Cities with declining populations may receive funding from the six programs, managed by EPA, the Economic Development Administration, the Department of Housing and Urban Development (HUD), and the Federal Emergency Management Agency, for such projects. For example, states can use a portion of EPA's Clean Water and Drinking Water State Revolving Funds to provide additional subsidies in the form of principal forgiveness or negative interest loans to cities that meet state affordability criteria, such as median household income. The Birmingham Water Works Board, one of the 14 utilities GAO reviewed, received $11.6 million from the Drinking Water State Revolving Fund in fiscal years 2010 through 2015, including $1.7 million with principal forgiveness to pay for green projects, such as water efficiency projects. GAO provided a draft of this report to EPA, the Economic Development Administration, and HUD for comment. The agencies provided technical comments that were incorporated, as appropriate.

You are an expert at summarizing long articles. Proceed to summarize the following text: Before a drug can be marketed in the United States, its sponsor must demonstrate to FDA that the drug is safe and effective for its intended use. Because no drug is absolutely safe—there is always some risk of an adverse reaction—FDA approves a drug for marketing when the agency judges that its known benefits outweigh its known risks. After a drug is on the market, FDA continues to assess its risks and benefits. FDA reviews reports of adverse drug reactions (adverse events) related to the drug and information from studies about the drug, including clinical trials and studies following the use of drugs in ongoing medical care (observational studies), conducted by the drug’s sponsor, FDA, or other researchers. If FDA has information that a drug on the market may pose a significant health risk to consumers, it weighs the effect of the adverse events against the benefit of the drug to determine what actions, if any, are warranted. This decision-making process is complex and encompasses many factors, such as the medical importance and utility of the drug, the drug’s extent of usage, the severity of the disease being treated, the drug’s efficacy in treating this disease, and the availability of other drugs to treat the same disorder. CDER, the largest of FDA’s five centers, is the organizational entity within FDA that oversees the review of marketing applications for new drugs and the postmarket monitoring of drugs once they are marketed. Within CDER there are several key offices involved in activities related to postmarket drug safety. OND is the largest of the offices with fiscal year 2005 expenditures of $110.6 million and 715 staff. In fiscal year 2005, more than half of OND’s expenditures, or $57.2 million, came from PDUFA funds. OND’s staff evaluate new drugs for efficacy and safety to decide if a drug should be approved for marketing. OND also makes decisions about actions to take when there are postmarket safety issues with a drug (for example, revising the label to include adverse event information or having FDA withdraw approval for marketing). For safety questions, OND interacts with several FDA offices and divisions, but primarily with ODS. ODS is currently located within the Office of Pharmacoepidemiology and Statistical Science (OPaSS), which is organizationally parallel to OND and also contains the Office of Biostatistics. ODS is a much smaller office than OND, with fiscal year 2005 expenditures of $26.9 million and 106 staff. In fiscal year 2005, $7.6 million of ODS’s expenditures were from PDUFA funds. ODS staff evaluate and monitor drug risks and promote the safe use of drugs. While ODS is involved in both premarket and postmarket drug safety issues, its primary focus is on postmarket safety. An important part of the drug approval and postmarket monitoring process is the advice FDA receives from 16 human-drug-related scientific advisory committees, composed of experts and consumer representatives from outside FDA. Considered by FDA as important in helping the agency accomplish its mission and maintaining public trust, these advisory committees provide expert advice to the agency on a range of issues, including safety. The committees are largely organized according to specialized medical areas or conditions such as cardiovascular disease, gastrointestinal conditions, or oncology. In 2002, FDA established the Drug Safety and Risk Management Advisory Committee (DSaRM), 1 of the 16 human-drug-related scientific advisory committees, to specifically advise FDA on drug safety and risk management issues. The committee is composed of individuals from outside FDA with experience in the areas of medication errors, risk communication, risk perception, risk management, clinical trial methodology, evidence-based medicine, biometrics, and pharmacoepidemiology. Since it was established, DSaRM has met nine times, with four of those meetings held jointly with another drug-related scientific advisory committee. DSaRM members have also been asked to participate in other scientific advisory committees when safety issues were discussed. ODS sets the agenda for DSaRM meetings, whereas OND sets the agenda for the other scientific advisory committee meetings. Figure 1 describes the offices and external advisory committees involved in postmarket drug safety at FDA. In terms of postmarket drug safety surveillance, FDA has the authority to require that drug sponsors report adverse events to FDA with different reporting schedules based on the seriousness of the event and whether the event has been previously identified and is included in the drug’s label. Sponsors must report serious, unlabeled adverse events to FDA within 15 days of learning about them. Sponsors are required to report other adverse events quarterly for 3 years, then annually thereafter in the form of periodic adverse event reports. In addition, health care providers and patients can voluntarily submit adverse event reports to FDA through its MedWatch program. Adverse event reports become part of FDA’s computerized database known as the Adverse Event Reporting System (AERS). FDA has the authority to withdraw the approval of a drug on the market for safety-related and other reasons, although it rarely does so. Since 2000 there have been 10 drug withdrawals for safety reasons, and in all of these cases the drug’s sponsor voluntarily removed the drug from the market. FDA does not have explicit authority to require that drug sponsors take other safety actions; however, when FDA identifies a potential problem, sponsors generally negotiate with FDA to develop a mutually agreeable remedy to avoid other regulatory action. For example, if FDA determines that an approved drug may produce adverse events not previously identified, FDA and the sponsor may negotiate on revised labeling for the drug, and then FDA may issue an accompanying Public Health Advisory for patients and health care providers that describes the safety information. FDA may also request that the sponsor restrict the distribution of the drug in order to minimize a significant risk associated with the drug. FDA has limited authority to require that sponsors conduct postmarket safety studies; it may impose such a requirement during the premarket phase of drug development in two situations, and in one during the postmarket phase. In two situations, FDA has the authority to require that sponsors commit to conducting postmarketing studies as a condition of approval. First, FDA’s program for accelerated approval of new drugs for serious or life-threatening illnesses (referred to as “subpart H drugs”) allows FDA to more quickly approve drugs showing meaningful therapeutic benefit with the caveat that the sponsor will conduct or finish studies after the drug is marketed. Such drugs may be made available to the public sooner but with less complete safety information than the normal review process requires for approval. Second, in cases where human efficacy studies of a drug may not be ethical or feasible, FDA may rely on animal studies alone to approve the use of a drug and require postmarket studies as a condition of approval when studies on humans become feasible and ethical. For example, FDA approved a drug in 2003 that is used as a treatment for patients who have been exposed to a chemical nerve agent called Soman. Evidence of the effectiveness of this drug was obtained from animals alone because it is unethical to perform such studies in humans. In either situation, FDA may withdraw approval of these drugs if, for example, postmarket clinical studies fail to verify clinical benefits, the sponsor fails to perform postmarketing studies with due diligence, or postmarketing restrictions (for example, restricted distribution) are inadequate to assure safe use of the drug. Finally, under certain conditions, after a drug is approved, FDA can also require that drug sponsors conduct postmarket studies of marketed drugs when such studies are needed to provide adequate labeling to ensure the safe and effective use of these drugs in children. Two distinct FDA offices are involved in postmarket drug safety activities. While there is some overlap in their activities, they have different organizational characteristics and perspectives on postmarket drug safety. OND is involved in postmarket drug safety activities as one aspect of its larger responsibility to review new drug applications, and it has the decision-making responsibility for postmarket drug safety. ODS has a primary focus on postmarket drug safety and provides consultation to OND. ODS has been reorganized several times over the years, and there has been an absence of stable leadership. FDA’s postmarket drug safety decision-making process is complex, involving iterative interactions between OND and ODS. Since OND is responsible for approving or disapproving drug applications, its staff are involved in safety activities throughout the life cycle of a drug (that is, premarket and postmarket), and it has the ultimate responsibility to take regulatory action concerning the postmarket safety of drugs. OND is organized into six offices that evaluate drugs and drug products, and within these offices are 17 review divisions organized by medical specialty (for example, oncology or dermatology). OND’s staff includes physicians, pharmacologists, toxicologists, and microbiologists. The key decision makers in OND—division directors and office directors—are physicians. In general, OND staff take a clinical perspective in their work. According to the Director of the office, OND’s medical staff have expertise in medical specialties as well as drug regulation, which he said gave them the ability to integrate issues related to the disease, available therapy, effectiveness of the drug, and relative safety. He also told us that OND staff are focused on meeting patient needs and providing health care practitioners and patients with a range of drugs for treatment of a specific disease or condition. Finally, an important characteristic of OND’s organization is that OND’s work and its pace are driven in part by PDUFA goals to complete its review of drug applications within certain time frames. FDA estimates that 51 percent of OND’s work time is devoted to drug safety, either premarket or postmarket. In the drug development or premarket phase, OND staff review safety and efficacy data from sponsors’ animal studies and human clinical trials to decide whether or not to approve a drug. In some cases OND identifies safety concerns at the time of approval that it believes can be managed, for example, by educating patients and providers or restricting distribution to certain populations. In these cases, OND works with ODS and the sponsor to develop a risk management plan to outline these strategies. OND may also request, or in cases where FDA has the authority, require that a sponsor conduct a postmarketing study as a condition of approval. After a drug is on the market, OND receives information about safety issues related to a drug’s use and takes appropriate regulatory action. OND receives information about safety issues in several ways. First, OND staff receive notification of adverse event reports for drugs to which they are assigned and they review the periodic adverse event reports that are submitted by drug sponsors. Second, OND staff review safety information that is submitted to FDA when a sponsor seeks approval for a new use or formulation of a drug, and monitor completion of postmarket studies. OND also partners with ODS and other CDER offices for information and analysis to help it make postmarket drug safety decisions. When considering postmarket drug safety issues, OND staff use evidence found in clinical trials. For example, one OND manager told us that OND staff typically review adverse event data related to a drug, obtain a consult from ODS, and then review any clinical trial data. Then, if necessary, OND makes a decision about what action should be taken, which may include negotiating with a sponsor to change a drug’s label, restricting its distribution, or proposing to withdraw the drug’s approval. ODS serves primarily as a consultant to OND and has an overall goal of reducing preventable deaths and injuries associated with the use of drugs with a primary focus on postmarket drug safety. ODS also provides consultation to OND on premarket safety issues, including risk management issues. Although FDA’s postmarket drug safety office has been reorganized several times over the years, the consultant role of the office has remained consistent. ODS was formed in 2002 when FDA combined the Office of Postmarketing Drug Risk Assessment with the MedWatch program (from the Office of Training and Communications) and with patient labeling and risk communication functions (from the Division of Drug Marketing, Advertising, and Communications). ODS was established within the new Office of Pharmacoepidemiology and Statistical Science (OPaSS). OPaSS was made equivalent to OND within the CDER organizational structure. ODS is composed of a small management team and three divisions. According to the ODS Director, the management team consists of the director, deputy director, an associate director for regulatory affairs, and an associate director for science and medicine. ODS’s three divisions are: the Division of Drug Risk Evaluation (DDRE), the Division of Surveillance, Research, and Communication Support, and the Division of Medication Errors and Technical Support. The Division of Surveillance, Research, and Communication Support is involved with the acquisition and analysis of data related to drug safety. This division also reviews consumer-oriented materials for content and patient-friendly language, such as medication guides, which are dispensed with drugs that have serious safety concerns. This division also disseminates safety information to the medical community and general public through the MedWatch Web site. The Division of Medication Errors and Technical Support is responsible for conducting premarketing reviews of all proprietary names and labels of drugs in order to minimize medication errors due to similar names or confusion related to the labeling and packaging of drugs. This division also provides postmarketing review and analysis of medication errors. ODS’s DDRE is the primary unit responsible for postmarket drug safety surveillance. Its staff of 47 include safety evaluators, who are generally pharmacists, and epidemiologists, with many having either a Ph.D. in epidemiology or an M.D. with epidemiologic training. The division’s safety evaluators are assigned to cover specific groups or classes of marketed drugs. They primarily review reports of individual adverse events from AERS in order to detect safety signals. The division’s epidemiologists work collaboratively with the safety evaluators, using population-level data to analyze potential safety signals and put them into context. They also review the published literature and conduct research through the use of contracts and other agreements with researchers outside of government, health care utilization databases, and surveillance systems. Finally, safety evaluators and epidemiologists interact with international colleagues on drug safety issues. ODS operates primarily in a consultant capacity to OND and does not have any independent decision-making responsibility. When there is a safety concern, ODS staff conduct an analysis and produce a written report for OND called a consult. Safety consults conducted by DDRE staff include analyses of adverse event reports and assessments of postmarket study designs and risk management plans. In fiscal year 2004, DDRE completed approximately 600 safety consults. A majority of DDRE’s consults are requested by OND. In fiscal year 2004, 71 percent of DDRE’s consults were requested by OND; 22 percent were requested by other sources; and 7 percent were self-initiated by DDRE. Over time, the proportion of DDRE- initiated consults has declined while the proportion of OND-requested consults has increased. In general, ODS staff take a population-based perspective in their work, which ODS staff we spoke with contrasted with the clinical perspective of OND. They look at how a drug is being used in the general population and its side effects, and they base their safety analyses on adverse event reports, observational studies, and other population-based data sources. ODS staff do not typically use clinical trial data for their safety analyses and conclusions. In their postmarket work, ODS staff also do not operate under PDUFA drug review goals and therefore do not face the same kinds of deadlines that OND staff face. Furthermore, ODS staff have sometimes taken an academic research approach to safety work, for example, publishing case reports about adverse events or safety analyses in peer- reviewed journals. There has been high turnover of ODS directors—there have been eight different directors of the office and its various predecessors—in the past 10 years. Four of the directors have been “acting” directors, not permanent ones. From February to September 2002 and again from October 2003 to January 2005, the Director of OPaSS also served as the Acting Director of ODS. The Director of CDER, as well as staff within and outside of ODS, told us that the lack of consistent leadership of ODS has had a negative effect on the work and morale of staff. One ODS staff member told us that since drug safety issues often take a fair amount of time to resolve, it is important to have consistency in leadership so that the leaders are knowledgeable of ongoing issues. In October 2005 FDA appointed a permanent director of ODS from within the organization, the first permanent director since October 2003. The decision-making process for postmarket drug safety is complex, involving input from a variety of FDA staff and organizational units and information sources, but the central focus of the process is the iterative interaction between OND and ODS. As we have described, ODS safety consults can be initiated within ODS or requested by OND, but typically OND requests them. OND often requests an analysis because of information it receives from the drug’s sponsor about a safety concern. ODS safety evaluators then search AERS for all relevant cases and develop a summary of individual cases from the reports. The safety evaluators assess the cases to determine whether the adverse events are drug-related and whether there are any common trends or risk factors. ODS epidemiologists sometimes collaborate with the safety evaluators by estimating how frequently an adverse event occurs among the population exposed to a particular drug, and they compare this estimate with how frequently the same event occurs in a population not treated by the drug. The epidemiologists also might use information from observational studies and drug use analyses to analyze the safety issue. When completed, ODS staff summarize their analysis in a written consult. The ODS division director of the staff who worked on the consult typically reviews the consult and either signs it, indicating agreement, or writes a memorandum explaining what part he or she disagrees with and why. According to FDA officials, OND staff within the review divisions usually decide what regulatory action should occur, if any, by considering the results of the safety analysis in the context of other factors such as the availability of other similar drugs and the severity of the condition the drug is designed to treat. Several CDER staff, including OND and ODS staff, that we interviewed told us that most of the time there is agreement within FDA about what safety actions should be taken. At other times, however, OND and ODS disagree about whether the postmarket data are adequate to establish the existence of a safety problem or support a recommended regulatory action. In those cases, sometimes OND requests additional analyses by ODS and sometimes there is involvement from other FDA organizations. In some cases, OND seeks the advice of FDA’s scientific advisory committees, including DSaRM, for decisions about postmarket drug safety. The recommendations of the advisory committees do not bind the agency to any decision. According to FDA officials, if a decision is made by OND that a safety action is warranted, then OND staff generally work with the drug’s sponsor to implement it. There was sometimes a lack of consensus in our drug case studies, and we observed that ODS often performed a series of related analyses about the same safety concerns for OND over a significant period of time. As an illustration of this iterative decision-making process, OND requested in 2002 that ODS analyze cases of serious skin reactions associated with the pain reliever Bextra after the drug’s sponsor had communicated with OND about this potential risk. ODS staff searched the AERS database and found several related cases for review. They estimated the occurrence of reported cases of serious skin reactions among Bextra users by using the cases and drug utilization data. On the basis of their analysis, ODS recommended that Bextra’s label be updated to include this risk, and OND followed the recommendation by working with the sponsor to update the label in 2002. Between 2002 and 2004, ODS staff conducted five other analyses of the occurrence of serious skin reactions associated with Bextra, including two that were requested by OND. In March 2004, ODS staff recommended that Bextra carry a boxed warning about its risks of serious skin reactions. The ODS staff based their recommendation on their finding that Bextra’s risk for serious skin reactions was 8 to 13 times higher than that for other similar drugs and 20 times higher than the incidence rate in the population. The ODS Division Directors who reviewed the analysis and recommendation agreed, but the OND review division responsible for Bextra did not initially agree. About 5 months later, the OND review division decided a boxed warning was warranted, after ODS performed another analysis requested by OND, comparing Bextra’s risk with several other similar drugs, including Mobic. ODS found no reported cases of serious skin reactions associated with Mobic. In 2005, a joint meeting of FDA’s Arthritis Advisory Committee and DSaRM was held to discuss the postmarket safety of several anti-inflammatory drugs including Bextra, with a focus on their cardiovascular risks. The committees recommended, after presentations by FDA staff and others, that Bextra should remain on the market. A few months later, FDA asked the sponsor to withdraw the drug from the market because, in part, its risk for serious skin reactions appeared to be greater than for other similar anti-inflammatory drugs. FDA’s postmarket drug safety decision-making process has been limited by a lack of clarity, insufficient oversight by management, and data constraints. We observed that there is a lack of established criteria for determining what safety actions to take and when. Aspects of ODS’s role in the process are unclear, including its role in participating in scientific advisory committee meetings organized by OND. A lack of communication between ODS and OND’s review divisions and limited oversight of postmarket drug safety issues by ODS management has hindered the decision-making process. FDA relies primarily on three types of data sources—adverse event reports, clinical trial studies, and observational studies—in its postmarket decision making. Each data source has weaknesses, however. FDA also faces constraints in requiring certain studies and obtaining data. While acknowledging the complexity of the postmarket drug safety decision-making process, we observed in our interviews with OND and ODS staff and in our case studies that the process lacked clarity about how drug safety decisions are made and about the role of ODS. If FDA had established criteria for certain postmarket drug safety decisions, then some of the disagreements we observed in our case studies could have possibly been resolved more quickly. For example, in the case of Bextra, as described earlier, ODS and OND staff disagreed about whether the degree of risk warranted a boxed warning, the most serious warning placed in the labeling of a prescription medication. As another example, there were differing opinions over taking stronger actions against Propulsid, the nighttime heartburn medication which was associated with cardiovascular side effects, or whether to modify the label. Between 1995 and 1997, Propulsid’s label had been modified, including the addition of a boxed warning, to warn consumers and professionals about the cardiovascular side effects of the drug. In June 1997 a task force within FDA, including OND and ODS staff, was convened to further evaluate the efficacy and safety of Propulsid. FDA staff, including task force members, later met to discuss several regulatory options, including proposing further label modifications, presenting the agency’s concerns to an advisory committee, and proposing to withdraw approval of Propulsid. According to a former OND manager, as a result of this meeting, FDA decided to seek further label modifications. Some staff, from both OND and ODS, however, supported stronger actions at this time, including proceeding with proposing a withdrawal of approval. According to several FDA officials, in the absence of established criteria, decisions about safety actions are often based on the case-by-case judgments of the individuals reviewing the data. Our observations are consistent with previous FDA reviews. In 2000, two internal CDER reports based on interviews that FDA conducted with staff indicated that an absence of established criteria for determining what safety actions to take, and when, posed a challenge for making postmarket drug safety decisions. The reports recognized the need to establish criteria to help guide such decisions. In a review of the safety issues concerning Propulsid, CDER staff recommended that a standardized approach to postmarket drug safety issues be established, by addressing various issues such as how to determine when to incorporate safety issues into labeling and when stronger actions should supersede further labeling changes. According to the report, several staff noted frustration with the numerous changes made to Propulsid’s label that were mostly ineffective in reducing the number of cardiovascular adverse events. Similarly, after the diabetes drug Rezulin was removed from the market in 2000 because of its risk for liver toxicity, a CDER report focused on Rezulin also recommended that a consistent approach to postmarket drug safety be developed, including what regulatory actions should occur to address postmarket drug safety concerns, and when they should occur. In addition to a lack of criteria for safety actions, we observed a lack of clarity related to ODS’s recommendations. In practice, ODS often makes written recommendations about safety actions to OND but there is some confusion over this role, according to several ODS managers, and there is no policy that explicitly states whether ODS’s role includes this responsibility. The case of Arava illustrates this confusion. In 2002, the OND review division responsible for Arava, a drug used to treat rheumatoid arthritis, requested that ODS review postmarket data for cases of serious liver toxicity associated with its use. The ODS staff who worked on this analysis recommended that Arava be withdrawn from the market because they concluded that the risk for serious liver toxicity exceeded its benefits. The OND Division Director responsible for Arava felt that ODS should not have included a recommendation in its consult because he argued that this was the responsibility of OND, not ODS. Some of the confusion may be the result of ODS’s evolving role in postmarket drug safety. A current and a former ODS manager told us that in the past, ODS’s safety consults were technical documents summarizing adverse events with minimal data analysis and few recommendations. Over time the consults have become more detailed with sophisticated data analyses and more recommendations about what safety action is needed (for example, label change, medication guide, drug withdrawal). ODS’s role in scientific advisory committee meetings is also unclear. According to the OND Director, OND is responsible for setting the agenda for the advisory committee meetings, with the exception of DSaRM. This includes who is to present and what issues will be discussed by the advisory committees. For the advisory committees (other than DSaRM) it is unclear when ODS staff will participate. While ODS staff have presented their postmarket drug safety analyses during some advisory committee meetings, our case study of Arava, and another case involving antidepressant drugs, provide examples of the exclusion of ODS staff. For example, in March 2003, the Arthritis Advisory Committee met to review the efficacy of Arava, and its safety in the context of all available drugs to treat rheumatoid arthritis. The OND review division responsible for Arava presented its own analysis of postmarket drug safety data at the meeting, but did not allow the ODS staff—who had recommended that Arava be removed from the market—to present their analysis because it felt that ODS’s review did not have scientific merit. Specifically, the OND review division felt that some of the cases in the ODS review did not meet the definition of acute liver failure, the safety issue on which the review was focused. The OND division also believed that in some of the cases ODS staff inappropriately concluded that liver failure resulted from exposure to Arava. After the meeting, ODS epidemiologists and safety evaluators asked the ODS and OPaSS Directors to clarify ODS’s role involving postmarket drug safety issues, including its role at advisory committee meetings. According to an FDA official, there was no written response to this request. As another example of ODS’s unclear role in scientific advisory committees, in February 2004 an ODS epidemiologist was not allowed to present his analysis of safety data at a joint meeting of the Psychopharmacologic Drugs Advisory Committee and the Pediatric Subcommittee of the Anti-Infective Drugs Advisory Committee that was held to discuss reports of suicidal thoughts and actions in children with major depressive disorder during clinical trials for various antidepressant drugs. According to statements by FDA officials at a congressional hearing, OND believed that the ODS staff member’s analysis, which showed a relationship between the use of antidepressants and suicidal thoughts and behaviors in children, was too preliminary to be presented in detail. The analysis was based on pediatric clinical trial data that FDA requested from the sponsors of several antidepressant drugs. FDA had asked the sponsors to identify suicide-related events using specific methods, and then ODS was asked to analyze all of the submitted data. OND later decided that the sponsors may have been inconsistent in their classification approaches and asked outside experts to perform additional reviews of all the cases by rating whether particular events could be classified as suicidal. The staff member who performed the ODS review, however, believed that the available data were sufficient to conclude a relationship between the use of antidepressants and suicidal thoughts and behaviors in pediatrics and to recommend further safety actions. In his consult, the ODS staff member also concluded that while additional analyses would yield valuable information, they would also take several more months to complete. In light of this delay, he recommended an interim plan to discourage the use of all but one antidepressant in the treatment of pediatric major depressive disorders. In December 2004, ODS epidemiologists communicated to the CDER Director their position that ODS’s role should include the responsibility of presenting all relevant ODS data at advisory committee meetings. According to an FDA official, there was no written response to this request. However, in our interviews, the Directors of CDER and OND told us that in retrospect they felt it was a mistake for FDA to have restricted the ODS epidemiologist from presenting his safety information at the meeting. Several ODS managers that we interviewed told us that there is also a lack of clarity regarding the role of the epidemiologist in postmarket drug safety work. Despite the fact that ODS’s epidemiologists have some defined responsibilities, there appears to be some confusion about the scope of their activities and a lack of understanding on the part of OND about their role and capabilities. A prior review of postmarket drug safety identified similar issues. For example, in that review some epidemiologists indicated that they should be able to maintain an independent approach to their research and the publication of their research. However, some OND review division directors indicated that the work of the epidemiologists should be considered within the context of CDER’s overall regulatory mission. Further, the epidemiologists’ research conclusions do not necessarily reflect the conclusions of FDA but may be perceived as such by the medical community. ODS managers indicated that a current challenge for FDA is to determine how it should use its epidemiologists and what their work products should be. According to the current ODS Director, efforts are needed to help OND better understand what epidemiologists can do. The epidemiologists themselves have asked for greater clarity about their role and a stronger voice in decision making. A lack of communication between ODS and OND’s review divisions and limited oversight of postmarket drug safety issues by ODS management have also hindered the decision-making process. The frequency and extent of communication between ODS and OND’s divisions on postmarket drug safety vary. ODS and OND staff often described their relationship with each other as generally collaborative, with effective communication. But both ODS and OND staff said sometimes there were communication problems, and this has been an ongoing concern. For example, according to some current and former ODS staff, OND does not always adequately communicate the key question or point of interest to ODS when it requests a consult, and as ODS works on the consult there is sometimes little interaction between the two offices. After a consult is completed and sent to OND, ODS staff reported that OND sometimes does not respond in a timely manner or at all. Several ODS staff characterized this as consults falling into a “black hole” or “abyss.” OND’s Director told us that OND staff probably do not “close the loop” in responding to ODS’s consults, which includes explaining why certain ODS recommendations are not followed. In some cases CDER managers and OND staff criticized the methods used in ODS consults and told us that the consults were too lengthy and academic. ODS management has not effectively overseen postmarket drug safety issues, and as a result, it is unclear how FDA can know that important safety concerns have been addressed and resolved in a timely manner. According to a former ODS Director, the small size of ODS’s management team has presented a challenge for effective oversight of postmarket drug safety issues. Another problem is the lack of systematic information on drug safety issues. According to the ODS Director, ODS currently maintains a database of consults that can provide certain types of information such as the total count, the types of consults that ODS staff conducted, and the ODS staff that wrote the consults. But it does not include information about whether ODS staff have made recommendations for safety actions and how the safety issues were handled and resolved, including whether recommended safety actions were implemented by OND. For example, ODS was unable to provide us with a summary of the recommendations for safety actions that its staff made in 2004 because it was not tracking such information. Data constraints—such as weaknesses in data sources and limitations in requiring certain studies and obtaining data—contribute to FDA’s difficulty in making postmarket drug safety decisions. OND and ODS use three different sources of data to make postmarket drug safety decisions. They include adverse event reports, clinical trial studies, and observational studies. While data from each source have weaknesses that contribute to the difficulty in making postmarket drug safety decisions, evidence from more than one source can help inform the postmarket decision-making process. The availability of these data sources is constrained, however, because of FDA’s limited authority to require drug sponsors to conduct postmarket studies and its resources. While decisions about postmarket drug safety are often based on adverse event reports, FDA cannot establish the true frequency of adverse events in the population with AERS data. The inability to calculate the true frequency makes it hard to establish the magnitude of a safety problem, and it makes comparisons of risks across similar drugs difficult. In addition, it can be difficult to attribute adverse events to particular drugs when there is a relatively high incidence rate in the population for the medical condition. For example, ODS staff analyzed adverse event reports of serious cardiovascular events among users of the anti- inflammatory drug Vioxx in a 2001 consult. However, because Vioxx was used to treat arthritis, which occurs more frequently among older adults, and because of the relatively high rate of cardiovascular events among the elderly, ODS staff concluded that the postmarket data available at that time were not sufficient to establish that Vioxx was causally related to serious cardiovascular adverse events. With AERS data it is also difficult to attribute adverse events to the use of particular drugs because the AERS reports may be confounded by other factors, such as other drug exposures. For example, one AERS report described a patient who developed cardiac arrest after he was given the drug hyaluronidase with two local anesthetics in preparation for cataract surgery. Because local anesthetics can lead to cardiac events, the ODS safety evaluator who reviewed this case concluded that the causal role of hyaluronidase alone could not be established. FDA may also use data from clinical trials and observational studies to support postmarket drug safety decisions, but each source has weaknesses that constrain the usefulness of the data provided. Clinical trials, in particular randomized clinical trials, are considered the “gold standard” for assessing evidence about efficacy and safety because they are considered the strongest method by which one can determine whether new drugs work. However, clinical trials also have weaknesses. Clinical trials typically have too few enrolled patients to detect serious adverse events associated with a drug that occur relatively infrequently in the population being studied. They are usually carried out on homogenous populations of patients that often do not reflect the types of patients who will actually take the drugs, including those who have other medical problems or take other medications. In addition, clinical trials are often too short in duration to identify adverse events that may occur only after long use of the drug. This is particularly important for drugs used to treat chronic conditions where patients are taking the medications for the long term. Observational studies, which use data obtained from population- based sources, can provide FDA with information about the population effect and risk associated with the use of a particular drug. Because they are not controlled experiments, however, there is the possibility that the results can be biased or confounded by other factors. Despite the weaknesses of clinical trials and observational studies, evidence from both types of studies helps inform FDA’s postmarket drug safety decision-making process. For example, clinical trials conducted by drug sponsors for their own purposes sometimes provide information for FDA’s evaluation of postmarket drug safety issues. For instance, drug sponsors sometimes conduct clinical trials for drugs already marketed in order to seek approval for a new or expanded use. These studies may also be conducted to support claims about the additional benefits of a drug, and their results sometimes reveal safety information about a marketed drug. For example, to support the addition of a claim for the lower risk of gastrointestinal outcomes (such as ulcers and bleeding), Vioxx’s sponsor conducted a clinical trial that found a greater number of heart attacks in patients taking Vioxx compared with another anti- inflammatory drug, naproxen. This safety information was later added to Vioxx’s labeling. In addition to relying on sponsors, ODS partners with researchers outside of FDA to conduct postmarket observational studies through cooperative agreements and contracts. For example, several cooperative agreements supported a study of Propulsid using population- based databases from two managed care organizations and one state Medicaid program, before and after warnings on contraindications were added to the drug’s label in 1998. The cooperative agreement researchers, which included ODS staff, measured the prevalence of contraindicated use of Propulsid, and found that a 1998 labeling change warning about the contraindication did not significantly decrease the percentage of users who should not have been prescribed this drug. FDA’s access to postmarket clinical trial and observational data, however, is limited by its authority and available resources. As described previously, FDA does not have broad authority to require that a drug sponsor conduct an observational study or clinical trial for the purpose of investigating a specific postmarket safety concern. One senior FDA official and several outside drug safety experts told us that FDA needs greater authority to require such studies. Long-term clinical trials may be needed to answer safety questions about risks associated with the long-term use of drugs, such as those that are widely used to treat chronic conditions. For example, during a February 2005 scientific advisory committee meeting, some FDA staff and members of the Arthritis Advisory Committee and DSaRM indicated that there was a need for better information on the long- term use of anti-inflammatory drugs and discussed how a long-term trial might be designed to study the cardiovascular risks associated with the use of these drugs. As another example, FDA approved Protopic and Elidel, both eczema creams, in December 2000 and December 2001, respectively. Since their approval, FDA has received reports of lymphoma and skin cancer in children and adults treated with these creams. In March 2005, FDA announced that it would require label changes for the creams, including a boxed warning about the potential cancer risk. An ODS epidemiologist told us that FDA has been trying for several years to get the sponsor to do long-term studies of these drugs, but that it has been difficult to negotiate. In the absence of specific authority, FDA often relies on drug sponsors voluntarily agreeing to conduct such postmarket studies. But the postmarket studies that drug sponsors agree to conduct have not consistently been completed. For example, one study estimated that the completion rate of postmarket studies, including those that sponsors have voluntarily agreed to conduct, rose from 17 percent in the mid-1980s to 24 percent between 1991 and 2003. FDA has little leverage to ensure that these studies are carried out, for example, by imposing administrative penalties. In terms of resource limitations, several FDA staff (including CDER managers) and outside drug safety experts told us that in the past ODS has not had enough resources for cooperative agreements to support its postmarket drug surveillance program. Annual funding for this program was less than $1 million from fiscal year 2002 through fiscal year 2005. In October 2005 FDA awarded four contracts to replace the cooperative agreements, and FDA announced that these contracts would allow FDA to more quickly access population-level data and a wider range of data sources. The total amount of the contracts, awarded from 2005 to 2010, is about $5.4 million, which averages about $1.1 million per year, a slight increase from fiscal year 2005 funding. The new contracts will provide access to data from a variety of health care settings including health maintenance organizations, preferred provider organizations, and state Medicaid programs. According to an FDA official, FDA does not conduct its own clinical trials because of the high cost associated with carrying out such studies and because FDA does not have the infrastructure needed to conduct them. It was recently estimated that clinical trials designed to study long-term drug safety could cost between $3 million and $7 million per trial. The estimated cost of just one such trial would exceed the amount FDA has currently allocated ($1.1 million) for its contracts with researchers outside of FDA. FDA has undertaken several initiatives to improve the postmarket drug safety decision-making process, but these are unlikely to address all the gaps. FDA’s newly created Drug Safety Oversight Board (DSB) may help provide oversight of important, high-level safety decisions, but it does not address the need for systematic tracking of ongoing safety issues. Other initiatives, such as FDA’s draft policy on major postmarket drug safety decisions and communication initiatives may help improve the clarity and effectiveness of the process, but they have not been fully implemented. FDA’s dispute resolution processes to help resolve disagreements over safety decisions have not been used and may not be viewed as sufficiently independent. FDA is taking steps to identify additional data sources for postmarket drug safety studies, and expects to use additional funds for this purpose, but FDA still faces data constraints. FDA’s DSB, created in the spring of 2005, may help provide oversight of important, high-level safety decisions within CDER; however, there is still a need for systematic tracking of ongoing safety issues. FDA established the DSB to help provide independent oversight and advice to the CDER Director on the management of important safety issues. The DSB reports directly to the head of CDER and consists primarily of FDA officials from within CDER and other FDA centers. According to an FDA policy document, the DSB includes 11 voting members from CDER, with 3 representatives from ODS and 3 from OND. Currently the OND and ODS Directors are voting members. It also includes representatives from other federal agencies. DSB members who conducted the primary preapproval review of the drug or who were involved with a drug’s approval or postmarket safety review will not be allowed to vote on issues concerning that drug. As of February 2006, the DSB was meeting regularly and an FDA official told us that it is expected to meet monthly. The meetings are not open to the public, but FDA posts abbreviated summaries of the meeting minutes on its Web site. According to an FDA policy document, the DSB will identify, track, and oversee the management of important drug safety issues. Important drug safety issues include serious side effects identified after a drug’s approval that have the potential to significantly alter the drug’s benefit-to-risk analysis or significantly affect physicians’ prescribing decisions. According to an FDA official, ODS and OND submit monthly reports of safety issues for discussion by the DSB to be used in setting the agenda for the meetings. In addition, at any time individuals within and outside of FDA can submit issues to be considered by contacting a DSB member or the executive director. The FDA official said that the DSB will not be involved in the ongoing process of postmarket surveillance and decision making about drug safety issues, but rather will be involved with ensuring that broader safety issues—such as ongoing delays in changing a label—are effectively resolved. The DSB may also develop standards for certain kinds of safety-related actions, such as when a drug warrants a boxed warning or a medication guide. The FDA official acknowledged that safety-related decisions are still based on individual judgments and lack consistency. The DSB has plans to form subcommittees to look at policy development in this and other areas. The DSB may help provide high-level oversight of safety issues, but it does not address the problem of the lack of systematic tracking of safety issues and their resolution. Information about the resolution of safety issues identified by ODS staff is still not available to ODS management nor to the DSB. FDA’s draft policy on major postmarket drug safety decision making and other process and organizational initiatives may make the process clearer and more effective, but these efforts have not been fully implemented. Several years ago, FDA drafted a policy entitled “Process for Decision- Making Regarding Major Postmarketing Safety-Related Actions” that could help improve the decision-making process, but as of February 2006, this policy has not been finalized and implemented. The draft policy was designed to ensure that all major postmarket safety recommendations, such as the market withdrawal of a drug, would be discussed by involved CDER managers, starting at the division level. The draft policy states that CDER staff, including ODS staff, are to write a detailed memorandum describing their recommendation for a major safety action. If the immediate supervisor disagrees, he or she prepares a memorandum explaining the nature of the differences, and then the division director prepares a memorandum indicating how the issue should be resolved. In some cases the supervisor and division director may be the same person. A Division Consensus Meeting is to be convened for every recommendation regardless of whether there is initial agreement between the staff member making the recommendation and the supervisor and division director. The process stops at the division level if a decision is reached that a major safety action is not needed. Otherwise, the recommendation is discussed at higher levels of management in CDER. An Office Action Meeting would then be held to recommend a course of action to the CDER director, although it is possible that there still could be disagreement at the office level. A final meeting, called the Decisional Meeting, would then be held to decide a course of action, and would include the CDER director as well as office- and division- level staff. It is not clear how the new DSB will be integrated into the draft policy on major postmarket drug safety decision making, and FDA officials told us they are still trying to determine how to do this. Other initiatives may improve the decision-making process, but these efforts have not been fully implemented. For example, ODS has established a Process Improvement Team to assess the safety consult process, including how OND asks questions about postmarket safety concerns and how ODS should answer the questions. OND has established a similar team to assess the overall process for reviewing postmarket safety information, including the consult process. Both teams plan to make recommendations; for example, the OND representative chairing the OND team told us the OND team plans to recommend which office (OND or ODS) should have responsibility for certain postmarket tasks, such as reviewing periodic adverse event reports. According to the OND chair, the OND team expects to finalize its recommendations by the end of March 2006. According to the ODS Director, the ODS team’s work was still in progress as of January 2006 and would not be completed for about 6 months. In February 2006, ODS established a new Process Improvement Team to identify best practices for safety evaluators in order to make sure there is standardization of their work (for example, reviewing of adverse event reports). The ODS Director estimated that the work of this team would be completed in 3 to 4 months. FDA officials told us that they have proposed reorganizing CDER to dissolve OPaSS and have the director of ODS report to the CDER director. FDA plans to implement this reorganization in May 2006. In the meantime, ODS has taken some other steps to improve communication and oversight of safety issues. According to the ODS Director, the DDRE Director recently instituted regular meetings between the safety evaluators in his division and the OND review divisions in order to discuss drug safety issues, including ongoing consults, issues that DDRE staff have not yet provided consultation on, and how safety issues have been resolved. According to the DDRE Director, over half of OND’s review divisions have participated in these regular meetings to date. The Director of ODS also acknowledged that ODS needs to have a better way to track safety issues as they are emerging. He told us that ODS is developing a tracking system that is currently being tested and is expected to become operational in 2006. The Director also said he had plans to build up the immediate office of ODS by adding an associate director of operations and staff responsible for working on relationships with other federal agencies (for example, National Institutes of Health) and contractors. He has decided to hold regular meetings with the ODS deputy director and division directors for the specific purpose of discussing the status of drug safety problems. Despite the efforts that FDA has made to improve its postmarket drug safety decision-making process, the role of ODS in advisory committee meetings (other than DSaRM) has not been clarified. The role of ODS in scientific advisory committee meetings is not discussed in the draft policy on major postmarket drug safety decisions or in other policy documents. In addition, according to the ODS Director, the role of epidemiologists in ODS requires further clarification. A Process Improvement Team that was formed to address this issue was suspended, and the ODS Director said that other ways to approach this issue are being evaluated. The DSB and a pilot program have not been used as of February 2006 to help resolve organizational and individual disagreements that occur within CDER over safety decisions and may not be viewed as sufficiently independent. According to an FDA policy document, the DSB will resolve organizational disputes over approaches to drug safety. According to an FDA official, as of February 2006, however, the DSB had not handled any such formal disputes. An FDA official told us that, as an example, ODS might believe that a drug should come off the market but OND does not agree, and resolving this matter could be handled by the DSB. Although DSB members who were involved with a drug product’s approval or safety review will be recused from the DSB’s decision-making process concerning that drug, the current DSB membership includes CDER managers who oversee the drug approval and safety review processes, which may limit the ability of the DSB to provide neutral, independent advice in the handling of organizational disputes. In addition, decisions made by the DSB will serve as recommendations to the CDER director, who is the final decision maker. This reporting chain may further limit the independence of the DSB since the CDER director manages the overall drug approval and safety review processes. In addition to the DSB, a pilot program for dispute resolution procedures has not been used by CDER staff as of February 2006. In November 2004 FDA implemented a pilot program for dispute resolution that is designed for individual CDER staff to have their views heard when they disagree with a decision that could have a significant negative effect on public health, such as a proposed safety action or the failure to take a safety action. Any CDER employee can initiate the process, but the CDER ombudsman, in consultation with the CDER director, determines whether a dispute warrants formal review. If the CDER director and ombudsman decide to proceed, the CDER director would establish a panel of three or four members, one of which the CDER employee initiating the process would nominate. The panel would review the case and make a recommendation to the CDER director, who would then decide how the dispute should be resolved. Like the DSB, the pilot program also does not offer employees an independent forum for resolving disputes. The CDER director decides whether the process should be initiated, appoints the chair of the panel, and is the final adjudicator. FDA is taking steps to identify additional data sources that it may obtain with its current authority and resources. In fiscal year 2006, FDA expects to use $10 million for this purpose consistent with direction in the Conference Report accompanying FDA’s fiscal year 2006 appropriation. The Conference Report specified that a $10 million increase over the prior year was provided for drug safety activities, including $5 million for ODS and $5 million for drug safety activities within CDER. The conferees intended for the increases to be used for FDA’s highest-priority drug safety needs that were not funded in fiscal year 2005, such as acquiring access to additional databases beyond those that will be accessed through its new contracts. The ODS Director told us that ODS plans to use the $5 million to hire staff, specifically safety evaluators and technical support staff. The other $5 million is to be used for postmarket drug safety work throughout CDER and those plans had not been finalized as of February 2006. The Director of ODS said that given the high cost of planning and conducting observational studies, only one or two studies can be funded each year. According to the ODS Director, FDA has started to work with the Centers for Medicare & Medicaid Services to obtain access to data on Medicare beneficiaries’ experience with prescription drugs covered under the new prescription drug benefit, which began in 2006. This data source may provide information about drug utilization for a very large population of Medicare recipients and can potentially be linked to claims data, providing information about patients’ medical outcomes. According to the ODS Director, a team of ODS staff has been working with the Centers for Medicare & Medicaid Services to determine what data elements ODS would seek to access; however, it is uncertain how useful the data will be because there are potential data reliability issues. For example, it is unclear whether ODS will be able to do medical chart reviews to verify medical outcomes. Additionally, in April 2005 FDA requested information from other organizations about their active surveillance programs in the United States for identifying serious adverse events. In its request, FDA noted that it was seeking information related to these programs because active surveillance would strengthen and complement the tools it currently has to monitor postmarket drug safety. As an example, FDA noted interest in learning about systems that can identify specific acute outcomes for which a drug is frequently considered as a potential cause, such as acute liver failure and serious skin reactions. According to the ODS Director, a working group within ODS is currently evaluating the responses to the request for information; however, it is unlikely that they will fund any of these active surveillance systems in 2006 because FDA needs to ensure that such systems are able to identify drug safety concerns earlier compared to other data sources before the agency invests in them. The working group’s review of the request for information was still ongoing as of March 2006. Postmarket drug safety decision making at FDA is a complex process that sometimes results in disagreements, as observed in our case studies. Scientific disagreements may be expected in a large regulatory agency, especially given the different professional orientations of the key players, OND and ODS, and the inherent limitations of the available data. However, because of the potential public health consequences of FDA’s decisions about postmarket drug safety issues, it is important to come to a decision quickly. In our review, we observed opportunities for improving the clarity and oversight of the process and strengthening the information used for decision making. FDA has recently made some important organizational and policy changes, but more could be done to improve management oversight of postmarket drug safety issues, to improve the dispute resolution process, and to strengthen the collaboration between OND and ODS. In order to address the serious limitations of the data, FDA will need to continue its efforts to develop useful observational studies and to access and use additional healthcare databases. However, even if FDA is successful in expanding its data sources for postmarket drug safety surveillance, it would still benefit from information from long-term clinical trials of certain drugs and the additional authority to require that these studies be carried out. To improve the decision-making process for postmarket drug safety, the Congress should consider expanding FDA’s authority to require drug sponsors to conduct postmarket studies, such as clinical trials or observational studies, as needed, to collect additional data on drug safety concerns. To improve the postmarket drug safety decision-making process, we recommend that the Commissioner of FDA take the following four actions: establish a mechanism for systematically tracking ODS’s recommendations and subsequent safety actions; with input from the DSB and the Process Improvement Teams, revise and implement the draft policy on major postmarket drug safety decisions; improve CDER’s dispute resolution process by revising the pilot program to increase its independence; and clarify ODS’s role in FDA’s scientific advisory committee meetings involving postmarket drug safety issues. FDA reviewed a draft of this report and provided comments, which are reprinted in appendix V. FDA also provided technical comments, which we incorporated as appropriate. FDA commented that our conclusions were reasonable and consistent with actions that it has already begun or planned. FDA did not comment on our recommendations. In addition, FDA made six comments about specific aspects of our draft report. First, concerning our description of the complexity of the postmarket decision-making process, FDA stated that the draft report implied the process is too complex and that FDA should not be criticized for its difficult task of weighing the risks and benefits associated with drugs with the data available to the agency. We agree with FDA that postmarket drug safety issues are inherently complex. For that reason, we believe that FDA needs to have greater clarity about how decisions are made and to establish more effective oversight of the decision-making process. Furthermore, we believe that our report fairly characterizes the limitations of the data that FDA relies on in this complex process. Because of the data limitations, we believe that FDA needs greater authority to access certain kinds of postmarket safety data. Second, FDA noted that factors other than PDUFA goals influence OND’s work and its pace. FDA also stated that ODS plays a role in certain premarket safety activities and that PDUFA goals also apply to these activities. We clarified these points in the report. Third, FDA stated that referring to ODS as a consultant to OND understates the role of ODS in drug safety and that CDER considers ODS and OND to be equal partners in the identification and timely resolution of drug safety issues. As we stated in the draft report, we found that the central focus of the process is the iterative interaction between OND and ODS. Nonetheless, ODS does not have any independent decision-making responsibility while OND has the ultimate responsibility to make decisions about regulatory actions concerning the postmarket safety of drugs. Further, both OND and ODS refer to ODS reports on drug safety as consults. For these reasons, we believe that our description of ODS as a consultant to OND is accurate. Fourth, FDA agreed with our statements about the role of the DSB and indicated that the DSB has reviewed current mechanisms for identifying safety issues and discussed ways to enhance the tracking of those issues. Fifth, FDA commented that our examples of ODS staff being excluded from advisory committee meetings imply that such disagreements occur frequently. FDA stated that this is not the case, and that OND and ODS work cooperatively in the vast majority of cases. However, our work demonstrates a need for further clarification of ODS’s role. Finally, FDA commented that our case study chronology for Arava was incomplete because it did not describe two meetings. We provided additional clarification in the report about the meetings in the chronology for Arava. As we agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the date of this letter. We will then send copies to others who are interested and make copies available to others who request them. If you or your staffs have any questions about this report, please contact me at (202) 512-7119 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. Arava was approved for marketing in 1998. Arava is indicated in adults for the treatment of active rheumatoid arthritis to reduce the signs and symptoms of the disease, slow down damage to joints, and improve physical function. Arava has been associated with cases of serious liver injury, some of which have been fatal. In this case, the Office of Drug Safety (ODS) identified a serious safety signal—hepatic failure and fatal hepatitis—associated with Arava in March 2001. A citizen’s petition in 2002 spurred further inquiry into the issue. An ODS analysis of adverse event reports concluded that Arava was associated with a substantial increased risk of liver failure and recommended removal from the market, but the Office of New Drugs (OND) disagreed. OND established an internal panel of senior staff and hired outside consultants to further review the reports of liver failure, and both the panel and outside consultants concluded that in most cases Arava was not causally related to liver failure. In 2003 a Food and Drug Administration (FDA) advisory committee meeting was held to discuss Arava and ODS staff were not allowed to present their analysis. FDA approved revised labeling of Arava in 2003 that strengthened the drug’s warnings, and it remained on the market as of February 2006. FDA approved Arava for marketing. At approval there was a known risk of liver toxicity (hepatotoxicity); in clinical trials Arava was associated with elevated liver enzymes in a significant number of patients. This information was included in the original label. During routine surveillance of incoming adverse event reports, an ODS safety evaluator had identified 11 cases of hepatic failure and fatal hepatitis associated with the use of Arava. The safety evaluator recommended that Arava’s label mention more extensive liver damage, such as liver-related fatalities. The ODS Division Director who reviewed the consult concurred with the findings and recommendation, but the OND Division of Anti-Inflammatory, Analgesic, and Ophthalmic Drug Products did not. OND did not agree with the findings or recommendation because officials were uncertain about the causal relationship between Arava and liver damage in the case reports and they believed that the current label was adequate for communicating risk about hepatotoxicity. Public Citizen, a national nonprofit public interest organization, filed a petition requesting that FDA immediately remove Arava from the U.S. market. Public Citizen said that a significantly higher number of serious adverse events, including fatal liver toxicity, had been associated with Arava, compared with another drug used to treat patients with rheumatoid arthritis. In response to the petition, OND requested that ODS review postmarket data for serious hepatic events and liver failure since the approval of Arava. ODS and OND staff met to discuss ODS’s preliminary work in response to the Public Citizen request. ODS’s preliminary review concluded that Arava was associated with a substantially increased risk for acute liver failure and recommended removal from the market. OND disagreed with the review. Because of the disagreements about causality, OND established a panel of senior-level Center for Drug Evaluation and Research (CDER) staff, which included managers from OND and ODS. The panel met twice to review U.S. postmarket reports of 16 cases of acute liver failure and to vote on the probability that Arava caused the liver injury. The majority of panel members voted that Arava was likely to be causally related to liver failure in only 2 of the cases. ODS staff finalized their review on Arava and sent the consult to OND. The report included the recommendation to remove Arava from the market because the authors believed that the risks of Arava greatly exceeded its benefits and because the available risk management strategies (for example, label changes and periodic liver enzyme monitoring) had been shown to be ineffective in minimizing risk for other drugs. The ODS Division Director who reviewed the consult concurred with the findings and recommendation. The ODS Director and the Office of Pharmacoepidemiology and Statistical Science (OPaSS) Director also reviewed the consult. Both disagreed with the findings and recommendation. At the request of OND, an ODS safety evaluator reviewed adverse event reports of liver injury associated with Arava from outside the United States. The ODS safety evaluator, who did not work on the prior analysis of the U.S. cases, analyzed 13 cases of liver failure and concluded that there was a possible association between the use of Arava and the development of liver failure. The safety evaluator also concluded that these findings were consistent with the earlier ODS findings in the 16 U.S. liver failure cases. The ODS Division Director who reviewed the consult concurred with the findings. Because of the disagreement on Arava’s safety, OND had hired outside consultants, including two hepatologists, to further review Arava’s safety profile. The hepatology consultants completed their analysis, which included a review of the U.S. reports of acute liver failure, by mid- December 2002. They identified no definite cases of Arava-induced liver failure, but found some cases to be possibly related to Arava. FDA’s Arthritis Advisory Committee met to review Arava’s benefit-to-risk profile and ways to improve risk management, and to discuss whether Arava should be approved for a claim of improvement in physical function. OND presented its own analysis of the postmarket safety data, and did not allow ODS staff to present their analysis of postmarket safety data. A former OND manager told us that OND believed that the ODS analysis did not have scientific merit. FDA’s Advisory Committee voted unanimously that Arava’s benefits in rheumatoid arthritis outweighed its potential risks and that its risks were no greater than other similar drugs. The committee also voted that Arava should be approved for a claim of improvement in physical function. ODS’s epidemiologists and safety evaluators submitted a letter to the ODS and OPaSS Directors, expressing their concerns with the Arthritis Advisory Committee meeting. They recommended that ODS staff should present postmarket safety data at advisory committee meetings and that there should be a policy that defines the role of ODS at all advisory committee meetings involving postmarket safety issues. CDER’s Director and Deputy Director sent a memo about ODS’s November 2002 consult to the ODS Director, an ODS Division Director, and the OPaSS Director. The memo criticized the quality of ODS’s consult and stated that ODS had analyzed postmarket data on Arava with a “bias toward concluding that the risk is as large as possible.” The memo also included the general expectations for an ODS consult. For example, it stated that consults should include a summary of the strengths and weaknesses of the analytic approach used to evaluate postmarket data. FDA approved revised labeling of Arava to support the claim of improved physical function. The revised labeling also stated that rare cases of severe liver injury, including cases with fatal outcomes, had been reported in Arava users. OND decided that although the liver toxicity risk was very rare, the accumulated evidence provided support for strengthening the warnings on the label. OND asked the sponsor to submit liver-related adverse events within 15 days rather than annually, on the basis of an ODS request. The sponsor issued a Dear Healthcare Professional letter explaining the labeling changes approved in June 2003. Information was added to Arava’s label about the use of Arava in pediatric populations, including instances of liver-related adverse reactions from pediatric study reports. FDA sent a letter to Public Citizen denying its request to remove Arava from the U.S. market. Baycol was approved for marketing in 1997. Baycol is a member of the class of drugs known as statins that lower cholesterol levels in the body. Baycol was associated with rhabdomyolysis, a severe adverse reaction involving the breakdown of muscle fibers, which can lead to death. In this case, the Office of Drug Safety (ODS) and the Office of New Drugs (OND) agreed from the outset (spring 2001) that adverse event reports received for high-dose Baycol were alarming. At the request of OND, ODS conducted an analysis that verified the increased safety risk associated with Baycol, but it did not make specific recommendations for action. Shortly thereafter, OND and ODS met with the sponsor and the Food and Drug Administration (FDA) communicated to the sponsor that it was considering withdrawing the high-dose Baycol from the market. In August 2001 the sponsor voluntarily withdrew all doses of Baycol. FDA approved Baycol for marketing (doses up to 0.3 mg). The original label stated that rhabdomyolysis had been reported with the use of other statins. FDA approved a change in the warnings section of Baycol’s label to indicate that rare cases of rhabdomyolysis had been reported with Baycol and other drugs in the class. FDA also approved adding a new subsection—postmarketing adverse event reports (including rhabdomyolysis)—to the label. FDA approved the 0.4 mg dose of Baycol. FDA approved a change in Baycol’s label, requested by the sponsor, to include a contraindication with gemfibrozil (a member of a class of drugs called fibrates, which also lower cholesterol). The combined use of Baycol and gemfibrozil was contraindicated because of the risk for rhabdomyolysis. The sponsor issued a Dear Healthcare Professional letter shortly thereafter, explaining the labeling changes. At the request of OND’s Division of Endocrine and Metabolic Drug Products, ODS completed a postmarketing safety review of rhabdomyolysis resulting from the combined use of statins and fibrates. OND requested the review because sponsors of other statins (not Baycol) were seeking over-the-counter status for their drugs. ODS safety evaluators and an epidemiologist analyzed reports from the Adverse Event Reporting System (AERS) and calculated reporting rates of rhabdomyolysis for Baycol and other statins when taken alone, and in combination with gemfibrozil. The reporting rate for Baycol combined with gemfibrozil was higher than that of other statins combined with gemfibrozil. But the reporting rate for Baycol alone was only slightly higher compared with the other statins. On the basis of their findings and the severity of rhabdomyolysis as a clinical diagnosis, the ODS staff recommended that the statins not be granted over-the-counter designation. The ODS Division Director who reviewed the consult concurred. In agreement with ODS’s position, OND decided to discuss with the sponsor sending stronger messages to healthcare professionals about the adverse reaction. FDA approved the 0.8 mg dose of Baycol. FDA approved the addition of a patient package insert for Baycol. An ODS safety evaluator contacted the OND medical officer responsible for Baycol about reports of fatal rhabdomyolysis associated with Baycol, especially at the 0.8 mg dose, since ODS’s last consult in 2000. The medical officer agreed the data were alarming and asked for more analysis. At about the same time, the sponsor notified OND about a dose-related occurrence of adverse events. FDA approved several revisions to labeling for Baycol, including an emphasis that the correct starting dose of Baycol should be 0.4 mg because of the increased risk of rhabdomyolysis at higher doses. The sponsor issued a Dear Healthcare Professional letter explaining the changes. OND and ODS staff met with the sponsor to discuss concerns over the safety of Baycol. An ODS epidemiologist presented an analysis of fatal cases of rhabdomyolysis associated with the 0.8 mg dose of Baycol compared with Lipitor, another statin, and compared with the 0.4 mg dose of Baycol. ODS found that the risk of fatal rhabdomyolysis was higher for Baycol than for Lipitor. ODS also found that the risk appeared to be dose- related, with twice as many of the fatalities among patients taking the highest daily dose—0.8 mg—of Baycol (without concomitant gemfibrozil) compared with the lower dose—0.4 mg. At the meeting, FDA communicated to the sponsor that it was considering several safety actions to address its concerns about Baycol, including the withdrawal of the 0.8 mg dose, and a boxed warning with information about not exceeding a dosage of 0.4 mg daily and a contraindication with gemfibrozil. OND and ODS staff met with the sponsor again to discuss their ongoing concerns over the safety of Baycol, particularly concerns about the risk of rhabdomyolysis at higher doses or in combination with gemfibrozil. The sponsor proposed to (1) voluntarily withdraw the 0.8 mg dose in the United States, (2) add a boxed warning on the label about not exceeding a dose of 0.4 mg daily, and (3) add a boxed warning on the label for contraindicated use of Baycol and gemfibrozil. FDA asked the sponsor for a comprehensive analysis of the 0.4 mg dose. A week later, FDA announced that the sponsor voluntarily withdrew all doses of Baycol from the United States market and the sponsor issued a Dear Healthcare Professional letter explaining its decision. Bextra was approved for marketing in 2001. Bextra was part of the class of drugs known as the COX-2 selective nonsteroidal anti-inflammatory drugs (NSAID). Bextra was approved to relieve the symptoms of osteoarthritis and rheumatoid arthritis in adults, and to relieve painful menstrual cycles. Bextra was associated with serious, potentially fatal skin reactions, including Stevens-Johnson Syndrome and toxic epidermal necrolysis. Bextra was also later associated with an increased risk of serious cardiovascular events, similar to the other approved COX-2 drugs. In this case, after the Office of Drug Safety (ODS) did an analysis of serious skin reactions associated with Bextra in 2002, Bextra’s label was modified. ODS continued to do a series of analyses of adverse events associated with Bextra from 2003 to 2004, recommending in 2004 that there be a boxed warning, the most serious warning, on the label, but the Office of New Drugs (OND) disagreed. OND changed its position after ODS did a comparison, at OND’s request, of Bextra’s rate of serious skin reactions with the reporting rates of other similar drugs. A boxed warning was added to Bextra’s label in late 2004. In February 2005, two scientific advisory committees that met primarily about the cardiovascular risks associated with the COX-2 NSAIDs voted that Bextra’s overall risk-to- benefit profile supported continued marketing. But a few months later the Food and Drug Administration (FDA) came to a different conclusion and announced that the overall risk-to-benefit profile of Bextra was not favorable, and as a result requested that it be withdrawn from the market, which it was in April 2005. FDA approved Bextra for marketing. The sponsor had identified the occurrence of serious skin reactions, proposed adding information about this risk to the label, and proposed issuing a Dear Healthcare Professional letter. At the request of OND’s Division of Anti-Inflammatory, Analgesic, and Ophthalmic Drug Products, ODS staff reviewed reports of serious skin reactions in the Adverse Event Reporting System (AERS) for Bextra. They compared Bextra’s reporting rate of serious skin reactions with rates for Vioxx and Celebrex (other COX-2 NSAIDs), and the incidence in the general population. The ODS staff agreed that the label should be changed and that a Dear Healthcare Professional letter should be issued because the rates for Bextra were higher than those for Vioxx, Celebrex, and the general population. The ODS Division Director that reviewed the consult and OND concurred with the findings. FDA announced an updated label describing the risk for serious skin reactions associated with Bextra and that Bextra was contraindicated in patients with histories of allergic reactions to sulfa, a substance that Bextra contains. The sponsor issued a Dear Healthcare Professional letter explaining the updated label. The Division of Pediatrics and Therapeutics had asked ODS for a recommendation on whether Bextra should be studied in pediatric populations for the treatment of acute pain, as proposed by the sponsor. ODS staff recommended that Bextra not be studied in pediatric populations because of its risk of serious skin reactions in the adult population. In addition, ODS staff analyzed data from the National Center for Health Statistics and found that serious skin reactions generally occur more commonly in children than adults. The ODS Acting Division Director that reviewed the consult agreed with the analysis and recommendation as did the Division of Pediatrics and Therapeutics. However, OND disagreed with the recommendation and supported the study of Bextra in pediatric populations because staff in OND felt this drug could have value in certain pediatric populations, such as patients who cannot tolerate other NSAIDs. Ultimately, Bextra was not studied in children in part because, according to a former OND manager, OND deferred to ODS’s judgment on this recommendation. ODS staff updated their original analysis and concluded that the reporting rates for serious skin reactions associated with Bextra remained markedly elevated above the incidence in the general population and above the rates for Celebrex and Vioxx. ODS staff recommended adding another skin reaction to the warnings in the label and the ODS Acting Division Director that reviewed the consult concurred. Although OND did not respond to the consult, a former OND manager told us that it would not have been important to add this skin reaction to the label since the label already included the most severe forms of skin reactions. ODS staff updated their assessment of the risks of serious skin reactions associated with Bextra, on the basis of additional AERS reports, and commented on a risk management plan submitted by the sponsor. They recommended to OND several stronger safety actions, including a boxed warning and a medication guide, because the risk remained elevated compared with the incidence in the general population and relative to Celebrex and Vioxx (for example, 13-fold relative to Vioxx). The ODS staff stated that very little was known about the risk factors for serious skin reactions, making them difficult to avoid. In addition, they recommended that OND consider the clinical circumstances in which Bextra had a favorable benefit-to-risk profile relative to other treatment alternatives. Two ODS Division Directors that reviewed the consult concurred, but OND did not agree that Bextra needed stronger safety actions at this time. Bextra’s label was changed to include the statement that fatalities due to serious skin reaction had been reported. At the request of OND, ODS staff compared Bextra’s reporting rate of serious skin reactions with an antibiotic drug’s reporting rate because both Bextra and the antibiotic contained sulfa and both drugs were contraindicated in patients with known allergies to sulfa. ODS staff compared the reporting rates, but indicated in their consult that it was inappropriate to compare an antibiotic marketed for more than 30 years and was used for acute, potentially life-threatening illnesses with a recently marketed pain reliever that was generally used for a chronic non- life-threatening illness. The ODS Division Director that reviewed the consult concurred. However, the OND medical officer involved in the case maintained it was an appropriate comparison. ODS staff found a higher reporting rate for serious skin reactions associated with Bextra when compared with the rate for the antibiotic drug. At the request of OND, ODS staff compared Bextra’s rate of serious skin reactions with the reporting rates of Celebrex, Vioxx, and Mobic, anti- inflammatory drugs that are used to treat arthritis. ODS staff concluded that Bextra’s reporting rate continued to be elevated compared with the other drugs, including Mobic, which had no reported cases of serious skin reactions. As a result of this analysis, and the reports of death (at least four deaths have been associated with Bextra), OND asked Bextra’s sponsor for a boxed warning about this risk, which it previously did not support. The sponsor issued a Dear Healthcare Professional letter summarizing the serious skin reactions associated with Bextra and stated that it had proposed an updated label to FDA to expand previous warnings about the skin reactions. FDA announced that Bextra would carry a boxed warning for serious skin reactions. The sponsor also issued a Dear Healthcare Professional letter explaining these changes. A joint meeting of FDA’s Arthritis Advisory Committee and the Drug Safety and Risk Management Advisory Committee was held. The meeting was focused primarily on the cardiovascular risks of the COX-2 selective NSAIDs, including Bextra. The advisory committees voted (17 yes, 13 no, 2 abstentions) that Bextra’s overall risk-to-benefit profile supported continued marketing. After reviewing information from multiple sources, which included specific votes and recommendations that the advisory committees made in February 2005, FDA announced its conclusion that Bextra’s overall risk-to- benefit profile was not favorable and, as a result, requested that the sponsor voluntarily withdraw Bextra from the market. FDA concluded that in addition to its cardiovascular risk (similar to the other COX-2 drugs), Bextra already carried a boxed warning for serious skin reactions. While the other COX-2 drugs also had a risk for these serious skin reactions, the reporting rate appeared to be greater for Bextra. In addition, the occurrence of the skin reactions was unpredictable, for example, occurring after both short- and long-term use, making attempts to manage this risk difficult. Also, there were no data supporting a unique therapeutic benefit for Bextra over other available NSAIDs, which could have offset the increased risk of serious skin reactions. The sponsor agreed to withdraw the drug in the United States. Propulsid was approved for marketing in 1993. Propulsid was indicated for use in adults for the symptomatic relief of nighttime heartburn due to gastroesophageal reflux disease. Propulsid was associated with serious cardiac arrhythmias, including reports of death, and most of these adverse events occurred in patients who were taking other medications or suffering from underlying conditions known to increase the risk of cardiac arrhythmia. In this case there was general agreement about the safety concern between the Office of New Drugs (OND) and the Office of Drug Safety (ODS), but differing opinions within the Food and Drug Administration (FDA) over what safety actions should be taken regarding the drug. In 1997 FDA decided to continue to work with the sponsor to make changes to the drug’s label, which included a boxed warning, but some staff felt stronger actions were needed. An FDA-supported study later found that the boxed warning did not significantly deter use of the drug with contraindicated drugs or medical conditions. During this case, a task force within FDA was formed to help evaluate Propulsid’s safety and efficacy, and ODS staff conducted numerous analyses and made multiple recommendations for stronger safety actions, including a market withdrawal. The sponsor voluntarily removed the drug from the market in 2000. Propulsid is currently available through a limited-access program to ensure that only certain patients receive the medication. FDA approved Propulsid for marketing in tablet form. The sponsor submitted information to the Center for Drug Evaluation and Research (CDER) about reports of cardiac arrhythmias associated with the use of Propulsid. Subsequently, an ODS safety evaluator identified and reviewed 12 reports of torsade de pointes in FDA’s MedWatch Spontaneous Reporting System (SRS) and identified potential risk factors, including cardiac history and the concomitant use of several other drugs. OND’s Division of Gastrointestinal and Coagulation Drug Products agreed with ODS that this was a safety concern. Propulsid’s label was revised to state that it was contraindicated with certain other drugs which, when taken with Propulsid, can increase the concentration of Propulsid and lead to arrhythmias. A clinical study conducted by the sponsor provided this evidence. The label was also revised to include information about other risk factors, including a history of cardiac disease. The sponsor issued a Dear Healthcare Professional letter with similar information. FDA approved Propulsid for marketing in liquid form. A boxed warning was added to Propulsid’s label, specifying its contraindication with other drugs. The boxed warning also included the statement that some of the reported adverse events had resulted in death. The sponsor issued a Dear Healthcare Professional letter in October with similar information. An ODS epidemiologist identified and analyzed 46 adverse event reports of patients who developed serious cardiac arrhythmias while using Propulsid, from July 1993 through early October 1995, and concluded that many patients who developed arrhythmias had histories of cardiac and renal conditions. Most patients who developed arrhythmias were not taking contraindicated medications; as a result, the epidemiologist concluded that Propulsid may itself cause arrhythmias. The epidemiologist recommended that risk factors, such as histories of significant cardiac and renal disease, should be displayed in the label’s warning with the same emphasis as the contraindicated drugs. The ODS Division Director concurred with the consult. At the request of OND, an ODS safety evaluator searched SRS for all adverse event reports associated with Propulsid in children aged 19 years and younger. Although Propulsid was not approved for use in children, it had been prescribed to children (for example, in newborn infants for feeding problems such as reflux). Six children were reported to have had cardiac arrhythmias with the use of Propulsid and several other children had other cardiovascular events. The safety evaluator also reported that the estimated usage of Propulsid in children was increasing steadily. FDA rejected the sponsor’s application for a pediatric indication for Propulsid. OND established a task force within FDA to evaluate the safety and efficacy of Propulsid. The task force included members from OND and ODS. At its initial meeting, the task force decided to gather information from several sources, including the reviews done by ODS, in order to accurately assess the safety of Propulsid. As agreed in the June 1997 Propulsid task force meeting, an ODS epidemiologist reviewed adverse event reports of Propulsid users with serious arrhythmias. The epidemiologist found that in about half of the cases, patients had taken contraindicated drugs with Propulsid and that a high proportion of the remaining cases had medical problems that may have predisposed them to arrhythmias. The epidemiologist recommended that the risk factors, such as predisposing medical problems, should be displayed in the label’s warning with the same emphasis as the contraindicated drugs and that the recommended dosage should not be exceeded. The ODS Division Director who reviewed the consult concurred. The task force on Propulsid met for the second time. The group discussed information that was gathered on the safety of Propulsid. An ODS epidemiologist summarized her August 1997 consult, including her recommendation that predisposing medical problems should be displayed in the label’s warnings similar to the contraindicated drugs and that the recommended dosage should not be exceeded. She also noted that Propulsid was primarily being prescribed for off-label use. Other relevant studies were discussed, including a clinical trial study where 3 out of 32 healthy elderly volunteers had abnormal electrocardiogram results after exposure to Propulsid alone. An ODS safety evaluator reported that there were additional cases of serious, cardiovascular adverse events among children who were prescribed Propulsid. FDA approved a rapidly disintegrating tablet form of Propulsid for marketing. The task force on Propulsid met and decided to seek further input from a CDER-wide group about pursuing the following regulatory actions: adding the risk for cardiac arrhythmias with the use of Propulsid alone (for example, without taking contraindicated drugs) to the label; holding an advisory committee meeting; and withdrawing approval of all Propulsid formulations. OND’s Division of Gastrointestinal and Coagulation Drug Products consulted another OND division that was responsible for the drug Seldane to find out what information would be required to withdraw the approval of a drug since FDA had initiated proceedings to withdraw its approval of Seldane in 1996 for a similar cardiovascular side effect. That division recommended that data be gathered to support the assertion that Propulsid was still being coprescribed with contraindicated drugs despite the boxed warning and Dear Healthcare Professional letters. At the request of OND, an ODS epidemiologist evaluated the sponsor’s epidemiological study on risk of serious cardiac arrhythmias among Propulsid users. In this study the researchers concluded that serious cardiac arrhythmias were not associated with Propulsid. The ODS epidemiologist outlined several major limitations with the study, including the potential for the misclassification of arrhythmia in patients not diagnosed by an electrocardiogram. A meeting was held in CDER to discuss FDA’s regulatory options for Propulsid. This meeting included some senior-level managers in CDER and an FDA attorney. The OND medical officer responsible for Propulsid presented his concerns, including his conclusion that Propulsid should be removed from the market. Proceeding with a withdrawal from the market was discussed at the meeting. FDA continued to work with the sponsor to change Propulsid’s label. Some staff believed that stronger safety actions were needed. An ODS epidemiologist summarized reports of 186 patients who developed serious cardiac disorders and arrhythmias (including deaths) with and without contraindicated drugs from July 1993 through early May 1998. The ODS epidemiologist recommended to OND that the boxed warning should state that serious arrhythmias had occurred in Propulsid users who had not been taking contraindicated drugs, and that an accompanying Dear Healthcare Professional letter should be issued. The ODS epidemiologist also recommended that Propulsid’s labeling should state that the safety and effectiveness of Propulsid had not been demonstrated in pediatric patients for any indication. FDA announced revisions to the boxed warning that strengthened its warnings and precautions, and the sponsor issued a Dear Healthcare Professional letter explaining the revisions. The changes included the statement that Propulsid was contraindicated in patients with medical problems known to predispose them to arrhythmias, such as heart disease. The revision also stated that other therapies for heartburn should be used before Propulsid, and that the safety and effectiveness in pediatric patients had not been established. Also, the revised boxed warning included the statement that cardiac adverse events, including sudden death, had occurred among Propulsid users who were not taking contraindicated drugs. An ODS epidemiologist summarized cardiac adverse event reports from the beginning of Propulsid’s marketing (July 1993) through May 1998. There were 187 reports, including 38 deaths. FDA implemented a medication guide and unit-dose packaging for Propulsid. An ODS epidemiologist worked on a study to evaluate labeling compliance among Propulsid users, which was carried out through ODS’s cooperative agreement program. The study ultimately found that the boxed warning did not significantly deter the use of Propulsid with contraindicated drugs or medical conditions. The sponsor issued a Dear Healthcare Professional letter with information about revisions to the boxed warning. The revisions included two new contraindications and a new drug interaction. Similar revisions were incorporated into the medication guide. An ODS epidemiologist analyzed and summarized the reports of Propulsid users who developed cardiovascular problems, including deaths, in four separate consults. The reports included adult and pediatric patients who took Propulsid with and without contraindicated drugs and medical conditions. The ODS epidemiologist recommended to OND that other contraindications should be added to the label, including one for patients with structural heart defects. The ODS epidemiologist recommended that OND consider several safety actions, including asking the sponsor to conduct a clinical or epidemiological study on the association between Propulsid and cardiac adverse events in its users, and removing Propulsid from the market. ODS and OND staff and the CDER Director met to discuss further options for regulatory actions. It was decided that FDA would hold a public advisory committee meeting to discuss ways to reduce the occurrence of adverse events with Propulsid. The preliminary results of the cooperative agreement study were going to be presented at the advisory committee meeting. FDA announced further revisions to the boxed warning and that a public advisory committee meeting was scheduled for April. The label revision included new recommendations for performing diagnostic tests and a new contraindication for patients with electrolyte disorders. Similar revisions were incorporated into the medication guide. The sponsor issued a Dear Healthcare Professional letter explaining these revisions. FDA announced that the sponsor would withdraw Propulsid from the U.S. market as of July 14, 2000. FDA also announced that its scheduled public advisory committee meeting was cancelled. The sponsor announced that it would make Propulsid available to certain patients through an investigational limited-access program, approved by FDA. An ODS epidemiologist summarized reports of adverse events, including cardiovascular events, among patients enrolled in the limited-access program. The epidemiologist recommended that the availability of Propulsid should not be expanded from the limited-access program to a restricted distribution. The ODS Division Director who reviewed the consult agreed. The drug’s availability was not expanded. In addition to the contact named above, Martin T. Gahart, Assistant Director; Anne Dievler; Pamela Dooley; Cathleen Hamann; and Julian Klazkin made key contributions to this report.

In 2004, several high-profile drug safety cases raised concerns about the Food and Drug Administration's (FDA) ability to manage postmarket drug safety issues. In some cases there have been disagreements within FDA about how to address safety issues. In this report GAO (1) describes FDA's organizational structure and process for postmarket drug safety decision making, (2) assesses the effectiveness of FDA's postmarket drug safety decision-making process, and (3) assesses the steps FDA is taking to improve postmarket drug safety decision making. GAO conducted an organizational review and case studies of four drugs with safety issues: Arava, Baycol, Bextra, and Propulsid. Two organizationally distinct FDA offices, the Office of New Drugs (OND) and the Office of Drug Safety (ODS), are involved in postmarket drug safety activities. OND, which holds responsibility for approving drugs, is involved in safety activities throughout the life cycle of a drug, and it has the decision-making responsibility to take regulatory actions concerning the postmarket safety of drugs. OND works closely with ODS to help it make postmarket decisions. ODS, with a primary focus on postmarket safety, serves primarily as a consultant to OND and does not have independent decision-making responsibility. ODS has been reorganized several times over the years. There has been high turnover of ODS directors in the past 10 years, with eight different directors of the office and its predecessors. In the four drug case studies GAO examined, GAO observed that the postmarket safety decision-making process was complex and iterative. FDA lacks clear and effective processes for making decisions about, and providing management oversight of, postmarket safety issues. The process has been limited by a lack of clarity about how decisions are made and about organizational roles, insufficient oversight by management, and data constraints. GAO observed that there is a lack of criteria for determining what safety actions to take and when to take them. Certain parts of ODS's role in the process are unclear, including ODS's participation in FDA's scientific advisory committee meetings organized by OND. Insufficient communication between ODS and OND has been an ongoing concern and has hindered the decision-making process. ODS does not track information about ongoing postmarket safety issues, including the recommendations that ODS staff make for safety actions. FDA faces data constraints in making postmarket safety decisions. There are weaknesses in the different types of data available to FDA, and FDA lacks authority to require certain studies and has resource limitations for obtaining data. Some of FDA's initiatives, such as the establishment of a Drug Safety Oversight Board, a draft policy on major postmarket decision making, and the identification of new data sources, may improve the postmarket safety decision-making process, but will not address all gaps. FDA's newly created Drug Safety Oversight Board may help provide oversight of important, high-level safety decisions, but it does not address the lack of systematic tracking of ongoing safety issues. Other initiatives, such as FDA's draft policy on major postmarket decisions and regular meetings between OND divisions and ODS, may help improve the clarity and effectiveness of the process, but they are not fully implemented. FDA has not clarified ODS's role in certain scientific advisory committee meetings. FDA's dispute resolution processes for disagreements about postmarket safety decisions have not been used. FDA is taking steps to identify additional data sources, but data constraints remain.

You are an expert at summarizing long articles. Proceed to summarize the following text: Before service or joint sponsors can initiate major defense acquisition programs and begin system development at Milestone (MS) B, they are required by DOD’s acquisition policy to conduct an AOA. The AOA is an analytical study that is intended to compare the operational effectiveness, cost, and risks of a number of alternative potential solutions to address valid needs and shortfalls in operational capability. The basis for conducting an AOA begins when a capability need is validated or approved through the department’s requirements determination process—the Joint Capabilities Integration and Development System (JCIDS) (See fig. 1). A sponsor, usually a military service, submits a capability proposal—called an Initial Capabilities Document (ICD)—through JCIDS, which identifies the existence of a capability gap, the operational risks associated with the gap, and a recommended solution or preferred set of solutions for filling the gap. When a capability proposal is validated, before a major defense acquisition program begins, an AOA is undertaken to compare potential solutions and determine the most promising and cost-effective weapon system to acquire. The AOA is a key input to defining the system capabilities of the major defense acquisition program, which are established in a capability development document (CDD). Most AOAs are sponsored by a single military service, but some may be conducted jointly by more than one service, in which case, the Milestone Decision Authority (MDA) designates a lead service as the sponsor. AOAs are conducted by study teams, the composition of which depends on the service—most of the Army’s AOAs are conducted by the Army’s Training and Doctrine Command Analysis Center, most of the Air Force’s AOAs are conducted by the Air Force’s major commands, such as the Air Combat Command, and most of the Navy’s AOAs are contracted out to federally funded research and development centers and the Navy’s various study centers. Both the Office of the Secretary of Defense (OSD) and the services are responsible for issuing study guidance to scope the AOA, which provide a minimum set of alternatives to analyze and shape the analysis through a series of study questions. Conducting an AOA may take anywhere from a few months to several years and cost from a few hundred thousand to several million dollars depending on its scope and complexity. The final results and recommendations of the AOA are then presented to decision makers, who decide on which alternative to select for program initiation. According to the Air Force’s manual on conducting AOAs, some of the key questions that decision makers need the AOA to answer include: What alternatives provide validated capabilities? Are the alternatives operationally suitable and effective? Can the alternatives be supported? What are the risks (technical, operational, programmatic) for each alternative? What are the life-cycle costs for each alternative? How do the alternatives compare to one another? The Office of the Secretary of Defense, Program Analysis and Evaluation (OSD PA&E), plays a central role in the AOA process because it is responsible for providing initial guidance to the AOA study team, reviewing the proposed AOA study plan, and assessing the completed AOA. In carrying out these functions, OSD PA&E provides a DOD enterprise-level perspective to AOAs and encourages service sponsors to consider all viable concepts to fill a capability need, even if they were not initially considered by the service sponsors, and to assess technical risks and costs of each alternative. The AOA is one of several inputs required for a program’s initiation at MS B, and it is a key element in planning and establishing a sound business case for a weapon system program. We have frequently reported on the importance of using a solid, executable business case before committing resources to a new product development effort. The business case in its simplest form is demonstrated evidence that (1) the warfighter’s needs are valid and that they can best be met with the chosen concept, and (2) the chosen concept can be developed and produced within existing resources—that is, proven technologies, design knowledge, adequate funding, and adequate time to deliver the product when it is needed. The AOA addresses the first point of a business case by providing a foundation for developing and refining the operational requirements for a weapon system program. An AOA also addresses the second point of a business case by providing insight into the technical feasibility and costs of alternatives. By contributing to business cases, AOAs should provide programs with a sound basis for program initiation. Most of the programs we reviewed either did not conduct an AOA or conducted an AOA that focused on a narrow scope of alternatives and did not adequately assess and compare technical and other risks of each alternative. While many factors can affect program cost and schedule outcomes, we found that programs that conducted a limited assessment of alternatives before the start of system development tended to experience poorer outcomes than the programs that conducted more robust AOAs. According to several DOD and program officials, AOAs have often simply validated a concept selected by the sponsor and are not used as intended to make trade offs among performance, cost, and risks to achieve an optimal weapon system concept that satisfies the warfighter’s needs within available resource constraints. Most of the programs we reviewed considered a narrow scope of alternatives to support program start. Ten of the 32 programs did not conduct AOAs and focused on an already selected weapon system solution. Of the 22 programs that had AOAs, 13 of them examined a limited number of alternatives within a single weapon system concept such as helicopters or specific classes of ships, while 9 considered a relatively broad range of alternatives, by assessing many alternatives within a single weapon concept or alternatives across multiple concepts, such as comparing ships to aircraft. We found that the programs that considered a broad range of alternatives tended to have better cost and schedule outcomes than the programs that looked at a narrow scope of alternatives (see table 1). For example, 1 of the 9 programs that examined a broad set of alternatives experienced high cost or schedule growth whereas 8 of the 13 programs that considered only a limited number of alternatives experienced high cost or schedule growth. For various reasons, 10 of the 32 weapon programs we reviewed did not have formal AOAs to support program start (see table 2). For 7 of these programs, it may have been appropriate not to conduct the AOA because the programs involved a planned modernization to an existing weapon system or there was support from other analyses to warrant the chosen concept. This was the case, for example, with the Navy’s Standard Missile 6 (SM-6) program. Because the missile was the next planned increment in a long history of missile development efforts and an AOA had been conducted for the previous standard missile increment, a separate AOA for SM-6 was considered repetitive and waived. The program started development in 2004 and has remained on track with its planned cost and schedule objectives. Similarly, an AOA was not conducted for the Air Force’s Global Positioning System IIIA program because there was a body of analysis available that served the purpose of an AOA and the proposed program was considered a follow-on increment to a multiprogram effort to modernize global positioning system capabilities. Since it started development in 2008, the program has remained on cost and schedule. However, in the other 3 programs that did not have AOAs, the requirements and development effort proved to be more demanding and cost and schedule growth occurred. In the case of the Army’s Sky Warrior Unmanned Aerial System (UAS) program, an Army executive waived the AOA requirement because the Army believed, among other things, that the source selection process would provide an adequate way to compare alternatives. However, when the Air Force and Joint Staff were reviewing the Sky Warrior’s draft requirements and acquisition documentation, they raised concerns that the requirements potentially duplicated capability provided by the Air Force’s Predator UAS. The Army cited the urgent need of battlefield commanders for the capability and gained approval to proceed to source selection. Three years after the Sky Warrior AOA was waived, the Deputy Secretary of Defense directed that the two UAS programs be combined into a single acquisition program to achieve efficiencies in areas such as common development, procurement, and training activities. However, the Army and Air Force have continued to pursue unique systems. In the meantime, the Sky Warrior UAS has experienced a 138 percent increase in total cost and 47-month schedule delay from original plans. By relying on industry-provided information in source selection and not conducting an independent AOA, the Army missed an opportunity to gain a better understanding of the other services’ UAS capabilities, and pursue an acquisition strategy that would have taken advantage of commonalities and used resources more efficiently. Of the 22 programs that conducted AOAs, 13 focused on a limited number of alternatives within a single weapon system concept while 9 focused on many alternatives (see table 3). According to DOD and service officials, the scope of an AOA can be different for each program and dependent upon many factors, including the nature of the capability need, the proposed time frame for fielding the capability, and the type of program being pursued–whether it is a new development start, a modification of a commercially available system, or an upgrade to an existing system. As a result, AOAs that focus on a limited number of alternatives within a single weapon system concept may be appropriate in some cases. For instance, when the capability need was defined in terms of upgrading an existing weapon system, AOAs focused on refining a single platform concept and its system-level specifications and attributes. The AOA for the Army’s Apache Block III program is an example of an appropriately, but narrowly scoped AOA. It examined various block upgrade options for the existing Longbow Apache helicopter to improve interoperability and other shortcomings in the helicopter. The program started development in 2006 and has remained on track with its planned cost and schedule objectives. In a few of the other AOAs that had a narrow scope, the capability need involved the replacement of an aging weapon system and the AOAs presumed that the concept of the aging weapon system was the appropriate starting point for analysis rather than examining whether other concepts could also meet the need. For example, the AOA for the Army’s Armed Reconnaissance Helicopter (ARH) program, which was intended to replace the aging Kiowa helicopter fleet and improve attack and reconnaissance capabilities, examined two options: improving the legacy Kiowa helicopter or procuring nondevelopmental helicopters. The AOA did not explore other potential solutions, such as developing unmanned aerial systems, increasing the purchase of existing attack helicopters, increasing the purchase of other reconnaissance assets, or relying on a mix of solutions. After 3 years of development, the ARH program’s research and development costs increased from about $360 million to $940 million. A Center for Naval Analyses report commissioned by the Army after the ARH program began having execution problems identified several factors that contributed to the significant cost growth, including questionable requirements, an aggressive schedule, limited oversight, and a perceived preference for one helicopter model. As a result of the cost growth and other problems, DOD cancelled the program in 2008 after determining that at least one alternative could provide equal or greater capability at less cost. Most of the programs (7 of 9) that examined a broad scope of alternatives have tracked well with their planned cost and schedule targets. The AOA for the Navy’s P-8A Multi-mission Maritime Aircraft, which is a program designed to replace the P-3C aircraft and provide maritime patrol and reconnaissance for the Navy, explored multiple concepts and many alternatives in response to study guidance issued by OSD PA&E, including several nonmanned aircraft alternatives such as submarines, helicopters, and UAS. The AOA concluded that a manned aircraft would still be the best option to replace the P-3C. However, the AOA also helped the Navy to recognize that a UAS could perform some of the maritime patrol missions as an adjunct platform, eventually leading to the Broad Area Maritime Surveillance (BAMS) UAS AOA and program. The P-8A program has not experienced cost growth over its 4 years of development and remains on schedule. Similarly, the Joint Land Attack Cruise Missile Defense Elevated Netted Sensor System (JLENS), which is designed to provide over the horizon detecting and tracking of land attack cruise missile and other targets, had an AOA that explored alternatives across multiple concepts, including aerostat sensors, sea-based sensors, and nonaerostat elevated sensors. The Army chose the aerostat concept and has developed an incremental program that has experienced low cost and schedule growth since starting development in 2005. DOD acquisition policy requires that AOAs assess the technical risk of alternatives, but it does not provide criteria and guidance for how and to what extent technical risks should be addressed and it does not specify that other types of risks should be assessed. Risks are important to assess because there may be technical, programmatic, or operational uncertainties associated with different alternatives that should be considered in determining the best weapon system approach. For example, it may be the case that one alternative is more effective than another in meeting a capability need but has more technical or other risks that may make the alternative infeasible to develop. Many of the AOAs we reviewed (12 of the 22) conducted limited assessments of the risks of each alternative presented (see table 4). Some AOAs we reviewed did not examine risks at all, focusing only on the operational effectiveness and costs of alternatives. Other AOAs had relatively limited risk assessments. For example, several AOAs did not discuss integration risks even though they were examining modified commercial systems that required the integration of subsystems or equipment packages, while other AOAs did not examine the schedule risks of the various alternatives, despite accelerated schedules and fielding dates for the programs. We found that programs with AOAs that conducted a more comprehensive assessment of risks tended to have better cost and schedule outcomes than those that did not (see table 5). AOAs that do not examine risks could provide overly optimistic assessments of alternatives, which do not provide for sound business case decisions. Comparing risks across alternatives is especially critical for new development programs, which rely on breakthrough technologies and assume that technology will be achieved as planned. Of the 22 programs that had AOAs, 8 were new development starts involving technology development. Of the 8 new development starts, only 4 had AOAs that performed adequate risk analyses. The other 4 AOAs did not assess technical, integration, or other risks as criteria for comparing the alternatives or neglected to analyze these risks altogether. For example, the AOA for the Future Combat Systems (FCS), one of most complex and technically challenging programs ever undertaken according to the Army, assessed the technical risks of each of the new development concepts for FCS, but did not assess and compare the risks with those of the other alternatives. The AOA concluded that the new FCS development option was more costly but more operationally effective than the baseline and improved baseline alternatives. By not comparing the risks of the alternatives, the FCS AOA missed an opportunity to provide the Army with a meaningful trade off among operational effectiveness, costs, and risks. Now, after 6 years of development, some of the critical technologies for the FCS program are still immature. The latest estimates for the program show that development costs have grown 38 percent or about $8 billion, and the fielding date has been delayed 57 months. As a result, DOD recently proposed canceling the FCS acquisition program. Also, the AOA for the Army’s Warfighter Information Network-Tactical (WIN-T) program, which involves development of new on-the-move networking capabilities, did not address technical or programmatic risks. Army officials stated that WIN-T was largely based on a concept that did not have well-defined requirements of the proposed network and operations, and the WIN-T development alternative in the AOA was based on preliminary design concepts, from two competing contractors, which were blended together by the Army. The AOA did not take these risks into account and concluded that the new WIN-T alternative was the most operational and cost-effective solution available. In March of 2007, the WIN-T program had a Nunn McCurdy cost breach (25 percent or more unit cost growth) and was subsequently restructured by DOD. Insufficient technical readiness was cited as one of the key factors leading to the cost breach. Assessing risks is also important for programs based on commercial products that require significant modifications. Based upon a recent Defense Science Board report on buying commercially-based defense systems, programs that do not assess the systems engineering and programmatic risks of alternatives do not understand the true costs associated with militarizing commercial platforms or integrating various commercial components. As a result of this incomplete understanding of inherent technical and integration risks of programs, DOD fails to fully take advantage of efficiencies and cost savings from commercially available technologies. Several of the programs we reviewed that involved modified commercial products had AOAs with weak risk assessments. For example, the AOA for the Marine Corps’ replacement for the Presidential Helicopter, VH-71, failed to assess the technical, integration, and schedule risks associated with its three alternatives. It instead compared alternatives based on costs and performance attributes, such as cabin size, deployability, and performance. One program official stated that the focus of the VH-71 AOA was to merely identify platforms that had the best probability of meeting the requirements. According to a statement by the Secretary of Defense, the program’s costs have nearly doubled, increasing from $6.5 billion to $13 billion, and the schedule has fallen behind by several years. DOD recently cancelled the program. The Defense Science Board, which assessed the VH-71 program, concluded that some of the program’s requirements plainly exceeded the limits of the available technology and schedule. We identified several factors that may have limited the effectiveness of AOAs and their ability to identify the most promising option and contribute to a sound business case for starting a weapon system program: (1) service sponsors lock into a solution early on when a capability need is first validated through DOD’s requirements process and before an AOA is conducted; (2) AOAs are conducted under compressed time frames in order to meet a planned milestone review or fielding date and their results come too late to inform key trade off decisions; and (3) DOD does not always provide guidance for conducting individual AOAs. The AOAs with one or more of these factors tended to be AOAs that had a limited scope and assessment of risks (see table 6). In developing a capability proposal, sponsors not only justify the need to fill an existing capability gap, but also conduct an assessment—called a functional solutions analysis (FSA)—to identify a potential concept or set of solutions to fill the gap. The identification of a potential concept is intended to provide a general approach for addressing the gap and set the stage for a more in-depth assessment of alternatives to be conducted in the AOA. In four cases, AOAs were limited because program sponsors had decided on a preferred solution prior to the AOA, when a capability need was first proposed through the department’s requirements determination process. Approval of the capability proposal then led to a narrowly scoped AOA that supported or refined the preferred solution. According to DOD officials, the analysis supporting a capability proposal is generally conducted by the operational requirements community within a military service and contains only rudimentary assessments of the costs and technical feasibility of the solutions identified. With the Armed Reconnaissance Helicopter program, for example, the Army proposed acquiring an armed reconnaissance helicopter after the termination of the Comanche helicopter program, which had experienced significant cost and schedule problems. While the initial capability proposal submitted to JCIDS for the ARH considered nonhelicopter concepts, such as unmanned aerial systems, the Army concluded that a modified version of an existing armed reconnaissance helicopter was the preferred solution. According to Army officials, the modified helicopter solution was pushed in part because there was a desire to field a system within a relatively short time frame, a similar helicopter variant was in use by the special operations forces, and funding available from the terminated Comanche helicopter program needed to be used quickly. Because the Army effectively locked into a solution in this early stage, the AOA primarily focused on comparing the performance and costs of existing helicopter alternatives (see fig. 2). Armed Reconnaissance Helicopter (ARH) Similarly, we have previously reported that the Navy began the Littoral Combat Ship (LCS) program before fully examining alternatives. Beginning in 1998, the Navy conducted a series of wargames and studies to test new concepts for surface combatant ships that could address known threats in littoral areas. Following these efforts, the Navy began an analysis of multiple concepts study in 2002 to further refine the Navy’s preferred solution—a new warship along the lines of LCS. Concurrently, the Navy established an LCS program office and issued a request for proposal to industry to submit LCS concepts. The Office of the Secretary of Defense and the Joint Staff were concerned that the Navy’s focus on a single solution did not adequately consider other ways to address littoral capability gaps. Based on these concerns in late 2003, the Navy was directed to consider alternatives to surface ships such as submarines and manned aircrafts in the ongoing analysis of multiple concepts. The analysis, which was led by the Naval Surface Warfare Center, compared nonship alternatives to LCS-concept ships and concluded that the LCS concept remained the best solution to provide capabilities in the littorals. However, the estimated costs for the various LCS ship alternatives developed in the analysis far exceeded the $220 million (fiscal year 2005 dollars) target that the Navy had set for the program. The Navy stated that because the cost estimates were rough-order-of-magnitude estimates and were based on preliminary concept designs, those costs were not used to make cost decisions for LCS. However, since starting development in 2004, the LCS program has experienced a 151 percent growth in development costs and its costs are closer to the cost estimates from the analysis of multiple concepts than the target cost set by the Navy. DOD and service officials responsible for conducting AOAs indicated that often capability requirements are proposed that are so specific that they effectively eliminate all but the service sponsor’s preferred concepts instead of considering other alternatives. For example, in recent proposals to address a global strike capability need, two components of the Air Force—the Air Combat Command and Space Command—defined initial performance requirements that required two different approaches. The Air Force Air Combat Command defined the requirement as the ability to strike a target within 1 day, which meant that bombers, which fall under the Air Force Air Combat Command’s portfolio, could address the gap. However, the Air Force Space Command defined the requirement in the capability proposal as the ability to strike a target within a certain number of hours, which meant only missiles, which fall under the Air Force Space Command, could fulfill the need. Although OSD PA&E attempted to get the Air Force to consider both bombers and missiles in the same analysis, the major commands argued that their requirements were different enough to require two separate analyses. As a result, the Air Force Air Combat Command initiated the Next Generation Long-Range Strike AOA for a new bomber, while the Air Force Space Command initiated the Prompt Global Strike AOA separately. Similarly, for the ARH AOA, the Army called for very specific deployability requirements. These requirements included the ability to fit two helicopters into a C-130 aircraft and for the helicopter to be “fightable” within 15 minutes of arrival. The Center for Naval Analyses, in its report on the factors that led to significant cost and schedule growth in the ARH program, noted that it was not clear whether these requirements were needed to fulfill the operational gap. Furthermore, the Center for Naval Analyses noted that due to the stringent deployability requirements, the program had effectively eliminated other potentially feasible and cost- effective alternatives, such as twin-engine helicopters, and limited the analysis to single engine alternatives. Many AOAs are also conducted under compressed time frames—6 months or less—or concurrently with other key activities that are required for program initiation, in order to meet a planned milestone decision or weapon system fielding date. Consequently, AOAs may not have enough time to assess a broad range of alternatives and their risks, or be completed too late in the process to inform effective trade discussions prior to beginning development. In 9 of the 22 programs we reviewed that had AOAs, the timing of the AOAs was compressed or concurrent with other planning activities. In 7 of these 9 programs, the AOAs were limited. For instance, the AOA for the Future Combat Systems program was a complex undertaking; however, according to the authors of the AOA, it was conducted in half the time that a less complex AOA would typically be conducted. In addition, due to schedule constraints imposed to meet a preset milestone review date, the AOA was performed concurrently with concept development, requirements determination, and system definition documents. Ultimately, the Future Combat Systems AOA was completed 1 month after the operational requirements were validated and the same month that the program was approved to begin system development, which precluded trade off discussions among cost, performance, and risks from taking place. In addition, although AOAs are required to be done for a Milestone B decision, the Army’s Warfighter Information Network-Tactical (WIN-T) program was approved to begin without one. The milestone decision authority for the program waived the AOA requirement until a later date. The WIN-T AOA was completed approximately 16 months after the program started (see fig. 3). While DOD acquisition policy requires that major defense acquisition programs conduct an AOA prior to program initiation at Milestone B, the policy does not specify criteria or guidance for how AOAs should be conducted. According to the policy, OSD PA&E is to provide guidance to programs prior to, during, and after their AOA has been completed. The guidance is intended to ensure that the services are examining a sufficient number of alternatives that take into consideration joint plans and interoperability, but to also ensure that AOAs are analyzing key risks such as technology, cost, and schedule. In 9 of the 22 programs we reviewed that had AOAs, OSD PA&E either provided late guidance or did not provide formal guidance when AOAs were started. In 6 of these 9 programs, the AOAs were limited. For instance, OSD PA&E did not provide guidance for the AOA that supported initiation of the VH-71 Presidential Helicopter program. In this AOA, the service had very specific performance requirements that narrowed the scope of the alternatives examined. In addition, the service conducted the AOA under a compressed schedule to meet a previously planned milestone, which may not have allowed for robust analyses of technology and integration risks. These factors most likely played a part in the AOA examining only 3 alternatives and eliminating 19 other alternatives early on. DOD officials have also stated that when OSD PA&E guidance is provided, it is sometimes late. For example, the LCS program AOA had been underway for about a year before OSD PA&E provided guidance to the Navy. Officials also explained that guidance is often informal, sometimes provided over the telephone, or if written, remains in draft form for long periods, preventing the services from formulating and having analysis plans approved. However, according to PA&E officials, sometimes guidance is never formalized or written because the services do not have a validated capability proposal or do not agree with the scope and direction provided. By not providing timely formal guidance before AOAs are started, DOD is missing an opportunity to ensure AOAs examine an appropriate scope of alternatives and conduct robust risk assessments. In December 2008, DOD revised its acquisition policy and introduced several initiatives based in part on direction from Congress that could provide a better foundation for establishing knowledge-based business cases for initiating weapon system programs. The revised policy strengthens the front end of the acquisition process by requiring key systems engineering activities and early prototyping, and establishing required milestone reviews to assess whether programs are acquiring the requisite knowledge as they move towards the start of system development. In addition, in March 2009, DOD revised its policy governing the JCIDS process, to help streamline the determination of capability needs and improve the integration between JCIDS and the acquisition process. In revising these policies, DOD elevated the role of AOAs in determining weapon system concepts and strengthened how they are to be implemented. Improving the effectiveness of AOAs will depend on DOD’s ability to ensure that its policy changes are consistently implemented and reflected in decisions on individual weapon system programs. We have reported in the past that inconsistent implementation of existing policies has hindered DOD’s efforts to plan and execute programs effectively. The key revisions to the policies that impact AOAs are summarized in table 7. DOD’s revised policies, for example, may help mitigate service sponsors from locking into a solution too early in the process by eliminating the functional solutions analysis in a capability proposal, which identified a preferred solution and influenced the scope of alternatives in an AOA. In the revision, the capability proposal will only identify a broad category of the type of materiel solution that should be considered; for example, whether it should be an incremental or transformational development approach. The AOA will then assess potential solutions as determined by the milestone decision authority and within the broad category recommended. This change integrates essentially what had been two separate trade space analyses into one analysis. In doing so, it sets up a better opportunity for a more robust analysis of alternatives. DOD’s revised acquisition policy also now imposes early milestone reviews which should help resolve the timing issues we found with several AOAs in the past. Under the previous policy, AOAs were required for program initiation at Milestone B, which may have led to some AOAs being completed just prior or even after program initiation. Under the revised policy, AOAs are generally required earlier in the process. Furthermore, DOD PA&E is required to be involved much earlier in the process by providing requisite guidance at the Materiel Development Decision as well as approving AOA study plans before an AOA is started. These additional reviews with required guidance earlier in the acquisition process should help mitigate conducting AOAs under compressed time frames. However, while the revised policy strengthens the front end of the acquisition process, the AOA is still constrained to a given set of requirements that may be unfeasible and could lead to unsuccessful program outcomes, such as with the Armed Reconnaissance Helicopter and Future Combat Systems. With increased demand and competition for funding, it is critical that DOD weapon system programs provide the best value to the warfighter and to the taxpayer. Yet in too many cases, DOD programs do not accomplish this and experience significant cost, schedule, and performance problems. Many of these problems could be avoided if programs started with sound, knowledge-based business cases. A key to developing such business cases is having effective AOAs that analyze and compare the performance, costs, and risks of competing solutions, and identify the most promising weapon system solution to acquire. The majority of AOAs we reviewed were limited and thus did not sufficiently inform the business case for starting new programs. DOD’s recent policy revisions are positive steps that could, if implemented properly, provide a better foundation for conducting AOAs and establishing sound business cases for starting acquisition programs. The revisions, for example, should help ensure that DOD direction is provided before AOAs are started and that AOAs are conducted at an early point in the acquisition process where their results can inform key decisions affecting program initiation. However, these policy changes alone will not be sufficient to ensure AOAs achieve their intended objectives. Unless mechanisms are established to ensure policy is followed, specific guidance and criteria are developed for how AOAs should be conducted, and AOAs are completed before program requirements are set, AOAs will not provide effective in-depth analyses and DOD will continue to struggle to make informed trade offs and start executable programs. To further strengthen the effectiveness of AOAs in helping DOD establish sound business cases for major weapon programs, we recommend that the Secretary of Defense take the two following actions: Establish specific criteria and guidance for how AOAs should be conducted, including how technical and other programmatic risks should be assessed and compared. Ensure that AOAs are completed and approved before program requirements—key performance parameters and attributes—are finalized and approved. In written comments on a draft of this report, DOD concurred with our recommendations. DOD’s response is reprinted in appendix II. DOD stated in response to our first recommendation that it had made significant progress in establishing criteria and guidance for conducting AOAs, and in defining the relationship/role of the AOA in both the acquisition and capabilities determination processes. DOD indicated that the role of the AOA has been defined in recently revised acquisition policy (Department of Defense Instruction 5000.02, dated Dec. 2, 2008) and capabilities policy (Chairman, Joint Chiefs of Staff Instruction 3170.01G, dated Mar. 1, 2009). While we agree that promising improvements have been made in revising the policies, they do not go far enough in providing specific criteria and guidance for how AOAs should be conducted. Without such direction, there is a risk that AOAs will continue to provide limited assessments of weapon system options, and DOD will initiate programs without sound, executable business cases. In concurring with our second recommendation—that AOAs be completed before requirements are finalized—DOD pointed out that under its revised acquisition policy, AOAs are now required to be completed before the formal initiation of an acquisition program. We agree that the policy should help improve the timing of AOAs so that they are conducted at an early point in the acquisition process and provide an opportunity for trade offs to take place. However, establishing and approving requirements is another key step required for initiating an acquisition program and this is done under a separate process—the Joint Capabilities Integration and Development System. We believe that DOD needs to take steps to ensure that program requirements are not finalized before the AOA is completed and that the results of the AOA are used to inform the setting of requirements. DOD also provided technical comments, which we incorporated where appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Defense; the Secretaries of the Air Force, Army, and Navy; and interested congressional committees. This report will also be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions about this report or need additional information, please contact me at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. To assess whether analyses of alternatives (AOA) have been effective in identifying the most promising options and providing a sound rationale for program initiation, we analyzed data and documents for Acquisition Category (ACAT) I programs that have been initiated between fiscal years (FY) 2003 and 2008 and were in the Department of Defense’s (DOD) FY 2008 Major Defense Acquisition Program (MDAP) list. The relevant policy that governs the AOA process for these programs, DOD Instruction 5000.2 (Operation of the Defense Acquisition System), was revised by DOD in May of 2003 and revised again in December of 2008 to become DOD Instruction 5000.02. As a result, we used the May 2003 DOD Instruction to assess the AOAs. Using DOD’s FY 2008 MDAP list and Milestone B dates provided by DOD, we identified 34 ACAT I programs that had been initiated, or started system development and production, between 2003 and 2008. Programs that had been initiated between 2003 and 2008 but were not in the FY 2008 MDAP list, such as programs terminated before 2008, were not included in the analysis. We collected AOA full reports, executive summaries, guidance documents, and study plans when available, from program officials. Program officials also responded to data collection surveys we distributed through service action officers to gather information about their programs’ AOA, guidance, capability documents, and how the AOA led to changes to the program concept. An official for the Cobra Judy Replacement program responded to the survey, but officials did not respond to several phone calls and e-mails requesting additional documentation, so this program was not included in the analysis. In addition, because the Combat Search and Rescue Replacement Vehicle (CSAR-X) program did not start development. Of the remaining 32 programs, 10 programs did not have AOAs. Whether a program had an AOA or not was determined through analysis of program documents and survey responses. For the 22 programs that had AOAs, program documents and survey data were reviewed to determine the scope of the AOAs and whether the AOA assessed technology and integration risks. An AOA’s scope was assessed to be narrow if the AOA examined 2 to 5 alternatives within a single concept and assessed to be broad if the AOA examined 8 to 26 alternatives within a single concept or multiple concepts. An AOA was assessed to have not completed any risk analyses for its alternatives when it made no mention of risks in the entire AOA report; assessed to be limited if the risk analyses were not completed for all of the alternatives, if integration risks were not examined, or if the risk analyses were not emphasized in the conclusions and recommendations; and assessed to be adequate if technical and integration risks were analyzed and compared for all of the alternatives. We followed up with some program officials through phone calls and e-mails for additional information. To assess how the quality of AOAs correlates with programs’ outcomes, we also collected program and cost data from DOD’s Selected Acquisition Reports and GAO’s Annual Assessments of Selected Weapon Programs. Programs with less than 10 percent cost growth were considered to have low cost growth, programs with 10 to 24 percent cost growth were considered to have moderate cost growth, and programs with 25 percent or more cost growth were considered to have high cost growth. Programs with less than 7 months of delay in initial operational capability or acquisition cycles were considered to have low schedule growth, programs with 7 to12 months of delay in initial operational capability or acquisition cycles were considered to have moderate schedule growth, and programs with greater than 12 months of delay in initial operational capability or acquisition cycles were considered to have high schedule growth. The 32 programs we reviewed accounted for one third of the 96 programs in DOD’s 2008 Major Defense Acquisition Program portfolio and approximately 22 percent of the total planned funding commitments. To identify the factors that have affected the scope and quality of AOAs, we reviewed program documents, analyzed data from the survey, and reviewed DOD policy. We reviewed Initial Capabilities Documents (ICD) gathered from the Joint Staff’s Knowledge Management/Decision Support tool and AOAs to determine how preferred solutions were carried from the requirements-generation process to the acquisition process. To determine how program schedules affected AOA scope and methodology, we analyzed AOA documents, program milestone dates, and AOA completion dates. To assess how DOD study guidance affected the quality of AOAs, we analyzed whether DOD provided guidance through survey responses and followed up with DOD to confirm those responses. We also reviewed regulations and policies issued by the Joint Staff, the military services, and DOD, as well as other DOD-produced documentation related to AOAs. To determine what additional actions may be needed to address the limitations in the AOA process, we analyzed relevant DOD policies and federal statutes, including DOD Instruction 5000.2 (May 2003), DOD Instruction 5000.02 (December 2008), the Chairman of the Joint Chiefs of Staff Manual (CJCSM) 3170.01C (May 2007), CJCSM 3170.01 (March 2009), and Section 2366a of Title 10, United States Code. In researching all three objectives, we interviewed officials from the U.S. Army G3; U.S. Army Training and Doctrine Command Analysis Center (TRAC); U.S. Army Capabilities Integration Center (ARCIC); U.S. Air Force Office of Aerospace Studies; Office of the Assistant Secretary for Acquisition, Deputy Assistant Secretary of the Air Force for Science, Technology, and Engineering; Air Force Acquisitions - Global Reach; Deputy Assistant Secretary of the Navy, Acquisition and Logistics Management (A&LM); Deputy Directorate for Antiterrorism and Homeland Defense, J-34, Joint Staff; Office of the Secretary of Defense, Acquisition, Technology & Logistics; Office of the Secretary of Defense, Program Analysis and Evaluation; Office of the Deputy Under Secretary of Defense for Science and Technology (Acquisition and Technology)/Systems and Software Engineering; Armed Reconnaissance Helicopter Product Manager’s Office; U.S. Army Aviation Center; Deputy Assistant Secretary of the Navy, Ship Programs; Littoral Combat Ship Program Office; Marine Corps Combat Development Command; Office of the Chief of Naval Operations, Deputy Chief of Naval Operations, Integration of Capabilities and Resources (N8), Director of Warfare Integration (N8F), Director of Surface Warfare (N86); Air Combat Command/A8I (Requirements), Secretary of the Air Force Technical and Analytical Support; and the Naval Surface Warfare Center, Dahlgren. We conducted this performance audit from June 2008 to September 2009 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We surveyed 32 major defense acquisition programs on their analyses of alternatives process and outputs. Ten of the programs did not conduct AOAs. The following table provides characteristics of the 22 programs that conducted AOAs. In addition to the contact named above, the following individuals made key contributions to this report: John Oppenheim (Assistant Director), Martin G. Campbell, James Kim, John Krump, Claire Li, Guisseli Reyes- Turnell, and Tatiana Winger.

Department of Defense (DOD) weapon programs often experience significant cost and schedule problems because they are allowed to start with too many technical unknowns and not enough knowledge about the development and production risks they entail. GAO was asked to review the department's Analysis of Alternatives (AOA) process--a key first step in the acquisition process intended to assess the operational effectiveness, costs, and risks of alternative weapon system solutions for addressing a validated warfighting need. This report (1) examines whether AOAs have been effective in identifying the most promising options and providing a sound rationale for weapon program initiation, (2) determines what factors have affected the scope and quality of AOAs, and (3) assesses whether recent DOD policy changes will enhance the effectiveness of AOAs. To meet these objectives, GAO efforts included collecting information on AOAs from 32 major defense acquisition programs, reviewing guidance and other documents, and interviewing subject matter experts. Although an AOA is just one of several inputs required to initiate a weapon system program, a robust AOA can be a key element to ensure that new programs have a sound, executable business case. Many of the AOAs that GAO reviewed did not effectively consider a broad range of alternatives for addressing a warfighting need or assess technical and other risks associated with each alternative. For example, the AOA for the Future Combat System program, one of DOD's large and most complex development efforts, analyzed the operational performance and cost of its alternatives but failed to compare the technical feasibility and risks, assuming that the technologies would perform as forecasted. Without a sufficient comparison of alternatives and focus on technical and other risks, AOAs may identify solutions that are not feasible and decision makers may approve programs based on limited knowledge. While many factors can affect cost and schedule outcomes, we found that programs that had a limited assessment of alternatives tended to have poorer outcomes than those that had more robust AOAs. The narrow scope and limited risk analyses in AOAs can be attributed in part to program sponsors choosing a solution too early in the process, the compressed timeframes that AOAs are conducted under, and the lack of guidance for conducting AOAs. While AOAs are supposed to provide a reliable and objective assessment of viable weapon solutions, we found that service sponsors sometimes identify a preferred solution or a narrow range of solutions early on, before an AOA is conducted. The timing of AOAs has also been problematic. Some AOAs are conducted under compressed timeframes in order to meet a planned milestone or weapon system fielding date and are conducted concurrently with other key activities required to become a program of record. This can short-change a comprehensive assessment of risks and preclude effective cost, schedule, and performance trade offs from taking place prior to beginning development. Furthermore, while DOD has an opportunity to influence the scope and quality of AOAs, it has not always provided guidance for conducting individual AOAs. Recognizing the need for more discipline in weapon systems acquisition, DOD recently revised its overall acquisition and requirements policies. If implemented properly, the revised policies could provide a better foundation for planning and starting new programs with sound, knowledge-based business cases. Included in the revised acquisition policy are several mechanisms to improve the AOA process. For example, the policy revisions should help ensure that DOD direction is provided before AOAs are started and that they are conducted at an early point in the acquisition process where their results can inform decisions affecting program initiation. While these policy changes are promising, DOD must ensure that they are consistently implemented and reflected in decisions on individual programs. Furthermore, more specific criteria and guidance for how AOAs should be conducted may need to be developed to ensure they meet their intended objectives and provide an in-depth assessment of alternatives.

You are an expert at summarizing long articles. Proceed to summarize the following text: The four major federal land management agencies administer approximately 628 million acres, or about 28 percent of the land area in the United States. These public lands are mostly in Alaska and the 11 western states: Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming. Alaska is not currently participating in the FLTFA program because of its priority to settle Alaska Native land claims. BLM is authorized to sell or exchange land identified in its land use plans; the other three land management agencies have limited or no sales authority. Once BLM has sold land, FLTFA directs BLM to deposit the revenue generated from these sales into a special U.S. Treasury account created by FLTFA. However, the act limits the revenue deposited into this account to that generated from sales or exchanges of public lands identified for disposal in a land use plan in effect as of July 25, 2000—the date of FLTFA’s enactment. Money in the new account is available to BLM and the other three agencies to purchase inholdings, and in some cases, land adjacent to federally designated areas that contain exceptional resources. The federal land management agencies have two methods for identifying land to acquire under FLTFA. First, the agencies can nominate parcels through a process laid out in state-level implementation agreements that were developed under the direction of a national memorandum of understanding (MOU). Second, the Secretaries can directly use a portion of FLTFA revenue to acquire specific parcels of land at their own discretion. The national MOU laid out the expectation that most acquisitions would occur through the state-level process. FLTFA places several restrictions on using funds from the new U.S. Treasury account. Among other things, FLTFA requires that (1) no more than 20 percent of the revenue can be used for BLM’s administrative and other activities necessary to carry out the land disposal program; (2) of the amount not spent on administrative expenses, at least 80 percent must be expended in the state in which the funds were generated; and (3) at least 80 percent of FLTFA revenue required to be spent on land acquisitions within a state must be used to acquire inholdings (as opposed to adjacent land) within that state. In addition, the national MOU sets the allocation of funds from the FLTFA account for each agency—60 percent for BLM, 20 percent for the Forest Service, and 10 percent each for the Fish and Wildlife Service and the Park Service, but the Secretaries may vary from these allocations by mutual agreement. At the time of our review, BLM had raised $95.7 million in revenue, mostly from selling 16,659 acres. As of May 2007, about 92 percent of the revenue raised, or $88 million, came from land sales in Nevada. Revenue grew slowly during the first years of the program and peaked in fiscal year 2006, when a total of $71.1 million was generated. BLM’s Nevada offices accounted for the lion’s share of the sales because (1) demand for land to develop had been high in rapidly expanding population centers such as Las Vegas, (2) BLM had a high percentage of land in proximity to these centers, and (3) BLM had experience selling land under another federal land sales program authorized for southern Nevada. During the period we reviewed, BLM offices covering three other states—New Mexico, Oregon, and Washington—had raised over $1 million each, and the remaining seven BLM state offices—Arizona, California, Colorado, Idaho, Montana, Utah, and Wyoming—had each raised less than $1 million. Most BLM field offices had not generated revenue under FLTFA. As of August 2009, BLM reported raising a total of $113.4 million in revenue for the FLTFA account from the sale of about 29,400 acres. According to these revised BLM data, Nevada still accounted for the majority of FLTFA sales revenues—about $88 million, or 78 percent of the total revenue. BLM faces several challenges to raising revenue through future FLTFA sales, according to officials in the 10 BLM state offices and 18 BLM field offices we interviewed for our 2008 report. Many of these challenges are likely to continue if FLTFA is reauthorized. The following lists, in order of most frequently cited, the challenges officials identified and provides examples: The availability of knowledgeable realty staff to conduct the sales. BLM staff said realty staff must address higher priority work before land sales. For example, Colorado BLM staff said that processing rights-of-way for energy pipelines takes a huge amount of realty staff time, 100 percent in some field offices, and poses one of the top challenges to carrying out FLTFA sales in Colorado. In Idaho, staff also cited the lack of realty staffing, which was down 40 percent from 10 years ago. Time, cost, and complexity of the sales process. Much preparation must be completed before a property can be sold. For example, several offices cited the cost and length of the process to ensure that a sale complies with environmental laws and regulations. In addition, obtaining clearances from experts on cultural and natural resources on a proposed sale can be time-consuming. External factors. BLM officials cited such factors such as public opposition to a sale, market conditions, or lack of political support as challenges. For example, Colorado BLM officials said that they have faced strong local opposition to sales, and the El Centro Field Office staff in California cited the lack of demand for the land from buyers as a challenge. Program and legal restrictions. The Arizona State Office staff and the Elko, Nevada Field Office staff cited the sunset date of FLTFA, less than 3 years away at the time of our review, as a challenge to the disposal of land under FLTFA because the sunset date might not allow enough time to complete many more sales. Other offices said the MOU provision requiring a portion of the land sale proceeds to be used by the three other agencies reduces BLM’s incentive to conduct land sales because BLM keeps only 60 percent of the revenue. Another challenge, especially in Nevada, has been the enactment of land bills for Lincoln and White Pine counties. In total, BLM staff estimated that, once mandated land use plan amendments were completed, these two acts would result in the removal of about 148,000 acres from FLTFA eligibility. Land use planning. Some offices cited problems with the land use plans. For example, the Idaho Falls District Office staff said that specific land for sale is hard to identify in old land use plans. Nevada’s Elko Field Office staff said that some lands that could be offered for sale were not available because they were not designated in the land use plan at the time of FLTFA’s enactment. We identified two additional issues hampering land sales activity under FLTFA. First, while BLM had identified land for sale in its land use plans, it had not made the sale of this land a priority during the first 7 years of the program. Furthermore, BLM had not set goals for sales or developed a sales implementation strategy. Second, some of the additional land BLM had identified for sale since FLTFA was enacted would not generate revenue for acquisitions because the act only allows the deposit of revenue from the sale of lands identified for disposal on or before the date of the act. At the time of our review, BLM had reported that the four land management agencies had spent $13.3 million of the $95.7 million in the FLTFA account. More specifically: The four agencies spent $10.1 million to acquire nine parcels totaling 3,381 acres in seven states—Arizona, California, Idaho, Montana, New Mexico, Oregon, and Wyoming. BLM spent $3.2 million for administrative expenses between 2000 and 2007 to conduct FLTFA-eligible sales, primarily in Nevada. The agencies acquired these lands between August 2007 and January 2008—more than 7 years after FLTFA was enacted. These acquisitions were initiated using the Secretaries’ discretion, and most had been identified but not funded for purchase under another land acquisition program. As of October 2007, no land had been purchased through the state-level interagency nomination process that was established by the national MOU and state agreements. Acquisitions had not yet occurred under the state-level process because it took 6 years to complete the interagency agreements needed to implement the program and because relatively little revenue was available for acquisitions outside of Nevada, owing to FLTFA requirements. As of November 2009, BLM reported the following: The Secretaries had approved $66.8 million for the acquisition of 39 parcels since FLTFA’s enactment in 2000. Of the $66.8 million, agencies spent a total of about $43.8 million to acquire 28 parcels totaling 16,738 acres and the remainder of the approved acquisitions was being processed. $48.6 million of the $66.8 million in acquisitions for 22 parcels had been nominated through the state-level interagency process rather than through Secretarial discretion. Of the $48.6 million nominated through the state- level process, the agencies have acquired 12 parcels with $24.6 million in FLTFA funding. $5.1 million has been spent on FLTFA administrative expenses to conduct land sales overall. BLM state and field officials we interviewed for our 2008 report cited several challenges to completing additional acquisitions under FLTFA. Many of these challenges are likely to continue if FLTFA is reauthorized. The following lists, in order of most frequently cited, the challenges officials identified, and provides examples of these challenges. Time, cost, and complexity of the land acquisition process. To complete an acquisition under FLTFA, four agencies must work together to identify, nominate, and rank proposed acquisitions, which must then be approved by the two Secretaries. Officials at two field offices estimated the acquisition process took about 2-1/2 to 3 years. BLM officials from the Wyoming State Office and the Las Cruces, New Mexico, Field Office said that, with this length of time, BLM must either identify a very committed seller willing to wait to complete an acquisition or obtain the assistance of a third party in completing an acquisition. In terms of cost, some offices noted that they did not have the funding required to complete all of the work involved to prepare land acquisitions. In terms of complexity, a Utah State Office official said BLM has more control over the process for submitting land acquisitions under the Land and Water Conservation Fund than FLTFA because FLTFA requires four agencies in two departments to coordinate their efforts. Identifying a willing seller. Identification of a willing seller can be problematic because, among other things, the seller might have higher expectations of the property’s value. For example, an Ely, Nevada, Field Office official explained that, because of the then-high real estate values, sellers believed they could obtain higher prices from developers than from the federal government. Furthermore, an Idaho State Office official said that it is difficult to find a seller willing to accept the appraised price and wait for the government to complete the purchase. Even when land acquisition nominations are approved, they may not result in a purchase. For example, in 2004, under FLTFA, two approved acquisitions for inholdings within a national forest in Nevada were terminated. In one case, property values rose sharply during the nomination process and, in an effort to retain some of his land, the seller decided to reduce the acres for sale but maintain the price expectation. Furthermore, the seller decided not to grant the Forest Service access through the parcel he was retaining, thus eliminating the opportunity to secure access to an inaccessible area of the national forest. In the other case, during the course of the secretarial approval process, the landowner sold portions of the land included in the original transaction to another party, reducing the land available for the Forest Service to purchase. According to Forest Service officials, in both cases the purchase of the remaining parcels would not fulfill the original purpose of the acquisitions owing to reductions in resource benefits. Therefore, the Forest Service terminated both projects. Availability of knowledgeable staff to conduct acquisitions. BLM officials reported that they lacked knowledgeable realty staff to conduct land acquisitions, as well as other BLM or department staff to conduct appraisals, surveys, and resource studies. Staff were occupied working on higher priority activities, particularly in the energy area. Lack of funding to purchase land. BLM officials in some states said they lack adequate funds to acquire land under FLTFA. For example, according to a field office official in Burns, Oregon, just one acquisition in a nearby conservation area would have nearly drained that state’s FLTFA account. Restrictions imposed by laws and regulations. BLM officials said that legal and other restrictions pose a challenge to acquiring land. For example, officials in the BLM Arizona State Office and the Grand Junction, Colorado, Field Office said that some federally designated areas in their jurisdictions were established after the date of FLTFA’s enactment, making the land within them ineligible for acquisition under the act. In terms of regulations, BLM Carson City, Nevada, Field Office officials told us that the requirements they must follow regarding the processing of title, survey, and hazardous materials issues posed a challenge to conducting acquisitions. Public opposition to land acquisitions. According to BLM officials from the Elko and Ely Field Offices in Nevada, the public did not support the federal government’s acquisition of federal land in their areas, arguing that the government already owned a high percentage of land and that such acquisitions resulted in the removal of land from the local tax base. We also found that the act’s restriction on the use of revenues outside of the state in which they were raised continues to limit acquisitions. Specifically, little revenue was, and still is available for acquisitions outside of Nevada. Furthermore, progress in acquiring priority land had been hampered by the agencies’ weak performance in identifying inholdings and setting priorities for acquiring them, as required by the act. Finally, the agencies had yet to develop effective procedures to fully comply with the act and national MOU. Specifically, the agencies—and primarily BLM, as the manager of the FLTFA account—had not established a procedure to track the act’s requirement that at least 80 percent of funds allocated toward the purchase of land within each state must be used to purchase inholdings and that up to 20 percent may be used to purchase adjacent land. And with respect to the national MOU, BLM had not established a procedure to track agreed-upon fund allocations—60 percent for BLM, 20 percent for the Forest Service, and 10 percent each for the Fish and Wildlife Service and the Park Service. In 2008, we concluded that 7 years after FLTFA had been enacted, BLM had not taken full advantage of the opportunity the act offered. We recognized that a number of challenges prevented BLM from completing many sales in most states, which limited the number of possible acquisitions. Many of the challenges that BLM cited are likely faced in many public land sales because FLTFA did not change the land sales process. However, we believed that BLM’s failure to set goals for FLTFA sales and develop a sales implementation strategy limited the agency’s ability to raise revenue for acquisitions. Without goals and a strategy to achieve them, BLM field offices did not have direction for FLTFA sales. Moreover, the lack of goals made it difficult to determine the extent of BLM’s progress in disposing of unneeded lands to raise funds for acquisitions. As with sales, progress in acquiring priority land had been hampered by weak agency performance in developing an effective mechanism to identify potential land acquisitions and set priorities for inholdings and adjacent land with exceptional resources, which FLTFA requires. Moreover, because the agencies had not tracked the amounts spent on inholdings and agency allocations, they could not ensure compliance with the act or full implementation of the MOU. Our report contained two matters for congressional consideration and five recommendations for executive action. We said that if Congress decided to reauthorize FLTFA in 2010, it might wish to consider revising the following two provisions to better achieve the goals of the act: FLTFA’s limitation of eligible land sales to those lands identified in land use plans in effect as of July 25, 2000. This provision excludes more recently identified land available for disposal, thereby reducing opportunities for raising additional revenue for land acquisition. The requirement that agencies spend the majority of funds raised from eligible sales for acquisitions in the same state. This provision makes it difficult for agencies to acquire more desirable land in states that have generated little revenue. Our report also contained five recommendations for executive action to improve FLTFA implementation. BLM has taken several actions to implement our recommendations. Table 1 shows the recommendations from our 2008 report and the actions the agencies reported as of November 2009. Table 1. GAO Recommendations to Improve FLTFA Implementation and Agency Actions, as of November 2009 August 2008. BLM established FLTFA land sale goals for fiscal years 2009 and 2010 of $25 million each, according to agency officials. To set these goals, a BLM headquarters official contacted each of the BLM state offices to determine the amount of eligible land sales that could be conducted in the final 2 years of FLTFA. Fall 2009. BLM revised its land sales goal for fiscal year 2010 to $20 million. August 2008. BLM developed a sales incentive program that provides seed money for planning and carrying out FLTFA-eligible land sales. Specifically, the program makes available up to $300,000 to eligible state and field offices for activities necessary to identify and pre-screen properties for possible sale under FLTFA. At a minimum, offices are to prepare a list of specific tracts for sale, with legal descriptions and a copy of the respective land use plan that supports the potential sale. As of November 2009, six states—Arizona, California, Colorado, Idaho, Montana, and New Mexico—had agreed to participate in the program, according to BLM officials. May 2008. USDA stated that its Land Acquisition Prioritization System, generally used for land acquisitions under the Land and Water Conservation Fund, also satisfies the land acquisition prioritization requirements under FLTFA. USDA further stated that Forest Service would continue working with BLM to identify and set priorities for acquiring inholdings and that the Forest Service would coordinate with BLM to formalize the use of a single process to set priorities for land acquisitions. November 2009. The Forest Service FLTFA program lead said that Forest Service has coordinated with BLM to formalize the use of a single process to set priorities for land acquisitions. She said that the agencies meet regularly to discuss FLTFA nominations. April 2008. Interior agreed to continue to improve the procedures to identify and set priorities for acquiring inholdings. November 2009. BLM officials said that the current Land and Water Conservation Fund system works well for FLTFA acquisitions and no changes have been made to this system. BLM has, however, intensified its efforts to educate state-level FLTFA implementation teams on the FLTFA land acquisition process. For example, the FLTFA lead said he has attended numerous state-level interagency team meetings to educate team members about the availability and use of FLTFA funds. November 2009. BLM officials reported that BLM gathers and maintains data on each transaction and tracks whether the parcel is an inholding or adjacent land. Officials also reported that BLM is directing field staff to note in BLM’s automated land status tracking system (LR2000) whether a parcel is an inholding or adjacent land. May 2008. USDA stated that BLM is responsible under FLTFA for tracking the sales, proceeds, and disbursement of funds and that USDA will continue to assist BLM in tracking these funds. November 2009. The Forest Service FLTFA program lead reiterated USDA’s May 2008 statement that BLM is responsible for tracking the use of FLTFA funding. She said that the Forest Service is merely a recipient of FLTFA funding. She added that the national MOU allocations are only targets and that they do not necessarily represent a limit on how much funding an agency can receive. November 2009. The BLM FLTFA program lead reported that BLM is gathering data on each FLTFA transaction by agency and will prepare a final report in compliance with the MOU at FLTFA’s sunset if not reauthorized. He added that the allocations established in the MOU are goals only, and that, while the agencies will try to adhere to them, they ultimately will not be held to those allocations. As of November 2009, BLM reports that of the $66.8 million approved by the Secretaries, 60 percent is for BLM, 30 percent is for the Forest Service, 5.5 percent is for the Park Service, and 4.5 percent is for the Fish and Wildlife Service. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or Members of the Subcommittee may have. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. For further information about this testimony, please contact Robin M. Nazzaro at (202) 512-3841. Individuals making key contributions to this testimony were Andrea Wamstad Brown, Assistant Director; Rich Johnson; Mark Keenan; Paul Kinney; Emily Larson; John Scott; Rebecca Shea and Carol Herrnstadt Shulman. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

The U.S. Department of the Interior's Bureau of Land Management (BLM), Fish and Wildlife Service, and National Park Service, and the U.S. Department of Agriculture's Forest Service manage about 628 million acres of public land, mostly in 11 western states and Alaska. Under the Federal Land Transaction Facilitation Act (FLTFA) of 2000, revenue raised from selling BLM lands is available to the agencies, primarily to acquire nonfederal land within the boundaries of land they already own--known as inholdings. These inholdings can create significant land management problems. To acquire land, the agencies can nominate parcels under state-level interagency agreements or the Secretaries can use their discretion to initiate acquisitions. FLTFA expires in July 2010. This testimony discusses GAO's 2008 report: Federal Land Management: Federal Land Transaction Facilitation Act Restrictions and Management Weaknesses Limit Future Sales and Acquisitions (GAO-08-196). Specifically, the testimony discusses (1) FLTFA revenue generated, (2) challenges to future sales, (3) FLTFA expenditures, (4) challenges to future acquisitions, and (5) agencies' implementation of GAO's recommendations. Among other things, GAO examined the act, agency guidance, and FLTFA sale and acquisition data, interviewed agency officials, and obtained some updated information. (1) BLM raised most FLTFA revenue from land sales in Nevada. As of August 2009, BLM reported raising a total of $113.4 million from sale of about 29,400 acres. Since FLTFA was enacted in 2000 through August 2009, about 78 percent of the revenue raised, or about $88 million, has come from land transactions in Nevada. (2) BLM faces challenges to future sales under FLTFA. In particular, BLM state and field officials most frequently cited the limited availability of knowledgeable realty staff to conduct sales. We identified two additional issues hampering land sales activity under FLTFA. First, while BLM had identified land for sale in its land use plans, it had not made these sales a priority during the first 7 years of the FLTFA program. Furthermore, BLM had not set goals for sales or developed a sales implementation strategy. Second, some of the additional land BLM had identified for sale since the act would not generate revenue for acquisitions because the act only allows the deposit of revenue from the sale of lands identified for disposal on or before the date of the act. (3) Agencies had purchased few parcels with FLTFA revenue. In 2008, we reported that between August 2007--7 years after FLTFA was enacted--and January 2008, the four land management agencies had spent $13.3 million of the $95.7 million in revenue raised under FLTFA: $10.1 million using the Secretaries' discretion to acquire nine parcels of land and $3.2 million for administrative expenses to prepare land for FLTFA sales. More recently, as of November 2009, BLM reported spending a total of $43.8 million to acquire 28 parcels, including $24.6 million for 12 parcels through the state-level interagency process. (4) Agencies face challenges to completing additional acquisitions. BLM state and field officials GAO interviewed most commonly cited the time, cost, and complexity of the land acquisition process as a challenge to completing land acquisitions. Furthermore, the act's requirement to spend the majority of funds in the state in which revenue was generated has had the effect of making little revenue available for acquisitions outside of Nevada. The agencies also had not established procedures to track the implementation of the act's requirement that at least 80 percent of FLTFA revenue raised in each state be used to acquire inholdings in that state or to track the extent to which BLM is complying with agreed-upon fund allocations among the four participating agencies. (5) BLM has taken steps to implement GAO's recommendations. Specifically, BLM established FLTFA sale goals for fiscal years 2009 and 2010 and established a sales incentive program providing seed funds to state and field offices to identify and pre-screen properties for possible sale under FLTFA. As of November 2009, six states have agreed to participate in the program.

You are an expert at summarizing long articles. Proceed to summarize the following text: Anesthesia services are generally administered by anesthesia practitioners, such as anesthesiologists and CRNAs. In 2004, there were approximately 42,000 anesthesiologists and 30,000 CRNAs in the United States. Anesthesiologists are physicians who have completed a bachelor’s degree, medical school, and an anesthesiology residency, typically 4 years in length. CRNAs are licensed as registered professional nurses and have completed a bachelor’s degree and a 2- or 3-year nurse anesthesia graduate program. In our prior work, we showed that physician specialists, who include anesthesiologists, tend to locate in metropolitan areas. Anesthesia services can be provided in several ways. Anesthesia services can be provided by anesthesiologists alone, by anesthesiologists working with CRNAs or other practitioners, or by CRNAs alone. In 2004, proportionally more anesthesia services provided to Medicare beneficiaries were provided by anesthesiologists working as the sole anesthesia practitioner and by anesthesiologists working with another practitioner, such as a CRNA, compared to the proportion of anesthesia services provided by CRNAs as the sole anesthesia practitioner. CRNAs can directly bill Medicare for the provision of anesthesia services. In order to receive Medicare payment for anesthesia services, CRNAs generally are required to practice under the supervision of a physician or an anesthesiologist, except in states that have obtained an exemption from this requirement from CMS. As of May 2007, CMS reports that 14 states had requested and obtained this exemption, which would allow CRNAs to practice independently without physician supervision in a variety of inpatient and outpatient settings. Anesthesiologists derive approximately 28 percent of their income from Medicare. CRNAs derive approximately 35 percent of their patient mix from Medicare. In the Omnibus Budget Reconciliation Act of 1989, Congress required the establishment of a national Medicare physician fee schedule which sets payment rates for services provided by physicians and other practitioners. Under the Medicare physician fee schedule, Medicare payments for anesthesia services are generally the lesser of the actual charge for the service or the anesthesia fee schedule amount. Payments for anesthesia services are subject to the same annual updates as all other services paid under the physician fee schedule. However, Medicare payments for anesthesia services are calculated differently than payments for other services covered by the physician fee schedule. Specifically, Medicare fee schedule payments for anesthesia services are calculated using both “base” and “time” units. The relative complexity of an anesthesia service is measured by base units; the more activities that are involved, the more base units assigned by Medicare. The time spent performing an anesthesia service is measured continuously from when the anesthesia practitioner begins preparing the patient for services and ends when the patient may be safely placed in postoperative care and is measured by 15-minute units of time with portions of time units rounded to one decimal place. The sum of the base and time units are converted into a dollar payment amount by multiplying the sum by an anesthesia service-specific conversion factor, which also accounts for regional differences in the cost of providing services. As such, each Medicare payment locality has a unique anesthesia conversion factor assigned by CMS. The calculation of the Medicare payment for an anesthesia service associated with a lens surgery—the most common anesthesia service provided to Medicare beneficiaries in 2004—performed by an anesthesiologist or a CRNA working without another anesthesia practitioner is shown in figure 1. Subject to certain exceptions, Medicare payments for anesthesia services provided by anesthesiologists and CRNAs are equal in most situations. For illustrative purposes, we assumed that the service was provided in the Connecticut payment locality and took 21 minutes to perform. In 2004, the total Medicare payment for this service would have been $99.31, which was equal to the product of the anesthesia service conversion factor specific to the locality ($18.39) and the sum of the base and time units associated with the anesthesia service (5.4 total units). In contrast, Medicare payments for other physician services are calculated using relative value units (RVUs) that correspond to the different resources required to provide physician services. The RVUs are each adjusted to account for geographic differences in the cost of providing services, summed, and then multiplied by a general fee schedule conversion factor, which is applicable across all Medicare payment localities. Physicians who bill Medicare for services can accept Medicare’s payment as payment in full (with the exception of the ability to bill a Medicare beneficiary for 20 percent coinsurance plus any unmet deductible). This is known as accepting assignment. Or they may exercise an option to bill a Medicare beneficiary for the difference between Medicare’s payment and its limiting charge. This is known as balance billing. High rates of assignment may serve as an indicator of physicians’ willingness to serve Medicare beneficiaries. In April 2004, 99.4 percent of the anesthesia services provided by anesthesiologists to Medicare beneficiaries were provided by anesthesiologists who accepted Medicare payment as payment in full. The anesthesiologists’ assignment rate for anesthesia services was comparable to rates for other hospital-based specialists, such as pathologists (99.4 percent) and radiologists (99.6 percent), and was higher than the rate for all other physicians (98.8 percent). In addition to anesthesia services, anesthesiologists and CRNAs can also provide other nonanesthesia types of physician services covered by Medicare. Payments for these other physician services—which can include medical services such as office visits, and procedures such as pain management services—represented approximately 31 percent of anesthesiologists’ and 2 percent of CRNAs’ revenue from Medicare in 2004. Because payment for these services is determined by a different formula than anesthesia services, a significant portion of these Medicare payments are closer to private payments levels for the same services, in contrast to the difference in payments for anesthesia services. According to a MedPAC-sponsored analysis, the average difference between Medicare and private payments for medical services such as office visits and for procedures provided in 2001 was 5 percent and 25 percent, respectively. Most private payers, like Medicare, determine payments for anesthesia services using base units, time units, and anesthesia-specific conversion factors. Unlike the Medicare program, however, private payers can set their fees in response to market forces such as managed care prevalence and the extent of competition among providers. For example, private anesthesia conversion factors are generally negotiated between payers and anesthesia practitioners. In addition, some private payers use different methods to determine time units, such as rounding up fractional time units to the next whole number or using 10-minute increments for each time unit, which can result in higher anesthesia payments. When setting payment rates, some private payers also allow higher payments for certain patient-related factors such as extremes in age. In our prior work we found that private payments for physician services, excluding anesthesia and some other services, differed by about 100 percent between the lowest- and the highest-priced metropolitan areas and were responsive to market forces, such as regional differences in the extent of competition among hospitals and health maintenance organizations’ (HMOs) ability to leverage prices. For example, we found that areas with less competition and lower levels of HMO price leverage had higher payments than areas with more competition and greater levels of HMO price leverage. We have also reported that because private payers can adjust their payment levels to account for market forces, their payment levels vary more than Medicare payments across geographic areas. We found that average Medicare payments for a set of seven anesthesia services provided by anesthesiologists alone were lower than average private payments in 41 Medicare payment localities in 2004, and ranged, on average, from 51 percent lower to 77 percent lower than private payments (see fig. 2). For all 41 payment localities, Medicare payments were lower than private payments by an average of 67 percent. In 2004, the average Medicare payment for a set of seven anesthesia services was $216, and the average private payment for the same set of anesthesia services was $658. Medicare payments varied less than private payments across the 41 payment localities. In 2004, average Medicare payments for the set of seven anesthesia services ranged from $177 to $303 across the 41 payment localities, a range of 71 percent. In contrast, average private payments for the same set of seven anesthesia services in that same year ranged from $472 to over $1,300 across these localities, a range of 177 percent. In 2004, there was no correlation between the overall supply of anesthesia practitioners—that is, the total number of both anesthesiologists and CRNAs per 100,000 people—and either the difference between Medicare and private payments for anesthesia services or the concentration of Medicare beneficiaries in the Medicare payment localities included in our analyses. However, when we examined the supply of anesthesiologists and CRNAs separately, we found correlations between practitioner supply and payment differences and practitioner supply and beneficiary concentration. Specifically, we found that in 2004, the supply of CRNAs tended to decrease as the difference between Medicare and private payments for anesthesia services increased in 41 Medicare payment localities. We also found that in 2004, the supply of anesthesiologists tended to decrease as the concentration of Medicare beneficiaries increased across 87 Medicare payment localities, while the supply of CRNAs tended to increase as the concentration of Medicare beneficiaries increased across these Medicare payment localities. We found no correlation between the overall supply of anesthesia practitioners per 100,000 people and the difference in Medicare and private payments for anesthesia services across 41 of Medicare’s payment localities in 2004. The supply of anesthesia practitioners varied across the 41 localities independent of the payment differences in these localities and the payment differences varied independently of the supply of anesthesia practitioners in the localities. When we considered anesthesiologists and CRNAs separately, we found a relationship between the supply of CRNAs and the payment differences for anesthesia services across the 41 Medicare payment localities in 2004. Specifically, there tended to be fewer CRNAs in the localities with the larger differences between Medicare and private payments for anesthesia service. For example, on average, there were about 11.5 CRNAs per 100,000 people in the localities where private payments exceeded Medicare payments by about 59 percent, while there were fewer CRNAs—on average, about 7.5 per 100,000 people—in the localities where private payments exceeded Medicare payments by about 73 percent. In contrast, we did not find an association between the supply of anesthesiologists and the differences between Medicare and private payments for anesthesia services across the same 41 localities. We found no correlation between the overall supply of anesthesia practitioners and the concentration of Medicare beneficiaries across 87 Medicare payment localities in 2004. The overall supply of anesthesia practitioners—the number of both anesthesiologists and CRNAs combined per 100,000 people—varied across the 87 localities independent of the number of Medicare beneficiaries in these localities. We found that the supply of anesthesiologists and the supply of CRNAs were each correlated with the concentration of Medicare beneficiaries across 87 payment localities in 2004. However, we found the opposite relationship between the concentration of Medicare beneficiaries and the supply of anesthesiologists and the supply of CRNAs. We generally found fewer anesthesiologists in localities with a greater concentration of Medicare beneficiaries. For example, in 2004, in localities where on average 17 percent of the population was made up of Medicare beneficiaries, there were 13 anesthesiologists per 100,000 people. For localities where, on average, 11 percent of the population was made up of Medicare beneficiaries, the supply of anesthesiologists was relatively higher at 16 per 100,000 people. In contrast, we generally found more CRNAs in localities with higher concentrations of Medicare beneficiaries. For example, in 2004, on average, there were 14 CRNAs per 100,000 people in localities where the proportion of Medicare beneficiaries was 17 percent, on average, but half that supply—7 CRNAs per 100,000 people—in localities where 11 percent of the population was Medicare beneficiaries. The larger supply of CRNAs in localities with greater concentrations of Medicare beneficiaries appeared to offset the smaller anesthesiologist supply in these localities so that, in total, there was no relationship between the overall supply of anesthesia practitioners and the concentration of Medicare beneficiaries across the 87 localities in 2004. For 2005, compensation for anesthesia practitioners was reported to compare favorably to that of other physicians and nonphysician practitioners, according to information from medical group practices from across the country that responded to a survey of MGMA member organizations. The 2005 median annual compensation for general anesthesiologists—approximately $354,240—was over 10 percent higher than the median annual compensation for specialists and over twice the compensation for generalists. When compared to other hospital-based specialists, the MGMA-reported median annual compensation for general anesthesiologists was higher than that for three categories of pathologists and less than that for three categories of radiologists. For example, the MGMA-reported median annual compensation for general anesthesiologists was approximately 10 percent higher than the MGMA- reported median annual compensation for anatomic and clinical pathologists. MGMA data also showed that the median annual compensation for pain management anesthesiologists and pediatric anesthesiologists exceeded the median annual compensation for general anesthesiologists and all categories of pathologists and radiologists. Similarly, for 2005, the MGMA-reported median annual compensation for CRNAs—approximately $131,400—was higher than the MGMA-reported median annual compensation for other nonphysician practitioners such as nurse practitioners, nurse midwives, and physician assistants. For example, the MGMA-reported median annual compensation for CRNAs was over 40 percent higher than the MGMA-reported median annual compensation for either nurse midwives or nurse practitioners and over 35 percent higher than the MGMA-reported median annual compensation for physician assistants. The number of anesthesiology residency positions offered through the NRMP and the number of nurse anesthesia graduates have increased in recent years. From 2000 to 2006 the number of residency positions available in anesthesiology through the NRMP increased from 1,005 to 1,311, and the number of these positions that were filled increased from 802 to 1,287. By 2006, the anesthesiology residency match rate—the percentage of positions that have been filled—was 98 percent. This rate was higher than the rate for pathologists, radiologists, and all physicians in 2006. In addition, there has been a significant increase in the number of newly graduated nurse anesthetists. According to the Council on Certification of Nurse Anesthetists (CCNA), in 1999, nurse anesthesia programs produced 948 new graduates; in 2005, that number had increased to 1,790, an overall increase of 89 percent. We provided a draft of this report to CMS and to two external commenters that represent anesthesia service practitioners; the AANA and the American Society of Anesthesiologists (ASA). CMS’s written comments are reprinted in appendix II. CMS stated that our study provides a good summary of information collected from a variety of sources on anesthesia payments and the supply of anesthesia practitioners but was concerned that our analysis of payment differences for anesthesia services did not include four of the top five Medicare anesthesia services in terms of Medicare payments. CMS noted that private payer rates are not a criterion under the law to determine whether Medicare physician payments are reasonable and stated that the Medicare and private payment differences for anesthesia services do not necessarily indicate a deficiency in Medicare payment rates. CMS also suggested that the report should mention that the services of CRNAs in most rural hospitals and critical access hospitals are paid on a reasonable cost basis—not under the physician fee schedule—and that payments based on reasonable costs could affect Medicare and private payment differences for anesthesia services in these areas. One of the external commenters generally agreed with our findings. The other external commenter agreed with our finding regarding payment differences for anesthesia services, but like CMS questioned our choice of the anesthesia services included in our analysis of payment differences. This external commenter was also concerned regarding our finding related to supply of anesthesia practitioners and believed that we overestimated the supply of anesthesiologists based on analysis of its own association membership counts. Both external commenters stated that we should have addressed aspects of payments to anesthesia service practitioners that were not included in our analysis. Specifically, one external commenter stated we should have examined the use of stipends by hospitals to augment anesthesiologists’ compensation. The other external commenter stated we should have included analysis of Medicare and private anesthesia service payments to CRNAs, including analysis of anesthesia services during which CRNAs work with anesthesiologists or provide the services as the sole anesthesia practitioner. We carefully considered which anesthesia services to include in our analysis of Medicare and private payment differences for anesthesia services, but were not able to include all of the high-volume Medicare anesthesia services. In order to calculate the difference between Medicare and private payments for anesthesia services and include the maximum number of localities in our analysis, it was essential to include anesthesia services that were high volume for both Medicare and the private sector. Some anesthesia services that were high volume for Medicare beneficiaries, for example anesthesia for lens surgery, were not as high volume for private patients and were not included for that reason. We agree with CMS that differences between Medicare and private payments for anesthesia services are not a statutory criterion for determining Medicare payments for these services and added this clarification to our report. We also clarified that Medicare payments for CRNA anesthesia services provided in rural and critical access hospitals could be paid on a reasonable cost basis and added a statement to the report stating this fact. However, we did not determine the extent to which Medicare and private payments to CRNAs practicing in rural and critical access hospitals differed as this was beyond the scope of our study. In response to the external commenter’s concern regarding the accuracy of our estimate of the supply of anesthesiologists, we believe the AMA data that we used to calculate the supply of anesthesiologists represent the most complete and accurate data source for analyzing physician supply, and that the external commenter estimates of supply based on association membership counts may underestimate supply because it is likely that some anesthesiologists do not belong to the association. Additionally, we checked our calculations regarding the supply of anesthesiologists and verified that we had removed inactive and nonpracticing anesthesiologists from our supply estimates. We did not include a discussion of stipends paid by hospitals to anesthesia service practitioners. Stipends are reported to be paid to a variety of specialists, including anesthesiologists, for several reasons, including to compensate specialists for treating a high proportion of Medicare beneficiaries, 24- hour coverage of trauma units, and to help cover costs associated with treating uninsured patients. As our study focused on Medicare and private payments for anesthesia services and overall compensation for anesthesia practitioners, it was beyond the scope of our study to examine this issue in further detail. We agree with the external commenter that it would have been preferable to include payments for CRNA anesthesia services in our analysis, but were not able to do this due to data limitations. The external commenters provided us with technical comments and clarifications, which we incorporated as appropriate. As arranged with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the date of this letter. We are sending copies of this report to the Administrator of CMS and interested congressional committees. We will also make copies available to others upon request. The report is available at no charge on the GAO Web site at http://www.gao.gov. If you or your staffs have any questions, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff members that made major contributions to this report are listed in appendix III. This appendix describes in detail the data and methods we used to calculate differences in Medicare and private anesthesia service payments, anesthesia practitioner supply, and Medicare beneficiary concentration. It also describes the correlation analyses we conducted to determine the relationship between anesthesia practitioner supply measures, differences in anesthesia service payments, and Medicare beneficiary concentration. Finally, this appendix addresses data reliability issues and limitations related to our studies. To examine the extent to which Medicare payments for anesthesia services were lower than private payments across Medicare payment localities in 2004, we used anesthesia service claims data from two billing companies that bill and track payments from private payers and Medicare and calculated payments by payer for services provided by anesthesiologists alone at the Medicare payment locality level. This provided us with average Medicare and private payments for a set of anesthesia services. We then calculated payment differences—that is, the percentage by which Medicare payments were lower than private payments, calculated as the difference between average private and Medicare payments as a percent of average private payments—for each of the localities included in our analysis. To calculate the difference between Medicare and private payments for anesthesia services, we used 2004 anesthesia service claims data from two companies that bill private payers and Medicare on behalf of anesthesia practitioners. We obtained names of several billing companies from interviews with industry experts who were knowledgeable about industry billing practices. We chose to use anesthesia service claims data from billing companies because such data contain claims from many different insurers in an area. The two billing companies from which we obtained claims data together provided billing services on behalf of over 10 percent of all anesthesiologists in the country in 2004. Although the anesthesia service claims data from the two companies may not be generalizeable to all anesthesia services provided by anesthesiologists, billing company officials stated that their claims data were generally representative of other companies that provided billing for anesthesia services and that anesthesia practioner groups that did not use billing services were not that different from groups that did use billing services. The billing companies provided us with claims data for anesthesia services provided in 2004, including payment information for the 27 highest- expenditure anesthesia services paid for by Medicare in 2003, which accounted for approximately 70 percent of Medicare anesthesia service expenditures in 2003. The specific information the billing companies provided included data on the type of payer; the anesthesia service code; payment modifiers that specified the type of anesthesia practitioner involved; total minutes of time required to perform the service; payments, including insurer and beneficiary payments; and the Medicare payment locality in which the service was provided. Due to the proprietary nature of the data and concerns about identification of providers or beneficiaries, the billing companies could not provide payment information at a smaller geographic level. Therefore, Medicare payment localities were the smallest areas for which we could examine payments for anesthesia services. Only claims for which fee-for-service Medicare was the payer were included in our calculation of Medicare payments. For our calculation of private payments for these services, we included fee-for-service, preferred provider organization, and managed care claims from all commercial payers. Average payments included payments made by insurers as well as patient obligations such as deductibles and coinsurance payments. Because our study compared Medicare and private payments only, we excluded the billing companies’ claims from other payers of anesthesia services, such as Medicaid and workers’ compensation funds. We also excluded any claims for which we could not definitively identify the payer. Although both billing companies provided claims data, one company provided information at the individual claims level while the other company provided claims information summarized to the case level. For the individual claims-level data, we excluded claims from the analysis if the average anesthesia service payment was greater than or less than 3 standard deviations from the log of the average anesthesia service payment, specific to each anesthesia service, Medicare payment locality, and payer. We applied similar criteria to anesthesia service conversion factors (which we calculated as the total payment for the service divided by the sum of the base and time units associated with the service) in the individual claims-level data. Because data from the other company were summarized, we were not able to apply similar exclusion criteria. Instead, prior to providing the claims data to us, the billing company excluded claims if an individual Medicare or private anesthesia service payment was less than 10 percent of the Medicare allowable payment for the locality in which the service was provided or if the receivable was greater than $50. We excluded claims paid by Medicare from the data provided by either billing company if the Medicare anesthesia conversion factor did not match any of the Centers for Medicare & Medicaid Services’ (CMS) established conversion factors, based on the localities present in the data. We examined descriptive statistics for both data sets after all exclusions were applied and determined that it would be appropriate to merge the two data sets to calculate payment differences. After applying these and other exclusion criteria, we ranked the anesthesia service codes in order of prevalence across the Medicare payment localities represented in the billing companies’ claims data. Based on the rankings and prevalence across localities, we identified a set of seven anesthesia services that were most prevalent and well represented across the Medicare payment localities included in the claims data. We balanced the need for maximizing the number of localities with having a set of anesthesia services that were prevalent in all of the localities chosen. In our final data set we retained billing company claims data for all seven of these anesthesia services in 41 different Medicare payment localities. These seven anesthesia services were services provided by anesthesiologists only. We did not have a sufficient volume of claims for anesthesia services provided by certified registered nurse anesthetists (CRNAs) alone to include data from CRNA-performed services in our analysis. We also did not include data for anesthesia services provided by anesthesiologists with the involvement of other anesthesia practitioners because the billing data for these services from the two billing companies were not consistent and we therefore determined them to be not reliable. Medicare and private payments were both weighted to account for the relative national expenditures for each of the seven anesthesia services by Medicare in 2003 (see table 1). For example, because anesthesia services for intraperitoneal procedures in the upper abdomen including laparoscopy accounted for approximately one-third of Medicare expenditures for the seven selected codes combined, approximately one- third of the overall average payment we calculated for each locality was based on payments for this service. There were far fewer Medicare expenditures associated with anesthesia for hernia repairs in the lower abdomen, not otherwise specified and therefore payments for these services had a much smaller weight in overall average payment calculations. Over 136,000 Medicare and private anesthesia service cases were included in our calculation of payment differences. Using the weighted average Medicare and private payments, we calculated payment differences for each of the 41 Medicare payment localities included in our analysis. We also calculated an overall average payment difference inclusive of data from all 41 localities. To examine a payment variable that was not influenced by variation in time, we examined the difference in conversion factors for Medicare and private anesthesia services, using the seven services provided by anesthesiologists in the 41 Medicare payment localities. The average difference in conversion factors was 69 percent, an amount very similar to the difference in Medicare and private payments. Therefore, we focused our analyses on the difference in Medicare and private payments. To estimate anesthesia practitioner supply at the locality level, we used data from the American Medical Association (AMA), the American Association of Nurse Anesthetists (AANA), the U.S. Census Bureau, and CMS. Only active anesthesiologists and CRNAs practicing in the 50 states and the District of Columbia were included in our analysis. We assigned anesthesia practitioners and the number of total U.S. general population residents to 87 Medicare payment localities.10,,11 12 To determine supply per 100,000 people, we divided the number of anesthesia practitioners in each locality by the total resident population in the same locality, multiplied by 100,000. (See table 2). To estimate the concentration of Medicare beneficiaries at the locality level, we used CMS and U.S. Census Bureau data. Using a geographic crosswalk file, we assigned the number of beneficiaries enrolled in Medicare and the number of total U.S. general population residents to Medicare payment localities. We then computed the percentage of Medicare beneficiaries in the general population to estimate the concentration of Medicare beneficiaries in each Medicare payment locality. (See table 3). To measure the relationship between the supply of anesthesia practitioners, the difference in average Medicare and private payments, and the concentration of Medicare beneficiaries at the locality level, we performed correlation analyses. A correlation coefficient measures the strength and direction of linear association between two variables without controlling for the effects of other characteristics as in a multivariate analysis. We calculated correlations between three measures of anesthesia practitioner supply—anesthesiologists, CRNAs, and total (anesthesiologists and CRNAs combined)—and differences in payments in 41 Medicare payment localities. We also calculated correlations between the three supply measures and the concentration of Medicare beneficiaries in 87 Medicare payment localities. (See tables 4 and 5 below.) We used a variety of data sources in our analysis, including anesthesia service claims data from two billing companies, the AMA, the AANA, the U.S. Census Bureau, CMS, the National Resident Matching Program (NRMP), and the Medical Group Management Association (MGMA). We tested the internal consistency and reliability of all our data sources and determined they were adequate for our purposes. The files containing the billing company data, which were used by the two companies to record bills and payments, were subjected to various internal controls, including spot checks, batch totals, and balancing controls as reported by the two companies. Although we did not review these internal controls, we did assess the reliability of the billing company data. We conducted extensive interviews with representatives from both companies to gain an understanding of the completeness and accuracy of the data the companies provided. We also reviewed all information provided to us concerning the data, including data dictionaries and file layouts. Additionally, we examined the data for errors, missing values, and values outside of expected range and computed payment differences from each company’s data separately and found them to be comparable. Finally, we determined that our calculation of anesthesia service payment differences was comparable with the results of a MedPAC-sponsored study. We also assessed the reliability of median compensation information reported by MGMA. Although multiple compensation surveys are available, we chose to use MGMA as our data source because it has been used as a source in a number of peer-reviewed articles, and it contains comprehensive information on various aspects of physician compensation. Through interviews with MGMA officials, we learned of the steps taken by MGMA to ensure the reliability of the data the association published on median compensation, including comparisons with other industry studies on physician and nonphysician compensation and year-to-year analyses of respondents. We identified several potential limitations of our analyses. First, while we used payment data from 41 different Medicare payment localities, we do not know if the payment data are representative of all 89 of Medicare’s payment localities. Second, we did not have sufficient payment information to calculate payment differences for anesthesia services provided by anesthesiologists working with other anesthesia practitioners or anesthesia services provided solely by CRNAs. As a result, we do not know if payment differences for services provided in these ways would have been different than payment differences for anesthesia services provided by anesthesiologists alone. Third, we limited our analyses to determining whether the supply of anesthesia practitioners was linearly associated with payment differences or Medicare beneficiary concentration. However, practitioners’ decisions on where to locate could be influenced by many other factors not included in our analyses. We also identified potential limitations with MGMA’s compensation data. The data were based on a survey of MGMA member organizations which are reported to overrepresent large medical groups. In addition, the MGMA survey response rate of 16 percent raises the possibility that their compensation data may not be representative of the compensation of all physician and nonphysician practitioners. We performed our work from September 2004 through May 2007 in accordance with generally accepted government auditing standards. In addition to the contact named above, Christine Brudevold, Assistant Director; Stella Chiang; Krister Friday; Jawaria Gilani; and Ba Lin made key contributions to this report. Medicare Physician Services: Use of Services Increasing Nationwide and Relatively Few Beneficiaries Report Major Access Problems. GAO-06-704. Washington, D.C.: July 21, 2006. Federal Employees Health Benefits Program: Competition and Other Factors Linked to Wide Variation in Health Care Prices. GAO-05-856. Washington, D.C.: August 15, 2005. Medicare Physician Fees: Geographic Adjustment Indices Are Valid in Design, but Data and Methods Need Refinement. GAO-05-119. Washington, D.C.: March 11, 2005. Physician Workforce: Physician Supply Increased in Metropolitan and Nonmetropolitan Areas but Geographic Disparities Persisted. GAO-04-124. Washington, D.C.: October 31, 2003.

In 2005 Medicare paid over $1.4 billion for anesthesia services. These services are generally provided by anesthesia practitioners, such as anesthesiologists and certified registered nurse anesthetists (CRNAs). A government-sponsored study found that Medicare payments for anesthesia services are lower than private payments. Congress is concerned that this difference may create regional discrepancies in the supply of anesthesia practitioners, and asked GAO to explore this issue. GAO examined (1) the extent to which Medicare payments for anesthesia services were lower than private payments across Medicare payment localities in 2004, (2) whether the supply of anesthesia practitioners across Medicare payment localities in 2004 was related to the differences between Medicare and private payments for anesthesia services or the concentration of Medicare beneficiaries, and (3) compensation levels for anesthesia practitioners in 2005 and trends in graduate training. GAO used claims data from two anesthesia service billing companies that bill private insurance payers and Medicare to calculate payments by payer for seven anesthesia services in 41 Medicare payment localities. GAO also used data from the Centers for Medicare & Medicaid Services (CMS) and other sources to determine practitioner supply and Medicare beneficiary concentration in 87 Medicare payment localities. GAO found that in 2004 average Medicare payments for a set of seven anesthesia services provided by anesthesiologists alone were 67 percent lower than average private insurance payments in 41 Medicare payment localities--geographic areas established by CMS to account for geographic variations in the relative costs of providing physician services. In 2004, there was no correlation between the overall supply of anesthesia practitioners--that is, the total number of both anesthesiologists and CRNAs per 100,000 people--and either the difference between Medicare and private insurance payments for anesthesia services or the concentration of Medicare beneficiaries in the Medicare payment localities included in GAO's analyses. However, when GAO examined the supply of anesthesiologists and CRNAs separately, GAO found correlations between practitioner supply and payment differences and practitioner supply and beneficiary concentration. Specifically, GAO found that in 2004, the supply of CRNAs tended to decrease as the difference between Medicare and private insurance payments for anesthesia services increased in 41 Medicare payment localities. GAO also found that in 2004 the supply of anesthesiologists tended to decrease as the concentration of Medicare beneficiaries increased across 87 Medicare payment localities, while the supply of CRNAs tended to increase as the concentration of Medicare beneficiaries increased across these Medicare payment localities. For 2005, compensation for anesthesia practitioners was reported to compare favorably with other practitioners, according to information from medical group practices from across the country that responded to a survey of Medical Group Management Association (MGMA) member organizations. The 2005 median annual compensation for general anesthesiologists--approximately $354,240--was over 10 percent higher than the median annual compensation for specialists and over twice the compensation for generalists. For 2005, MGMA-reported median annual compensation for CRNAs-approximately $131,400--was over 40 percent higher than the MGMA-reported median annual compensation for either nurse midwives or nurse practitioners and over 35 percent higher than the MGMA-reported median annual compensation for physician assistants. The number of anesthesiology residency positions offered through the National Resident Matching Program and the number of nurse anesthesia graduates have increased in recent years. CMS stated that the study provided a good summary of information collected from a variety of sources on anesthesia payments and the supply of anesthesia practitioners.

You are an expert at summarizing long articles. Proceed to summarize the following text: Federal law and policy have established roles and responsibilities for federal agencies to coordinate with industry in enhancing the security and resilience of critical government and industry infrastructures. According to the Homeland Security Act of 2002, as amended, DHS is to, among other things, carry out comprehensive vulnerability assessments of CI; integrate relevant information, analyses, and assessments from within DHS and from CI partners; and use the information collected to identify priorities for protective and support measures. Assessments include areas that can be assessed for vulnerability (hereinafter referred to as “areas”), such as perimeter security, the presence of a security force, or vulnerabilities to intentional acts, including acts of terrorism. Presidential Policy Directive/PPD-21 directs DHS to, among other things, provide strategic guidance, promote a national unity of effort, and coordinate the overall federal effort to promote the security and resilience of the nation’s CI. Related to PPD-21, the NIPP calls for the CI community and associated stakeholders to carry out an integrated approach to (1) identify, deter, detect, disrupt, and prepare for threats and hazards (all hazards); (2) reduce vulnerabilities of critical assets, systems, and networks; and (3) mitigate the potential consequence to CI to incidents or events that do occur. According to the NIPP, CI partners are to identify risk in a coordinated and comprehensive manner across the CI community; minimize duplication; consider interdependencies; and, as appropriate, share information within the CI community. Within DHS, NPPD is responsible for working with public and industry infrastructure partners and leads the coordinated national effort to mitigate risk to the nation’s infrastructure through the development and implementation of the infrastructure security program. NPPD’s Office of Infrastructure Protection (IP) has overall responsibility for coordinating implementation of the NIPP across the 16 CI sectors, including providing guidance to SSAs and CI owners and operators on protective measures to assist in enhancing the security of infrastructure and helping CI sector partners develop the capabilities to mitigate vulnerabilities and identifiable risks to the assets. The NIPP also designates other federal agencies, as well as some offices and components within DHS, as SSAs that are responsible for, among other things, coordinating with DHS and other federal departments and agencies and CI owners and operators to identify vulnerabilities, and to help mitigate incidents, as appropriate. DHS offices and components or asset owners and operators have used various assessment tools and methods, some of which are voluntary, while others are required by law or regulation, to gather information about certain aspects of CI. For example, Protective Security Coordination Division (PSCD), within NPPD, relies on Protective Security Advisors (PSA) to offer and conduct voluntary vulnerability assessments to owners and operators of CI to help identify potential security actions; Infrastructure Security Compliance Division, within NPPD, requires regulated chemical facilities to complete a security vulnerability assessment pursuant to CFATS;TSA conducts various assessments of airports, pipelines, and rail and transit systems; and Coast Guard requires facilities it regulates under the Maritime Transportation Security Act of 2002 (MTSA) to complete assessments as part of their security planning process. In addition, SSAs external to DHS also offer vulnerability assessment tools and methods to owners or operators of CI and these assessments include areas such as resilience management or perimeter security. For example, the Environmental Protection Agency, the SSA for the water sector, provides a self-assessment tool for the conduct of voluntary security-related assessments at water and wastewater facilities. DHS’s took steps to address barriers to conducting critical infrastructure vulnerability assessments and sharing information, in response to findings from our previous work. Specifically, DHS has made progress in the following areas: Determining why some industry partners do not participate in voluntary assessments. DHS supports the development of the national risk picture by conducting vulnerability assessments and security surveys to identify security gaps and potential vulnerabilities in the nation’s high- priority critical infrastructure. In a May 2012 report, we assessed the extent to which DHS had taken action to conduct security surveys using its Infrastructure Survey Tool (IST) and vulnerability assessments among high-priority infrastructure, shared the results of these surveys and assessments with asset owners or operators, and assessed their effectiveness. We found that various factors influence whether industry owners and operators of assets participate in these voluntary programs, but that DHS did not systematically collect data on reasons why some owners and operators of high-priority assets declined to participate in security surveys or vulnerability assessments. We concluded that collecting data on the reason for declinations could help DHS take steps to enhance the overall protection and resilience of those high-priority critical infrastructure assets crucial to national security, public health and safety, and the economy. We recommended, and DHS concurred, that DHS design and implement a mechanism for systematically assessing why owners and operators of high-priority assets decline to participate. In response to our recommendations, in October 2013 DHS developed and implemented a tracking system to capture and account for declinations. In addition, in August 2014 DHS established a policy to conduct quarterly reviews to, among other things, track these and other survey and assessment programs and identify gaps and requirements for priorities and help DHS better understand what barriers owners and operators of critical infrastructure face in making improvements to the security of their assets. Sharing of assessment results at the asset level in a timely manner. DHS security surveys and vulnerability assessments can provide valuable insights into the strengths and weaknesses of assets and can help asset owners and operators that participate in these programs make decisions about investments to enhance security and resilience. In our May 2012 report, we found that, among other things, DHS shared the results of security surveys and vulnerability assessments with asset owners or operators. However, we also found that the usefulness of security survey and vulnerability assessment results could be enhanced by the timely delivery of these products to the owners and operators. We reported that the inability to deliver these products in a timely manner could undermine the relationship DHS was attempting to develop with these industry partners. Specifically, we reported that, based on DHS data from fiscal year 2011, DHS was late meeting the 30-day time frame for delivering the results of its security surveys required by DHS guidance 60 percent of the time. DHS officials acknowledged the late delivery of survey and assessment results and said they were working to improve processes and protocols. However, DHS had not established a plan with time frames and milestones for managing this effort. We recommended, and DHS concurred, that it develop time frames and specific milestones for managing its efforts to ensure the timely delivery of the results of security surveys and vulnerability assessments to asset owners and operators. In response to our recommendation, DHS established timeframes and milestones to ensure the timely delivery of assessment results of the surveys and assessments to CI owners and operators. In addition, in February 2013, DHS transitioned to a web-based delivery system, which, according to DHS, has since resulted in a significant drop in overdue deliveries. Sharing certain information with critical infrastructure partners at the regional level. Our work has shown that over the past several years, DHS has recognized the importance of and taken actions to examine critical infrastructure asset vulnerabilities, threats, and potential consequences across regions. In a July 2013 report, we examined DHS’s management of its Regional Resiliency Assessment Program (RRAP)—a voluntary program intended to assess regional resilience of critical infrastructure by analyzing a region’s ability to adapt to changing conditions, and prepare for, withstand, and rapidly recover from disruptions—and found that DHS has been working with states to improve the process for conducting RRAP projects, including more clearly defining the scope of these projects. We also reported that DHS shares the project results of each RRAP project report, including vulnerabilities identified, with the primary stakeholders—officials representing the state where the RRAP was conducted—and that each report is generally available to SSAs and protective security advisors within DHS. Sharing information with sector-specific agencies and state and local governments. Federal SSAs and state and local governments are key partners that can provide specific expertise and perspectives in federal efforts to identify and protect critical infrastructure. In a March 2013 report, we reviewed DHS’s management of the National Critical Infrastructure Prioritization Program (NCIPP), and how DHS worked with states and SSAs to develop the high-priority CI list. The program identifies a list of nationally significant critical infrastructure each year that is used to, among other things, prioritize voluntary vulnerability assessments conducted by PSAs on high-priority critical infrastructure. We reported that DHS had taken actions to improve its outreach to SSAs and states in an effort to address challenges associated with providing input on nominations and changes to the NCIPP list. However, we also found that most state officials we contacted continued to experience challenges with nominating assets to the NCIPP list using the consequence-based criteria developed by DHS. Among other actions, we recommended that DHS commission an independent, external peer review of the NCIPP with clear project objectives. In November 2013, DHS commissioned a panel that reviewed the NCIPP process, guidance documentation, and process phases to provide an evaluation of the extent to which the process is comprehensive, reproducible, and defensible. The panel made 24 observations about the NCIPP; however, panel members expressed different views regarding the classification of the NCIPP list, and views on whether private sector owners of the assets, systems, and clusters should be notified of inclusion on the list. As of August 2014, DHS officials reported that they are exploring options to streamline the process and limit the delay of dissemination among those who have a need-to-know. Our previous work identified a need for DHS vulnerability assessment guidance and coordination. Specifically, we found: Establishing guidance for areas of vulnerability covered by assessments. In a September 2014 report examining, among other things, the extent to which DHS is positioned to integrate vulnerability assessments to identify priorities, we found that the vulnerability assessment tools and methods DHS offices and components use vary with respect to the areas assessed depending on which DHS office or component conducts or requires the assessment. As a result, it was not clear what areas DHS believes should be included in a comprehensive vulnerability assessment. Moreover, we found that DHS had not issued guidance to ensure that the areas it deems most important are captured in assessments conducted or required by its offices and components. Our analysis of 10 vulnerability assessment tools and methods showed that DHS vulnerability assessments consistently included some areas that were assessed for vulnerability but included other areas that were not consistently assessed. Our analysis showed that all 10 of the DHS assessment tools and methods we analyzed included areas such as “vulnerabilities from intentional acts”—such as terrorism—and “perimeter security” in the assessment. However, 8 of the 10 assessment tools and methods did not include areas such as “vulnerabilities to all hazards” such as hurricanes or earthquakes while the other 2 did. These differences in areas assessed among the various assessment tools and methods could complicate or hinder DHS’s ability to integrate relevant assessments in order to identify priorities for protective and support measures. We found that the assessments conducted or required by DHS offices and components also varied greatly in their length and the detail of information to be collected. For example, within NPPD, PSCD used its IST to assess high-priority facilities that voluntarily participate and this tool was used across the spectrum of CI sectors. The IST, which contains more than 100 questions and 1,500 variables, is used to gather information on the security posture of CI, and the results of the IST can inform owners and operators of potential vulnerabilities facing their asset or system. In another example from NPPD, ISCD required owners and operators of facilities that possess, store, or manufacture certain chemicals under CFATS to provide data on their facilities using an online tool so that ISCD can assess the risk posed by covered facilities. This tool, ISCD’s Chemical Security Assessment Tool Security Vulnerability Assessment contained more than 100 questions based on how owners respond to an initial set of questions. Within DHS, TSA’s Office of Security Operations offered or conducted a number of assessments, such as a 205-question assessment of transit systems called the Baseline Assessment for Security Enhancements that contained areas to be assessed for vulnerability, and TSA’s 17-question Freight Rail Risk Analysis Tool was used to assess rail bridges. In addition to differences in what areas were included, there were also differences in the detail of information collected for individual areas, making it difficult to determine the extent to which the information collected was comparable and what assumptions and/or judgments were used while gathering assessment data. We also observed that components used different questions for the same areas assessed. These variations, among others we identified, could impede DHS’s ability to integrate relevant information and use it to identify priorities for protective and support measures regarding terrorist and other threats to homeland security. For example, we found that while some components asked open-ended questions such as “describe security personnel,” others included drop-down menus or lists of responses to be selected. We recommended that DHS review its vulnerability assessments to identify the most important areas to be assessed, and determine the areas and level of detail that are necessary to integrate assessments and enable comparisons, and establish guidance, among other things. DHS agreed with our recommendation, and established a working group in August 2015 to address this recommendation and others we made. As of March 2016 these efforts are ongoing and DHS intends to provide an update in the summer of 2016. Establishing guidance on common data standards to help reduce assessment fatigue and improve information sharing. As we reported in September 2014, federal assessment fatigue could impede DHS’s ability to garner the participation of CI owners and operators in its voluntary assessment activities. During our review of vulnerability assessments, the Coast Guard, PSCD, and TSA field personnel we contacted reported observing what they called federal fatigue, or a perceived weariness among CI owners and operators who had been repeatedly approached or required by multiple federal agencies and DHS offices and components to participate in or complete assessments. One official who handles security issues for an association representing owners and operators of CI expressed concerns at the time about his members’ level of fatigue. Specifically, he shared observations that DHS offices and components do not appear to effectively coordinate with one another on assessment-related activities to share or use information and data that have already been gathered by one of them. The official also noted that, from the association’s perspective, the requests and invitations to participate in assessments have exceeded what is necessary to develop relevant and useful information, and information is being collected in a way that is not the best use of the owners’ and operators’ time. As figure 1 illustrates, depending on a given asset or facility’s operations, infrastructure, and location, an owner or operator could be asked or required to participate in multiple separate vulnerability assessments. DHS officials expressed concern at the time that this “fatigue” may diminish future cooperation from asset owners and operators. We recommended in September 2014 that DHS develop an approach for consistently collecting and maintaining data from assessments conducted across DHS to facilitate the identification of potential duplication and gaps in coverage. Having common data standards would better position DHS offices and components to minimize the aforementioned fatigue, and the resulting declines in CI owner and operator participation, by making it easier for DHS offices and components to use each other’s data to determine what CI assets or facilities may have been already visited or assessed by another office or component. They could then plan their assessment efforts and outreach accordingly to minimize the potential for making multiple visits to the same assets or facilities. DHS agreed with our recommendation, and as of March 2016 DHS had established a working group to address the recommendations from our report and planned to provide us with a status update in the summer of 2016. Addressing the potential for duplication, overlap, or gaps between and among the various efforts. As with the sharing of common assessment data, we found in our 2014 review of vulnerability assessments that DHS also lacks a department-wide process to facilitate coordination among the various offices and components that conduct vulnerability assessments or require assessments on the part of owners and operators. This could hinder the ability to identify gaps or potential duplication in DHS assessments. For example, among 10 different types of DHS vulnerability assessments we compared, we found that DHS assessment activities were overlapping across some of the sectors, but not others. Given the overlap of DHS’s assessments among many of the 16 sectors, we attempted to compare data to determine whether DHS had conducted or required vulnerability assessments at the same critical infrastructure within those sectors. However, we were unable to conduct this comparison because of differences in the way data about these activities were captured and maintained. Officials representing DHS acknowledged at the time they encountered challenges with the consistency of assessment data and stated that DHS-wide interoperability standards did not exist for them to follow in recording their assessment activities that would facilitate consistency and enable comparisons among the different data sets. The NIPP calls for standardized processes to promote integration and coordination of information sharing through, among other things, jointly developed standard operating procedures. However, DHS officials stated at the time that they generally relied on field-based personnel to inform their counterparts at other offices and components about planned assessment activities and share information as needed on what assets may have already been assessed. For example, PSAs may inform and invite CI partners to participate in these assessments, if the owner and operator of the asset agrees. PSAs may also alert their DHS counterparts depending on assets covered and their areas of responsibility. However, we found that absent these field-based coordination or sharing activities, it was unclear whether all facilities in a particular geographic area or sector were covered. For example, after CFATS took effect, in 2007, ISCD officials asked PSCD to stop having PSAs conduct voluntary assessments at CFATS-regulated chemical facilities to reduce potential confusion about DHS authority over chemical facility security and to avoid overlapping assessments. In response, PSCD reduced the number of voluntary vulnerability assessments conducted in the chemical sector. However, one former ISCD official noted that without direct and continuous coordination between PSCD and ISCD on what facilities are being assessed or regulated by each division, this could create a gap in assessment coverage between CFATS-regulated facilities and facilities that could have participated in PSCD assessments given that the number of CFATS-regulated facilities can fluctuate over time. Without processes for DHS offices and components to share data and coordinate with each other in their CI vulnerability assessment activities, DHS cannot provide reasonable assurance that it can identify potential duplication, overlap, or gaps in coverage that could ultimately affect DHS’s ability to work with its partners to enhance national CI security and resilience, consistent with the NIPP. We recommended in September 2014 that DHS develop an approach to ensure that vulnerability data gathered on CI be consistently collected and maintained across DHS to facilitate the identification of potential duplication and gaps in CI coverage. As of March 2016, DHS has begun a process of identifying the appropriate level of guidance to eliminate gaps or duplication in methods and to coordinate vulnerability assessments throughout the department. We also recommended that DHS identify key CI security-related assessment tools and methods used or offered by SSAs and other federal agencies, analyze them to determine the areas of vulnerability they capture, and develop and provide guidance for what areas should be included in vulnerability assessments of CI that can be used by DHS and other CI partners in an integrated and coordinated manner. DHS concurred with our recommendations and stated that it planned to take a variety of actions to address the issues we identified, including conducting an inventory survey of the security-related assessment tools and methods used by SSAs to address CI vulnerabilities. As of March 2016, DHS has established a working group, consisting of members from multiple departments and agencies, to enhance the integration and coordination of vulnerability assessment efforts. These efforts are ongoing and we will continue to monitor DHS’s progress in implementing these recommendations. In addition to efforts to address our recommendations, DHS is in the process of reorganizing NPPD to ensure that it is appropriately positioned to carry out its critical mission of cyber and infrastructure security. Key priorities of this effort are to include greater unity of effort across the organization and enhanced operational activity to leverage the expertise, skills, information, and relationships throughout DHS. The NPPD reorganization presents DHS with an opportunity to engage stakeholders in decision-making and may achieve greater efficiency or effectiveness by reducing programmatic duplication, overlap, and fragmentation. It also presents DHS with an opportunity to mitigate potential duplication or gaps by consistently capturing and maintaining data from overlapping vulnerability assessments of CI and improving data sharing and coordination among the offices and components involved with these assessments. Chairman Ratcliffe, Ranking Member Richmond, and members of the sub-committee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time. If you or your staff members have any questions about this testimony, please contact me at (404) 679-1875 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals making key contributions to this work include Ben Atwater, Assistant Director; Andrew Curry, Analyst-in-Charge; and Peter Haderlein. This appendix provides information on the 16 critical infrastructure (CI) sectors and the federal agencies responsible for sector security. The National Infrastructure Protection Plan (NIPP) outlines the roles and responsibilities of the Department of Homeland Security (DHS) and its partners—including other federal agencies. Within the NIPP framework, DHS is responsible for leading and coordinating the overall national effort to enhance security via 16 critical infrastructure sectors. Consistent with the NIPP, Presidential Decision Directive/PPD-21 assigned responsibility for the critical infrastructure sectors to sector-specific agencies (SSAs). As an SSA, DHS has direct responsibility for leading, integrating, and coordinating efforts of sector partners to protect 10 of the 16 critical infrastructure sectors. Seven other federal agencies have sole or coordinated responsibility for the remaining 6 sectors. Table 1 lists the SSAs and their sectors.

Protecting the security of CI is a top priority for the nation. CI includes assets and systems, whether physical or cyber, that are so vital to the United States that their destruction would have a debilitating impact on, among other things, national security or the economy. Multiple federal entities, including DHS, are involved in assessing CI vulnerabilities, and assessment fatigue could impede DHS's ability to garner the participation of CI owners and operators in its voluntary assessment activities. This testimony summarizes past GAO findings on progress made and improvements needed in DHS's vulnerability assessments, such as addressing potential duplication and gaps in these efforts. This statement is based on products GAO issued from May 2012 through October 2015 and recommendation follow-up conducted through March 2016. GAO reviewed applicable laws, regulations, directives, and policies from selected programs. GAO interviewed officials responsible for administering these programs and assessed related data. GAO interviewed and surveyed a range of stakeholders, including federal officials, and CI owners and operators. GAO's prior work has shown the Department of Homeland Security (DHS) has made progress in addressing barriers to conducting voluntary assessments but guidance is needed for DHS's critical infrastructure (CI) vulnerability assessments activities and to address potential duplication and gaps. For example: Determining why some industry partners do not participate in voluntary assessments . In May 2012, GAO reported that various factors influence whether CI owners and operators participate in voluntary assessments that DHS uses to identify security gaps and potential vulnerabilities, but that DHS did not systematically collect data on reasons why some owners and operators of high-priority CI declined to participate. GAO concluded that collecting data on the reason for declinations could help DHS take steps to enhance the overall security and resilience of high-priority CI crucial to national security, public health and safety, and the economy, and made a recommendation to that effect. DHS concurred and has taken steps to address the recommendation, including developing a tracking system in October 2013 to capture declinations. Establishing guidance for areas of vulnerability covered by assessments. In September 2014, GAO reported that the vulnerability assessment tools and methods DHS offices and components use vary with respect to the areas of vulnerability—such as perimeter security—assessed depending on which DHS office or component conducts or requires the assessment. As a result it was not clear what areas DHS believes should be included in its assessments. GAO recommended that DHS review its vulnerability assessments to identify the most important areas of vulnerability to be assessed, and establish guidance, among other things. DHS agreed and established a working group in August 2015 to address this recommendation. As of March 2016 these efforts were ongoing with a status update expected in the summer of 2016. Addressing the potential for duplication, overlap, or gaps between and among the various efforts . In September 2014, GAO found overlapping assessment activities and reported that DHS lacks a department-wide process to facilitate coordination among the various offices and components that conduct vulnerability assessments or require assessments on the part of owners and operators. This could hinder the ability to identify gaps or potential duplication in DHS assessments. GAO identified opportunities for DHS to coordinate with other federal partners to share information regarding assessments. In response to GAO recommendations, DHS began a process of identifying the appropriate level of guidance to eliminate gaps or duplication in methods and to coordinate vulnerability assessments throughout the department. GAO also recommended that DHS identify key CI security-related assessment tools and methods used or offered by other federal agencies, analyze them to determine the areas they capture, and develop and provide guidance for what areas should be included in vulnerability assessments of CI that can be used by DHS and other CI partners in an integrated and coordinated manner. DHS agreed, and as of March 2016, established a working group to address GAO recommendations. GAO made recommendations to DHS in prior reports to strengthen its assessment efforts. DHS agreed with these recommendations and reported actions or plans to address them. GAO will continue to monitor DHS efforts to address these recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: This section provides context for understanding the history and use of congressional direction for appropriated funds. It traces the development of authority for congressional direction of funds from the U.S. Constitution to the current focus on reducing the number and amount of earmarks in appropriations legislation. The Constitution gives Congress the power to levy taxes and raise revenue for the government, to finance government operations through appropriation of federal funds, and to prescribe the conditions governing the use of those appropriations. This power is generally referred to as the congressional “power of the purse.” The linchpin of congressional control over federal funds is found in article I, section 9, clause 7 of the Constitution, which provides that “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Thus, no officer or employee of the government may draw money out of the Treasury to fund agency operations unless Congress has appropriated the money to the agency. At its most basic level, this means that it is up to Congress to decide whether to provide funds for a particular program or activity and to fix the level of that funding. It is also well established that Congress can, within constitutional limits, determine the terms and conditions under which an appropriation may be used. In other words, Congress can specify (or direct) in an appropriation the specific purposes for which the funds may be used, the length of time the funds may remain available for these uses, and the maximum amount an agency may spend on particular elements of a program. In this manner, Congress may use its appropriation power to accomplish policy objectives and to establish priorities among federal programs. It is then the obligation of the agencies under Presidential supervision to ensure that these policy objectives and priorities are faithfully executed. Historically, the term “earmark” has described legislative language that designates a specified amount of a larger appropriation as available only for a particular object. The term earmark derives from ancient England where English farmers would mark the ears of their swine, oxen, and other livestock to cull them from the village herd and demonstrate ownership. In common usage, however, the term earmark soon developed a broader meaning. There are many definitions of earmarks. For example, our Glossary of Terms Used in the Federal Budget Process defines earmarking as either of the following: 1. Dedicating collections by law for a specific purpose or program. Earmarked collections include trust fund receipts, special fund receipt accounts, intragovernmental receipts, and offsetting collections credited to appropriation accounts. These collections may be classified as budget receipts, proprietary receipts, or reimbursements to appropriations. 2. Designating any portion of a lump-sum amount for particular purposes by means of legislative language. Sometimes “earmarking” is colloquially used to characterize directions included in congressional committee reports but not in the legislation itself. “There is not a single definition of the term earmark accepted by all practitioners and observers of the appropriations process, nor is there a standard earmark practice across all 13 appropriation bills. According to Congressional Quarterly’s American Congressional Dictionary, under the broadest definition ‘virtually every appropriation is earmarked.’ In practice, however, earmarks are generally defined more narrowly, often reflecting procedures established over time that may differ from one appropriation bill to another. For one bill, an earmark may refer to a certain level of specificity within an account. For other bills, an earmark may refer to funds set aside within an account for individual projects, locations, or institutions (emphasis added).” In recent years there has been a significant amount of public discussion about the nature and number of earmarks, with exponential growth reported in the number and amounts. For example, researchers at the Brookings Institution, on the basis of data compiled by CRS, cited dramatic growth in earmarks between 1994 and fiscal year 2006. In fact, CRS data show increases in the number and amount for individual appropriation bills during that period. Any discussion of trends, however, is complicated by the fact that different definitions of the term earmarks exist and that the amounts reported vary depending on the definition used. Although CRS has totaled the number and amount of earmarked spending for each of the regular annual spending bills enacted since fiscal year 1994, CRS has cautioned that the data presented for the 13 appropriations cannot be combined into a governmentwide total because of the different definitions and methodologies that were used for each bill. These differing definitions would make any total invalid. Any definition of the term earmark requires a reference to two other terms in appropriations law—lump-sum appropriations and line-item appropriations. A lump-sum appropriation is one that is made to cover a number of programs, projects, or items. Our publication, Principles of Federal Appropriations Law (also known as the Red Book), notes that GAO’s appropriations case law defines earmarks as “actions where Congress . . . designates part of a more general lump-sum appropriation for a particular object, as either a maximum, a minimum, or both.” Today, Congress gives federal agencies flexibility and discretion to spend among many different programs, projects, and activities financed by one lump-sum appropriation. For example, in fiscal year 2007, Congress appropriated a lump-sum appropriation of $22,397,581,000 for all Army Operations and Maintenance expenses. Many smaller agencies receive only a single appropriation, usually termed Salaries and Expenses or Operating Expenses. All of the agency’s operations must be funded from this single appropriation. A line-item appropriation is generally considered to be an appropriation of a smaller scope, for specific programs, projects, and activities. In this sense, the difference between a lump-sum appropriation and a line-item appropriation is a relative concept hinging on the specificity of the appropriation. Also, unlike an earmark, a line item is typically separate from the larger appropriation. As noted above, in earlier times when the federal government was much smaller and federal programs were (or at least seemed) less complicated, line-item appropriations were more common. For example, among the items for which Congress appropriated funds for 1853 were separate appropriations to the Army, including: $203,180.83 for clothing, camp and garrison equipage, and horse equipment; $4,500 for fuel and quarters for officers serving on the coast survey; and $400,000 for construction and repair. “Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That there be appropriated for the service of the present year, to be paid out of the monies which arise, either from the requisitions heretofore made upon the several states, or from the duties on impost and tonnage, the following sums, viz. A sum not exceeding two hundred and sixteen thousand dollars for defraying the expenses of the civil list, under the late and present government; a sum not exceeding one hundred and thirty-seven thousand dollars for defraying the expenses of the department of war; a sum not exceeding one hundred and ninety thousand dollars for discharging the warrants issued by the late board of treasury, and remaining unsatisfied; and a sum not exceeding ninety- six thousand dollars for paying the pensions to invalids.” From today’s perspective, some might say that this first appropriation contains several lump-sum appropriations. Others might say that these are line-item appropriations for (1) civil servants, (2) department of war, (3) treasury, and (4) pension payments. In any event, these are congressional directives instructing the executive branch on how funds are to be spent. As discussed earlier, this illustrates the definitional difficulties in this area. The second appropriation made by the First Congress for 1791 contained a congressional directive to spend “a sum not exceeding fifty thousand seven hundred and fifty-six dollars and fifty-three cents,” for several specific objects requested by Secretary of the Treasury Alexander Hamilton in his budget estimates, such as converting the Beacon of Georgia into a lighthouse and for the purchase of hydrometers. Today, congressional committees sometimes insert spending directives and restrictions on the use of appropriated funds in what is known as the legislative history of an act—that is, House, Senate, and conference reports accompanying a piece of legislation. As a matter of law, instructions in committee reports and other legislative history as to how funds should or are expected to be spent do not impose any legal requirements on federal agencies. Only directions that are specified in the law itself are legally binding. This does not mean agencies are free to ignore clearly expressed legislative history applicable to the use of appropriated funds. In a 1975 decision, we pointed out that agencies ignore such expressions of intent at the peril of strained relations with committees and that agencies have a practical obligation to abide by such expressions. This obligation, however, must be understood to fall short of a legal requirement giving rise to a legal infraction where there is a failure to carry out that obligation. In that decision, we pointed out that Congress has recognized that it is desirable to maintain executive flexibility to shift funds within a particular lump-sum appropriation account so that agencies can make necessary adjustments for unforeseen developments, changing requirements, and legislation enacted subsequent to appropriations. This is not to say that Congress does not expect that funds will be spent in accordance with budget estimates or in accordance with restrictions or directions detailed in committee reports. However, in order to preserve spending flexibility, it may choose not to impose these particular restrictions as a matter of law, but rather to leave it to the agencies to “keep faith” with Congress. “Congress may always circumscribe agency discretion to allocate resources by putting restrictions in the operative statutes (though not . . . just in the legislative history). And of course, we hardly need to note that an agency’s decision to ignore congressional expectations may expose it to grave political consequences.” There have been numerous calls in and out of Congress for earmark reform. Both Houses of Congress have taken steps to increase disclosure requirements. In January 2007, the President proposed “earmark reforms” in his State of the Union address. These included cutting the number and amount of earmarks by at least half. According to the Office of Management and Budget (OMB), in fiscal year 2005, there were 13,492 earmarks totaling $18,938,657,000 for appropriations accounts. “Earmarks are funds provided by the Congress for projects or programs where the congressional direction (in bill or report language) circumvents the merit-based or competitive allocation process, or specifies the location or recipient, or otherwise curtails the ability of the Administration to control critical aspects of the funds allocation process.” OMB asked agencies to provide earmark information encompassed in all enacted appropriations bills in fiscal year 2005 and in any congressional reports. The guidance to agencies also directed prioritization of data collection to focus first on appropriations bills, since legislative action on those bills typically begins in the spring. In addition, OMB directed agencies to plan on providing information on earmarks in authorizing and other bills that are identified based on consultation with OMB. OMB’s guidance to agencies excludes from its definition of earmarks funds requested in the President’s Budget. OMB posted these data on its Web site and also asked agencies to identify earmarks in fiscal year 2008 appropriations bills as they moved through the legislative process. This request for data asked the heads of departments and agencies to report to OMB the number and dollar value of earmarks in each account within 7 days after an appropriations bill is reported by the House or Senate Appropriations Committee or passes on the House or Senate floor. The Department of Defense (DOD) is responsible for the military forces needed to deter war and protect the security of the United States. The major elements of these forces are the Army, Navy, Air Force, and Marine Corps. DOD includes the Office of the Secretary of Defense (OSD), the Chairman of the Joint Chiefs of Staff, three military departments, nine unified combatant commands, the DOD Inspector General, 15 defense agencies, and 7 DOD field activities. We focused on OSD’s Comptroller; the military services (Army, Navy, Marine Corps, and Air Force); two defense agencies, the Defense Information Systems Agency (DISA) and the Defense Threat Reduction Agency (DTRA); and one combatant command, the U.S. Special Operations Command (SOCOM). DOD has had a procedure in place for many years that identifies and categorizes all congressional directives—which it calls add-ons or items of congressional interest—for programs and projects contained in the bill language included in the appropriations conference report. DOD does not include items in defense authorization bills in its list of add-ons. According to DOD officials, DOD defines an add-on as an increase in funding levels in the bill language included in the appropriations conference report that was not originally requested in the President’s Budget submission. appropriate funds for execution of program directives. DOD follows defense appropriation bills to determine how to execute program directives. Six additional types of add-ons to be excluded were funding for the Global War on Terror, funding for the National Guard and Reserve Equipment (97-0350) appropriations account for procuring equipment, funding for military personnel, funding for peer-reviewed Defense health programs, policy decisions for which DOD submitted its budget request with the best estimate available at the time but for which Congress subsequently adjusted the budget request due to refined estimates provided to it, and items that are being transferred to other accounts that result in a net zero change to DOD’s overall budget. DOD officials provided their rationale for excluding these types of add-ons for fiscal year 2005. According to DOD officials, the funding for the Global War on Terror is specific to providing support to the troops for ongoing combat operations and related activities. In fiscal year 2005, the Global War on Terror was funded primarily through supplemental appropriations rather than through the DOD base budget request. DOD officials stated that the National Guard and Reserve appropriations account to procure equipment (i.e., account 97-0350) was not an earmark because, although its funding was not requested in the President’s Budget, the funding was routinely provided directly by Congress to maximize readiness of the National Guard and Reserve. Congressional add-ons for military personnel appropriated for basic pay and benefits were excluded because these were routine, merit-based administrative costs. Peer-reviewed Defense health programs were not considered earmarks because they were funded based on merit that was determined by a panel of physicians. Policy decisions for which DOD submitted a budget but did not fully fund procurement of an item were excluded because they were based on a preliminary estimate that required additional funding and were not new items. DOD excluded funds that were transferred to other accounts because the funds needed to be aligned with the correct place in the budget before they could be obligated or expended. DOD officials stated that the list of exclusions is guidance for the components to use as they review the congressional add-ons to determine which funds should not be considered earmarks. Components prepared justifications for each add-on they believed should be excluded based on the exclusion criteria. In addition, officials stated that the criteria are evolving and that they are continuing to work with OMB to refine them. Before OMB’s 2007 guidance, DOD had an established process that it continues to use for identifying congressional directives contained in the bill language of the appropriations conference report. In addition, each component routinely monitors the congressional budget cycle and has its own staff (i.e., legislative liaisons and financial management staff) who work with congressional staff to determine, if necessary, the purposes and objectives of congressional directives. In addition, legislative liaisons are responsible for updating their leadership on the status of congressional directives during House and Senate Appropriations Committee markups, floor debates, and the final conference report. Under the procedure DOD has had in place for years, the OSD Comptroller identifies all congressional directives contained in the bill language from the appropriations conference report, which are categorized by budget accounts and components, and provides the relevant list to the appropriate component. In response to OMB’s 2007 guidance, DOD officials described an additional three-step process they used for identifying and categorizing fiscal year 2005 earmarks: 1. Components reviewed the list of congressional directives identified by the OSD Comptroller and applied the agreed-on exclusion criteria, then developed justifications for any congressional directives they identified as earmarks that met the criteria to be excluded, and then provided the revised list of directives and justifications back to the OSD Comptroller. 2. The OSD Comptroller and OMB jointly determined if any further adjustments needed to be made to the list based on their review of the justification provided by the components. 3. After the list was agreed on, an OSD official created the list that was uploaded to an OMB earmarks site for review. OMB approved the list for release to the public site. Figure 1 describes DOD’s process for identifying and categorizing fiscal year 2005 congressional directives in response to OMB’s 2007 data collection effort. Committee markups, floor debates, and the conference report) within 7 days. In addition, the DOD components will have access to the OMB database and will be required to enter the details about the earmarks, including recipient, location, and amount, as well as data on the execution status of their respective earmarks. OSD Comptroller officials said that they will be responsible for providing oversight of this process and will monitor the Web site to ensure that the components populate the database within the required time frames. DOD does not have a centralized tracking and reporting mechanism that shows to what extent funding has been obligated and expended in accordance with congressional directives. DOD component headquarters staff track the amount of funding provided to them for individual congressional directives. Program offices track the execution of funds for the specific programs covered by the directives but are not required to report the status to the components or to the OSD Comptroller’s office. The OSD Comptroller makes an allotment of funding for the congressional directives to the components, and this funding is tracked by the various components’ financial management systems rather than within a centralized system maintained by OSD. We identified the financial management systems for five of the six components that we interviewed. The sixth, SOCOM, at this time uses the department’s Programming, Budgeting, and Accounting System to facilitate the tracking of congressional directives. The systems described by the five components track all budget allotments and include unique codes or other features that identify funds designated for congressional directives for tracking purposes. The financial management systems used by the five components are as follows: The Army uses the Funds Control System to track funds allotted for various directives. The system issues a funding authorization document to the Army operating agencies responsible for implementing the directives. Army officials identified two steps within the process that allow operating agencies to track congressional directives. The remarks section of the funding authorization document includes a statement that identifies the item as a congressional directive, and resource managers give each item an execution code that further facilitates tracking of such directives. congressional directives in the system. This process allows the system to produce reports on such directives for review by program managers, as needed. The Navy’s financial management system is the Program Budget Information System that tracks congressional directives. These directives are tagged and then monitored during execution. The Washington Allotment Accounting System is the financial accounting system used by DISA that provides information on the funding execution of congressional directives. Funding is monitored at the program level by DISA’s Home Team. According to DISA officials, congressional directives are assigned a project code that is linked to the funding documents, such as contracting vehicles, and that code allows DISA to determine that funding for a directive has been spent. DTRA’s financial accounting system is the Centralized Accounts and Financial Resources Management System. According to DTRA officials, congressional directives are given a work unit code in the accounting system that provides the status of funds for these directives through execution. Furthermore, Navy and Air Force officials provided examples of initiatives intended to streamline the process for tracking the status of congressional directives. According to a Navy official, the Navy’s Enterprise Resource Planning System is part of its ongoing business transformation effort, which, among other improvements, is intended to enhance its capability to track congressional directives. Through this integrated system, the Navy plans to include a code that identifies congressional directives through its accounting system. The Air Force Research Lab has developed a process for tracking congressional directives. The lab set up separate account codes, called Emergency and Special Program Codes, to identify the funding that has been allocated for each directive. According to Air Force officials, they are considering a similar tracking model for Air Force-wide implementation. the funding status for the list of congressional directives. Officials we interviewed from the six components said that once funding has been distributed to the program offices, they do not follow up to determine whether the directives are implemented. OMB’s Web site for fiscal year 2005 earmarks did not provide a means to include the implementation status of individual earmarks. According to DOD officials, DOD has asked OMB to include another field that would show the implementation or completion status of congressional earmarks in OMB’s database to facilitate tracking in the future. This field will require DOD components to update information on the Web site beyond the OSD Comptroller’s initial posting of data. DOD does not have a routine procedure for reporting to Congress on the progress being made on individual directives. According to DOD officials, components respond to individual congressional inquiries regarding the status of individual directives. In addition, the legislative liaison coordinates and oversees DOD responses to congressional inquiries on congressional directives as they are received. We interviewed DOD officials who had responsibility for budgeting, financial management, and legislative issues related to congressional directives from six components. Some of the officials stated that they had only been in their positions for a short time and therefore could not comment on the trends and impact of directives on their budget and programs. However, others provided views on how congressional directives affect budget and program execution. Anecdotally, they offered the following views: According to OSD officials, they have not maintained data on whether the number of congressional directives has increased or decreased over time. However, two military service officials commented that in their view there has been an increase in the number of such directives. Congressional directives are viewed as tasks to be implemented and are opportunities to enhance their mission requirements through additional funding in areas that would not have been priority areas because of budget constraints. Congressional directives can sometimes place restrictions on the ability to retire some programs and to invest in others. Restrictions have an effect on the budget because they require the components to support an activity that was not in the budget. There has always been a feeling that the billions of dollars of congressional directives must come from somewhere, but it is not possible to determine whether any specific directive resulted in reducing funding for another program. Congressional directives could tend to displace “core” programs, which according to a DOD official, are programs for which DOD has requested funding in its budget submission. Additional time and effort are required to manage the increasing number of congressional directives. Program execution of congressional directives is delayed in some cases as efforts are made to identify congressional intent. The process for identifying the purposes and objectives of a congressional directive was significantly streamlined in the fiscal year 2008 defense appropriations bill, and it is now easier to determine the source of a directive. The Department of Energy’s (DOE) mission is to promote energy security and scientific and technological innovation, maintain and secure the nation’s nuclear weapons capability, and ensure the cleanup of the nuclear and hazardous waste from more than 60 years of weapons production. DOE’s nine program offices focus on accomplishing various aspects of this mission. We reviewed documentation and interviewed officials in the Office of Budget, which is within the Office of the Chief Financial Officer, and four DOE program offices: the National Nuclear Security Administration (NNSA), Office of Science, Office of Energy Efficiency and Renewable Energy (EERE), and Office of Electricity Delivery and Energy Reliability. Since 2005 DOE has generally defined congressional directives, which it refers to as earmarks, as funding designated for projects in an appropriations act or accompanying conference or committee reports that are not requested in the President’s Budget. These congressional directives specify the recipient, the recipient’s location, and the dollar amount of the award and are awarded without competition. DOE officials said that this definition does not include money appropriated over and above the department’s budget request (also known as “plus ups”) or program direction contained in the act or report language because the department can still develop projects and compete them in following this direction. However, before fiscal year 2005 some DOE program offices considered program direction in committee reports, such as language requesting more research in a certain area, to be earmarks. Officials from DOE’s Office of Budget and program offices separately review the appropriations act and accompanying conference and committee reports to identify and categorize congressional directives by program office. These processes are not recorded in written policy but have generally been in place since fiscal year 2005, according to DOE officials. Once the staff of the Office of Budget and each program office develop their lists, they work together to reconcile any differing interpretations of the act and report language to produce a single list. Program office staff make the final determination on whether a particular provision should be considered a congressional directive. During the course of the fiscal year, this list may change as the Office of Budget or a program office learns more about the intent of the appropriations committee responsible for the direction. The process for identifying and categorizing congressional directives has changed somewhat since OMB issued instructions on earmarks in 2007. According to DOE Office of Budget officials, OMB’s January 2007 definition of earmarks differed from DOE’s definition, and applying OMB’s definition somewhat increased the number of earmarks the department reported to OMB for fiscal year 2005. For example, DOE budget officials said that OMB’s definition of earmarks includes money specified for a particular DOE laboratory, while DOE’s definition does not because DOE maintains some level of control over project objectives and outcomes at these laboratories. These budget officials also said that DOE is planning to adopt OMB’s definition beginning in fiscal year 2008 to identify earmarks to make this process of developing a list of earmarks more uniform. research or demonstration projects under the Energy Policy Act of 2005. They also prepare a Determination for Non-Competitive Financial Assistance to explain why the award will not be competed—a document that requires approval by the relevant program Assistant Secretary. Once these paperwork requirements have been met and a financial assistance agreement (grant or cooperative agreement) is awarded, the recipient can begin withdrawing funds from an account set up for the project or submit requests for reimbursements. During the course of the project, the recipient must submit progress reports and a final report to program officials. Contract management staff in each of the four program offices use administrative databases to track each of their projects, including congressional directives. They use these databases to help manage workload for project officers and to keep track of documentation sent to and received from recipients. Specifically, EERE tracks each of its congressional directives through an Internet-based database. The other three DOE program offices maintain separate, less formal spreadsheets on the congressional directives for their specific programs. These spreadsheets contain background information, such as the project’s purpose, dollar amount, and recipient. These spreadsheets are not part of a larger DOE tracking system. In addition, the program offices do not prepare regular reports on congressional directives and generally only follow up on the status of a particular congressional directive if they receive an inquiry from the appropriations committee. DOE Budget Office officials told us that the departmentwide accounting system, the Standard Accounting and Reporting System, cannot generate reports specifically on congressional directives for the department. This is because DOE’s program offices differ in the way they assign accounting codes to congressional directives. For example, while EERE assigns an individual accounting code to each directive, NNSA generally does not. recipient of congressional directives in prior years that sought continued funding in fiscal year 2007 to submit an application for a formal merit review by the department because (1) the resolution directed all federal departments (including DOE) to disregard fiscal year 2006 congressional directives, cutting off funding for any multiyear directives from previous years, and (2) no committee reports, which are the primary source of the department’s congressional directives, accompanied the continuing resolution. As a result of this policy, program officials from the Office of Science told us that they received few applications for continued funding in fiscal year 2007. The department funded substantially fewer congressional directives compared to previous years. DOE officials stated that through fiscal year 2006 the number of congressional directives had increased, and that this growth limited the ability of certain program offices to develop and implement their strategic goals. DOE officials said that the number of congressional directives began a steady rise in the late 1990s that continued through fiscal year 2006. As noted earlier, they said that because of the continuing resolution there were far fewer projects in fiscal year 2007 that were associated with congressional directives. In terms of the types of congressional directives awarded since the late 1990s, DOE officials from two program offices said that there were “hot topics” that garnered attention at certain times. For example, an official from EERE—which had the highest dollar value of congressional directives among DOE program offices—told us that there were directives in recent years to fund fuel cell research at specific facilities. DOE program officials reported that implementing congressional directives imposed a high administrative burden. For example, many officials reported that it takes longer to process and award congressional directives because DOE personnel need to educate some recipients on DOE’s processes, such as how to submit an application and comply with DOE’s reporting requirements and the applicability of cost-sharing requirements. To help address this issue, EERE invites all recipients of congressional directives to a presentation at DOE headquarters for an overview of the process. EERE and the Office of Electricity Delivery and Energy Reliability said that they were not appropriated additional dollars to fund congressional directives. These program officials told us that their ability to accomplish their strategic goals has been limited because congressional directives make up a large percentage of their budget and it is often difficult to align the outcomes of congressional directives with these goals. The Department of Transportation (DOT) implements and administers most federal transportation policies through its 10 operating administrations. These operating administrations are generally organized by mode and include highways and transit. The operating administrations are responsible for independently managing their programs and budgets to carry out their goals as well as those of the department. As such, DOT has delegated the responsibility for identifying, categorizing, tracking, and reporting on congressional directives to its operating administrations. The Federal Highway Administration (FHWA) is responsible for the highway program, and the Federal Transit Administration (FTA) is responsible for the transit program. While FHWA and FTA carry out some activities directly, they, like many other DOT operating administrations, do not have direct control over the vast majority of the activities they fund through grants, such as constructing transportation projects. The recipients of transportation funds, such as state departments of transportation, are responsible for implementing most transportation programs and congressional directives. The federal highway and transit programs are typically funded through multiyear authorization acts, such as the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) and its predecessor, the Transportation Equity Act for the 21st Century (TEA-21). These authorization acts, which are subject to the annual appropriations process, set the upper funding limit for the federal highway and transit programs. Both the authorization and appropriations acts contain congressional directives for the federal highway and transit programs. See figure 2 for additional information on the mission and organizational structure of FHWA and FTA. Section 4: Department of Transportation: Highways and Transit FHWA provides financial and technical support to states and localities for constructing, improving, and preserving the national highway system through its headquarters office and 52 federal-aid division offices (division offices). Division offices are located in every state, as well as the District of Columbia and Puerto Rico, and provide front-line delivery assistance in the areas of highway transportation and safety services. FTA supports locally planned and operated mass transit systems throughout the United States through its headquarters office and 10 regional offices. The regional offices work with local transit officials in developing and processing grant allocations, providing technical assistance, and monitoring projects. DOT’s definition of congressional directives, which it refers to as earmarks, has remained generally consistent over a number of years and mirrors OMB’s definition. Although DOT has not issued guidance on the definition of earmarks to its operating administrations, DOT officials said that they expect the operating administrations to follow OMB’s definition. Although FHWA’s and FTA’s definitions are generally consistent with OMB’s definition, there are a few differences, specifically: FHWA defines earmarks as designations that specify a recipient, purpose, and total funding amount. FHWA officials told us that they consider their definition narrower in scope than OMB’s definition because OMB does not require an earmark to contain all three elements (i.e., recipient, purpose, and total funding amount). FHWA distinguishes between statutory designations that are binding on the agency and nonstatutory designations identified in congressional reports that are not binding on the agency. FHWA officials did not change their definition of earmarks after the release of OMB’s guidance in 2007. FHWA officials told us that they honored fiscal year 2007 statutory designations and handled nonstatutory designations in accordance with the OMB guidance. definition would capture New Starts projects, which are typically designated in both the President’s Budget and legislation. OMB’s definition would not capture the New Starts projects, if the projects and funding levels designated by Congress match the projects and funding levels designated in the President’s Budget. FTA officials did not change their definition of earmarks after the release of OMB’s guidance in 2007. DOT has delegated the responsibility for identifying and categorizing congressional directives to its operating administrations. FHWA has further delegated the responsibility for identifying and categorizing congressional directives to its program offices. For example, the Office of Infrastructure is responsible for identifying congressional directives in the High Priority Projects program—which falls under this office’s purview. When identifying congressional directives, FHWA categorizes them as statutory, nonstatutory, or hybrids. apportionments and allocations. Both FHWA and FTA officials told us that they comply with nonstatutory congressional directives that meet eligibility requirements to the extent possible—although they are not required to do so. FHWA uses an electronic system to track congressional directives. FHWA’s Office of the Chief Financial Officer and program offices collaborate to track most congressional directives. Staff in FHWA’s Office of the Chief Financial Officer enter projects into the tracking system after receiving requests from program offices for project identification numbers. Once congressional directives are entered into the system, they are not tracked separately from other projects, such as those funded by formula. The program offices then send memorandums to FHWA division offices to notify them of the total amount of funds available for each project. Officials from FHWA division offices and state departments of transportation with whom we spoke have access to FHWA’s system and may also track congressional directives using their own systems. Officials in these offices said that they also maintain their own tracking systems to improve their staff’s and the public’s access to data and to corroborate data in the federal tracking system. was added to the system in 2006, in part, to track what they described as the growing number of congressional directives. FHWA and FTA do not typically implement congressionally directed projects. Rather, they provide funds through grants, and state and local agencies generally implement the highway and transit congressional directives in carrying out their programs. Specifically, FHWA division offices and FTA regional offices administer and obligate funds for projects, including congressionally directed projects, to grant recipients and respond to questions from recipients on issues related to eligibility and transferability, among other things. In turn, the grant recipients implement congressional directives. Figure 3 illustrates the processes used by FHWA and FTA to identify, track, and implement congressional directives. “clarification letters” that are periodically sent to DOT from congressional committees. These letters are jointly signed by the House and Senate appropriations subcommittees and provide clarification on how Congress would like to see directed funds used. DOT provides the responsible operating administrations, such as FHWA or FTA, with these letters and coordinates responses on whether the operating administration can comply with the request. In addition to responding to specific requests from congressional committees, DOT also communicates some general funding information on congressional directives to Congress. For example, as required by law, DOT notifies the relevant House and Senate Committees prior to announcing a discretionary grant, letter of intent, or full funding grant agreement totaling $1 million or more. In addition, FTA reports to Congress at the end of each fiscal year on all projects with unobligated funds that have reached the end of their availability period. FHWA officials, as well as officials from the state departments of transportation with whom we spoke, stated that the number and value of directives, notably high-priority projects, increased substantially from TEA-21 (1998 to 2003) to SAFETEA-LU (2005 to 2009). FHWA officials provided documentation that showed that the number of High Priority Projects listed in SAFETEA-LU was almost triple that of the number of projects listed in TEA-21. FTA officials also stated that the number and value of authorization and appropriations directives in transit programs increased between TEA-21 and SAFETEA-LU. SAFETEA-LU. FHWA officials further noted that congressional directives can be inconsistent with states’ transportation priorities, particularly if the congressional directives are for projects outside of their statewide transportation programs. Officials from one state department of transportation noted that although many congressional directives in SAFETEA-LU were requested by the state, about one-third of the congressional directives did not have statewide benefits or serve an eligible highway purpose. A senior FTA official also noted that congressional directives may result in the displacement of projects that FTA views as being a higher priority and ready for implementation with projects that are a lower priority for FTA. For example, some New Starts congressional directives provide funding for projects that are not yet ready for implementation, delaying the implementation of FTA’s higher-priority projects that are scheduled to receive federal appropriations. FTA officials said that roughly 85 to 90 percent of the congressional directives received in the New Starts program are for projects that FTA has recommended for funding in its budget. One FTA official also acknowledged that some congressional directives provide funding for projects that FTA has identified as priorities in its research program and were included in the President’s Budget, although the majority of directives were not requested and displaced research activities FTA identified as being of higher priority. funding in a merit-based selection process. FTA officials also told us that congressional directives sometimes provide funding for projects that would otherwise be considered ineligible, such as directives to construct parking garages with transit funding. Officials from FHWA division offices and FTA noted that in some cases, the language of congressional directives makes it difficult to implement projects. For example, an official from one FHWA division office noted that some congressional directives for the state contained language that was either too specific and was therefore inconsistent with the purposes and objectives of the local sponsor or contained language that made the project ineligible because it did not meet certain federal regulations. According to agency officials, in these cases, a technical corrections bill must be passed before the projects can be implemented, delaying implementation of the projects. Officials we spoke with from three state departments of transportation also noted that inflexibilities in the use of congressionally directed funds limit the states’ ability to implement projects and efficiently use transportation funds by, for example, providing funding for projects that are not yet ready for implementation or providing insufficient funds to complete particular projects. An official from one state department of transportation noted that although congressional directives can create administrative challenges, they often represent funding that the state may not have otherwise received. FHWA and FTA officials noted that the growth in the number of congressional directives has increased the time and staff resources needed to identify and track projects. For example, FHWA officials noted that relative to their proportion of the budget, they devote a higher percentage of time to administering congressional directives than other projects. Similarly, officials from FHWA division offices stated that they spend a substantial amount of time working with the state to determine whether projects meet federal eligibility requirements, respond to questions of transferability, and provide assistance to the state for projects that were not included in their state transportation plan. FTA officials noted that some recipients of a congressional directive are unaware of the directive and may decide to use the grant for another purpose, making it difficult to obligate funds within the 3-year availability period. Through its Civil Works programs, the U.S. Army Corps of Engineers (Corps) investigates, develops, and maintains water and related environmental resources throughout the country to meet the agency’s navigation, flood control, and ecosystem restoration missions. Headquartered in Washington, D.C., the Corps has eight regional divisions and 38 districts that carry out its domestic civil works responsibilities. Figure 4 shows the Corps’ divisions and districts. The Corps has identified congressional directives for many years for project implementation purposes. The Corps has used the term adds to identify some congressionally directed projects. According to Corps budget officials, congressional directives are defined by the agency as any of the following changes to requests made in the President’s Budget: an increase or decrease in funding levels for a budgeted project, the funding of a project that was not included in the President’s Budget, and any project that has language in a committee or conference report or in statute that restricts or directs the Corps on how to spend funds. Corps officials told us that this definition is consistent with the definition of earmarks in OMB’s 2007 guidance, except that an earmark is a restriction or specification on the use of funds, while a congressional directive can be simply an increase or decrease in funding for a budgeted project. For project implementation purposes, the Corps has continued to identify congressional directives in the same manner as it did before OMB issued its guidance. that a separate effort was needed because (1) OMB required information that was not available from the Corps’ normal process for identifying congressional directives and (2) the Corps had only a short time to respond to the request. The program manager responsible for responding to OMB identified the fiscal year 2005 earmarks using appropriations bills and conference reports. To complete the OMB request, the program manager supplemented this information with some project-level details, such as the name of the nonfederal sponsor, which the manager obtained from the relevant districts, according to Corps officials. These officials also said that the results of the program manager’s work were reviewed by Corps managers before the information was submitted to OMB. The Corps identifies all congressional directives included in appropriations statutes, bills, and related conference reports each year and routinely makes this information available to its headquarters and division and district staff, according to Corps officials. With the assistance of the district offices, officials in each of the Corps’ divisions develop spreadsheets identifying the congressional directives in their region by examining the language in appropriations committee reports, the conference report, and the appropriations statute and comparing this language to the President’s Budget. According to Corps budget officials, most congressional directives receive no special attention because they are generally categorized as being in compliance with the Administration’s budget policy and the Corps’ policy (i.e., increased funding provided to projects included in the President’s Budget). not provide the nonfederal sponsor with credit for work completed before the nonfederal sponsor enters into an agreement with the Corps. For the congressional directives that require additional discussion on how the Corps will implement the projects, the divisions prepare fact sheets. Table 1 shows the various types of information provided with each fact sheet. submits all prepared fact sheets with the recommended implementation plans to Corps headquarters and the Office of the Assistant Secretary of the Army for Civil Works for their review. Each division then has a teleconference with these headquarters officials to discuss and approve the plans. Most implementation plans are completed at this stage. For the fact sheets with unresolved issues, each division holds a videoconference with officials from headquarters and the Assistant Secretary’s office. Attendees for each videoconference include senior executives from the Corps and the Office of the Deputy Assistant Secretary of the Army for Management and Budget. After this videoconference, each division incorporates changes to its implementation plan and resubmits it for final approval by headquarters and the Assistant Secretary. Corps headquarters releases the associated funding for all projects to the districts immediately after the agency receives its appropriation. Corps officials said that while the implementation plans are being discussed for projects with unresolved issues, the districts may obligate funds for certain activities that do not conflict with Administration budget policy or Corps policy. Once the implementation plans are completed, the districts will continue to execute remaining aspects of the plans. However, according to a Corps official, there are a few instances in which the Corps does not execute the project. These instances may occur, for example, when (1) funds are appropriated for the project, although funds had not previously been authorized; (2) the project was authorized, but the authorized spending limit had already been reached; or (3) the Corps was directed to continue a feasibility study, but the agency found that the least costly alternative was to relocate the affected facilities and the local sponsor was not interested in continuing the study. In such situations, the districts are generally responsible for informing individual Members of Congress about the decisions affecting their respective jurisdictions, and Corps headquarters notifies the relevant congressional committees. According to Corps officials, the Corps does not have a separate approach for tracking, implementing, and reporting on projects generated from congressional directives. Instead, all projects are managed in the same manner for tracking, implementation, and reporting purposes. The procedures are detailed in a manual that establishes the Corps’ project management practices. For example, all Corps projects require a written project management plan that details how the project will be accomplished. A Corps official stated that the process does not include a distinct method for reporting on the status of directives to Congress or any of its committees or members. The Corps does not analyze trends in congressional directives, and there was no consensus among the officials we spoke with on trends in the number of these directives. While some Corps officials told us that they believe the overall number of congressional directives has remained at about the same level for the last decade, another Corps official told us that he believes the number of congressional directives has increased throughout the decade. This official stated that in recent years Congress has added a number of projects that the Corps labels as “environmental infrastructure projects” that are outside the scope of the Corps’ historic missions. Those projects included building sewage treatment plants and water supply facilities, revitalizing local waterfronts, and maintaining waterways primarily for local recreation. The Chief of the Programs Integration Division, who is responsible for the Civil Works budget, estimated that these types of congressional directives are a small portion of the Corps’ Civil Works program budget. If the Corps categorizes a congressional directive as being inconsistent with the Administration or Corps policy, the Corps will not budget for the project in subsequent fiscal years. Officials said that they believe this could potentially increase the Corps’ backlog of incomplete projects. Congressional directives are more difficult to plan and schedule for execution in advance compared with projects included in the President’s Budget. Officials said that this is because it is more difficult to develop an accurate project timeline because of the greater uncertainty about future funding levels for these projects. Congressional directives may make it more difficult for the Corps to predict and manage full-time equivalent (FTE) levels and allocations from year to year. Even though congressional directives increase the Corps’ budget authority, the Corps generally establishes FTE levels using the President’s Budget much earlier in the year. Because the number and regional focus of congressional directives can change from year to year, the Corps faces some uncertainty about whether it will have adequate staff in the right locations to manage the project workload of each district in response to the changing nature of the congressional directives. Our objectives were to identify for selected agencies (1) the process for identifying and categorizing congressional directives; (2) the process for tracking, implementing, and reporting on congressional directives; and (3) agency officials’ views on the trends and impact of congressional directives. The selected agencies were the Department of Defense (DOD), the Department of Energy (DOE), the Department of Transportation (DOT), and the U.S. Army Corps of Engineers’ Civil Works programs (Corps). These agencies cover a range of characteristics concerning congressional directives, including the number of congressional directives. DOD received the largest number of reported congressional directives and made up 55 percent of discretionary appropriations for fiscal year 2006. We focused our review on the relationship between the Office of the Secretary of Defense’s Comptroller and the components (i.e., military services, defense agencies, and combatant commands) and how the components internally process and account for congressional directives. Specifically, we focused on the Army, Navy, Marine Corps, and Air Force; the Defense Information Systems Agency and the Defense Threat Reduction Agency; and the U.S. Special Operations Command. DOE generally receives congressional directives in reports that accompany annual appropriations acts. Congressional directives are spread across DOE’s programs, with some programs reporting that congressional directives make up a large portion of their budgets. We focused our review on the following program offices that oversee the majority of DOE’s congressional directives: the National Nuclear Security Administration (NNSA), the Office of Energy Efficiency and Renewable Energy (EERE), the Office of Electricity Delivery and Energy Reliability, and the Office of Science. DOT receives congressional directives contained in multiyear transportation authorization acts. We focused our review on the surface transportation programs administered by the Federal Highway Administration (FHWA) and Federal Transit Administration (FTA) because of the level of funding authorized in the current surface transportation authorizing legislation, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), and the number of congressional directives contained in this legislation for these programs. The Corps’ Civil Works programs maintain a wide range of water resources projects, including flood protection, navigation, or other water- related infrastructure. Under some definitions of directives, the Corps’ appropriations could be characterized as consisting largely of directives. We assessed the reliability of the agencies’ data on congressional directives tracking by speaking with knowledgeable officials using a common set of questions about their past and current definitions of congressional directives for purposes of identifying and tracking such directives. We learned that the definitions—both across and, sometimes, within agencies—were not consistent. Therefore the data cannot be used for making comparisons across agencies or showing trends over time, nor can the data from different agencies be aggregated. This review provides information on the processes described to us by officials at the selected agencies. The information provided is not generalizable beyond the four agencies. In addition, we did not evaluate the agencies’ processes for compliance with the Office of Management and Budget’s (OMB) guidance on earmarks, memorandum M-07-09. To identify the selected agencies’ processes for identifying and categorizing congressional directives, we first had to determine how they identified directives (i.e., how they defined them) as well as whether the definition changed after the January 25, 2007, issuance of the OMB guidance. We determined the extent to which the agencies had established processes for identifying and categorizing congressional directives (e.g., by organization, program, location, statute or report, type of directive, or type of impact). To do so, we reviewed the selected agencies’ policies and guidance for identifying and categorizing congressional directives, including the source of these directives before fiscal year 2007 (e.g., statute or conference report). We also interviewed knowledgeable agency officials in budget, program, and congressional affairs offices. At DOD, we interviewed officials from the Office of the Secretary of Defense Comptroller’s office and budget officials from components to obtain information on how congressional directives are implemented as well as to obtain their views on the impact of congressional directives on their budget and program execution. We also interviewed officials responsible for legislative affairs who support budget officials in determining congressional intent of congressional directives. At DOE, we spoke with officials from NNSA, the Office of Science, EERE, the Office of Electricity Delivery and Energy Reliability, and the Office of Budget in the Office of the Chief Financial Officer. We also spoke with officials from some of the site offices that help the program offices implement and track congressional directives. At DOT, we spoke with officials from the Office of the Secretary, FHWA, and FTA. Because implementation is handled at the division and state levels, we also interviewed officials from FHWA division offices and state departments of transportation in Alaska, Florida, and Maine. We selected the division offices and states to interview based on the number of congressional directives in SAFETEA-LU as well as the level of oversight and involvement of those division offices and states in the administration of congressional directives. At the Corps, we spoke with the Chief of the Programs Integration Division, who is responsible for the Civil Works budget, and other officials responsible for identifying earmarks for OMB and congressional directives for the Corps’ routine management process. To identify the selected agencies’ processes for tracking, implementing, and reporting on congressional directives, we reviewed agency documents related to available data or databases used for tracking and reporting on congressional directives. We also reviewed agency guidance or written protocols to demonstrate actions taken to implement congressional directives. In addition, we also interviewed the relevant agency officials from the units of the selected agencies we previously discussed. To obtain their views on the trends and impact of congressional directives on agency programs, we spoke with knowledgeable agency officials from the selected agencies using similar questions. Because we assessed agencies’ data on congressional directives to be insufficiently reliable for the purposes of comparing across agencies and showing trends over time, we could not analyze trend data.

In recent years, congressional concern and public debate have increased about the nature and growing number of earmarks. This report seeks to provide Congress and the public with an understanding of how agencies respond to congressional funding directions by examining how selected executive branch agencies translate these directions from Congress into governmental activities. There have been numerous calls in and out of Congress for earmark reform in response to concerns about the nature and number of earmarks. Both Houses of Congress have taken steps to increase disclosure requirements. The President has also called for earmark reform. In January 2007, the Office of Management and Budget (OMB) directed agencies to collect and submit data to it on fiscal year 2005 earmarks in appropriations bills and certain authorization bills. GAO collected and analyzed information on four agencies' processes (i.e., the Department of Defense, Department of Energy, Department of Transportation, and U.S. Army Corps of Engineers' Civil Works programs). Our objectives were to identify, for these agencies, (1) their processes for identifying and categorizing congressional directives; (2) their processes for tracking, implementing, and reporting on congressional directives; and (3) agency officials' views on the trends and impact of congressional directives. Congress or its committees may use formal vehicles to provide written funding instructions for agencies or to express preferences to agencies on the use of funding. These formal vehicles include statutes (i.e., authorization or appropriations acts) or House, Senate, and conference reports comprising significant parts of the legislative history for a given statute. Often referred to as "earmarks," these written instructions range from broad directions on policy priorities to specific instructions. The U.S. Constitution gives Congress the power to levy taxes, to finance government operations through appropriations, and to prescribe the conditions governing the use of those appropriations. This power is referred to generally as the congressional "power of the purse" and derives from various provisions of the Constitution. Government agencies may not draw money out of the Treasury to fund operations unless Congress has appropriated the money. At its most basic level, this means that it is up to Congress to decide whether to provide funds for a particular program or activity and to fix the level of that funding. It is also well established that Congress can, within constitutional limits, determine the terms and conditions under which an appropriation may be used. In this manner, Congress may use its appropriation power to accomplish policy objectives and to establish priorities among federal programs. Our review of four federal agencies' processes for responding to written directives from Congress regarding the use of funds found that each of the selected agencies responds to congressional directives in a manner consistent with the nature of its programs and operations and in response to the desires of its own authorizing and appropriations committees in Congress. Agencies differ in terms of the specific processes followed to respond to congressional directives, and they have also adopted their own approaches for responding to the 2007 request for data on earmarks from OMB. OMB's guidance to agencies excludes from its definition of earmarks funds requested in the President's Budget. With a few exceptions, officials representing the selected agencies generally expressed the view that the number of congressional directives had increased over time. Agency officials provided a range of views on the impact of congressional directives on budget and program execution. Some agency officials said that congressional directives had a limited impact on their mission requirements or ability to accomplish their goals. Other agency officials reported that implementation of these directives can displace agencies' program priorities as the agencies redirect resources to comply with these directives. Some told us that congressional directives provided money for projects they wanted but had been unable to get funded through budget requests. Agency officials also reported that directives can add uncertainty as agencies respond to congressional priorities identified months later than their planning for items in the President's Budget

You are an expert at summarizing long articles. Proceed to summarize the following text: This section describes (1) DOE’s project management requirements for capital asset projects and cleanup projects, (2) TRU waste operations at Area G, (3) the TRU waste removal project, (4) the TWF construction project, and (5) GAO’s Cost Guide. DOE has established separate project management requirements for its capital asset projects and certain cleanup projects defined as operations activities. DOE’s project management order for capital asset projects, Order 413.3B, establishes the requirements for managing capital asset projects, and EM’s Operations Activities Protocol establishes the requirements for managing cleanup projects defined as operations activities. The TRU waste removal project is a cleanup operations activity and is subject to EM’s Operations Activities Protocol, whereas the TWF is a capital asset construction project and must be carried out in accordance with Order 413.3B. DOE’s project management order for capital asset projects, Order 413.3B, applies to all capital asset projects with a total project cost greater than or equal to $50 million. Capital asset projects include construction projects that build large complexes that often house unique equipment and technologies such as those that process TRU waste or other radioactive material. DOE’s order establishes a process for NNSA and other DOE offices to manage projects, from identification of need through project completion, with the goal of delivering projects within the original performance baseline that are fully capable of meeting mission performance and other requirements, such as environmental, safety, and health standards. In particular, the order defines five major milestones— or Critical Decision (CD) points—that span the life of a project: CD-0: Approve mission need. DOE identifies a credible performance gap between its current capabilities and capacities and those required to achieve the goals defined in its strategic plan. The mission need translates this gap into functional requirements. DOE formally establishes a project and begins the process of conceptual planning and identifying a range of alternative approaches to meet the identified need. CD-1: Approve alternative selection and cost range. DOE completes the conceptual design and selects its preferred approach based on analysis of life-cycle costs, and approves the project’s preliminary cost range to complete the project’s design and construction. CD-2: Approve the performance baseline. A project’s performance baseline consists of key cost, scope, schedule, and performance parameter targets. The project’s scope defines the technical goals and requirements that the project is to deliver at completion. The performance baseline cost includes the entire project budget, or total project cost, and represents DOE’s commitment to Congress. At this milestone, DOE completes its preliminary design and develops a definitive cost estimate that is a point estimate and no longer a range. CD-3: Approve the start of construction. Design and engineering are essentially complete and have been reviewed, and project construction or implementation begins. CD-4: Approve the start of operations or project completion. For construction projects, at this milestone, DOE completes the project and begins the transition to operations. DOE’s project management order for capital asset projects specifies the requirements that must be met, including for developing project cost estimates, along with the documentation necessary, to move a project past each CD point. In addition, the order requires senior management to review the supporting documentation and decide whether to approve the project at each CD point. DOE also provides suggested approaches for meeting the requirements contained in the order through a series of guides, such as guides for cost estimating and project reviews. The life-cycle cost estimate data are maintained in EM’s Integrated Planning, Accountability, and Budgeting System and are used to develop DOE’s reported environmental liability. performance and, if practical, how that performance affects the life- cycle cost estimate and contract period of performance baseline. Before 1970, TRU waste generated at LANL was managed as low-level radioactive waste and was disposed of at Area G in pits and trenches along with hazardous waste. In 1970, in response to concerns that TRU waste remained radioactive for an extremely long time and scientific research recommending deep geologic disposal for this waste, the Atomic Energy Commission––a DOE predecessor––directed sites that generated TRU waste to begin segregating it from other waste and storing it in retrievable packages for an interim period, pending disposal in a repository. As a result of the directive, starting in the early 1970s, the TRU waste generated at LANL was stored in segregated TRU waste pits and trenches and aboveground in fabric domes so that it could be more easily retrieved when a permanent repository site opened. (see fig. 1). Today, Area G serves as LANL’s primary location for storing and processing TRU waste. Both legacy and newly generated TRU waste are stored and processed for shipping to WIPP at facilities in Area G. TRU waste operations at Area G include the following processes: packaging waste into 55-gallon drums or other approved containers following DOE standards, called waste acceptance criteria, to protect human health, safety, and the environment during the waste’s transport to and disposal in WIPP; repackaging containers if they are found to not meet WIPP’s waste acceptance criteria; resizing large waste using methods such as cutting it into smaller pieces so that it can be placed into approved containers; characterizing the waste by using specialized scanning equipment to assess the contents of each waste container and the amount of radioactivity it contains; and certifying the waste to declare that it meets WIPP’s waste acceptance criteria. Starting in 2011, NNSA and the New Mexico Environment Department agreed to significant changes in the strategy for completing the TRU waste removal project. In that year, a wildfire occurred near Area G, resulting in increased public concern about the risk posed by the TRU waste stored aboveground at Area G. To address this risk, in 2012, NNSA and the New Mexico Environment Department reached a voluntary agreement, called the Framework Agreement, which established a June 2014 deadline for the accelerated removal of 3,706 cubic meters of aboveground TRU waste at a high risk from wildfires. To meet this deadline, NNSA initiated an effort know as the “3706 Campaign.” To facilitate this campaign, the New Mexico Environment Department and DOE agreed to extend other deadlines established under the 2005 Consent Order governing hazardous waste cleanup activities for locations across LANL. With these deadlines extended, NNSA was able to reallocate EM funding for environmental cleanup activities at LANL to focus on the 3706 Campaign. Using the additional funds, NNSA increased the TRU waste processing capacity at LANL by constructing more facilities for repackaging waste and hiring additional contractors to operate the facilities 7 days a week. Under the Framework Agreement, NNSA also agreed to remove the remaining aboveground TRU waste at Area G and developed a schedule for removing the belowground TRU waste at Area G by September 30, 2018. According to NNSA officials, part of the plan in establishing the Framework Agreement was that, once the 3706 Campaign was completed, NNSA and the New Mexico Environment Department would discuss renegotiating the final completion date for the Consent Order. On May 30, 2014, DOE announced that NNSA had completed the removal of about 93 percent of the TRU waste included in the 3706 Campaign but would not meet the June 2014 deadline because of the department’s decision to halt the TRU waste removal project. As noted previously, DOE halted the project at LANL in February 2014, in response to an incident at WIPP that involved a LANL TRU waste container that ruptured and leaked radioactive material while in storage. The TWF project is to replace NNSA’s existing capabilities that reside at Area G for storage, characterization, and certification of newly generated TRU waste at LANL. The TWF design includes multiple buildings for waste storage, waste characterization, and operational support. The facility will also have space and utility hookups for three mobile trailers to be provided by WIPP that will contain additional characterization capabilities needed to certify that TRU waste containers meet WIPP waste acceptance criteria (see fig. 2). The TWF is being designed and constructed as a high-hazard nuclear facility, which must meet nuclear safety standards for storage and handling of nuclear waste. Nuclear safety design features of the TWF include a barrier to prevent large vehicles from crashing into the facility, a seismic power cutoff switch designed to reduce possible sources of fire that could result from an earthquake, and a tank to store water to help suppress any earthquake- initiated fire. NNSA’s Office of Defense Programs, which is the program office responsible for maintaining the nation’s nuclear weapons stockpile, is sponsoring the TWF project. The office provides the annual funding for planning and construction and approves the project’s milestones. NNSA’s Office of Acquisition and Project Management is responsible for overseeing the construction of the TWF within NNSA’s approved cost and schedule estimates. To do so, the office provides direction and oversight of NNSA’s management and operating contractor at LANL. NNSA divided the TWF project’s design and construction into two subprojects: site development and facilities construction. NNSA completed the site development activities, which included relocation of utility lines, as well as excavation and grading to prepare the site for the facility’s construction, in December 2012, at a cost of $7.7 million. In February 2013, NNSA approved the project’s CD-2 performance baseline estimate of $99.2 million to construct the TWF with a completion date between April 30, 2016, and January 31, 2018. As mentioned previously, NNSA also estimated that the facility will cost $300 million to operate and maintain for its projected useful life of 50 years, spanning 2018 through 2068. In combination, NNSA’s estimated life-cycle costs for the TWF when it approved the project’s performance baseline to complete construction at CD-2 totaled about $406.9 million. Drawing from federal cost-estimating organizations and industry, the Cost Guide provides best practices about the processes, procedures, and practices needed for ensuring development of high-quality—that is, reliable cost estimates.characteristics of a high-quality, reliable cost estimate: The Cost Guide identifies the following four Comprehensive when it accounts for all life-cycle costs associated with a project, is based on a completely defined and technically reasonable plan, and it contains a cost estimating structure in sufficient detail to ensure that costs are neither omitted nor double- counted; Well-documented when supporting documentation explains the process, sources, and methods used to create the estimate and contains the underlying data used to develop the estimate; Accurate when it is not overly conservative or too optimistic and is based on an assessment of the costs most likely to be incurred; and Credible when a sensitivity analysis has been conducted, the level of confidence associated with the point estimate has been identified through the use of risk and uncertainty analysis, and the point estimate has been cross-checked with an independent cost estimate (ICE). To develop a cost estimate that embodies these four characteristics, our Cost Guide lays out best practice steps. For example, one step in developing an accurate estimate is to identify and document ground rules that establish a common set of agreed-on estimating standards and solid assumptions that are measurable, specific, and consistent with historical data. According to the Cost Guide, it is imperative that cost estimators brief management on the ground rules and assumptions used for an estimate so that management understands the conditions the estimate was structured on and can avoid overly optimistic assumptions. NNSA’s TRU waste removal project at LANL did not meet its 2006 cost estimate and is not expected to meet the 2009 cost estimate established for the completion of the project. During our review, NNSA and EM were in the process of developing a new cost estimate for the project. The TRU waste removal project has not met its past cost estimates, partly because the 2006 and 2009 cost estimates were based on aggressive funding assumptions to meet the deadlines of the Consent Order. In addition, because NNSA did not maintain or use two of the three project baselines outlined in its cleanup project requirements, it could not measure the progress of the total project. As of the end of fiscal year 2014, NNSA had spent about $931 million on the project, which exceeded the 2006 cost estimate of $729 million by $202 million (see fig. 3). The amount expended by the end of fiscal year 2014 did not exceed the $1.2 billion upper range of the 2009 cost estimate, but it did exceed the $848 million lower range of the estimate by $83 million. As of July 2014, the most recent date for which data were available, NNSA had removed approximately 79 percent of the TRU waste at LANL; however, the remaining 21 percent includes the waste buried belowground, which will be the most difficult and expensive to address, according to NNSA officials. The new fiscal year 2015 draft estimate, currently under review by NNSA and EM, projects that the final project costs will be approximately $1.6 billion, or $400 million above the upper range of the 2009 cost estimate. NNSA’s TRU waste removal project exceeded the 2006 cost estimate and is not expected to meet the 2009 cost estimate, in part, because NNSA and EM developed the cost estimates using aggressive project funding assumptions that were based on the need to meet the Consent Order requirement for closing Area G by 2015, according to NNSA and EM officials. For the 2006 cost estimate, NNSA officials overseeing the TRU waste removal project developed the parameters of the project estimate based on the need to remove almost all of the TRU waste by 2012. In particular, to meet these deadlines, NNSA based its cost estimate on funding projections provided by EM that were consistent with meeting the Consent Order deadline and that assumed that EM would increase the yearly funding for environmental cleanup projects at LANL. According to NNSA and EM officials, they recognized that the funding assumptions used in the cost estimate were aggressive and that significant funding shortfalls would inhibit the TRU waste removal project’s ability to remain on schedule. From fiscal year 2006 through fiscal year 2008, EM provided approximately $457 million—$284 million (38 percent) less than the amount requested by NNSA officials for all cleanup activities at LANL—and, as a result, it was not possible to fund the TRU waste removal project at the levels established in the 2006 estimate. According to NNSA officials, EM was unable to increase the funding for LANL cleanup projects due to limited budget flexibility and competing demands from cleanup projects at other DOE sites. In a 2008 report on LANL’s cleanup efforts, DOE’s Inspector General found that EM did not have enough money to address all the milestones in the NNSA officials said that, by environmental agreements they signed.2009, the TRU waste removal project had fallen behind schedule and could not be completed by 2012, in part, because of the shortfall in funding. The extension of the project’s completion date beyond 2012 resulted in additional costs, which contributed to the total cost of the project exceeding the 2006 estimate. In 2009, NNSA and EM developed a new cost estimate for the TRU waste removal project with a completion date in 2018 but again used aggressive funding assumptions to complete the project as close to the Consent Order’s 2015 deadline as possible. Similar to the 2006 estimate, the 2009 cost estimate used funding projections provided by EM that assumed an increase in the yearly levels of funding for LANL cleanup activities that were necessary for NNSA to complete the TRU waste removal project by July of 2018—2 and a half years after the Consent Order deadline in 2015. However, due to the same budget restrictions that affected cleanup project funding previously, actual funding levels provided by EM for fiscal years 2009 to 2012 for all cleanup projects at LANL again came in below the levels requested by NNSA officials at LANL. Specifically, LANL received approximately $1 billion over these years, which was $240 million (19 percent) less than the levels requested by NNSA officials at LANL for cleanup projects at the site. As a result, funding for the TRU waste removal project was reduced, and this reduction caused the project to fall behind the schedule set in the 2009 cost estimate, according to NNSA officials. Moreover, the 2009 cost estimate was never officially approved by NNSA and EM because the date estimated for project completion was not consistent with the requirements of the Consent Order. According to NNSA officials, they could not formally approve the 2009 estimate because it included a 2018 estimated completion date for the TRU waste removal project, which conflicted with the required 2015 closure date established in the Consent Order. In addition to developing estimates using aggressive funding assumptions, NNSA did not maintain or use two of the three project baselines outlined in the Operations Activity Protocol, so the agency could not measure the progress of the total project. As discussed previously, NNSA was to manage the TRU waste removal project using EM’s Operations Activities Protocol, which is intended to provide the framework for managing and reporting on the progress of cleanup projects through the use of three performance baselines: life-cycle cost, contract period of performance, and fiscal year work plan. However, for the TRU waste removal project, because NNSA did not have an updated life-cycle cost baseline and did not establish a contract period of performance baseline, it only used the fiscal year work plan baseline to manage the project, as discussed below: Life-cycle cost baseline. NNSA has not updated the life-cycle cost baseline for the project since 2009, even though agency officials told us they were aware that the estimate has been out-of-date since about 2012. Since that year, the project has undergone significant changes that affected its estimated cost and completion date. For example, by initiating the 3706 Campaign in 2012, NNSA altered the scope of work from what was planned in the 2009 cost estimate. NNSA and EM officials told us that, although they recognized in 2012 that the 2009 estimate was no longer valid, they did not see the purpose in completing a new estimate before completion of the campaign and the expected renegotiation of the Consent Order deadlines. According to these officials, a new cost estimate for the project would have either needed to use unreasonably high funding assumptions to achieve project completion by 2015 or, if it used more reasonable funding assumptions, it could not have been approved because of the political issues associated with a completion date beyond the 2015 Consent Order deadline. The Operations Activities Protocol requires that EM or NNSA Site Office Managers develop cost estimates that cover the full life-cycle of a cleanup project, but it leaves the Site Office Manager discretion to determine whether an update to the life-cycle cost baseline is required. Because NNSA’s LANL Site Office Manager, in consultation with EM officials, decided not to update the life-cycle cost baseline, NNSA could not measure project performance to determine the impact of management actions. For example, from fiscal year 2012 to 2014, NNSA used additional funding that was reallocated to the TRU waste removal project to increase the pace of TRU waste packaging and removal; however, because they did not have an updated cost estimate to measure against, NNSA managers were unable to identify the effect these actions had on the total cost of the project. Contract period of performance baseline. NNSA has not managed the TRU waste removal project using a contract period of performance because, according to NNSA officials, the project, like other projects at LANL, is being conducted through NNSA’s management and operating contract. According to the Operations Activities Protocol, a contract period of performance baseline is required for those cleanup projects that are executed through a contract that establishes a performance baseline for cost and scope over the duration of the contract. The management and operating contract covers all work performed at LANL, but it does not establish a cost estimate for specific projects such as the TRU waste removal project, according to NNSA officials. In contrast, for cleanup projects at EM-managed sites, the scope of the contract is typically limited to the cleanup project and would not include other site activities that were unrelated to the project. According to NNSA officials, executing the TRU waste removal project through the management and operating contract does not provide the baseline necessary for establishing a contract period of performance, so NNSA is not required to manage to a contract period of performance baseline for this project. According to EM officials, DOE determined that as part of EM’s transition to direct oversight of the legacy cleanup work at LANL, EM will transition away from using a management and operations contract to manage the remaining cleanup work. When this change in contract type is completed, the officials stated that a contract period of performance baseline will be available for monitoring performance of the work, including the TRU waste removal project. Fiscal year work plan baseline. NNSA has used the fiscal year work plans outlined in the Operations Activities Protocol to monitor the performance of portions of the TRU waste removal project and to manage and assess the performance of the entire TRU waste removal project in the absence of an accurate life-cycle cost estimate baseline or a contract period of performance baseline. According to NNSA officials, a new fiscal year work plan is developed each year for the TRU waste removal project using an integrated priorities list for remaining TRU removal work and the projected funding amount allocated for LANL cleanup. However, while NNSA and EM site and headquarters officials monitored progress against the fiscal year work plan, the agency was unable to evaluate the performance of the entire TRU waste removal project and identify potential cost overruns because its life-cycle cost estimate was out-of-date, and it did not manage to a contract period of performance. The Operations Activities Protocol requires that the Site Office Manager report yearly on any variances between total project costs to date and the estimated costs for the entire project as part of the fiscal year work plans. However, because NNSA did not have an accurate cost estimate for the TRU waste removal project, the 2012, 2013, and 2014 fiscal year work plans used the outdated 2009 cost estimate to report on the variances between the current and estimated costs for the project. As a result, these fiscal year work plans did not provide accurate information on project performance to date to help managers measure total project performance and manage costs. At the time of our review, NNSA and EM were in the process of developing a new cost estimate for the TRU waste removal project that they expect to complete in fiscal year 2015; however, this estimate may quickly become inaccurate due to assumptions related to funding and the status of WIPP that could be invalidated. As discussed previously, the new draft cost estimate increases the estimated total cost of the project to $1.6 billion, with a completion date in fiscal year 2023 (i.e., October 2022). According to an NNSA official, this draft estimate uses a more conservative approach than past estimates by expanding the scope of the project estimate to include the costs to remove additional TRU waste that was not included in past estimates.concerning when WIPP will reopen and the need to address the impending Consent Order deadlines in 2015 that have not yet been renegotiated with New Mexico, the same NNSA official told us that several of the new estimate’s assumptions are no longer valid or may not be valid after a few years. For example, the funding assumptions in the new estimate may already be invalid. With the TRU waste removal project on hold as a result of the WIPP closure, the New Mexico Environment Department is no longer providing deadline extensions for some of LANL’s hazardous waste cleanup work and, as a result, NNSA officials managing the cleanup work have had to reprioritize their funding to attempt to meet those deadlines. Restoring funding to hazardous waste cleanup projects reduces the funding available for TRU waste removal, which would invalidate the funding assumptions used in the new cost estimate. In addition, the NNSA official told us that the new cost estimate also assumes that LANL will resume TRU waste shipments to WIPP in fiscal year 2017 based on an unofficial estimate from the WIPP manager that WIPP will reopen between 18 and 30 months after the initial However, in light of the uncertainty assessment of the incident.shipments from LANL in this time frame, the TRU waste removal project at LANL would be delayed, resulting in additional costs not accounted for in the new estimate, such as the costs for maintaining the project workforce longer than anticipated. If WIPP does not start accepting TRU waste To objectively measure the performance of the TRU waste removal project and take action to manage project costs, NNSA managers of the project need an updated cost estimate. EM’s Operations Activity Protocol leaves it to the discretion of the Site Office Manager to update cleanup project estimates, and NNSA’s LANL Site Office Manager chose to delay revising the outdated 2009 estimate. As a result, DOE does not have an estimate of the total cost or completion date of the TRU waste removal project that uses updated assumptions based on the current understanding of project conditions. NNSA and EM are developing a new cost estimate for the project; however, the new estimate may quickly become inaccurate because of changes in funding, and the status of the WIPP may soon invalidate its assumptions. According to best practices for cost estimating, maintaining an updated cost estimate is critical so that officials making decisions about the future management of a project have accurate information for assessing their alternatives. By revising the TRU waste removal project’s estimate to include the current understanding of project conditions, NNSA program managers could more accurately identify cost overruns. NNSA’s cost estimate for the TWF partially met best practices. More specifically, NNSA’s cost estimate—which consisted of separate cost estimates for completing construction and for operations and maintenance, as the TWF’s life-cycle costs—partially reflected each of the four characteristics of a reliable estimate (comprehensive, well- documented, accurate, and credible) as established by best practices. In developing the construction estimate, NNSA took several steps that conformed to best practices, such as validating the construction estimate by completing an ICE. Although DOE’s project management order for capital asset projects does not require the use of all best practices in developing a cost estimate, DOE’s related cost-estimating guidance, which is optional, describes most of them. In contrast, in developing its operations and maintenance cost estimate, NNSA did not take steps that conformed to best practices. In particular, NNSA did not sufficiently document the approach (i.e., data sources and methodologies) used to develop the estimate, even though operations and maintenance costs represented about 74 percent of the total life-cycle costs of the facility. The reason was that operations and maintenance cost estimates for a construction project do not need to be updated and documented at CD-2 under DOE’s project management order, as funds for these costs do not need to be specifically requested from Congress to complete the project. By not sufficiently documenting the approach used to develop the estimate, NNSA may not have reliable information to support budgetary decisions for funding the TWF’s operations and maintenance in the future. For example, the contractor’s representatives told us that they estimated the operations and maintenance costs to be $6 million annually from 2018 through 2068, for a total of $300 million but did not use an inflation rate in the calculations. Thus, although $6 million may be an accurate estimate for the first year, without documentation of the approach used to develop the estimate, we could not determine its reliability for the first or future years. Appendix II provides a summary description of our assessment of NNSA’s cost estimates for the TWF project’s construction and operations and maintenance. The following are examples from our assessment, by best practice characteristic: Comprehensive. The TWF estimates partially reflected the characteristics of comprehensive cost estimates. For example, NNSA partially followed the best practice for completely defining the program, as NNSA’s contractor based the TWF construction cost estimate on a mature design plan that detailed the technical requirements and characteristics for the TWF. In contrast, for the TWF operations and maintenance cost estimate, NNSA’s contractor was not able to provide us with definitions of the technical requirements and characteristics that would have formed the basis of the estimate, although the $300 million estimate represented a substantial change from a $642 million estimate that NNSA’s contractor produced in June 2010 for CD-1 (approve alternative selection and cost range). As a result, we could not determine whether the $300 million estimate reflected the most recent TWF design approved at CD-2 to complete construction. NNSA officials told us they did not develop an updated and documented basis to support the operations and maintenance cost estimate because DOE’s project order does not require updated and documented estimates of all life-cycle costs at CD-2. Instead, at CD-2, the order focuses on the need for the baseline cost estimate to complete construction because funding for construction needs to be specifically requested from Congress to complete the project. According to best practices, clearly defining the technical requirements would help to ensure that managers have an adequate understanding of the facility and where information was limited and assumptions were made in developing the estimate. Well-documented. The TWF estimates partially reflected the characteristics of well-documented cost estimates. For example, regarding the construction estimate, NNSA’s contractor documented the data sources and the methodology used to calculate the construction estimate so that a cost analyst unfamiliar with the project could understand what was done and replicate the estimate. In contrast, NNSA did not document the approach (data sources and methodologies) used to develop the operations and maintenance estimate, even though the operations and maintenance costs represented about 74 percent of the TWF’s life-cycle costs. As mentioned previously, DOE’s project management order does not require documentation of the operations and maintenance costs at CD-2. NNSA was required to report the operations and maintenance cost estimate by following a DOE budget formulation guidance that did not specify requirements for documenting the estimate. Because NNSA did not document the approach used, we could not determine whether it was appropriate for developing the operations and maintenance estimate; whether NNSA management reviewed the estimate, including its risks and uncertainties, or whether NNSA management approved the estimate. Accurate. The TWF estimates partially reflected the characteristics of accurate cost estimates. For example, NNSA’s contractor partially followed the best practice for properly adjusting the estimates for inflation. Regarding the construction estimate, NNSA’s contractor developed the estimate using pricing data that were adjusted for inflation. However, the contractor did not then normalize the data to remove the effects of inflation. According to representatives from the contractor, they did not believe data normalization was an applicable step for the TWF construction estimate because the data set was too small. According to cost-estimating best practices, data normalization is often necessary to ensure comparability of data sets because data can be gathered from a variety of sources and in different forms that need to be adjusted before being used. Regarding the operations and maintenance estimate, NNSA’s contractor did not properly adjust the estimate for inflation over the 50-year useful life of the TWF. Specifically, the contractor’s representatives told us that they estimated the operations and maintenance costs to be $6 million annually from 2018 through 2068, for a total of $300 million, but they did not use an inflation rate in these calculations. Adjusting for inflation is an important step in developing an estimate because if the inflation amount is not correct, the estimate is not accurate. Applying the wrong inflation rate will either result in a higher cost estimate or estimated costs that are not sufficient to keep pace with inflation. Credible. The TWF estimates partially reflected the characteristics of credible cost estimates. For example, NNSA followed the best practice to have an ICE completed in January 2013 to validate the TWF construction costs. However, because DOE’s project management order does not define the operations and maintenance costs as project costs, NNSA was not required to include these costs in the ICE. By not including the TWF operations and maintenance costs in the ICE, NNSA managers may lack insight into these future costs. According to best practices, an ICE can provide NNSA managers with additional insight into the TWF’s potential operations and maintenance costs—in part, because ICEs frequently use different methods and are less burdened with organizational bias. Therefore, according to best practices, an ICE can be used as a benchmark to assess the reasonableness of the contractor’s proposed operations and maintenance costs, improving NNSA management’s ability to make sound investment decisions, and accurately assess the contractor’s performance. Moreover, because DOE’s project management order does not require it, NNSA’s contractor did not follow the best practice to complete a sensitivity analysis to quantify the extent to which either the construction or operations and maintenance cost estimates could vary because of changes in key assumptions and ground rules. Such an analysis is a best practice because uncertainty cannot be avoided and, therefore, it is necessary to identify the cost elements that represent the most risk and, if possible, quantify them. According to cost-estimating best practices, doing a sensitivity analysis increases the chance that decisions that influence the design, production, and operation of the TWF will be made with a focus on the elements that have the greatest effect on cost. According to NNSA officials who oversee the TWF project, combining the TWF construction estimate with the operations and maintenance estimate to reflect the life-cycle costs and assessing the combined estimate obscured the positive steps NNSA took in developing the construction estimate. We agree that the TWF construction estimate conformed to several best practices. Examples are as follows: NNSA developed the construction estimate based on a mature design plan for the facility to ensure that it was based on the best available information at the time, NNSA documented the data sources and the methodologies used to calculate the construction estimate so that a cost analyst unfamiliar with the project could understand what was done and replicate it, and NNSA had an ICE completed to provide an unbiased test of the reasonableness of the TWF construction costs. Nonetheless, as described above, and in appendix II, we also identified examples where NNSA’s construction estimate did not conform to best practices. Because NNSA did not follow all best practices for cost estimating, particularly for the TWF operations and maintenance cost estimate, NNSA may not have reliable information to support budgetary decisions for funding the TWF’s operations and maintenance. NNSA expects the TWF may be ready to start operations as early as April 2016, and when it does, NNSA will need to balance funding for the TWF with the operations and maintenance costs for other nuclear infrastructure and facilities at LANL and other NNSA sites that make up the national nuclear security enterprise. In December 2013, we found that, as the facilities and infrastructure that support the nuclear security enterprise continue to age, maintenance costs are likely to grow. In that report, NNSA officials said that deferred maintenance projects will have to compete against programmatic priorities for funding within the overall pool of maintenance funds available. By having reliable information on the TWF’s costs, including operations and maintenance, well before the project starts operations, NNSA managers would be better able to plan for, and manage the costs of the TWF in balance with other infrastructure in the national nuclear security enterprise. GAO, Project and Program Management: DOE Needs to Revise Requirements and Guidance for Cost Estimating and Related Reviews, GAO-15-29 (Washington, D.C.: Nov. 25, 2015). Specifically regarding DOE’s cost-estimating guide, we found, in November 2014, that for two best practice steps—determining the estimating structure and conducting sensitivity analysis—the guide only partially or minimally describes those steps. operations and maintenance estimate until the project is constructed and undergoes operational readiness reviews in preparation for CD-4 (to approve the start of operations or project completion). Updating the TWF’s cost estimate to include all life-cycle costs and needed analyses would provide NNSA more reliable information for better managing the TWF as it prepares for the start of operations. Safely removing the TRU waste stored at LANL is a critical part of NNSA’s efforts to clean up the legacy environmental contamination from decades of nuclear weapons activities. NNSA has made progress in removing the TRU waste from LANL’s Area G and has monitored the project’s recent performance through fiscal year work plans. But NNSA has consistently used cost estimates for completing the project that it could not meet because the estimates were developed based on aggressive and unrealized funding assumptions, and the agency chose to delay revising the 2009 estimate when it was determined to be outdated, which was not consistent with the intent of DOE’s cleanup project requirements for maintaining an updated life-cycle cost baseline. While NNSA and EM are developing a new cost estimate for the project, the new estimate may quickly become inaccurate because changes in funding and the status of the WIPP may soon invalidate its assumptions. By revising the estimate to include the current understanding of project conditions, including the uncertainty at WIPP, NNSA program managers can more accurately identify cost overruns consistent with best practices. When completed, NNSA expects the TWF to provide TRU waste capabilities at LANL to support NNSA’s nuclear weapons mission for the next 50 years and has taken several steps that conformed to best practices in developing the TWF’s construction estimate. However, NNSA has not developed a reliable estimate of its operations and maintenance costs by, for example, not sufficiently documenting its approach and not using an inflation rate in its calculations because DOE’s project management order for capital asset projects does not require the use of all cost-estimating best practices in developing estimates of all life-cycle costs. Thus, although the operations and maintenance costs were estimated to be $6 million annually from 2018 through 2068, for a total of $300 million, without documenting the approach used to develop the estimate, and not using an inflation rate in these calculations, we could not determine the reliability of the estimate for future years. DOE agreed with the recommendations in our November 2014 report to revise its order to require that DOE, NNSA, and its contractors develop cost estimates in accordance with all best practices. However, opportunities exist currently to enhance the reliability of the TWF cost estimate. Updating the TWF’s cost estimate to include all life-cycle costs, as well as needed analyses, would provide NNSA more reliable information for better managing the TWF as it prepares for the start of operations, which NNSA expects could be as early as April 2016. To develop reliable cost estimates for the TRU waste removal project and for the TWF construction project at LANL, we recommend that the Secretary of Energy take the following two actions: Direct NNSA and EM to revise the cost estimate for the TRU waste removal project to ensure that it uses updated assumptions based on the current understanding of project conditions, such as the status of WIPP. Direct NNSA to revise and update the TWF project’s cost estimate by following all best practices for developing a reliable cost estimate that covers all life-cycle costs for better managing the project going forward. We provided DOE with a draft of this report for its review and comment. In written comments, reproduced in appendix III, NNSA provided a joint response to our draft report for itself and DOE’s EM, which generally agreed with both of the report’s recommendations. In its comments, NNSA stated that it will update its cost estimates for both the TRU waste removal project at Area G and the TWF’s operations and maintenance and provided details of the specific actions planned or taken to address both recommendations and timelines for completing these actions. NNSA also provided general and technical comments that we incorporated into the report, as appropriate. In regard to the report’s first recommendation to revise the cost estimate for the TRU waste removal project to ensure that it uses updated assumptions based on the current understanding of project conditions, NNSA stated actions have been taken to address this recommendation. Specifically, a comprehensive life-cycle baseline revision was submitted and reviewed, and EM is currently taking steps to revise and finalize this new baseline cost estimate for the project in light of realistic out-year funding profiles to support a planned renegotiation of the Consent Order with the New Mexico Environment Department. In addition, the pending changes to the type of contract used to manage the legacy cleanup work at LANL will be factored into the baseline revision. DOE plans to complete the revised cost estimate by September 30, 2015. We are pleased that DOE plans to address this recommendation and has actions under way to do so. In regard to the report’s second recommendation to revise and update the TWF project’s cost estimate by following all best practices for developing a reliable cost estimate that covers all life-cycle costs, NNSA stated in its written comments that it will update the TWF’s operations and maintenance cost estimate to ensure effective management of the facility once it is operational. Regarding the TWF’s construction estimate, as we described in the report and in appendix II, NNSA’s TWF construction estimate conformed to several but not all best practices. In particular, NNSA validated the project team’s estimate through an ICE to provide an unbiased test of the reasonableness of the TWF construction costs. Regarding the TWF’s operations and maintenance estimate, NNSA stated it will prepare the updated estimate as part of the programming process for the fiscal year 2017 budget, which takes place in fiscal year 2015, to support postconstruction activities and operations. Further, NNSA stated that the estimate will reflect operational costs for a 7-year window and incorporate applicable best practices, including documentation of any significant deviations and uncertainties impacting the estimate. The estimated completion date for these activities is March 30, 2015. We are encouraged by NNSA’s planned actions to update the TWF operations and maintenance estimate using applicable best practices. However, it will be particularly important for NNSA to document its decisions on which best practices are being followed and the reasons practices not being followed are not applicable. As we noted in the report, one of the key weaknesses we found was that NNSA did not document the approach (data sources and methodologies) used to develop the $300 million operations and maintenance estimate for the TWF, even though the operations and maintenance costs represented about 74 percent of the TWF’s life-cycle costs. Because NNSA did not document the approach used, we could not determine whether it was appropriate for developing the operations and maintenance estimate. With regard to the time frames covered by this estimate, NNSA plans to update the TWF operations and maintenance cost estimate to cover a 7-year period. Given the need now for reliable information on the estimated costs for operations, NNSA’s plan to update the TWF operations and maintenance cost estimate following applicable best practices, and covering a 7-year period, by March 30, 2015, would provide it more reliable information for managing the facility as it prepares for the start of operations. As we noted in the report, however, NNSA expects the TWF to provide TRU waste capabilities at LANL to support NNSA’s nuclear weapons mission for the next 50 years. By having a reliable and updated life-cycle estimate for the TWF that covers the estimated useful life of the facility, NNSA managers would be better able to plan for the TWF costs in balance with other infrastructure in the national nuclear security enterprise. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Energy, and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Our objectives were to examine (1) the extent to which the National Nuclear Security Administration (NNSA) has met its cost targets for the transuranic (TRU) waste removal project at Los Alamos National Laboratory (LANL) and (2) the extent to which NNSA’s cost estimate for the TRU Waste Facility (TWF) project at LANL met best practices for a reliable cost estimate. To examine the extent to which NNSA’s TRU waste removal project at LANL has met its cost estimates, we reviewed documentation of NNSA’s total project cost estimates from 2006 and 2009. We focused on these cost estimates because they were developed after the establishment of the Consent Order in 2005, and they were the most recently completed estimates for the total cost of the project. During our review, NNSA was in the process of developing a new cost estimate, the draft fiscal year 2015 cost estimate, for the TRU waste removal project. We interviewed the NNSA officials and representatives from its LANL contractor who were working on the draft estimate to understand the cost estimation process and preliminary results. We reviewed data provided to us by NNSA from the Department of Energy’s (DOE) Integrated Planning, Accountability, and Budgeting System on the annual dollars spent for fiscal years 2006 through 2013 for the TRU waste removal project, as well as NNSA’s estimate of fiscal year 2014 year-end spending for the project. We compared the project spending data with the 2006 and 2009 cost estimates, and with the new draft 2015 cost estimate. We also reviewed data provided to us by NNSA from LANL’s Waste Compliance and Tracking System on total volumes of TRU waste removed from LANL from 1999 through July 2014, as well as NNSA’s estimate of the total volume of TRU waste remaining. We assessed the reliability of the project data we reviewed and analyzed, and we determined that the data for this period were sufficiently reliable to examine the extent to which NNSA’s TRU waste removal project at LANL has met its cost targets. To assess the reliability of the project data, we reviewed information provided by NNSA on the data systems used for managing and reporting the data, including the systems’ controls and checks that ensure the accuracy and completeness of the data, as well as procedures that were in place to review and certify the reliability of the data such as inspector general or internal audit reports of the quality of the data. In addition, we reviewed NNSA’s fiscal year work plans for the years after NNSA adopted the Operations Activities Protocol for managing the TRU waste removal project, fiscal years 2012 through 2014. We compared the total project cost estimates and the fiscal year work plans to the requirements for developing and using cost estimates found in DOE’s Operations Activities Protocol, which sets the requirements for managing cleanup projects at DOE defined as operations activities. To refine our analysis, we interviewed officials from NNSA’s Office of Environment, Health, and Safety in headquarters, the Environmental Project’s Office in NNSA’s LANL Site Office, and the DOE Office of Environmental Management’s (EM) Office of Disposal Operations. We also met with the contractors working on the TRU waste removal project at LANL during a visit to the site where we toured Area G and the buildings conducting TRU waste processing. average of the individual assessment ratings to determine the overall assessment rating for each of the four characteristics as follows: Not Met = 1.0 to 1.4, Minimally Met = 1.5 to 2.4, Partially Met = 2.5 to 3.4, Substantially Met = 3.5 to 4.4, and Fully Met = 4.5 to 5.0. We consider a cost estimate reliable if the overall assessment ratings for each of the four characteristics are substantially or fully met. If any of the characteristics are not met, minimally met, or partially met, then the cost estimate does not fully reflect the characteristics of a high-quality estimate and cannot be considered reliable. We conducted this performance audit from July 2013 to February 2015 in accordance with generally accepted government standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Best practice The cost estimate includes all life-cycle costs. Detailed assessment Partially met. The life-cycle cost estimate consisted of a design and construction (construction) estimate and a 50-year operations and maintenance estimate. The operations and maintenance cost estimate was not updated at Critical Decision (CD)-2 when the construction estimate was approved. The life-cycle estimate did not include retirement of the facility. The cost estimate completely defines the program, reflects the current schedule, and is technically reasonable. Partially met. The construction estimate was based on the technical requirements considered 90 percent mature. The operations and maintenance estimate was not supported by definitions of the technical requirements that would have formed the basis of the estimate. The cost estimate work breakdown structure is product-oriented, traceable to the statement of work/objective, and at an appropriate level of detail to ensure that cost elements are neither omitted nor double-counted. Partially met. The construction estimate work breakdown structure covered the major work for the end product of the TWF project. The work breakdown structure did not present all cost elements at a clear level of detail, and it was not standardized so that cost data can be collected and used for estimating future programs. The operations and maintenance estimate did not reflect a documented work breakdown structure. The estimate documents all cost-influencing ground rules and assumptions. Partially met. The construction estimate included ground rules and assumptions, such as technical specifications, vendor quotes, and registered risks. The operations and maintenance estimate did not document ground rules and assumptions. The documentation captures the source data used, the reliability of the data, and how the data were normalized. Partially met. The construction estimate documented the data sources used but not data reliability and how the data were normalized. The operations and maintenance estimate was not supported by detailed documentation. The documentation describes in sufficient detail the calculations performed and the estimating methodology used to derive each element’s cost. Partially met. The construction estimate used an engineering buildup approach for individual cost elements. The operations and maintenance estimate did not include documentation on how cost elements were derived. The documentation describes, step by step, how the estimate was developed so that a cost analyst unfamiliar with the program could understand what was done and replicate it. Partially met. The construction estimate documentation explained how work breakdown structure elements were estimated and the documentation was mathematically sensible and logical. The documentation explains how management reserve and contingency were calculated and was composed of cost and schedule uncertainty. The operations and maintenance estimate did not include documentation that detailed how the estimate was developed. Best practice The documentation discusses the technical baseline description, and the data in the baseline is consistent with the estimate. Detailed assessment Partially met. The documentation for the construction estimate matched the technical requirements document. The operations and maintenance estimate was not supported by a technical baseline document. The documentation provides evidence that the cost estimate was reviewed and accepted by management. Partially met. NNSA approved the construction estimate. The approval memo did not detail recommendations for changes, feedback, and the level of contingency reserves decided upon to reach a desired level of confidence. The operations and maintenance estimate did not document management review and approval. The cost estimate results are unbiased, not overly conservative or optimistic, and based on an assessment of most likely costs. Partially met. The construction estimate included risk and uncertainty analysis, the results included S curve cumulative probabilities. The risk and uncertainty is quantified as management reserve and contingency. The cost estimate was in range when compared with metrics that benchmark the TWF estimate to similar nuclear projects. The operations and maintenance estimate did not include documentation to help determine whether it was unbiased and not overly conservative or optimistic. The estimate has been adjusted properly for inflation. Partially met. The construction estimate was adjusted for inflation for the period of the construction schedule, but the cost data were not normalized. The operations and maintenance estimate was not properly adjusted for inflation. The estimate contains few, if any, minor mistakes. Partially met. The construction estimate included minor calculation errors in the cost summary table. We were not able to perform random sampling to check calculations for accuracy because the electronic cost model provided to us did not identify the formulas for calculations. The operations and maintenance estimate did not include detailed calculations that we could use to check its accuracy. The cost estimate is regularly updated to reflect significant changes in the program so that it always reflects current status. Minimally met. The construction estimate was updated to reflect changes in technical or program assumptions at the CD-3 (approve the start of construction) milestone but is not regularly updated with actual costs on an ongoing basis. The operations and maintenance estimate is not regularly updated to reflect changes in the project and has not been updated since June 2010. Variances between planned and actual costs are documented, explained, and reviewed. Minimally met. The construction estimate did not explain variances between planned and actual costs. The CD-2 estimate included a summary level reconciliation with the CD-1 estimate. Best practice The estimate is based on a historical record of cost estimating and actual experiences from other comparable programs. Detailed assessment Partially met. The construction estimate was based on the contractor’s market price data for the scope of work required to complete the project. The estimate also uses metrics from similar nuclear projects but did not include documentation on the reliability of the metrics data. The operations and maintenance estimate did not document whether it was based on historical or other data. The estimating technique for each cost element was used appropriately. Partially met. The construction estimate was based on engineering buildup approaches appropriate to each cost element. The operations and maintenance estimate did not include documentation of the techniques used for each cost element. The cost estimate includes a sensitivity analysis that identifies a range of possible costs based on varying major assumptions, parameters, and data inputs. Minimally met. The construction estimate identified and examined key cost drivers but did not include a formal sensitivity analysis. The operations and maintenance estimate did not include a sensitivity analysis. A risk and uncertainty analysis was conducted that quantified the imperfectly understood risks and identified the effects of changing key cost driver assumptions and factors. Partially met. The construction estimate included risk and uncertainty analysis for cost and schedule and quantified the cost of these risks as management reserve and contingency reserve. The estimate did not document how correlation of cost elements was accounted for in the risk and uncertainty analysis. The operations and maintenance estimate did not include risk and uncertainty analysis. Major cost elements were cross-checked to see whether results were similar. Partially met. The construction estimate included cross-checks with metrics that benchmark the TWF to similar nuclear projects. The operations and maintenance estimate did not include documentation of cross-checks. An independent cost estimate (ICE) was conducted by a group outside the acquiring organization to determine whether other estimating methods produce similar results. Partially met. An ICE for the project’s construction phase was performed by DOE’s Office of Acquisition and Project Management. The ICE appears to have been based on a similar technical baseline to the program office estimate. However, the program estimate was 13 percent higher than the ICE. NNSA did not document how it reconciled the two estimates. The ICE did not cover the operations and maintenance costs of the facility. The ratings we used in this analysis are as follows: “Not met” means the cost estimate provided no evidence that satisfies the best practice. “Minimally met” means the cost estimate provided evidence that satisfies a small portion of the best practice. “Partially met” means the cost estimate provided evidence that satisfies about half of the best practice. “Substantially met” means the cost estimate provided evidence that satisfies a large portion of the best practice. “Fully met” means the cost estimate provided complete evidence that satisfies the entire best practice. In addition to the individual named above, Diane LoFaro, Assistant Director; Mark Braza; Richard P. Burkard; Brian M. Friedman; Abishek Krupanand; Eli Lewine; Cynthia Norris; Katrina Pekar-Carpenter; and Karen Richey made key contributions to this report.

Nuclear weapons activities at LANL have generated large quantities of TRU waste that must be disposed of properly. To address a 2005 cleanup agreement with the state of New Mexico requiring DOE to close LANL's TRU waste site, NNSA is to oversee two TRU waste projects. The first is to remove the waste stored at LANL and ship it to WIPP for permanent disposal. The second is to construct a facility—the TWF—to provide new capabilities for managing newly generated TRU waste at LANL. NNSA has developed cost estimates for both projects. GAO was asked to review cost estimates for the TRU waste projects at LANL. This report examines (1) the extent to which NNSA's TRU waste removal project at LANL has met its cost estimates and (2) the extent to which NNSA's cost estimate for the TWF met best practices for a reliable estimate. GAO reviewed spending data for the TRU waste removal project for fiscal years 2006 through 2014 and the cost estimates for both projects, compared the cost estimate for the TWF with best practices, and interviewed agency officials. The National Nuclear Security Administration's (NNSA) project to remove transuranic (TRU) waste—primarily discarded equipment and soils contaminated with certain radioactive material—at Los Alamos National Laboratory (LANL) did not meet its cost estimates. At the end of fiscal year 2014, NNSA had spent about $931 million on the project, exceeding its 2006 estimate of $729 million by $202 million. Under current plans, the project is also expected to exceed its 2009 estimate. NNSA did not meet its cost estimates, in part, because they were based on aggressive funding assumptions designed to meet the completion dates agreed to in a 2005 cleanup agreement, which the Department of Energy (DOE) did not fully fund. At the time of GAO's review, NNSA was developing a new project completion cost estimate of about $1.6 billion, with completion projected for October 2022. NNSA had not revised the project's cost estimate since 2009 because the agency was reluctant to approve an estimate with a completion date that conflicted with the 2005 cleanup agreement. However, according to an NNSA official, NNSA's new estimate may not reflect current conditions—partly because of uncertainty created by funding and the indefinite suspension of shipments of TRU waste to the permanent repository at DOE's Waste Isolation Pilot Plant (WIPP) after a radioactive release closed WIPP in February 2014. By revising the estimate to include the current understanding of project conditions, including the uncertainty at WIPP, NNSA program managers can, for example, more accurately identify cost overruns. NNSA's cost estimate for the TRU Waste Facility (TWF), which consisted of separate cost estimates for completing construction and for operations and maintenance, partially reflected each of the four characteristics of a reliable estimate (comprehensive, well-documented, accurate, and credible) as established by best practices. For example, NNSA's estimate was partially well-documented by clearly documenting the data sources and methodology used to develop the construction estimate. However, NNSA did not sufficiently document the approach used to develop the operations and maintenance estimate, which represented about 74 percent of the TWF's life-cycle costs, because DOE's project management order does not require these costs to be documented when a project is approved to request funding from Congress for construction. As a result, GAO could not determine whether the cost-estimating approach was appropriate. In addition, NNSA's estimate was partially credible because NNSA completed an independent cost estimate (ICE) that provided an unbiased cross-check of the construction estimate consistent with best practices, but it did not include the operations and maintenance costs in the ICE because it was not required by DOE's project management order. Moreover, NNSA did not conduct a sensitivity analysis to quantify variations in the TWF's cost estimates due to changes in key assumptions because it was not required by DOE, which also affected the estimate's credibility. Doing a sensitivity analysis increases the chance that decisions for the TWF will focus on the elements that have the greatest effect on cost, according to best practices. Updating the TWF's cost estimate to include all life-cycle costs and needed analyses, would provide NNSA more reliable information for better managing the TWF as it prepares for the start of operations, which NNSA expects could be as early as April 2016. GAO recommends that DOE revise the cost estimate for the TRU waste removal project to reflect the current understanding of project conditions and update the TWF's cost estimate to allow better management of the project's life-cycle costs going forward. DOE generally agreed with GAO's recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: Corporations can be located in tax haven countries through a variety of means, including corporate inversions, acquisition, or initial incorporation abroad. Location in a tax haven country can change a company’s tax liability because the United States taxes domestic corporations differently than it taxes foreign corporations. The United States taxes the worldwide income of domestic corporations, regardless of where the income is earned; gives credits for foreign income taxes paid; and defers taxation of foreign subsidiaries until their profits are repatriated in the form of dividends or other income. However, a U.S. parent corporation is subject to current U.S. tax on certain income earned by a foreign subsidiary, without regard to whether such income is distributed to the U.S. corporation. Through “deferral,” U.S. parent corporations are allowed to postpone current taxation on the net income or economic gain accrued by their subsidiaries. These subsidiaries are separately incorporated foreign subsidiaries of U.S. corporations. Because they are not considered U.S. residents, their profits are not taxable as long as the earnings are retained and reinvested outside the United States in active lines of business. That is, U.S. tax on such income is generally deferred until the income is repatriated to the U.S. parent. The U.S. system also contains certain anti-deferral features that tax on a current basis certain categories of passive income earned by a domestic corporation’s foreign subsidiaries, regardless of whether the income has been distributed as a dividend to the domestic parent corporation. Passive income includes royalties, interest and dividends. According to the Internal Revenue Code (I.R.C.), passive income is “deemed distributed” to the U.S. parent corporation and thus denied deferral. The rules defining the application and limits of this antideferral regime are known as the Subpart F rules. In order to avoid double taxation of income, the United States permits a taxpayer to offset, in whole or in part, the U.S. tax owed on this foreign- source income. Foreign tax credits are applied against a corporation’s U.S. tax liability. The availability of foreign tax credits is limited to the U.S. tax imposed on foreign-source income. To ensure that the credit does not reduce tax on domestic income, the credit cannot exceed the tax liability that would have been due had the income been generated domestically. Firms with credits above that amount in a given year have “excess” foreign tax credits, which can be applied against their foreign source income for the previous 2 years or the subsequent 5 years. This system of taxation of U.S. multinational corporations has been the subject of ongoing debate. Specific issues in international taxation include whether to reform the U.S. system by moving from worldwide taxation to a territorial system that exempts foreign-source income from U.S. tax. These issues have become more prominent with the increasing openness of the U.S. economy to trade and investment. The United States taxes foreign corporations on income generated from their active business operations in the United States. Such income may be generated by a subsidiary operating in the United States or by a branch of the foreign parent corporation. It is generally taxed in the same manner and at the same rates as the income of a U.S. corporation. In addition, if a foreign corporation is engaged in a trade or business in the United States and receives investment income from U.S. sources, it will generally be subject to a withholding tax of 30 percent on interest, dividends, royalties, and certain types of income derived from U.S. sources, subject to certain exceptions. This tax may be reduced or eliminated under an applicable tax treaty. For objective 1, we collected and analyzed information on government contracting practices and business decision-making processes. We also reviewed the economics literature and reports of the Department of the Treasury and the Joint Committee on Taxation to determine how differences in the tax treatment of corporations can contribute to a tax cost advantage. Using the information we obtained, we built a simple qualitative model to explain the conditions under which a tax haven company may have a tax cost advantage in competing for federal contracts relative to other companies whose headquarters are not located in tax haven countries. For a description of the model, see appendix I. For objective 2, we used the qualitative model to identify companies that had characteristics consistent with having a tax cost advantage. We matched contractor data (name and taxpayer identification numbers) from the GSA’s FPDS for 2000 and 2001 to tax and location data from the IRS’s SOI corporation file. In this matched database, we analyzed information about large corporations, those with at least $10 million in assets. We identified the large corporations with characteristics consistent with a tax cost advantage compared to other large corporations and counted the number of these advantaged and disadvantaged corporations. We divided the SOI data into categories that differentiated between federal contractors (domestically owned and foreign owned) and noncontractors (domestically owned and foreign owned). We further divided the foreign- owned corporation data by those headquartered in tax haven countries from those not headquartered in tax haven countries. SOI is a data set widely used for research purposes. SOI corporation files are representative samples of the population of all corporations that filed tax returns. Generally, SOI data can be used to project tax return information to the universe of all filers. However, the total corporations that matched in both the SOI and FPDS databases could not be used to project the results of our analysis to the universe of all corporations. Because SOI’s sampling rate for smaller corporations is very low, our matched database contained very few smaller corporations and would not lead to reliable estimates of the properties of the universe of smaller corporations. Therefore, the results of our analysis cannot be projected to the universe of all corporate filers. However, our results do represent the universe of large tax haven contractors. SOI samples corporations with at least $10 million in assets at a 100 percent rate so that the SOI sample includes the universe of these larger corporations. For this reason, we report the results of our analysis without sampling error. IRS performs a number of quality control steps to verify the internal consistency of SOI sample data. For example, it performs computerized tests to verify the relationships between values on the returns selected as part of the SOI sample and manually edits data items to correct for problems, such as missing items. We conducted several reliability tests to ensure that the data excerpts we used for this report were complete and accurate. For example, we electronically tested the data and used published data as a comparison to ensure that the data set was complete. To ensure accuracy, we reviewed related documentation and electronically tested for obvious errors. We concluded that the data were sufficiently reliable for the purposes of this report. We have previously reported that there are limitations to the accuracy of the data in FPDS. The data accuracy issues we reported on involved contract amounts and classification of contract characteristics. For this report, the only FPDS data we used were the contractors’ names and taxpayer identification numbers. Our previous report did not address the accuracy of these data elements. Therefore, our match of the FPDS and SOI data may contain some nonsampling error; that is, due to inaccurate identification numbers, we may fail, in some cases, to correctly identify large corporations in SOI that were also federal contractors. However, we expect this nonsampling error to be small, and we concluded that the data were sufficiently reliable for the purposes of this report. Contractors, including tax haven contractors, that have a lower marginal tax rate on the income from a contract than other contractors would have a tax cost advantage when competing for a contract. Furthermore, there is some evidence that a tax haven contractor may be able to shift income between the U.S. subsidiary and its tax haven parent in order to reduce U.S. taxable income. There are conditions under which a contractor could have a tax cost advantage when competing for a contract. The tax cost of the contract is the tax paid on the additional income derived from the contract. A contractor that pays less tax on additional income from a contract gains a tax cost advantage compared to companies that pay higher tax. One way to gain a tax cost advantage is by offsetting income earned on the contract with losses from other activities. The contractors with a tax cost advantage are not necessarily the successful competitors because the tax cost savings may not be reflected in actual bid prices or price proposals, and prices or costs are only one of several factors involved in awarding contracts. This reasoning holds for all contractors, including tax haven contractors, and all contracts, including federal contracts. The appropriate measure of the tax cost of the contract is the corporation’s marginal tax rate. The marginal tax rate is the rate that applies to an increment of income. As such, the marginal tax rate would be the rate that applies to the additional income that would arise from the federal contract. For example, if a contractor in a 34 percent tax bracket earns $1 million of additional income from the contract, it would owe $340,000 in additional tax. The 34 percent statutory tax rate is this contractor’s marginal rate. A lower marginal tax rate may confer a tax cost advantage when companies are bidding on contracts because it indicates a higher after-tax rate of return on the contact. All other things being equal, a lower marginal effective tax rate is equivalent to a reduction in cost, that is, a reduction in either the tax rate or cost would produce a higher after-tax return. For example, a contractor with a 30 percent marginal tax rate on a contract producing $1 million of income pays $300,000 in taxes and receives $700,000 in additional after-tax income. On the other hand, a contractor with a 34 percent marginal tax rate on the same contract producing $1 million of income pays $340,000 in taxes and receives $660,000 in additional after-tax income. The $40,000 difference in after-tax income due to the difference in marginal tax rates is the tax cost advantage. In this example, the contractor with the tax cost advantage can, in theory, underbid the competitor by as much as $40,000 and earn an after-tax income at least as large as the competitor. In this sense, the competitor with the lower marginal tax rate would have a tax cost advantage over a competitor with a higher marginal tax rate. A contractor gains a tax cost advantage if it has a lower marginal tax rate compared to other companies that are competing for the contract. However, the available data are not sufficient to measure marginal rates accurately. In order to compute marginal rates, detailed information is required about the tax status of the contractors and types of spending by the contractors associated with the contracts. Although the marginal tax rates are not available, conditions under which the marginal rates may be lower for some companies than others can be inferred from their current taxable income. Specifically, a company that has positive taxable income may be more likely to have a positive tax liability on the incremental income from the contract than companies with zero or negative taxable income. Therefore, a company with zero taxable income may have a lower marginal tax rate relative to companies with positive taxable income. Tax losses in the United States on other activities could absorb incremental income generated from a contract. All other things being equal, a company competing for a federal contract that reported taxable income in the United States would face a higher tax cost than a competitor without taxable income. While a zero tax liability provides an indicator of a tax cost advantage, it does not necessarily mean that the advantage exists. Whether a contractor with zero tax liability has a tax cost advantage when competing for a particular contract depends on the tax liabilities of the other competitors. The contractor with zero tax liability would have no tax cost advantage if all the other competitors also had no tax liability. Even if a contractor can be shown to have a tax cost advantage when competing for a federal contract, this advantage does not imply that the contractor’s bid or proposal will be successful. A tax cost advantage may not be reflected in the contractor’s bid or price proposal, the content of which depends on the business judgment of the contractor. For example, in order to include more profit, a contractor may decide not to use any tax cost advantage to reduce its price. Even if the tax advantage is reflected in the bid or price proposal, other price or cost factors that affect whether the bid or proposal is successful may not be equal across the companies competing for the contract. For example, a bidder may have a tax cost advantage over other bidders, but if its costs of labor and material are higher, its tax cost advantage may be offset by its higher costs for those other elements of its bid. Further, where price or cost is not the only evaluation factor for award of the contract, any tax cost advantage may be offset by the relative importance of other factors such as technical merit, management approach, and past performance. Generally, the contractor’s tax cost advantage would become a competitive advantage where other contractors would have to reduce their prices (or costs) and/or improve the nonprice (or noncost) elements of their proposals to offset the tax cost advantage. Tax haven contractors may be more likely to have lower tax costs than other contractors because they may be able to shift U.S. source income to their tax haven parents, reducing U.S. taxable income. Some, but not all, domestic contractors - those that have overseas affiliates - may also be able to shift income. Any income earned by the U.S. subsidiary from a contract for services performed in the United States would be U.S. taxable income. Such income would be taxed in the United States unless it is shifted outside the United States through such techniques as transfer pricing abuse. Location in a tax haven country can confer tax advantages that are not related to income shifting and do not give a company an advantage when competing for federal contracts. When a parent locates in a tax haven country, taxes on foreign income can be reduced by eliminating U.S. corporate-level taxation of foreign operations. However, these tax savings are unrelated to the taxes paid on income derived from the contract for services performed in the United States and have no effect on the tax cost of the contract. The tax haven contractor potentially gains an advantage with respect to contract competition because of the increased scope for income shifting to reduce U.S. taxable income below zero. A tax haven contractor may be able to shift income outside of the United States by increasing payments to foreign members of the corporate group. The contractor may engage in transfer pricing abuse, whereby related parties price their transactions artificially high or low to shift taxable income out of the United States. For example, the tax haven parent can charge excessive prices for goods and services rendered (for example, $1000 instead of $500). This raises the subsidiary’s expenses (by $500), lowers its profits (by $500), and shifts the income ($500) to the lower tax jurisdiction outside the United States. Transfer pricing abuse can also occur when the foreign parent charges excessive interest on loans to its U.S. subsidiary. Interest deductions can also be used to shift income outside the United States through a technique called “earnings stripping.” Using this technique, the foreign parent loads the U.S. subsidiary with a disproportionate amount of debt, merely by issuing an intercompany note, thereby generating interest payments to the parent and interest deductions against U.S. income for the subsidiary. However, the U.S. subsidiaries would still be subject to the I.R.C. rules that limit the deductibility of interest to 50 percent of adjusted taxable income whenever the U.S. subsidiary’s debt-equity ratio exceeds 1.5 to 1. Determining whether companies shift income to obtain a tax cost advantage is difficult because differences among companies that may indicate shifting can also be explained by other factors affecting costs and profitability. For example, while differences in average tax rates and interest expenses may be consistent with income shifting, they do not prove that such activities are occurring. The differences might be explained by other factors, such as the age of the company. As table 1 shows, tax haven contractors in 2001 had greater interest expense and lower tax liabilities relative to gross receipts than domestic or all foreign contractors. The greater interest expense associated with lower tax liabilities may indicate that the tax haven contractors have used techniques like earnings stripping to shift taxable income outside the United States. The pattern of tax liabilities and interest expense in 2000 is the same as in 2001 in all respects except one: the ratio of interest expense to gross receipts for tax haven noncontractors is lower than the ratio for domestic or all foreign contractors in 2000. (For details, see app. II.) This pattern of interest expenses and tax liabilities is largely consistent with tax haven contractors inflating interest costs to shift taxable income outside of the United States but does not prove that this has occurred. The differences may be due to such factors as the age and industry of the companies, their history of mergers or acquisitions, and other details of their financial structure and the markets for their products. Furthermore, low or zero tax liability is not necessarily an indicator of noncompliance. Companies may have low or zero tax liabilities for a variety of reasons, such as overall business conditions, industry- or company-specific performance issues, and the use of income shifting. The evidence on the extent to which income shifting is occurring is not precise. Studies that compare profitability of foreign-controlled and domestically controlled companies show that much of the difference can be explained by factors other than income shifting. However, the range of estimates can be wide, contributing to uncertainty about the precise effect, and the studies do not focus on income shifting to parents in tax haven countries. The 1997 study by Harry Grubert showed that more than 50 percent, and perhaps as much as 75 percent, of the income differences could be explained by factors other than income shifting. A Treasury report on corporate inversions did discuss income shifting to parents in tax haven countries but did not provide any quantitative estimates of the extent of such shifting. According to the report, the tax savings from income shifting are greatest in the case of a foreign parent corporation located in a no-tax jurisdiction. The Treasury report cites increased benefits from income shifting among other tax benefits as a reason for recent corporate inversion activity and increased foreign acquisitions of U.S. multinationals. Using tax liability as an indicator of ability to offset contract income, we determined that large tax haven contractors were more likely to have a tax cost advantage than large domestic contractors in both 2000 and 2001. In both years, tax haven contractors were about one and a half times more likely to have no tax liability as domestic contractors. As table 2 shows, in 2000, 56 percent of the 39 tax haven contractors reported no tax liability, while 34 percent of the 3,253 domestic contractors reported no tax liability. In 2001, 66 percent of the 50 tax haven contractors and 46 percent of the 3,524 domestic contractors reported no tax liability. Under the conditions of our model, contractors with no tax liability would have a tax cost advantage compared to the contractors that did have tax liabilities in these years. Consequently, in 2000, the tax haven contractors without tax liabilities were likely to have a tax cost advantage compared to the 17 other tax haven contractors and 2,132 domestic contractors that had tax liabilities. The 1,121 domestic contractors without tax liabilities were also likely to have a tax cost advantage compared to these same companies. In 2001, the tax haven contractors with zero tax liability were likely to have a tax cost advantage compared to the 17 other tax haven contractors and 1,888 domestic contractors that had tax liabilities. Because they reported no tax liability, 1,636 domestic contractors were also likely to have a tax cost advantage with compared to these same companies. This analysis of possible tax advantages does not show that income shifting is the only potential cause of the advantage. As mentioned above, the tax losses that confer the advantage may be due to income shifting, but may also be due to other factors such as overall business conditions, industry and age of the company, or company-specific performance issues. In addition, the analysis does not show the size of the advantage in terms of tax dollars saved. The amount saved depends, in part, on the amount of additional income from the contract. If the contractor with no tax liability has insufficient losses to offset the additional income, it would pay taxes on at least part of the income, reducing the potential advantage. Lastly, the analysis identifies tax haven contractors that meet the conditions for having a tax cost advantage with respect to income from the contract in 2000 and 2001. The data do not indicate whether they have an overall tax cost advantage on a contract that produces income in other years. Furthermore, to the extent that losses are used to offset income in the current year, they cannot be used to offset income in other years. These smaller loss carryovers would reduce the overall tax cost advantage. The existence of a tax cost advantage for some tax haven contractors matters to American taxpayers. First, the advantage could, but does not necessarily, affect which company wins a contract. A contractor with a tax cost advantage could offer a price that wins a contract based more on tax considerations than on factors such as the quality and cost of producing goods and services. Second, the potential tax cost advantage may contribute, along with other tax considerations, to the incentives for companies to move to tax haven countries, reducing the U.S. corporate tax base. The issue of tax cost advantages for tax haven contractors is related to the larger issue of how companies headquartered or operating in the United States should be taxed. For example, the questions about how the worldwide income of U.S. multinational corporations should be taxed are part of a larger debate and beyond the scope of this report. Because of these larger policy issues, we are not making recommendations in this report. In a letter dated June 22, 2004, the IRS Commissioner stated that because IRS’s only role in our report was to provide us with certain tax data, IRS’s review of a draft of this report would be limited to evaluating how well we described the tax data it provided. The Commissioner stated that IRS believes that the report fairly describes these data. On June 28, officials from the Department of the Treasury’s Office of Tax Policy provided oral comments on several technical issues, which we incorporated into the report where appropriate. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its date. At that time, we will send copies to the Secretary of the Treasury, the Commissioner of Internal Revenue and other interested parties. We will also make copies available to others on request. In addition, this report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you have any questions concerning this report, please contact me at (202) 512-9110 or [email protected] or Kevin Daly at (202) 512-9040 or [email protected]. Key contributors to this report are listed in appendix III. A parent corporation that locates in a tax haven country may reduce U.S. tax on corporate income by shielding subsidiaries from U.S. taxation and by providing opportunities for shifting of U.S. source income to lower tax jurisdictions. Such a corporation could have an advantage because it is able to have a lower marginal tax rate on U.S. contract income than its domestic competitors or other foreign competitors. The simple qualitative model in this appendix specifies a set of conditions under which corporations with a tax haven parent may have a lower marginal U.S. tax rate. The principal means by which a parent corporation that locates in a tax haven country may have lower U.S. tax liabilities are as follows. The corporation pays no U.S. tax on what would have been its foreign source income if it were located in the United States. To the extent that foreign subsidiaries are owned by a foreign parent, the U.S. corporate- level taxation of foreign operations is eliminated. Tax savings would come from not having to pay tax on the corporate group’s foreign income. The corporation may be able to shift income outside of the United States by increasing payments to foreign members of the group. The corporation may engage in transfer pricing abuse, whereby related parties price their transactions artificially high or low to shift taxable income out of the United States. Transfer pricing abuse can also occur when the foreign parent charges excessive interest on loans to its U.S. subsidiary. Interest deductions can also be used to shift income outside the United States through a technique called earnings stripping. Using this technique, the foreign parent loads the U.S. subsidiary with a disproportionate amount of debt, merely by issuing an intercompany note, thereby generating interest payments to the parent and interest deductions against U.S. income for the subsidiary. The subsidiaries would still be subject to the thin capitalization rules (I.R.C. section 163 (j)) that limit the deductibility of interest to 50 percent of adjusted taxable income whenever the U.S. subsidiary’s debt-equity ratio exceeds 1.5 to 1. When a parent corporation locates in a tax haven country, the elimination of U.S. corporate-level taxation of foreign operations can reduce taxes on foreign income. However, these tax savings are unrelated to the taxes paid on income derived from the contract and have no effect on the tax cost of the contract. Any income earned by the U.S. subsidiary from a contract for services performed in the U.S. would be U.S. taxable income. Therefore, the elimination of the corporate-level taxation of foreign operations provides no competitive advantage to a corporation that is competing for a U.S. government contract. A corporation has a U.S. tax advantage in competing for a government contract when it would pay a lower marginal U.S. tax rate on the income from that contract than would the other companies competing for that same contract. The available data are not sufficient to measure marginal rates accurately. However, the likelihood that the rates are lower for some companies than others can be inferred from their current tax liabilities. The manipulation of interest payments and other transfer pricing can reduce U.S. taxable income. We can infer that the corporation may have a lower marginal tax rate on its U.S. contract income if the manipulation allows a corporation that would otherwise have positive taxable income to reduce its taxable income (excluding the net income from the contract) to a negative amount. Table 3 shows a set of situations, or cases, in which a corporation may and may not have a cost advantage when bidding on a contract. In order to use this model to identify corporations with a tax cost advantage, we make two assumptions: (1) corporations with positive U.S. taxable income pay tax at the same rate based on the schedule of corporate tax rates (that is, their income before the contract income puts them in the same tax bracket) and (2) corporations with negative income have sufficient losses to offset income from the contract. With these assumptions, we can draw inferences about relative marginal tax rates for the three cases. A U.S. corporation that has positive U.S. taxable income (before taking the income from the contract into account) and has a parent located in a tax haven country does not have a competitive advantage compared to a U.S. corporation with positive income (Case 2). Because they have positive income and pay the same rate of tax, neither has a lower marginal tax rate than the other. Likewise, a corporation with a tax haven parent that has U.S. tax losses and zero tax liability would not have an advantage compared to another corporation with tax losses (Case 3). Because the marginal tax rate is zero for both these corporations and they have sufficient losses to offset the contract income, neither has a tax cost advantage. However, a corporation that has a tax haven parent and U.S. tax losses would have an advantage when compared to a corporation with positive income (Case 1). In this case, the corporation with losses has a zero marginal rate, which provides a tax cost advantage compared to a corporation with taxable income and a positive marginal rate. The assumption that a corporation with zero tax liability has sufficient losses to offset contract income may not be true in particular instances. For example, a corporation may obtain more than one contract (in the public or private sector) and the marginal tax rate on income from a particular contract will depend on how the losses are allocated across income from all the contracts. However, a corporation with zero tax liability is more likely to be able to offset the additional income than a corporation with positive tax liability. In this sense, tax liability is an indicator of the ability to offset income from the contract. The qualitative model does not identify the causes of the advantage. The tax losses that confer the advantage may be due to income shifting, but may also be due to other factors. In addition, the model does not show the size of the advantage in terms of tax dollars saved. The amount saved depends, in part, on the amount of additional income from the contract. If the contractor with no tax liability has insufficient losses to offset the additional income, it would pay taxes on at least part of the income, reducing the potential advantage compared to contractors that have positive tax liabilities. Lastly, the model is used to identify tax haven contractors that meet the conditions for having a competitive advantage with respect to income from the contract in 2000 and 2001. The data do not indicate whether they have an overall tax advantage on a contract that produces income in other years. The additional table of tax liabilities and interest expense for 2000 is provided for comparison with the data reported in the letter. It shows substantially the same pattern. Table 4 shows that in 2000, tax haven contractors had greater interest expense and lower tax liabilities relative to gross receipts than domestic or all foreign contractors. The pattern of tax liabilities and interest expense in 2000 is the same as in 2001 in all respects except one: the ratio of interest expense to gross receipts for tax haven noncontractors is lower than the ratio for domestic or all foreign contractors in 2000. The greater interest expense associated with lower tax liabilities may indicate, but does not prove, that the tax haven contractors have used techniques like earnings stripping to shift taxable income outside the United States. Amy Friedheim, Donald Marples, Samuel Scrutchins, James Ungvarsky, and James Wozny made key contributions to this report. 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The federal government was involved in about 8.6 million contract actions, including new contract awards, worth over $250 billion in fiscal year 2002. Some of these contracts were awarded to tax haven contractors, that is, U.S. subsidiaries of corporate parents located in tax haven countries. Concerns have been raised that these contractors may have an unfair cost advantage when competing for federal contracts because they are better able to lower their U.S. tax liability by shifting income to the tax haven parent. GAO's objectives in this study were to (1) determine the conditions under which companies with tax haven parents have a tax cost advantage when competing for federal contracts and (2) estimate the number of companies that could have such an advantage. GAO matched federal contractor data with tax and location data for all large corporations, those with at least $10 million in assets, in 2000 and 2001, in order to identify those companies that could have an advantage. There are conditions under which a tax haven contractor may have a tax cost advantage (lower tax on additional income from a contract) when competing for a federal contract. The extent of the advantage depends on the relative tax liabilities of the tax haven contractor and its competitors. One way for a contractor to gain a tax cost advantage is by reducing its U.S. taxable income from other sources to less than zero and by using its losses to offset some or all of the additional income from a contract, resulting in less tax on the contract income. A company would thereby gain an advantage relative to those competitors with positive income from other sources and may be able to offer a lower price or cost for the contract. While some domestic corporations may also have a tax cost advantage, tax haven contractors may be better able to reduce U.S. taxable income to less than zero because of opportunities to shift income to their tax haven parents. Whether a contractor has a tax cost advantage in competing for a particular contract depends on the tax liabilities of other competitors. Also, the contractors with a tax cost advantage are not necessarily the successful competitors because the tax cost savings may not be reflected in actual prices, and prices may be only one of several factors involved in awarding contracts. Using tax liability as an indicator of ability to offset contract income, GAO found that large tax haven contractors in both 2000 and 2001 were more likely to have a tax cost advantage than large domestic contractors. In 2000, 56 percent of the 39 large tax haven contractors reported no tax liability, while 34 percent of the 3,253 large domestic contractors reported no tax liability. In 2001, 66 percent of large tax haven contractors and 46 percent of large domestic contractors reported no tax liability.

You are an expert at summarizing long articles. Proceed to summarize the following text: To reduce out-of-pocket costs that result from cost sharing and the utilization of non-Medicare covered services and items, FFS Medicare beneficiaries may either purchase a private supplemental insurance policy, known as a Medigap plan, or enroll in a private health plan that has contracted to serve Medicare beneficiaries. From 1998 through 2003, M+C, Medicare’s private health plan program, allowed participation by a variety of plan types, including HMOs, PPOs, and PFFS plans, as long as these plans met certain organizational and operational requirements. Unlike in the private insurance market, where PPO plans were the most prevalent type of health plan, the vast majority of M+C plans were HMOs. CMS launched two demonstrations that included plans intended to operate under the PPO model. Beneficiaries in FFS Medicare, which consists of Medicare part A and part B, may incur substantial out-of-pocket costs. Part A helps pay for inpatient hospital, skilled nursing facility, hospice, and certain home health services, although beneficiaries remain liable for a share of the cost of most covered services. For example, Medicare requires beneficiaries to pay a deductible for each hospital benefit period, which was $840 in 2003, and covers a maximum of 90 days per benefit period. Medicare part B helps pay for selected physician, outpatient hospital, laboratory, and other services. Enrollment in part B is voluntary and requires a beneficiary to pay a monthly premium and an annual deductible for most types of part B services — $58.70 and $100, respectively, in 2003 – and may require coinsurance of up to 50 percent for some services. Beneficiaries are also liable for items and services not covered by FFS Medicare, such as routine physical examinations and most outpatient prescription drugs. Many beneficiaries in FFS obtain more comprehensive coverage through supplemental health insurance provided by a former employer or purchased from a private insurer (Medigap). Although many employers do not offer supplemental health insurance to their retirees, Medigap policies are available nationwide. In most states, Medigap policies are organized into 10 standardized plans offering varying levels of supplemental coverage. Medigap plan F is the plan most widely selected by beneficiaries, although it does not offer prescription drug coverage; Medigap plan I offers similar coverage but includes some coverage for prescription drugs. Beneficiaries with Medigap policies receive coverage for services from any provider who is legally authorized to provide Medicare services. Most beneficiaries may also obtain more comprehensive coverage by choosing to receive Medicare benefits through private health plans that participate in Medicare instead of through FFS Medicare. While private Medicare health plans are not available nationwide, about 80 percent of beneficiaries in 2003 had access to at least one plan within the counties where they lived. Beneficiaries who enroll in a private plan may pay a monthly premium, in addition to the Medicare part B premium, and agree to receive their Medicare-covered benefits, except hospice, through the plan. In return, beneficiaries may receive additional non-Medicare benefits and may be subject to reduced cost sharing for Medicare-covered benefits. Beneficiaries who enroll in a private plan that contracts with Medicare are entitled to coverage for all services and items included in the plan’s benefit package, regardless of whether the service or item is covered under FFS Medicare. Congress created the M+C program, in part, to expand health plan options for beneficiaries. Previously, private plan participation in Medicare had been largely limited to HMOs. The M+C program provided the opportunity for PPOs and PFFS plans to serve beneficiaries as well. Generally, M+C plan types differed by the extent to which they used provider networks. M+C HMOs were required to maintain networks of providers, and they generally covered services furnished only by providers in their networks, except in limited circumstances such as urgent or emergency situations. (See table 1.) M+C PPOs were also required to maintain provider networks. Unlike M+C HMOs, M+C PPOs were required to pay for covered services obtained from non-network providers, although they could charge beneficiaries additional cost sharing for these services. A third type of M+C plan, the PFFS plan, was not required to maintain provider networks. Rather, M+C PFFS plans were required to pay for all covered services obtained from any provider authorized to furnish Medicare-covered services who accepted the plan’s terms and conditions of payment. While many M+C requirements were uniform across the different types of plans, two categories of requirements varied by the type of plan: those that were intended to ensure that enrollees had sufficient and timely access to covered services, known as access-to-services requirements, and those that were intended to ensure that services furnished were of sufficient quality, known as quality assurance requirements. (See table 2.) In general, plans that restricted enrollees to provider networks were subject to more extensive access-to-services and quality assurance requirements than those that did not. Accordingly, M+C HMO plans were subject to more extensive quality assurance and access-to-services requirements than M+C PFFS plans. M+C PPOs were subject to the more extensive access-to- services requirements of M+C HMOs, but the less extensive quality assurance requirements of PFFS plans. For example, in order to demonstrate that they provided sufficient access to services, M+C HMOs and M+C PPOs were required to monitor and document the timeliness of the care their enrollees received from providers, while M+C PFFS plans were not required to monitor care in this way. With regard to quality assurance, M+C HMOs each year had to initiate a multi-year quality improvement project, such as a provider or enrollee education program, while M+C PPOs and M+C PFFS plans were not subject to this requirement. M+C HMOs, M+C PPOs, and M+C PFFS plans all were paid a monthly payment per enrollee according to a statutory formula. The M+C payment rate varied by county and could be higher or lower than FFS Medicare’s per capita spending in a county. An M+C plan was at full risk for the costs of covered services for its enrollees. If these costs made up a higher than anticipated portion of the plan’s total revenues—consisting of enrollee premiums and monthly payments from CMS—then the plan would have less than it anticipated for administration, profit, and other contingencies. In recent years, PPO plans have become increasingly prevalent in the private insurance market and tended to displace other types of plans, such as HMOs, that offered less provider choice. From 1996 through 2002, the percentage of individuals with employer-sponsored coverage who were enrolled in HMO plans decreased from 31 percent to 26 percent, while the percentage of individuals with employer-sponsored coverage enrolled in PPOs increased from 28 percent to 52 percent. In contrast, there were approximately 3,000 Medicare beneficiaries enrolled in a total of six M+C PPO plans by 2003. From 1998 through 2003, the total number of M+C plans, the vast majority of which were HMOs, decreased from 346 to 155. The number of beneficiaries covered by M+C plans also fell, from 6.1 million in 1998, or about 16 percent of all beneficiaries, to 4.6 million in 2003, or about 11 percent of all beneficiaries. Section 402(a) of the Social Security Amendments of 1967 authorizes CMS to conduct demonstrations to identify whether changes in methods of payment or reimbursement in Medicare and other specified health care programs would increase the efficiency and economy of those programs without adversely affecting the quality of services. In addition, under section 402(b), CMS may waive requirements relating to payment or reimbursement for health care services in connection with these demonstrations. For example, CMS may be able to offer demonstration plans alternative methods of payment or other financial incentives that are not offered to other providers in the Medicare program. However, CMS does not have the authority to waive rules not related to payment or reimbursement. Prior to the passage of MMA, CMS launched both the M+C Alternative Payment Demonstration and the Medicare PPO Demonstration. The M+C Alternative Payment Demonstration began in 2002 and included one organization offering a PPO in 2003. It is set to expire in December 2004. The Medicare PPO Demonstration, which began in 2003, included 17 organizations representing 33 plans. This demonstration is set to expire in December 2005. Using its authority to waive requirements related to payment and reimbursement, CMS offered financial incentives to Independence Blue Cross and the plans in the Medicare PPO Demonstration that they did not offer to typical M+C plans. These incentives included potentially higher payments and the opportunity to reduce their exposure to financial risk by entering into risk-sharing agreements. CMS also allowed the plans to exceed the limits on the cost sharing that M+C plans could charge beneficiaries. Under federal law, plans in the Medicare PPO Demonstration should have been required to allow beneficiaries to obtain plan services from providers of their choice, as long as those providers were legally authorized to furnish them and accepted the plans’ terms and conditions of payment. CMS did not have authority to waive this requirement, as it was unrelated to payment or reimbursement. However, CMS improperly allowed 29 of the 33 plans in the Medicare PPO Demonstration to require, as a condition of coverage for certain services, that beneficiaries obtain those services only from network providers. Under its authority to waive requirements related to payment for demonstration participants, CMS offered demonstration PPOs a number of financial incentives to participate in the demonstrations. By waiving the M+C requirements applicable to plan payment, CMS offered Independence Blue Cross and the plans in the Medicare PPO Demonstration an opportunity to receive payment rates that could be higher than those received by M+C plans. Per enrollee per month, demonstration PPOs received the higher of the county-based M+C rate or a rate based on the average amount Medicare spent in that county for each FFS beneficiary. A plan’s ability to receive the higher of the M+C rate or FFS-based rate could substantially increase its payment rates, depending on the counties it served. In 44 of the 214 counties where the plans in the Medicare PPO Demonstration were available in 2003, the FFS-based rate ranged from approximately 0.3 percent to 15.1 percent higher than the M+C payment rate. For example, in Clark County, Nevada, the FFS-based rate was $635.79, or 5.6 percent higher than the M+C payment rate of $599.95. CMS also used its waiver authority to allow Independence Blue Cross and the plans in the Medicare PPO Demonstration to reduce their financial risk through risk-sharing agreements. Risk-sharing agreements were not available to non-demonstration M+C plans, which were required to accept full financial risk for the cost of providing covered services to their enrollees. For contract year 2003, CMS signed risk-sharing agreements with 13 organizations offering a total of 29 plans. The terms of the agreements varied. Each agreement specified an expected “medical loss ratio” (MLR), the percentage of a plan’s annual revenue (comprised of monthly payments from CMS and any enrollee premiums) that would be spent on medical expenses. Generally, plans could designate the remaining percentage of revenue for administrative expenses, profit, and other contingencies. For the 12 organizations in the Medicare PPO Demonstration that had risk-sharing agreements with CMS, medical expenses represented a median 87 percent of plan revenue. CMS agreed to share a designated percentage, negotiated separately with each plan, of any difference between the plan’s actual MLR and the expected MLR that fell outside a range around the expected MLR, known as a risk corridor. For each plan, the designated percentage with which it would share risk with CMS was identical whether the actual MLR was greater or lower than the expected MLR. For example, a plan’s contract might have specified an MLR of 87 percent, a percentage of shared risk of 50 percent, and a risk corridor of 2 percent above and below the expected MLR (See fig. 1.) If that plan’s actual medical expenses exceeded 89 percent of its revenue, CMS would pay the plan 50 percent of the amount by which the actual MLR exceeded 89 percent. If the plan’s actual MLR was lower than 85 percent of its revenue, the plan would pay CMS 50 percent of the amount that the actual MLR fell below 85 percent. In order to allow organizations with HMO licenses to offer PPO-model health plans without having to meet the more stringent quality assurance requirements of M+C HMOs, CMS had organizations sign PFFS contracts and also waived certain M+C payment requirements. Of the 33 plans in the Medicare PPO Demonstration, 13 were offered by organizations with HMO licenses. Under M+C requirements, a PPO offered by an organization licensed as an HMO would have to adhere to the more stringent quality assurance standards applicable to HMOs. CMS indicated that it could permit licensed HMOs to establish PPO-type networks without being subject to the more stringent quality assurance requirements applicable to HMOs by structuring their plans as PFFS plans. CMS contracted with all plans participating in the Medicare PPO Demonstration as M+C PFFS plans because M+C did not prohibit organizations licensed as HMOs from offering PFFS plans. Although M+C requires PFFS plans to pay each class of provider uniformly, CMS waived this payment-related requirement, thereby enabling these plans to establish provider networks by paying providers differently depending on whether they belonged to their networks. CMS also waived the M+C limits on beneficiary cost sharing. An M+C plan may set beneficiary cost-sharing requirements that differ from those in FFS Medicare, but these requirements are subject to statutory limits that vary by plan type. For example, under M+C rules for PFFS plans, the actuarial value, or estimated dollar value, of the cost-sharing requirements for benefits that CMS requires the plans to cover could not exceed the actuarial value of cost-sharing requirements in FFS Medicare, which was about $1,200 annually per beneficiary in 2003. Because CMS waived this provision for demonstration PPOs, these plans were subject to no statutory or regulatory cost-sharing limits. Because CMS signed PFFS plan contracts with all of the plans in the Medicare PPO Demonstration, these plans should have been subject to all PFFS plan requirements. In particular, by federal law, M+C PFFS plans were required to allow enrollees to receive all covered services from any provider who is legally authorized to provide Medicare services and accepts the plans’ terms and conditions of payment. CMS does not have the authority to waive this requirement because it pertains to beneficiary access to providers, not payment. However, CMS allowed 29 of the 33 plans in the Medicare PPO Demonstration to establish provider networks and to exclude coverage for some services, both those covered and not covered by FFS Medicare, obtained outside the provider network. Examples of such services include skilled nursing and home health, which are covered under FFS Medicare, and dental care and routine physical examinations, which are not covered under FFS Medicare. In response to our inquiries, CMS, in a letter dated June 15, 2004, agreed with our view that the restriction of Medicare-covered services to network providers by plans in the Medicare PPO Demonstration violated Medicare requirements. The agency noted, however, that the plans did not place such coverage restrictions on most services in their benefit packages. In its letter, CMS said that it would instruct plans in the Medicare PPO Demonstration to provide out-of-network coverage for Medicare-covered services in 2005, if they want to continue to operate as PFFS plans and avail themselves of the quality assurance requirements available to M+C PFFS plans. However, CMS indicated that it would not require plans that cover non-Medicare services only in network to provide out-of-network coverage for these services. We maintain that the Medicare PPO Demonstration plans’ restriction on coverage of services obtained outside their provider networks is unlawful. The Social Security Act does not distinguish between Medicare and non- Medicare-covered services with respect to an M+C PFFS plan’s obligation to cover plan benefits. According to the law, M+C PFFS plans must allow enrollees to obtain all covered plan services– both Medicare-covered and non-Medicare-covered—from any provider authorized to provide the services who accepts the plans’ terms of payment. Furthermore, allowing plans in the Medicare PPO Demonstration to limit coverage of certain benefits to network providers is inconsistent with statutory and regulatory requirements intended to promote quality of care for beneficiaries in M+C plans. Under M+C, PFFS and PPO plans were held to less extensive quality assurance requirements than HMOs due, in part, to the greater choice these plans’ enrollees have in obtaining services from providers. However, plans in the Medicare PPO Demonstration were allowed to restrict beneficiary choice of provider for certain services but were not held to the quality assurance standards that apply to M+C plans that restrict choice. Demonstration PPOs did little to expand access to private Medicare health plans for beneficiaries who lacked such access. In addition, they enrolled relatively few beneficiaries, less than 1 percent of those living in counties where they operated. Furthermore, beneficiaries who enrolled in Medicare PPO Demonstration plans were far more likely to have switched from an M+C plan instead of FFS Medicare. About 98 percent of the beneficiaries who lived in counties with demonstration PPOs had other Medicare private health plans available. Although demonstration PPOs provided beneficiaries with an additional plan option in the counties where they operated, they did little to attract private health plans to counties where no M+C plans existed. In October 2003, demonstration PPOs were available in 214 counties nationwide, where approximately 10.1 million beneficiaries resided. Some form of M+C plan was available in 205 of the 214 counties. (See table 3.) About 200,000 of the 10.1 million beneficiaries, or about 2 percent, lived in the nine counties where only demonstration PPOs were available. (See fig. 2.) Enrollment in demonstration PPOs was relatively low. Of the 10.1 million eligible Medicare beneficiaries living in demonstration PPO counties, about 98,000, or less than 1 percent, had enrolled by October 2003. (See table 4.) These 98,000 enrollees represented about 5 percent of the total enrollment in Medicare private health plans in demonstration PPO counties. Enrollment in demonstration PPOs was particularly low in the nine counties with no M+C plans. In these counties, only about 100 of the approximately 203,000 beneficiaries living there enrolled. Two plans, Independence Blue Cross and Horizon Healthcare of New Jersey, accounted for more than 70 percent of all demonstration PPO enrollment. (See fig. 3.) Of the approximately 98,000 beneficaries enrolled in demonstration PPOs, about 23,000, or 23 percent, were enrolled in Independence Blue Cross, the one PPO plan in the M+C Alternative Payment Demonstration. Approximately 47,000, or about 48 percent of all demonstration PPO enrollees, were enrolled in Horizon Healthcare of New Jersey, a participant in the Medicare PPO Demonstration. The approximately 28,000 remaining beneficiaries were enrolled in the 32 other plans in the Medicare PPO Demonstration. These plans had an average enrollment of 878 beneficiaries. The Medicare PPO Demonstration largely did not fulfill CMS’s goal of attracting beneficiaries from FFS Medicare; most beneficiaries who enrolled in demonstration PPOs came from M+C plans. Specifically, in the 211 counties where plans participating in the Medicare PPO Demonstration were available, 26 percent of beneficiaries who were enrolled in Medicare PPO Demonstration plans were formerly enrolled in FFS Medicare, while 74 percent of these beneficiaries were formerly enrolled in M+C plans. In these same counties, 1 percent were enrolled in demonstration PPO plans, 81 percent were enrolled in FFS Medicare, and approximately 18 percent of Medicare beneficiaries were enrolled in M+C plans. The disproportionately high enrollment in demonstration PPOs by previous enrollees in M+C plans is partially attributable to Horizon Healthcare of New Jersey, which terminated its M+C HMO plan at the end of 2002 and offered a demonstration PPO plan in 2003 in the same 21 counties where its HMO had operated in 2002. Nearly all 45,000 beneficiaries who enrolled in the Horizon demonstration plan in the beginning of 2003 were previously enrolled in the HMO plan that the demonstration plan replaced. However, even when Horizon enrollees are excluded from the analysis, 47 percent of enrollees in the other Medicare PPO Demonstration plans were previously enrolled in M+C plans. According to CMS estimates available on the Medicare Web site, an average beneficiary aged 65 to 69 enrolled in a demonstration PPO could expect to incur $391 per month in health care expenses for premiums, cost sharing, and utilization of noncovered items and services. This amount was generally similar or higher than the expected out-of-pocket costs associated with other types of health care coverage. Excluding premiums, or focusing on beneficiaries in poor health, however, somewhat changed the pattern of relative cost by type of coverage. To the degree that enrollees in demonstration PPO plans obtained services from non-network providers, their average out-of-pocket costs would have been higher than CMS estimates. Despite the same or higher estimated out-of-pocket costs, demonstration PPOs may have offered slightly better coverage for certain items and services, such as prescription drugs and inpatient hospitalization. In 41 counties with approximately 90 percent of enrollment in demonstration PPOs, beneficiaries in demonstration PPOs who used only network providers were estimated to have incurred average monthly out- of-pocket costs of $391. That amount is similar to what beneficiaries with Medigap plans F and I would have incurred, which averaged $405 and $397, respectively. (See fig. 4.) Enrollees in M+C HMO and M+C PPO plans and FFS Medicare were estimated by CMS to have incurred lower monthly out-of-pocket costs, averaging $349 and $340, respectively. The highest monthly out-of-pocket costs were estimated to have been incurred by beneficiaries in M+C PFFS plans, which averaged $423 per month. Because the reported out-of-pocket costs were averages across beneficiaries, the difference among types of plans represent the variation in plans’ premiums, covered benefits, and cost sharing—not the characteristics of enrollees. Monthly premiums, which represent a predictable expense, accounted for a relatively high percentage (26 percent) of expected out-of-pocket costs in demonstration PPOs compared to FFS Medicare and M+C plans. Demonstration PPOs had an average monthly premium of $100, which was higher than the average premium of M+C plans ($35 for M+C HMOs and PPOs and $86 for M+C PFFS plans) and lower than the average premium for the two Medigap plans ($139 for plan F and $172 for plan I). (See fig. 5.) Excluding premiums, out-of-pocket costs in demonstration PPOs were somewhat lower than M+C plans, but higher than Medigap plans. Specifically, beneficiaries could expect an average of $231 per month in demonstration PPOs, $254 in M+C HMOs and M+C PPOs, and $277 in M+C PFFS plans. Beneficiaries with Medigap plans F and I could expect monthly expenses for cost sharing and noncovered items and services to total $205 and $150, respectively. Relative out-of-pocket costs for beneficiaries in demonstration PPOs also depended on their expected health status. For beneficiaries expected to be in poor health, demonstration PPOs were estimated to be less costly than FFS Medicare, M+C HMOs and M+C PPOs, and M+C PFFS plans but more costly than Medigap plans F and I. (See fig. 6.) For beneficiaries expected to be in excellent health, demonstration PPOs were estimated to be less costly than M+C PFFS plans and Medigap plans F and I, but more costly than FFS Medicare and M+C HMOs and M+C PPOs. To the degree that enrollees in demonstration PPOs obtained services from non-network providers, their average out-of-pocket costs would have been higher than those reflected on the Medicare Web site. Most demonstration PPOs excluded at least one service from coverage if it was furnished by non-network providers. When beneficiaries obtained services that were covered outside their plans’ provider networks, they were required to pay more in cost sharing relative to what they would have paid for the same services from network providers. Demonstration PPOs anticipated that at least some enrollees would obtain covered services from non-network providers. According to 2004 estimates submitted to CMS by organizations participating in the Medicare PPO Demonstration, a median of 11 percent of enrollee medical costs would be associated with covered services from non-network providers and thus higher cost sharing. For example, a six-night stay in a network hospital in 2003 was projected to cost a demonstration PPO enrollee an average of $421, while the same length of stay in a non-network hospital cost an average of $1,223. Across all services in the Medicare benefit package that were covered both within and outside the plans’ provider networks, the plans projected to CMS that, in 2004, enrollees would bear a median of 7 percent of the costs of those services if they obtained them from network providers, while they would bear a median of 15 percent of the costs of those services if they obtained them outside the provider networks. Although demonstration PPOs had higher enrollee out-of-pocket costs than M+C plans, except M+C PFFS plans, demonstration PPOs tended to offer slightly better coverage for some benefits, such as prescription drugs and inpatient hospitalization. While all beneficiaries living in counties with demonstration PPOs had at least one demonstration PPO with a prescription drug benefit operating in their county, only 61 percent had an M+C HMO or M+C PPO plan with a drug benefit operating in their county, and none had an M+C PFFS plan with a drug benefit operating in their county. In 16 of the 41 counties in our sample, at least one demonstration PPO and one M+C HMO or M+C PPO offered prescription drug coverage. In these counties, demonstration PPOs offered drug coverage that resulted in the same out-of-pocket costs for beneficiaries as the drug coverage offered by M+C HMO and M+C PPO plans ($167 per month), but higher out-of-pocket costs than the drug coverage offered by Medigap plan I ($124 per month). Demonstration PPOs were more likely than M+C HMO and M+C PPO plans to cover brand-name drugs in counties where both types of plans offered drug coverage. About 47 percent of the demonstration PPOs in our sample offered coverage for brand-name drugs, while 37 percent of M+C HMO and M+C PPO plans covered brand-name drugs. All demonstration PPOs, M+C HMOs, and M+C PPOs offered some coverage for generic drugs in these counties. M+C PFFS plans did not offer any drug coverage. Medigap plan I did not differentiate between generic and brand-name drug coverage. For example, in Hillsborough County, Florida, beneficiaries could choose between five different plans offering prescription drug coverage in 2003; one demonstration PPO, three M+C HMO plans, and Medigap plan I. (See table 5.) The demonstration PPO provided both generic and brand-name drug coverage and required a $12 copayment per prescription for generic drugs, a $55 copayment per prescription for brand-name drugs, and capped coverage for all drugs at $750 annually. None of the M+C HMOs covered brand-name drugs. However, two of the M+C HMOs offered unlimited coverage for generic drugs, while the third capped coverage at $500 per year. The three M+C HMOs charged between $7 and $15 per prescription. Insurers in Hillsborough County offered the standard Medigap plan I drug coverage: a $250 annual deductible, 50 percent of all costs, and a $1,250 annual limit. Medigap plan I does not differentiate between generic and brand-name drugs. Compared to M+C HMOs and M+C PPOs, FFS Medicare, and M+C PFFS plans, demonstration PPOs tended to offer lower out-of-pocket costs related to inpatient hospitalization. In 2003, a six-night stay in a network hospital would have cost enrollees in demonstration PPOs an average of $421, while the same six-night stay would have cost enrollees in M+C plans and FFS Medicare an average of $636 and $840, respectively. A six- night hospitalization for an enrollee in an M+C PFFS plan would have cost an average of $750. In contrast, beneficiaries with either of the two Medigap policies would have paid nothing for a six-night hospital stay. At the time the demonstrations were launched, CMS’s OACT projected that demonstration PPOs would increase Medicare spending by about $100 million over 2002 and 2003 combined. Specifically, OACT projected that the PPO plan in the M+C Alternative Payment Demonstration would increase Medicare spending by a total of $25.2 million over 2002 and 2003 combined, or $750 per enrollee per year, due to higher plan payments and CMS’s sharing in the plan’s financial risk. The Medicare PPO Demonstration was projected to increase Medicare spending by a total of $75 million in 2003, or $652 per enrollee per year, due to plan payments. The risk-sharing agreements with Medicare Demonstration PPO plans were not projected to result in additional Medicare spending. CMS does not yet have data on the actual cost of the demonstrations in 2003. CMS’s OACT projected that for 2002 and 2003 additional payments to demonstration PPOs would increase Medicare spending. According to its estimates, an average of 16,800 beneficiaries per month would be enrolled in Independence Blue Cross, the PPO in the M+C Alternative Payment Demonstration, in 2002 and 2003, and monthly payments for these beneficiaries would increase Medicare spending by $4.5 million in 2002 and $5.6 million in 2003, or about $300 per enrollee per year. OACT projected that plans in the Medicare PPO Demonstration would have an average monthly enrollment of 115,000 in 2003, and that monthly payments to plans for these enrollees would increase Medicare spending by $75 million, or about $652 per enrollee during the year. OACT projected that Medicare spending would increase as a result of its risk-sharing agreement with Independence Blue Cross. OACT projected that the plan’s actual MLR would be greater than the MLR the plan projected in 2002 and 2003. OACT estimated that Medicare’s share of the difference between the actual and projected MLR would be $4.8 million in 2002 and $10.3 million in 2003, or an average of $450 per enrollee per year. In contrast, CMS expected that it would neither save nor incur additional expenses from risk-sharing under any of the agreements in the Medicare PPO Demonstration, because OACT projected that the actual MLR would equal the projected MLR. At present, it is too early to determine the actual costs of the demonstrations in 2002 and 2003. As of July 2004, risk-sharing agreements had not yet been reconciled for any demonstration PPOs. During the reconciliation process, plans will report their actual MLRs to CMS, and depending on the difference between the expected and actual MLR, payment may be made either by the plan to CMS, or by CMS to the plan under the terms of the risk-sharing agreement. CMS also has not completed a more recent estimate of the cost of the demonstrations, which would compare spending for actual enrollment in demonstration PPOs with projected spending on enrollment in other M+C plans and FFS Medicare if the demonstrations did not exist. Enrollment in demonstration PPOs has been different than OACT anticipated, which would affect such a comparison. Actual monthly enrollment in Independence Blue Cross averaged 21,840 in 2002 and 22,835 in 2003, somewhat higher than the estimated average monthly enrollment of 16,800 in both years. Conversely, enrollment in the Medicare PPO Demonstration in 2003 was roughly half of projected enrollment. While OACT estimated an average monthly enrollment of 115,000 across all participating plans in that demonstration, the actual average monthly enrollment was 61,738. In addition to differing levels of enrollment, the demonstrations also experienced much higher than anticipated enrollment by former enrollees of other M+C plans. CMS initiated two demonstrations to expand the number of Medicare health plans operating like PPOs. To encourage participation in the demonstrations, CMS used its statutory authority to provide financial incentives to plans, such as payment rates that exceeded M+C rates and the opportunity to share financial risk with Medicare. CMS also allowed plans in the Medicare PPO Demonstration to require, as a condition of coverage for certain services, that enrollees obtain care for those services only from network providers. However, such a requirement is inconsistent with federal law for plans in the demonstration, and CMS did not have the authority to allow plans to restrict enrollees’ choice of providers so long as they were authorized Medicare providers who accepted the plans’ terms and conditions of payment. Despite CMS’s efforts, demonstration PPOs have not yet proven to be an attractive option for beneficiaries or the Medicare program. The plans were primarily offered in areas where M+C plans were already available, and enrollment has been relatively low, even in the few areas where no M+C plans existed. According to the estimates available to beneficiaries on the Medicare Web site, enrollees in demonstration PPOs could expect out-of-pocket costs that were higher than those they would have incurred in FFS Medicare or M+C plans, other than M+C PFFS plans, and no less than those they would have incurred with Medigap plans F and I. In addition to potentially higher costs for beneficiaries, demonstration PPOs may also have resulted in $100 million in higher Medicare spending in 2002 and 2003, according to initial CMS estimates. We recommend that the Administrator of CMS promptly instruct plans in the Medicare PPO Demonstration to provide coverage for all plan services furnished by any provider authorized to provide Medicare services who accepts the plans’ terms and conditions of payment. In written comments, CMS agreed to implement our recommendation and said it is working to ensure that Medicare PPO Demonstration plans come into compliance with the provisions that govern their Medicare participation. CMS also expressed general concern about the tone of the report and said that beneficiaries benefit from increased access to PPOs. The agency stated that lessons learned from the Medicare PPO Demonstration will help the agency implement the new Medicare Advantage regional PPO plan option in 2006. CMS’s specific comments largely fell into four areas: the report’s focus on initial demonstration outcomes, the inclusion of the PPO plan in the M+C Alternative Payment Demonstration in the analysis, the methodology and data we used to illustrate potential out-of-pocket costs for the options available to beneficiaries, and the discussion of our conclusion that CMS exceeded its statutory authority with respect to the Medicare PPO Demonstration. A summary of CMS’s specific comments and our evaluation is provided below. The full text of CMS’s written comments is reprinted in appendix III. The agency also provided technical comments, which we incorporated as appropriate. First, CMS stated that the report, by focusing on the Medicare PPO Demonstration’s initial outcomes, did not adequately present the context and value of the demonstration. CMS said that the demonstration is an experiment designed to increase availability of the PPO model in the Medicare setting, and that it will provide valuable lessons for nationwide implementation of the new Medicare Advantage regional PPO component in 2006. Because the demonstration was not intended to be a fully developed program, CMS felt that our characterization of enrollment as “low” was unwarranted. CMS also stated that the financial arrangements developed for this demonstration, such as the risk-sharing agreements, were intended to encourage plans to participate, and they provide an example of how Medicare can encourage PPOs to enter and remain in the new Medicare Advantage program. We were asked to evaluate the initial experience of demonstration plans operating under the PPO model because this experience could help inform future efforts to incorporate private plans into Medicare. We state in the report that our findings apply only to 2003, the first year of the Medicare PPO Demonstration and the second year of the M+C Alternative Payment Demonstration. We based our evaluation on enrollment in demonstration PPOs, the out-of-pocket costs Medicare beneficiaries could expect in demonstration PPOs relative to other types of coverage, and the effect of demonstration PPOs on Medicare spending. Overall, we found that less than 1 percent of the beneficiaries living in counties where demonstration PPOs operated had enrolled in demonstration PPOs, that most of the enrollees came from M+C plans, and that demonstration PPOs did not offer lower estimated out-of-pocket costs than most other types of Medicare coverage, even if beneficiaries obtained services only from network providers. PPO plans in the demonstrations could receive higher payment rates and be subject to less financial risk, relative to M+C plans. We acknowledge that the demonstrations are continuing and that CMS has contracted for independent evaluations of the demonstrations. Second, CMS stated that the inclusion of the Independence Blue Cross PPO from the M+C Alternative Payment Demonstration, along with the plans from the Medicare PPO Demonstration, was potentially confusing and did not adequately distinguish the different objectives of the two separate demonstrations. According to CMS, the purpose of the M+C Alternative Payment Demonstration was simply to prevent health plans from leaving the M+C program by offering alternative payment arrangements. Furthermore, CMS stated that the demonstration was not designed to encourage alternative delivery systems in general or the PPO model specifically, and that Independence Blue Cross’s status as a PPO was irrelevant. We thought it appropriate to evaluate the Independence Blue Cross plan and the Medicare PPO Demonstration plans together because the plan types were similar and because the demonstrations were conducted under the same statutory authority. Independence Blue Cross and the Medicare PPO Demonstration plans all operate under the PPO model, and in that sense the plans in the two demonstrations are indistinguishable to beneficiaries. While the purposes of the M+C Alternative Payment Demonstration and the Medicare PPO Demonstration differed, as our report states, CMS used the same statutory authority to conduct both demonstrations. This authority permits demonstrations that are designed to identify whether changes in methods of payment or reimbursement in Medicare would increase the efficiency and economy of the program without adversely affecting the quality of services. CMS’s characterization in its comments of the purpose of the M+C Alternative Payment Demonstration appears to be inconsistent with the statutory authority. Third, CMS expressed concerns with the methodology and data we used to compare the out-of-pocket costs beneficiaries could expect to incur in demonstration PPOs with those they could expect to incur with other types of Medicare coverage. In CMS’s opinion, our comparison was hypothetical because it was based on estimates of enrollees’ utilization of services, not actual utilization of services, and potentially unreliable because it may not account for regional variation in health care costs. CMS also stated that our findings for Medicare beneficiaries aged 65 to 69 may not be applicable for older beneficiaries. Finally, CMS stated that including Horizon Healthcare of New Jersey in our analysis may have skewed our calculations because it had the largest in-network deductible for inpatient hospital services of all demonstration PPOs. Our out-of-pocket cost comparisons used the same estimates that CMS makes available on the Medicare Web site through the Medicare Personal Plan Finder (MPPF), which is intended to help beneficiaries compare their health coverage options. These estimates, developed by Fu for CMS, enabled us to compare out-of-pocket costs among various types of coverage for beneficiaries of various ages and health statuses, which actual utilization data would not have enabled us to do. Fu developed these estimates by applying utilization and spending data from the Medicare Current Beneficiary Survey (MCBS), a national sample of beneficiaries, to the 2003 benefit packages and premiums offered locally by various types of Medicare coverage. Therefore, the estimates for all types of coverage were derived consistently. If utilization and spending in our sample were higher than the national average, then actual out-of- pocket costs would have been higher than those we estimated; however, the relative differences between the types of coverage—which form the basis for our finding—would be expected to be similar. In conducting our comparisons, we sought to capture the typical plan options available to all eligible Medicare beneficiaries—not only PPO enrollees—residing in areas with demonstration PPOs. To capture the typical plan option in these areas, we chose a sample of 41 counties containing 90 percent of enrollment in demonstration PPOs and weighted our calculations by the number of eligible beneficiaries residing in each county. Horizon Healthcare of New Jersey remained in our analysis because Horizon’s demonstration PPO plan was available to 32 percent of all eligible beneficiaries in these 41 counties in December of 2003. We presented results for beneficiaries aged 65 to 69, the largest of the six Medicare age groups for which Fu calculated out-of-pocket cost estimates. We also conducted our comparison on a substantially older age group— beneficiaries aged 80 to 84—and found similar results. Fourth, CMS stated that our legal finding—that the agency exceeded its authority by allowing plans in the Medicare PPO Demonstration to cover certain services only if beneficiaries obtained them from the plans’ network providers—should be discussed in the context of the demonstration’s objectives. The agency agreed with our recommendation that Medicare PPO Demonstration plan participants be instructed to remove impermissible restrictions on enrollees’ access to providers for all covered plan benefits, and not just those covered under parts A and B, but did not provide a date by which the recommendation would be fully effectuated. CMS stated, however, that the legal finding needed to be viewed in the context of the policies the agency intended to advance through the Medicare PPO Demonstration. CMS reiterated many of the factors that it believes discouraged the offering of PPO plans in the M+C program, and said that the agency wanted to provide flexibility in the demonstration in order to facilitate participation by plans. CMS indicated that it had taken sufficient measures during the Medicare PPO Demonstration qualification process to ensure that all demonstration plans provided enrollees with adequate access to network providers for all covered services, and all plans were required to offer some out-of-network coverage. In addition, the agency indicated that all PPO plans were required to provide full disclosure to enrollees concerning the costs for in- network and out-of-network services. CMS had already identified for us many of the reasons that led it to implement the Medicare PPO Demonstration in the manner in which it did, and we included them in this report. The context within which CMS believes the legal finding must be placed is not relevant to the issue of whether CMS exceeded its authority. The waiver authority at issue is limited, and its use must conform to those limits. CMS’s reiteration of the policy objectives the demonstration was intended to achieve, its explanations for why some plans did not cover all plan services out of network, and its discussion of the measures that it took to ensure adequate access to services and enrollee education are not relevant considerations and do not make CMS’s actions any less unlawful. We are sending copies of this report to the Administrator of CMS and appropriate congressional committees. The report is available at no charge on GAO’s Web site at http://www.gao.gov. We will also make copies available to others upon request. If you or your staffs have any questions, please call me at (202) 512-7119. Another contact and staff acknowledgments are listed in Appendix III. In 2003, the Centers for Medicare & Medicaid Services (CMS) initiated the Medicare Preferred Provider Organization (PPO) Demonstration. To facilitate participation in the demonstration, CMS permitted organizations participating in the demonstration (demonstration participants) to require their enrollees to obtain specified services, including services covered by parts A and B of the Medicare program, only from “network” providers in order to be covered. As discussed below, we believe that CMS’s decision to permit demonstration participants to restrict enrollees’ choice of providers exceeded its authority and was, therefore, unlawful. The Balanced Budget Act of 1997 (BBA) established a new part C of the Medicare program, known as the Medicare+Choice (M+C) program, adding sections 1851 through 1859 to the Social Security Act (act). Under section 1851(a)(1) of the act, every individual entitled to Medicare part A and enrolled under part B may elect to receive benefits through either the Medicare fee-for-service program or a part C M+C plan, if one is offered where he or she lives. In general, M+C organizations must provide coverage for all services that are covered under parts A and B of Medicare. M+C organizations also may include coverage for other health care services that are not covered under parts A and B of Medicare. They may satisfy their coverage obligations by furnishing services themselves, arranging for enrollees to receive services through contracts with providers, or by reimbursing providers who furnish services to enrollees. Section 1851(a)(2) of the act authorizes several types of M+C plans, two of which are relevant to the Medicare PPO Demonstration: “coordinated care plans” and “private fee-for-service plans.” M+C coordinated care plans include health maintenance organization (HMO) plans, with or without point of service options, and PPO plans. As defined by CMS, coordinated care plans have a CMS-approved network of providers under contract or arrangement with the M+C organization to deliver health care to enrollees. M+C organizations offering coordinated care plans may specify the network of providers from whom enrollees may receive services if they demonstrate that all covered services are available and accessible under the plan. Unlike most other coordinated care plans, PPO plans must provide coverage for all covered benefits out of network. Generally, PPO plans require enrollees to pay additional costs for services furnished by providers outside the network. Section 1859(b)(2) of the Social Security Act defines the term “private fee- for-service plan” for purposes of the M+C program. As defined, private fee- for-service plans are required to reimburse hospitals and other providers on a fee-for-service basis without placing the providers at financial risk. These plans may not vary the amounts paid based on the number or volume of services they provide. Moreover, in contrast to coordinated care plans, private fee-for-service plans are not required to have networks of providers; instead they must allow enrollees to obtain covered services from any provider who is lawfully authorized to provide them and who agrees to the terms and conditions of payment, regardless of whether the provider has a written contract with the plan to furnish services to enrollees. While many of the statutory and regulatory requirements governing M+C plans are similar, others vary by plan type. M+C organizations generally must be licensed as “risk-bearing entities” by the states where they offer M+C plans. HMO plans and most other coordinated care plans, however, are subject to more stringent quality assurance requirements than PPO and private fee-for-service plans. For example, HMO plans are required by statute to implement programs to improve quality and assess the effectiveness of such programs through systemic follow-up and to make information on quality and outcomes measures available to beneficiaries to facilitate comparisons among health care options. These requirements do not apply to private fee-for-service and PPO plans. HMO plans, as well as other coordinated care plans, are also held to more extensive access requirements than private fee-for-service plans to ensure timely access to care. Finally, although M+C PPO plans generally are held to less stringent quality assurance standards than other coordinated care plans, M+C organizations licensed as HMOs that offer M+C PPO plans may not avail themselves of the less stringent quality assurance standards applicable to M+C PPOs. Instead, a licensed HMO that offers an M+C PPO plan must comply with the quality assurance standards applicable to HMOs. CMS is authorized by section 402(a)(1)(A) of the Social Security Amendments of 1967 to conduct demonstrations designed to test whether changes in methods of payment or reimbursement in Medicare and other specified health care programs would increase the efficiency and economy of those programs without adversely affecting the quality of services. Section 402(b) authorizes CMS to waive requirements related to payment or reimbursement for providers, services, and other items for purposes of demonstration projects, but does not authorize the agency to waive requirements unrelated to payment or reimbursement. Section 402(b) also authorizes CMS to pay costs in excess of those that would ordinarily be payable or reimbursable, to the extent that the waiver applies to these excess costs. According to CMS, the agency initiated the 3-year Medicare PPO Demonstration in January 2003 to make the PPO health care option, which had been found to be successful in non-Medicare markets, more widely available to Medicare beneficiaries. Its objective was to introduce more variety into the M+C program so that Medicare beneficiaries would have more options available to them. In addition, CMS believed that the PPO demonstration plans would introduce incentives that would result in more efficient and cost-effective use of medical services. CMS entered into contracts with all demonstration participants. To facilitate HMO participation in the Medicare PPO Demonstration, CMS permitted licensed HMOs, as well as all other demonstration participants, to offer private fee-for-service plans. Exercising its authority under section 402(b), CMS waived statutory and regulatory payment requirements applicable to private fee-for-service plans, allowing the participating organizations to vary the amount of payments among providers, among other things, so that the plans offered would more closely resemble PPO plans. As a result, M+C organizations with HMO licenses were able to establish PPO-type plans and were not subject to the more stringent quality assurance standards applicable to HMOs and most other coordinated care plans. The private fee-for-service plan model contract provided that requirements that were not expressly waived by CMS would remain in effect during the term of the contract. Nevertheless, CMS approved plan provisions that required enrollees to obtain various items and services, including those covered under parts A and B of Medicare, from “network” providers. CMS officials told us that prospective demonstration participants had expressed concerns about their ability to determine appropriate payment rates for providers who were not under contract with the demonstration participant, and that the agency had decided to afford demonstration participants flexibility in this area in order to get the demonstration project underway. CMS officials also indicated that they had encouraged the demonstration participants to cover all benefits “out of network” before the end of the demonstration period. Notably, guidance issued by CMS to assist M+C organizations, including demonstration participants, in developing plan brochures for 2004 contained specific instructions for demonstration participants to indicate in their brochures if they do not cover all Medicare benefits “out of network.” The Social Security Act places restrictions on private fee-for-service plans’ authority to limit enrollees’ selection of providers. Specifically, section 1852(d)(4) requires an organization offering an M+C private fee-for-service plan to demonstrate that the plan affords sufficient access to health care providers by showing that it has established payment rates that are no lower than the corresponding rates under the Medicare fee-for-service program or that it has contracts with a sufficient number of providers to provide covered services, or both. That section also provides that the access standards may not be used to restrict the persons from whom enrollees may obtain covered services, thus suggesting that private fee-for- service plans are not authorized to limit their enrollees’ selection of providers, for example, to those within an established “network.” The definition of the term “private fee-for-service plan” at section 1859(b)(2) echoes this provision, stating that such plans do not restrict the selection of providers from among those who may lawfully provide covered services and agree to accept the terms and conditions of payment. In 42 C.F.R. § 422.114(b), we specify that the plan must permit the enrollees to receive services from any provider that is authorized to provide the service under original Medicare. This implements that part of section 1852(d)(4) that says that the access requirements cannot be construed as restricting the persons from whom enrollees of the M+C private fee-for-service plan may obtain covered services. In light of the statutory language and CMS’s interpretation, we conclude that Medicare PPO Demonstration plan provisions limiting enrollees to “network” providers are inconsistent with sections 1852(d)(4) and 1859(b)(2) of the act. Because these sections are unrelated to payment, CMS was not authorized to waive them in connection with the Medicare PPO Demonstration. Further, the plans’ exclusions of coverage for services furnished by “non- network” providers are incompatible with statutory requirements designed to ensure quality of care to enrollees in M+C plans. As discussed earlier, private fee-for-service and PPO plans participating in the M+C program are held to less stringent quality assurance standards than HMOs and certain other coordinated care plans. The applicability of less stringent quality assurance standards is due, in part, to the increased choices enrollees in private fee-for-service and PPO plans have in comparison to enrollees in most other types of plans. CMS has expressly recognized this rationale for the distinction among various types of plans. In connection with an M+C rulemaking on the matter, CMS responded to a concern that private fee- for-service plan quality assurance requirements were inadequate to protect enrollees by explaining that quality assurance standards may not be as important in the case of private fee-for-service plans “in which the enrollee has complete freedom of choice to use any provider in the country, and is not limited to a defined network of providers.” CMS’s approval of restrictions on enrollee choice and simultaneous failure to apply the more stringent quality standards applicable to HMO and most other coordinated care plans were inconsistent with the statutory framework under which M+C plans are required to operate. Moreover, while CMS stated that the demonstration was intended to offer beneficiaries greater choice by encouraging the availability of PPO-type plans, regulatory provisions applicable to M+C PPO plans would have precluded demonstration participants from requiring enrollees to obtain services only from “network” providers as a condition of coverage. CMS has defined a PPO plan, in part, as a plan that “provides for reimbursement for all covered benefits regardless of whether the benefits are provided within the network of providers.” (Emphasis added). Since this regulatory provision is not related to payment or reimbursement, section 402(b) of the Social Security Amendments of 1967 would not have authorized CMS to waive it in connection with the Medicare PPO Demonstration. In its written response to our inquiry about the demonstration, CMS indicated that the demonstration plans’ conditioning coverage of “Medicare-covered services” (those services covered under parts A & B of Medicare) on their being furnished by “network” providers violates statutory access requirements applicable to private fee-for-service plans. CMS explained, however, that while it had reviewed all plans to ensure that services covered by parts A and B of the Medicare program were covered “in network,” some organizations had indicated that they were unable to cover certain services “out of network” because of the complexities associated with determining payment for “out-of-network” providers. CMS, nevertheless, believed that “the basic principle of out-of- network access was satisfied” because “the demonstration products offer access to most Medicare-covered services.” CMS also denied that it had waived applicable access requirements, stating that it did not have the authority to do so. CMS indicated that it will instruct demonstration participants that they must provide out-of-network coverage for all “Medicare-covered services” in 2005, the third year of the Medicare PPO Demonstration, if they wish to continue to avail themselves of the quality assurance standards applicable to private fee-for-service plans. CMS also indicated, however, that it will not require plans to provide out-of-network coverage for other covered benefits for which the demonstration plans provide only in-network coverage. CMS did not provide a legal basis for distinguishing between Medicare-covered services and other plan services with respect to a demonstration plan’s obligation to provide “out-of-network” coverage. We disagree with CMS’s assertion that it did not waive the statutory requirements at issue. CMS knowingly permitted organizations participating in the demonstration to operate in a manner that was inconsistent with sections 1852(d)(4) and 1859(b)(2) of the Social Security Act. The agency’s decision to do so achieved a result for demonstration participants that CMS acknowledges it did not have the authority to provide. Therefore, we view CMS’s action as tantamount to a waiver. We also conclude that all benefits covered under a PPO demonstration plan, not just services covered under parts A and B, must be covered “out of network” by demonstration plans. The Social Security Act defines a private-fee-for service plan, in part, as a “Medicare+Choice plan” that “does not restrict the selection of providers among those who are lawfully authorized to provide the covered services.” A “Medicare+Choice plan,” for purposes of the definition of a private fee-for-service plan, is defined, in part, as “health benefits coverage offered under a policy, contract, or plan by a Medicare+Choice organization.” Furthermore, CMS guidance also provides that enrollees in M+C private fee-for-service plans can obtain “plan covered health care services from any entity that is authorized to provide services under parts A and B and who is willing to accept the plan’s terms and conditions of payment.” The act, therefore, does not distinguish between Medicare covered services and other covered services in specifying the private fee-for-service plan’s obligations to cover plan benefits. Section 402(b) of the Social Security Amendments of 1967 provides CMS with waiver authority, but also limits that authority by providing that the agency may only waive requirements related to payment or reimbursement. In connection with the Medicare PPO Demonstration, CMS overrode the limitation contained in section 402(b), tacitly waiving statutory provisions unrelated to payment. As a general matter, agencies may not override statutory limitations on their activities by administrative action. Therefore, we conclude that CMS’s decision to allow demonstration participants to restrict enrollees’ access to providers for any services covered by the plans exceeds its authority and is, therefore, unlawful. This appendix provides additional information on the key aspects of our analysis. First, it describes the Centers for Medicare & Medicaid Services’ (CMS) administrative data sources we used to assess demonstration preferred provider organization (PPO) enrollment and plan participation. Second, it describes the CMS data sources we used to compare estimated beneficiary out-of-pocket costs between six types of coverage. Third, it describes CMS data sources used to compare 2003 benefits between the six types of coverage. Fourth, it describes CMS data we used to estimate the proportion of expected 2004 annual out-of-pocket costs and cost sharing when demonstration PPO enrollees utilize services outside of plan provider networks. Fifth, it describes how CMS estimated the effect of demonstration PPOs on Medicare spending. Finally, it addresses data reliability issues and limitations. We used the following CMS administrative data sets to identify the number of eligible Medicare beneficiaries and enrollment by health plan in each county where demonstration PPOs operated: the Geographic Service Area (GSA) file for October 2003, the Medicare Managed Care Plan Monthly Report for October 2003, and the Medicare Managed Care Contract (MMCC) report of 2003. Because the focus of our analysis was on plans available to Medicare beneficiaries at large, we used plan enrollment data from GSA to exclude demonstration PPO and Medicare+Choice (M+C) plans that were employer-only plans; cost plans; and demonstration plans only available to specific beneficiaries such as Medicare dual-eligibles. Demonstration PPO and M+C plan county data from GSA were also used to construct our county-level U.S. map. To compare out-of-pocket costs for beneficiaries, we used administrative data from GSA and CMS’s 2003 Medicare Health Plan Compare (MHPC) data set to identify private health plans. For each plan in each county, we then used CMS’s 2003 Medicare Personal Plan Finder (MPPF) to obtain estimated monthly out-of-pocket costs. We then averaged these costs across counties for enrollees in demonstration PPOs, M+C health maintenance organizations (HMO) and M+C PPOs, M+C private fee-for- service (PFFS) plans, Medigap plans F and I, and fee-for-service (FFS) Medicare. First, we used data from MHPC to identify one plan offered by each organization in each county where demonstration PPOs were available. Because organizations may offer numerous options for each plan, each with its own benefit package and premium, we selected the one option that was most favorable for beneficiaries in each service area. Selecting one option for each plan may have resulted in underestimated actual beneficiary out-of-pocket costs for beneficiaries in some health plans. In addition, we established a sample group of 41 counties containing approximately 90 percent of all demonstration PPO enrollment. This sample group includes the 21 counties where Horizon Healthcare of New Jersey’s demonstration PPO plan was available, and the 23 counties that made up 80 percent of enrollment in demonstration PPOs other than Horizon. Next, we used estimated beneficiary out-of-pocket cost data from CMS’s MPPF to calculate the 2003 average monthly out-of-pocket costs for enrollees in demonstration PPOs and the other types of coverage. CMS, and its contractor Fu Associates, Ltd. (Fu), estimated all costs related to covered and noncovered benefits when an enrollee utilizes services within the plan’s network of providers. We calculated average monthly out-of- pocket costs for beneficiaries aged 65 to 69 for each type of coverage, in each county, and across all health statuses. We weighted the estimates of demonstration PPOs, M+C HMO and M+C PPO plans, M+C PFFS plans, and Medigap plans F and I by the distribution of health statuses of the beneficiary cohorts used to create Fu’s estimates, and the number of eligible Medicare beneficiaries in each county. We separated M+C PFFS plans from M+C HMOs and PPOs, because the out-of-pocket costs of enrollees in M+C PFFS plans tended to be substantially higher than the other two types of M+C plans. We used CMS’s 2003 MHPC administrative data set in conjunction with CMS’s 2003 guide to “Choosing a Medigap Policy” to compare the benefit packages for enrollees in demonstration PPOs, M+C HMOs and M+C PPOs, M+C PFFS plans, Medigap plans F and I, and traditional FFS Medicare. We compared prescription drug coverage and inpatient hospital services for each type of coverage using our sample of plans in 41 counties. We selected the one plan option for each plan that appeared most favorable to beneficiaries. We also compared prescription drug coverage between these types of plans in a sample of 16 counties where at least one demonstration PPO and one M+C plan offered prescription drug coverage as a part of their benefit package. In addition, data from CMS’s Health Plan Management System (HPMS) were used to compare the non- network benefits offered by each demonstration PPO to the 2003 network benefits offered by demonstration PPOs. CMS’s Office of the Actuary (OACT), which projects trends in Medicare spending, provided the data we used to compare the proportion of expected 2004 gross annual out-of-pocket costs and cost sharing when demonstration PPO enrollees utilize services inside and outside of plan provider networks. The data we obtained were submitted by plans to OACT as part of their annual revenue and medical expense projections and contained estimates of per member per month gross medical costs and target medical loss ratio (MLR) for 2004. We contacted OACT to verify that we possessed a submission for each of the 20 demonstration PPOs in our sample of 41 counties. To determine the effects of demonstration PPOs on Medicare spending, we used projections developed by OACT and conducted interviews with OACT staff. To arrive at these projections, OACT compared how much Medicare would pay demonstration PPOs per enrollee with the amount Medicare would spend on those beneficiaries if the demonstration did not exist and those beneficiaries were instead enrolled in M+C plans or FFS Medicare. OACT also estimated the effect that risk-sharing agreements signed between CMS and demonstration PPOs had on Medicare spending. We used a variety of CMS data sources in our analysis; October 2003 GSA file, October 2003 Monthly Report, October 2003 MMCC, 2003 MPPF, 2003 HPMS, 2003 MHPC, and the estimated 2004 Medicare PPO Demonstration plan medical cost files. In each case, we determined that the data were sufficiently reliable for our purposes in addressing the report’s objectives. We verified the reliability of the administrative data we used to determine enrollment figures—CMS’s GSA, M+C Monthly Report, and MMCC—by comparing the list of unique demonstration PPO contract identification numbers and organization names to CMS’s list of participating demonstration PPO plans and organizations. We did not find any discrepancies between the two lists. We worked closely with CMS staff and Fu to verify the validity of out-of-pocket cost estimates from the 2003 MPPF. We verified that the results of our out-of-pocket cost analysis were consistent with CMS’s initial tests of its own data, and that our methodology, in conjunction with its methodology, did not introduce bias. In addition, we worked with CMS to verify the validity of the 2004 Medicare PPO Demonstration plan medical cost files submitted by the health care organizations by assuring that the information they provided to us corresponded with our data for the sample of 41 counties. We identified three potential limitations of our analysis; however we have addressed these limitations through conversations with CMS and Fu, and by using the best available data. Our report focuses on the results of our analysis of estimated enrollee out-or-pocket costs for beneficiaries aged 65 to 69. We also obtained similar results when we analyzed estimated enrollee out-of-pocket costs for beneficiaries aged 80 to 84. In addition, we verified with CMS and Fu that the trends associated with the 2003 out-of- pocket costs of the 65 to 69 age group were similar to the out-of-pocket costs of Medicare beneficiaries aged 70 to 74. Second, for our out-of- pocket cost analysis, we used national FFS Medicare estimates, rather than county-level estimates, because county-level estimates were not available. Based on our conversations with CMS and Fu, we believe that CMS’s national figures were more accurate than adjusting the national estimates to the county level using national FFS spending in each county. Third, while county-level Medigap out-of-pocket costs and benefit package information were not available to us, we used CMS estimates of national Medigap out-of-pocket costs and standardized national Medigap benefits descriptions for our benefits comparison. James C. Cosgrove at (202) 512-7029. In addition to the person named above, key contributors to this report were: Yorick F. Uzes, Zachary R. Gaumer, Jennifer R. Podulka, Jennie F. Apter, Helen T. Desaulniers, and Kevin C. Milne. 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Preferred provider organizations (PPO) are more prevalent than other types of health plans in the private market, but, in 2003, only six PPOs contracted to serve Medicare beneficiaries in Medicare+Choice (M+C), Medicare's private health plan option. In recent years, the Centers for Medicare & Medicaid Services (CMS), the agency that administers Medicare, initiated two demonstrations that include a total of 34 PPOs. GAO (1) described how CMS used its statutory authority to conduct the two demonstrations, (2) assessed the extent to which demonstration PPOs expanded access to Medicare health plans and attracted enrollees in 2003, (3) compared CMS's estimates of out-of-pocket costs beneficiaries incurred in demonstration PPOs with those of other types of coverage, including fee-for-service (FFS) Medicare, M+C plans, and Medigap policies in 2003, and (4) determined the effects of demonstration PPOs on Medicare spending. CMS used its statutory authority to offer health-care organizations financial incentives to participate in the two demonstrations. CMS, however, exceeded its authority when it allowed 29 of the 33 plans in the second demonstration, the Medicare PPO Demonstration, to cover certain services, such as skilled nursing, home health, and routine physical examinations, only if beneficiaries obtained them from the plans' network providers. In general, beneficiaries in Medicare PPO Demonstration plans who received care from non-network providers for these services were liable for the full cost of their care. The demonstration PPOs attracted relatively few enrollees and did little to expand Medicare beneficiaries' access to private health plans. About 98,000, or less than 1 percent, of the 10.1 million eligible Medicare beneficiaries living in counties where demonstration PPOs operated had enrolled in the demonstration PPOs by October 2003. Further, although one of the goals of the Medicare PPO Demonstration was to attract beneficiaries from traditional FFS Medicare and Medigap plans, only 26 percent of enrollees in its plans came from FFS Medicare, with all others coming from M+C plans. About 9.9 million, or 98 percent, of the 10.1 million eligible Medicare beneficiaries also had M+C plans available in their counties. Virtually no enrollment occurred in counties where only demonstration PPOs operated. According to CMS's 2003 estimates, on average demonstration PPO enrollees could have expected to incur total out-of-pocket costs--expenses for premiums, cost sharing and noncovered items and services--that were the same or higher than those they would have incurred with nearly all other types of Medicare coverage. However, relative costs by type of coverage varied somewhat depending on beneficiary health status. For certain services and items, such as prescription drugs and inpatient hospitalization, demonstration plans provided better benefits relative to some other types of Medicare coverage. Although it is too early to determine the actual program costs of the two demonstrations, CMS originally projected that the first demonstration would increase Medicare spending by $750 per enrollee per year and the second demonstration would increase Medicare spending by $652 per enrollee per year. Based on the agency's original enrollment projections, which exceed 2003 actual enrollment, CMS estimated the demonstration PPOs would increase program spending by $100 million for 2002 and 2003 combined.

You are an expert at summarizing long articles. Proceed to summarize the following text: Most Americans rely on employer-sponsored health plans or government programs like Medicaid and Medicare to help them select and finance their family’s health insurance coverage. But about 10.5 million Americans rely exclusively on their own resources to select and pay for their family’s coverage. These participants in the market for individual health insurance must make important decisions affecting their family’s health and welfare without the same supports provided to the majority of Americans who obtain their health coverage through employer-sponsored or government plans. Most participants in the individual market do not currently have access to an employer-sponsored plan or a government insurance program. Those under 65 who may participate in the individual market include self-employed people; people whose employers do not choose to offer health insurance coverage to workers and their families; part-time, temporary, or contract workers who are not eligible for health insurance coverage through their employers; early retirees without employer-sponsored coverage and not yet eligible people not in the labor force, including people with disabilities, who are not eligible for Medicare or Medicaid coverage; college students who are no longer eligible for coverage under their parents’ health plans; unemployed people who are not eligible for Medicaid; people between jobs who have exhausted or are ineligible for continuation of their employer-sponsored coverage; and children, spouses, and other dependents ineligible for coverage or too costly to cover under an employer-sponsored plan. Some individuals falling into these categories can rely on spouses or other family members to include them under the family coverage options of their employer-sponsored plans. Many others, however, do not have this alternative. The individual market often provides a short-term source of health insurance coverage for people during transition points in their lives. Many people initially confront the individual market while they are in college or at an entry-level job and discover that they are no longer eligible for coverage under their parents’ employer-sponsored health insurance plan. They may have the option to obtain individual coverage through plans marketed through their schools or training programs, or they may obtain policies through insurance plans or health maintenance organizations (HMO) that operate in their home or school communities. Transitional employment in part-time or temporary jobs or periods of unemployment between jobs are other cases in which the individual market is used. In many entry-level jobs, employers do not provide health insurance, requiring those who wish to obtain coverage to access the individual market. For some, the lower paying entry-level jobs become their permanent source of employment, transforming the individual market into their permanent source of coverage. For self-employed people, the individual market is often the only viable source of coverage throughout their careers. For example, family farmers and those in other professions in which self-employment is common often rely on the individual market as a long-term source of health insurance coverage. Early retirees may rely on the individual market for transitional coverage until they are eligible for Medicare. Of course, many early retirees benefit from continuation of coverage under their former employers’ plans. A growing number of employers, however, have increased retirees’ contributions toward premiums, increased their deductibles and copayments, or in some cases, entirely phased out their financial support for health benefit plans for current and future retirees. Indeed, a recent study by the Employee Benefit Research Institute suggests that the availability of a retiree health benefit may become an increasingly important factor in an employee’s decision to retire early. For the typical person with employer-sponsored coverage, health insurance premium payments are shared by the employer and the worker. The typical employer pays about 80 percent of premiums (70 percent for family coverage). Participants in the individual market must pay their entire premiums out of pocket. Thus, an individual’s ability to pay for coverage largely determines which type of insurance product is purchased or whether the individual can purchase coverage at all. Those in employer-sponsored plans also benefit from the tax treatment of these plans. While health benefits are generally not considered income to the employee, employers may deduct the expense of providing such benefits to their workers. Employers, who often pay 70 to 80 percent of the cost of their employees’ health plans, typically may deduct all of that contribution. In contrast, participants in the individual market generally cannot. Self-employed individuals may deduct a percentage of their expenses, ranging from 40 percent in 1997 to 80 percent in 2006 and thereafter. Employers and benefit managers often provide participants in employer-sponsored plans with help in identification, selection, assessment, and enrollment in plans as well as with the negotiation of benefits and premiums. In contrast, individual market participants must access the market on their own. To help guide them through the broad range of insurance offerings available to eligible individuals in most states, individuals often enlist the assistance of professional insurance agents and brokers. In some states, Blue Cross and Blue Shield plans and other carriers serve as direct writers of insurance. Other individuals turn to organizations such as trade associations, professional associations, or farm cooperatives as access points to the health insurance market. In most states, a wide variety of carriers operates in the individual market, offering a broad range of products. Indeed, most healthy individuals have a broader choice of offerings than those in employer-sponsored plans. But all consumers may not be fully aware of their choices or of the avenues to access the market. To many consumers, insurance terms and options are easily misunderstood. In response, some states have issued consumer guides to help consumers better understand the market. While most individuals have a broad range of individual insurance options available, a significant minority have few if any affordable options. An individual’s health status can lead to sharply higher premiums or result in outright rejection under many plans. Medical underwriting—through which preexisting health conditions or an individual’s health status may result in denial of coverage, permanent exclusion from coverage of a preexisting condition, or higher premiums—is still fairly common in the individual markets of many states. Several states have attempted to deal with the effects of medical underwriting by creating special insurance pools for high-risk individuals or through state individual market reforms (see ch. 5). At the federal level, the Health Insurance Portability and Accountability Act of 1996 recently passed by the Congress may reduce the potential effects of medical underwriting and preexisting condition exclusions for those making the transition from an employer-sponsored plan to the individual market. States have been cautious or reluctant to extend many of the protections incorporated into their small business reforms to the individual health insurance market. Extension of insurance portability to the individual market was one of the most controversial issues debated in recently passed insurance reforms at both the state and federal levels. In large measure, the continuing debate reflects the paucity of reliable information on the individual health insurance market. The interaction between the goals of improved access and affordability of insurance takes on a magnified importance in the individual market. On the one hand, the individual market serves a significant share of older people who are not yet eligible for Medicare and individuals with poor or declining health who are most concerned about access to health insurance without medical preconditions. On the other hand, the individual market is also an important source of coverage for a significant number of younger and often healthier individuals just entering the labor force or in lower wage jobs that often do not provide employer-sponsored coverage. For most of them, premium costs are an important barrier to health insurance coverage. Yet some initiatives that improve access for the older and sicker group might result in higher premiums for the younger and healthier group, thus potentially pricing them out of the market. The interaction between expanding access and improving affordability varies among states and depends largely on the structure and relative size of the insurance market, characteristics of its participants, and its regulatory structure. Numerous states and the federal government have already introduced incremental reforms in the individual health insurance market, but many legislators and other observers believe that further adjustments may be needed. The Chairman of the Senate Committee on Labor and Human Resources asked us to report on the size of the individual health insurance market, recent trends, and the demographic characteristics of its participants; the market structure, including how individuals access the market, the prices, other characteristics of health plans offered, and the number of individual carriers offering plans; and the insurance reforms and other measures states have taken to increase individuals’ access to health insurance. Our review included both national and state-specific data. Our estimates of the size and demographic characteristics of individual market enrollees were based on nationally projectable data sets as were data concerning individual market insurance reforms, high-risk pools, and insurers of last resort. Because other aspects of individual insurance markets can vary significantly among states, we relied on case studies of the individual insurance markets in seven states. Although findings from these states cannot be projected to the nation at large, we believe they are reasonably representative of the range of individual insurance market dynamics across the country. Our confidence is based on the criteria we used to select the seven states as well as our contact with representatives of large, national insurance carriers, trade groups, and regulatory bodies (discussed further under methodology). Finally, our report focused on comprehensive major medical expense and HMO plans. Therefore, references to individual market products do not include more limited benefit products unless specifically noted. To determine the size and demographic characteristics of individual insurance market participants nationwide, we analyzed data from the Bureau of the Census’ March 1995 Current Population Survey (CPS), a national random survey of about 57,000 households. We also analyzed the 1993 National Health Interview Survey (NHIS) conducted by the Bureau of the Census for the National Center for Health Statistics. The findings of these two surveys were generally similar. Unless otherwise noted, we report CPS findings because the results were available for a more recent year, the number of individuals surveyed was greater, and state-level data were available. Appendix I contains more details on the methodology we used in our analyses. To understand the structure and dynamics of the individual insurance market, we visited seven states—Arizona, Colorado, Illinois, New Jersey, New York, North Dakota, and Vermont. We selected these states judgmentally on the basis of variations in their populations, urban/rural compositions, and the extent of individual insurance market reforms implemented. In each state, we interviewed and obtained data from representatives of the state insurance department and at least one of the largest individual market carriers. From insurance department representatives, we obtained information concerning the regulation and, where applicable, reform of the individual insurance market and the number and market share of individual market carriers in the state. From carriers, we obtained information concerning products offered, including their benefit structure, cost-sharing alternatives, eligibility, and prices. In some states, we also interviewed health department officials, insurance agents, and representatives of insurance industry trade associations, consumer groups, and insurance purchasing cooperatives. To supplement state-specific data, we interviewed representatives or obtained information from national insurance carriers and trade and industry groups, including the American Academy of Actuaries, American Chambers Life Insurance Company, the Blue Cross and Blue Shield Association, the Health Insurance Association of America, Mutual of Omaha Companies, Time Insurance Company, and Wellpoint Health Networks, Inc. We also reviewed published literature on the individual insurance market. To identify states that passed, from 1990 through 1995, individual insurance reforms or, as of year-end 1995, other measures designed to expand access to coverage in the individual market, we obtained summaries compiled by various industry and trade groups, including the Blue Cross and Blue Shield Association and the Health Insurance Association of America. We then obtained and reviewed each state’s individual insurance reform legislation and, when necessary, supplemented this review with telephone interviews of state officials to clarify certain provisions. Our work was performed between February and September 1996 according to generally accepted government auditing standards. Although most Americans obtain their health insurance through employment-based health plans, individual insurance provides coverage for many Americans who may not have access to employment-based coverage. We estimate that about 10.5 million Americans under 65 had individual insurance as their only source of health coverage during 1994, with another 8.6 million having individual insurance as well as some other type of health insurance. While those with individual insurance only represent a relatively small share of the nonelderly population— 4.5 percent in 1994—individual insurance is a more prominent source of health coverage in the Plains and Mountain states and among self-employed people, agricultural workers, and early retirees. On the basis of our analysis of the March 1995 CPS, we estimate that about 10.5 million Americans under 65 years of age (4.5 percent of the nonelderly population) received health coverage through individual health insurance as their only source of health coverage during 1994. That is, the health plan was purchased directly by an individual, not through a current or past employer or union. An additional 8.6 million Americans (3.7 percent) had individual health insurance in addition to employment-based coverage, Medicare, Medicaid, or coverage through the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) at some time in 1994. Many people purchase individual health insurance for only a short period, such as when they are between jobs and without group insurance coverage. For example, a representative of one carrier told us that 30 percent of enrollees maintain individual insurance for less than 1 year. Thus, the 8.6 million people who had individual insurance coverage and another type of health insurance during 1994 could either have (1) had individual health insurance for part of 1994 and another type of health insurance for the remainder of the year or (2) had both individual health insurance and another type of coverage—employment-based or government-sponsored—at the same time for part or all of the year. In the latter case, it is possible that the other type of health insurance would have been the primary source of health coverage with the individual insurance being a supplemental policy. It is not possible, however, to identify how many people would be in either of these groups. For this reason, we focused our analysis on the 10.5 million nonelderly Americans who had private individual insurance as their only source of health coverage at any time in 1994. While 4.5 percent of the U.S. nonelderly population had individual health insurance as their only source of health coverage in 1994, the importance of the individual insurance market varied considerably among states. (See fig. 2.1.) In some Mountain and Plains states, individual insurance is relied on much more as a source of coverage. For example, we estimate that about one of every seven people under 65 in North Dakota has individual health insurance as his or her only source of health coverage. North Dakota is the only state where our estimates of the number of participants in the individual health insurance market exceed the estimated uninsured population. Iowa, Montana, Nebraska, and South Dakota also have estimated participation rates in the individual insurance market that are at least twice the national rate. Appendix II presents rates of individual health insurance enrollment by state. Overall, individual insurance enrollment tends to be slightly lower in metropolitan areas than in nonmetropolitan areas. (See table 2.1.) In particular, individual health insurance is common among people living on farms. Nearly 30 percent of people indicating that their residence was a farm had individual health insurance in 1993, according to our analysis of the National Health Interview Survey. The pattern of higher enrollment in rural areas is not uniform throughout the country. The Southern region, for instance, has a relatively large nonurban population, but the proportions of the populations that had individual health insurance were lower than the national average in 12 of its 17 states. Florida is an exception; the large number of retirees under age 65 there may help explain the fact that a relatively large proportion of Florida’s nonelderly population has individual insurance (6.4 percent). In Hawaii, the only state with mandated employer-sponsored health insurance, only 1.8 percent of the nonelderly population had individual health insurance as the sole source of coverage in 1994. In several other states—Alaska, Arizona, Delaware, Kentucky, Nevada, New Mexico, Virginia, West Virginia, and Wisconsin—less than 3 percent of the population relied on individual insurance as the only source of coverage. The individual insurance market is an important source of health coverage for people in their fifties and early sixties, particularly early retirees and people who have been widowed. The relative importance of the individual insurance market to people of different ages is illustrated in table 2.2. Those in the 60 to 64 age group are more than two-and-a-half times as likely to be covered by individual insurance than those in their twenties (9.6 percent versus 3.4 percent). The median age of people with individual insurance is 35, compared with 32 for people with employment-based coverage and 28 for uninsured people. The individual insurance market is becoming increasingly important for early retirees because fewer employers are providing health coverage for them. In 1994, nearly 10 percent of retirees aged 64 or younger had individual health insurance as the sole source of health coverage. A disproportionate share of people who had been widowed (9.2 percent) also had individual insurance as the only source of health coverage. The likelihood of having individual health insurance also varies widely by race and ethnicity. Whites are more than twice as likely to have individual health insurance as are blacks or Hispanics. Blacks and Hispanics are also less likely to have employment-based coverage and are more likely to be uninsured. (See table 2.3.) The higher median income of whites makes the potentially high cost of individual health insurance more affordable for this group. The individual market is not a viable option for many of the nation’s low-income families. As shown in table 2.4, those with income below the federal poverty level are much more likely to be uninsured and slightly less likely to purchase individual insurance. For this group, the cost is an important deterrent to purchasing health insurance. Moreover, Medicaid and other government programs are potential alternatives for these lowest income households. Above the poverty level, the individual market becomes a more important health insurance alternative. Participation in the individual insurance market exceeds the national average for families with incomes between about $10,000 and $40,000. (See fig. 2.2.) Participation dips below the national average as income rises above about $40,000, perhaps reflecting greater availability of employment-based insurance. For those with incomes above about $90,000, participation is again at or above the national average. Overall, people with individual health insurance have a lower median family income ($34,422) than people with employment-based coverage ($48,015) but higher than people who are uninsured ($20,014). About three-quarters of those aged 18 to 64 with individual health insurance are employed, and some parts of the labor force depend more extensively on the individual insurance alternative. For example, self-employed and contingent workers, including part-time and temporary employees, are more likely to have individual health insurance. (See table 2.5.) These groups are often ineligible for employer-sponsored health plans. Furthermore, as shown in figure 2.3, individual insurance is more prevalent the smaller the employee’s firm is. Employees in smaller firms are also less likely to have employment-based coverage. The inverse relationship between individual and employment-based coverage is particularly evident for selected industries. (See table 2.6.) In particular, farm workers (17 percent), personal services workers (8 percent), and construction workers (7 percent) are more likely to have individual insurance than the national average and are less likely to have employment-based coverage. Among people employed in industries in which large firms predominate, including manufacturing, government, and transportation, individual insurance is not very common. Agricultural, personal services, and construction industries tend to be dominated by smaller firms, and individual insurance plays a more important role in these workers’ health coverage. Self-employment is also particularly common among agricultural workers, contributing to the high share of these workers who have individual health insurance. Most participants in the individual market (75 percent) rated their health condition as excellent or very good. Only about 6 percent rated their health as fair or poor. This pattern is nearly identical to the self-reported health status of those with employment-based health coverage. Individuals who report poor health status are disproportionately enrolled in government-funded health insurance programs or are uninsured. While 5.1 percent of those who assess their health as excellent have individual insurance coverage, only 2.5 percent of those who believe they are in poor health have individual health insurance. (See table 2.7.) Reflecting the pattern for people reporting poor health, individuals who are unable to work because of disabilities are less likely to be covered only by individual insurance. This low rate reflects this group’s greater reliance on government-sponsored health insurance programs and may reflect their higher cost for private coverage and more tenuous attachment to the labor force. Medical underwriting and preexisting condition limitations are also more common with individual insurance policies, making them unappealing for those with disabilities. Fundamental structural differences exist between the individual health insurance market and the employer-sponsored group insurance market. These differences can have significant implications for consumers. Individuals without employer-sponsored coverage usually access the health insurance market on their own and face a variety of ways of doing so. Individuals must choose from among a multitude of complex products that are often difficult to compare. Once a product is chosen, individuals must select from a wide range of cost-sharing arrangements and pay the full price of coverage. In contrast, employees eligible for group health coverage do not face the task of accessing the insurance market—this is done for them by the employer. And because employers typically offer only one or a few health plans, the task of identifying and comparing products is greatly simplified or eliminated. Finally, the burden of selecting cost-sharing options and paying for the products is significantly eased by employer contributions and payroll deductions. One common approach consumers take is to purchase insurance through an agent. Agents may sell products from only one insurance carrier or offer products from several competing carriers and assist consumers in identifying the product that best meets their needs. Agents may also assist consumers in the application process. Consumers may also purchase insurance by contacting carriers directly. In many states, dominant carriers have high name recognition and may focus marketing activities directly on individual consumers. Representatives from several Blue Cross and Blue Shield plans and large HMOs we visited such as Kaiser and FHP told us they regularly use television, radio, or print advertising to target individual consumers. Consequently, most of the individual market business for these carriers is generated through direct contact with applicants. Indemnity carriers, like Mutual of Omaha and Time Insurance, rely on agents to generate most of their individual market business. Another important access route for individual consumers is through a business or social organization. Organizations such as chambers of commerce, trade associations, unions, alumni associations, and religious organizations may offer insurance coverage to their members. Through the pooled purchasing power of many individuals or small employers, associations can negotiate with carriers for competitively priced products that they then offer their members. For example, a small-employer health care purchasing group in Arizona offers its products to the self-employed. Through this program, self-employed people have access to coverage on a guaranteed-issue, community-rated basis with premium adjustments permitted only for age and geography. Other arrangements make use of individuals’ common affiliation to increase access to health insurance for individuals. For example, Blue Cross and Blue Shield of North Dakota has made arrangements with essentially all the banks in the state to allow depositors to obtain coverage by having their premiums deducted directly from their bank accounts. In operation since the 1960s, this bank depositors plan covers about 76 percent of the carrier’s individual enrollees in the state. Individuals leaving most employer-sponsored group plans have access to two different types of coverage. First, federal law requires carriers to offer individuals leaving group coverage the option of continuing to purchase that coverage at no more than 102 percent of the total policy cost for up to 18 months. Required by the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, the law applies to employer groups of 20 or more. Some state laws extend similar requirements to groups of fewer than 20. Secondly, several states require carriers to offer individuals a product comparable to their group coverage on a guaranteed-issue basis. Conversion coverage tends to be very expensive, however. Because those who elect to purchase conversion coverage tend to be in poorer health than those who do not (a situation known as adverse selection), the premium prices are generally higher than for comparable individual market products. Finally, those determined by carriers to be uninsurable in the insurance market may be able to purchase coverage through a state high-risk program. Many states offer high-risk programs that provide subsidized coverage to uninsurable individuals at rates generally about 50 percent higher than what a healthy individual would pay in the private market. These programs cover a very small percentage of the insured population and are sometimes limited by the availability of public funding. Purchasing insurance through the individual market can be a complex process for even the most informed consumer. In addition to the multiple ways consumers can access the market, consumers are confronted with products offered by dozens and sometimes a hundred or more different carriers. Once a carrier and product are chosen, consumers must then select among a wide range of deductibles and other cost-sharing options. In each of the seven states we visited, individuals could choose among products offered by multiple carriers. Consumers could choose from plans offered by no fewer than 7 to over 100 carriers. Generally, HMO coverage was available in addition to traditional fee-for-service indemnity plans or preferred provider arrangements. Table 3.1 shows estimates of the number of individual market carriers in each state’s individual market. Unless otherwise noted, carrier estimates include only carriers that offer comprehensive coverage. While some states have fewer carriers than others, it is important to note that fewer carriers do not necessarily equate to fewer choices for consumers. For example, although 145 carriers in Illinois may offer individual products, these products are not available to all consumers in the state because of medical underwriting. In addition, some of these carriers may not actively market their products or may sell only limited benefit products. In contrast, New Jersey has 26 carriers offering one or more comprehensive products to which every individual market consumer in the state has guaranteed access. The mix of carriers participating in the individual market also differs from that of group insurance markets with respect to the role of Blue Cross and Blue Shield (Blues) plans, the extent of HMO penetration, and the size of carriers. Blues plans continue to be relatively important in the individual markets of many states. In six of the seven states we visited, the Blues were the largest single carrier in the individual market. In North Dakota and Vermont, the Blues had a 76 and 58 percent share, respectively, of the market for comprehensive individual market products. Nationally, about a quarter to a third of all individual enrollees obtained their coverage from a Blues plan in 1993. The HMO share nationally in the individual market is about half of what it is in the employer-sponsored group market, although it is increasing. In New York, for example, the HMO share of the individual health insurance market has increased from about 7 percent in 1992 to 40 percent in 1996. Partly in response to insurance reforms enacted there, at least one large individual market carrier withdrew its indemnity products altogether and replaced them with an HMO product, according to a New York trade association official. The trend in New York is expected to continue in response to recent state measures designed to encourage HMO participation in the individual market. In Illinois, a representative of one of the largest individual market carriers told us the carrier soon expects to introduce its first individual HMO product. In Colorado, an HMO plan is now the most popular product sold in the individual market. Finally, whereas the group market is dominated by large, national carriers such as Aetna and Prudential, carriers in the individual insurance market tend to be smaller or regional in focus. Blues plans are typically a dominant force in state individual markets. Also, few of the largest individual market carriers in the states we visited were among the 100 largest U.S. life and health insurance carriers. In contrast to employment-based group insurance, individuals may choose from multiple cost-sharing arrangements and are generally subject to relatively high out-of-pocket costs. Under employer-sponsored coverage, the range of available deductibles is narrower, and total out-of-pocket costs are capped at a lower level than under most individual market products. For plans offered by medium and large employers, annual deductibles are most commonly between $100 and $300, while limits on total out-of-pocket expenses are $1,500 or less for most employees. In the individual market, annual deductibles are commonly between $250 and $2,500, while limits on total out-of-pocket costs typically start at $1,200 and may exceed $6,000 annually. Insurance contracts require policyholders to contribute to the cost of benefits received. Under traditional, major medical expense plans, consumers must pay annual deductibles and coinsurance up to a specified total limit on out-of-pocket expenses. HMOs typically require consumers to make copayments for each service rendered until an annual maximum is reached. The cost-sharing arrangement selected by the consumer is a key determinant of the price of an individual insurance product. The more potential out-of-pocket expenses the consumer could incur, the lower the premium will be. To illustrate, table 3.2 shows how premiums for a comprehensive major medical expense policy offered by one Colorado carrier decrease as annual deductibles increase. Premiums shown are for a healthy 30-year-old, nonsmoking male living in a major metropolitan area of the state. Products offered in the states we visited typically included a wide range of cost-sharing alternatives. Most commonly selected by consumers were deductibles from $250 to $2,500, although deductibles of $5,000, $10,000, $50,000, and even $100,000 were also available. (Under the recently enacted national Health Insurance Portability and Accountability Act of 1996, high-deductible plans to be used in conjunction with medical savings accounts are defined as those with deductibles of between $1,500 and $2,250 for individuals.) HMO copayment requirements were typically $10 or $15 for a physician office visit and $100 to $500 per hospital admission. Total annual limits on out-of-pocket costs were most commonly between $1,500 and $6,000. Table 3.3 illustrates examples of cost-sharing options available for selected commonly sold comprehensive products. Because consumers pay the entire cost of coverage, affordability is often of paramount concern. Consequently, consumers who perceive their risk of needing medical care to be minimal but want coverage in case of an accident or catastrophic illness may choose very high cost-sharing provisions to obtain the lowest possible premium. Other consumers, regardless of their health status, may only be able to afford insurance with very high cost-sharing provisions. Consumers who anticipate a greater likelihood of requiring medical care may be willing to pay higher premiums to protect themselves from large out-of-pocket expenses for coinsurance, deductibles, or copayments. Carrier and insurance department representatives with whom we spoke suggested that the level of consumer cost-sharing has been increasing in recent years, reflecting consumers’ goal of keeping premiums affordable. One national carrier representative said that deductibles seem to be increasing every year. Among the carrier’s new enrollees in 1995, 40 percent chose $500 deductibles, 50 percent chose $1,000 deductibles, and the remaining 10 percent chose deductibles from $2,500 to $10,000. A representative of another national carrier said that the premiums for its $250- and $500-deductible products had become too expensive and are thus no longer offered. State regulation also influences the range in cost-sharing options available to consumers. For example, under individual market reforms enacted in New Jersey, carriers are limited to offering only standard plans with prescribed ranges of cost-sharing options. All individual market products sold in the state are limited to deductibles of $150, $250, $500, or $1,000 for an individual enrollee. In contrast, one carrier in Arizona, where cost-sharing arrangements are not subject to state regulation, offers deductibles ranging from $1,000 to $100,000. Comprehensive individual coverage includes major medical expense plans—traditional fee-for-service plans and preferred provider organization (PPO) arrangements—and standard HMO plans. While our study focused on comprehensive individual insurance market products, it should be noted that a wide range of less comprehensive, or limited benefit products, are also sold in the individual market. These products, which are sometimes confused with comprehensive products, are discussed in figure 3.1. Under most major medical expense plans a wide range of benefits is covered, including in- and outpatient hospital, physician, and diagnostic services; specialty services, such as physical therapy and radiology; and prescription drugs. Standard HMO plans typically cover an equally or more comprehensive range of benefits and are also more likely to offer a broad range of preventive care, such as periodic examinations, immunizations, and health education. Moreover, these benefits were generally comparable with benefits covered under employer-sponsored group plans. We reviewed the benefit structure of commonly sold comprehensive products in the states we visited. These products included traditional indemnity or fee-for-service, PPO, and HMO plans. Most of the plans covered a wide range of benefits, as shown in figure 3.2. Five benefits—hospice care, substance abuse treatment, maternity services, preventive care for adults, and well baby/child care—were less consistently covered. The latter three benefits were covered by each of the HMOs. Among plans that did not offer maternity coverage, half offered it as an additional rider. Beyond characteristics such as how consumers access the market, the number and types of health plans available, and the multiple cost-sharing options, other aspects of the individual market also distinguish it from the employer-sponsored group market. Aspects such as restrictions on who may qualify for coverage and the premium prices charged can have direct implications for consumers seeking to purchase coverage and are often exacerbated by the fact that individuals must absorb the entire cost of their health coverage, whereas employers usually pay for a substantial portion of their employees’ coverage. A consumer may find affordable coverage or may find coverage only at prohibitive rates. A consumer may find coverage available only if conditioned upon the permanent exclusion of an existing health condition or may be locked out of the private health insurance market entirely. Consumers may be forced to turn to state high-risk programs or an insurer of last resort for coverage—at a significantly higher premium—or go without any health insurance coverage whatsoever. Unlike the employer-sponsored market where the price for group coverage is based on the risk characteristics of the entire group, prices in the individual markets of most states are based on the characteristics of each applicant. Characteristics commonly considered to determine premium rates in both markets include age, gender, geographic area, tobacco use, and family size. For example, on the basis of past experience carriers anticipate that the likelihood of requiring medical care increases with age. Consequently, a 55-year-old in the individual market pays more than a 25-year-old for the same coverage. Similarly, females in this market may be charged a higher premium than males of the same age group because of the costs associated with pregnancy and the treatment of other female health conditions. These individuals, however, if in the group market, would usually pay the same amount as the other members of their group, regardless of their specific age or gender. Premiums may also vary geographically. In some states, premium prices are higher in urban areas than in rural areas because of higher medical costs. Likewise, smokers are expected to incur greater medical expenses than nonsmokers and are thus often charged higher premiums in the individual market. Finally, family composition is also factored into premium price as a larger family would be expected to incur higher medical expenses than a smaller family. Treatment of this last factor is generally similar between the individual and the group markets. Carriers establish standard rates for each combination of demographic characteristics. Table 4.1 provides examples of the range in monthly premium rates some carriers we visited charge individuals, depending on their age, gender, or geographic location, in states that do not strictly regulate carrier rating practices. The low end of the range generally represents the premium price charged to males about the age of 25 who do not live in a metropolitan area. In contrast, the high end usually represents the most expensive insured in this market, a male aged 60 to 64 who lives in a metropolitan area. Absent state restrictions, carriers also evaluate the health status of each applicant to determine whether an applicant’s health status will result in an increase to the standard premium rate, the exclusion of a body part or an existing health condition, or the denial of the applicant altogether. This process is called medical underwriting. Under medical underwriting, carriers evaluate an applicant’s health status on the basis of responses to a detailed health questionnaire. On the questionnaire, applicants must indicate whether they or any family member to be included on the policy have received medical advice or treatment of any kind within their lifetime or within a more limited time frame, such as the previous 5 to 10 years, and whether they have experienced a broad range of specifically identified symptoms, conditions, and disorders. Applicants must also indicate whether they have any pending treatments or surgery, are taking any prescription medication, or have ever been refused or canceled from another health or life insurance policy. On the basis of these responses, carriers may request additional information—typically medical records—or require an applicant to undergo a physical examination. Some carriers require physical examinations regardless of applicants’ responses to their questionnaires. The information obtained through this process is used by carriers to determine whether to charge a higher than standard premium rate, exclude from coverage a body part or an existing health condition, or deny the applicant coverage altogether. The criteria used to make these determinations vary among carriers and are considered proprietary. Certain conditions are commonly treated by carriers in the same manner, however. Table 4.2 lists examples of some carriers’ treatment of certain health conditions in states that do not prohibit medical underwriting. The carriers we visited generally accepted the majority of applicants for coverage at the standard premium rate. Where state mandates did not exist, however, these carriers denied coverage to a significant minority of applicants. Denial rates ranged from zero for carriers in states such as New Jersey, New York, and Vermont where the law guarantees coverage, to about 33 percent, with carriers in those states that do not prohibit medical underwriting typically denying coverage to about 18 percent of all applicants. Individuals with acquired immunodeficiency syndrome (AIDS) or other serious conditions, such as heart disease and leukemia, are virtually always denied coverage. We also found examples in which individuals with less severe conditions, such as attention deficit disorder and chronic back pain, could also be denied coverage by some of the carriers. Furthermore, at least two HMOs we visited almost always deny coverage to any applicant who smokes. Table 4.3 lists the estimated declination rates for some of the largest carriers we visited. Some officials suggested that these declination rates could be understated for at least two reasons. First, insurance agents are usually aware of which carriers medically underwrite and have a sense as to whether applicants will be accepted or denied coverage. Consequently, agents will often deter individuals with a health condition from even applying for coverage from certain carriers. In fact, officials from one carrier in Arizona told us that since agents discourage those who would not qualify for coverage from applying, their declination rate is not an accurate indicator of the proportion of potential applicants who are ineligible for coverage. Secondly, the declination rates do not take into account carriers that attach riders to policies to exclude certain health conditions or carriers that charge unhealthy applicants a higher, nonstandard rate for the same coverage. Thus, although a carrier may have a comparatively low declination rate, it may attach such riders and charge higher, nonstandard premiums to a substantial number of applicants. In fact, a national survey of insurers showed that 20 percent of all applicants were offered a policy with an exclusion rider, a rated-up premium, or both. The majority of the indemnity insurers we visited will add riders to policies that exclude certain conditions either temporarily or permanently. For example, knee injuries related to skiing accidents may be explicitly excluded from coverage as may be a more chronic condition such as asthma. Also, a person who suffers from chronic back pain may have all costs associated with treatment of that part of the body excluded from coverage. Similarly, some carriers we visited will accept an applicant with certain health conditions but will charge him or her a significantly higher premium to cover the higher expected costs. For example, an Illinois carrier charges 2 to 3 percent of its enrollees a nonstandard rate. This 2 to 3 percent, however, pays approximately double the standard rate. Also, at least one carrier we visited charges individuals, depending on their medical history, a standard or nonstandard rate for its HMO product. The nonstandard rate is approximately 15 percent higher. Individual consumers may be affected differently by the varying methods carriers use in determining eligibility and price. A consumer may find affordable coverage, may only find coverage that explicitly excludes an existing health condition, or may find coverage only at prohibitive rates. Many consumers may be locked out of the private health insurance market entirely. Tables 4.4 and 4.5 provide examples of what individuals may face, given particular demographic characteristics and health conditions, when attempting to purchase individual insurance from carriers in the states we visited. In addition to demographic characteristics and health status, the extent to which the state regulates the individual insurance market also influences eligibility and premium price decisions. Price comparisons among states, however, can be misleading. Premium prices also vary among states because of regional and state-specific factors. For example, differences among states in cost of living and health care utilization, among others, may also contribute to premium price differences. As discussed, carriers, absent regulation that prohibits the practice, generally base standard premium rates on the demographic characteristics of each applicant. Such demographic characteristics may include age, gender, geographic area, and family composition. Table 4.4 shows this price variation. Using the monthly premium charged to a healthy, 25-year-old male as a baseline, it compares the differences in prices certain carriers will charge to other healthy individuals on the basis of their age and gender. Carriers anticipate that the likelihood of needing medical care increases with age. In the states we visited, all the carriers except those that were prohibited by law from doing so, charged higher premiums to older applicants. For example, an Arizona PPO plan cost a 25-year-old male $57 a month and a 55-year-old male $191 a month for the same coverage, a difference of $134. Similarly, a 55-year-old male would have paid $243 more than a 25-year-old male for a PPO product from one Illinois carrier. The carriers we visited were not as consistent in their treatment of gender. Several carriers charged females a higher premium than males of the same age group because of the costs associated with the female reproductive system and pregnancy. For example, 25-year-old females in Illinois and Arizona paid $31 more each month than males of the same age for the same PPO coverage and $36 more each month for a fee-for-service plan in Colorado. All applicants to a Colorado HMO and a North Dakota fee-for-service plan, however, paid the same monthly premium, regardless of gender. Premium prices also varied depending on the geographic area where the applicant resides. For example, the monthly premium for the standard HMO product in New York may cost as much as $289 in metropolitan New York City or as little as $145 in more rural areas of the state. As the table indicates, all applicants in New Jersey, New York, and Vermont, regardless of age or gender, would pay exactly the same amount for the same insurance coverage from the same carrier. In these states, the individual insurance reform legislation requires community rating, a system in which the cost of insuring an entire community is spread equally among all members of the community, regardless of their demographic characteristics or health status. Reform legislation in New York does allow for limited adjustments by geographic regions. In New Jersey’s individual market, the premium price of the sample product for the carriers in the state ranges from $155 to $565. Although this is a fairly wide price range, all applicants are eligible for and may select from among any of these plans. The prices listed in table 4.4 generally are carriers’ standard rates charged to individuals with the specified demographic characteristics. Absent state restrictions, most carriers will also evaluate the health status of each applicant to determine whether to charge an increase over the standard premium rate, to exclude a body part or existing health condition from coverage, or to deny the applicant coverage altogether. Some carriers also regard smoking to be a risk characteristic and consider it when they determine an applicant’s eligibility and premium price. Table 4.5 provides examples of what a 25-year-old male with varying habits or health conditions might experience in terms of availability and affordability of coverage in the individual insurance market in the states we visited. Again, the baseline is the monthly premium price charged to a healthy, 25-year-old male. Three of the 11 carriers shown in table 4.5 charge smokers $7 to $27 more each month for the same coverage, and one HMO automatically denies coverage to all smokers. At least two of the carriers will attach a rider to a policy that explicitly excludes coverage of a preexisting knee condition and will not cover any costs associated with treatment of that part of the body. While three of the carriers automatically deny an applicant with preexisting diabetes, one will accept the applicant but will charge him or her a significantly higher premium to cover the higher expected costs. And finally, an applicant who had cancer within the past 3 years would almost always be denied coverage from all carriers except those in the guaranteed-issue states of New Jersey, New York, and Vermont. Individuals in these states, regardless of their health condition, will generally pay the same amount as healthy individuals for similar coverage. In non-guaranteed-issue states, applicants who have a history of cancer or other chronic health conditions are likely to have a difficult time obtaining coverage. In many of these states, high-risk insurance pools have been created to act as a safety net to ensure that these otherwise uninsurable individuals can obtain coverage, although at a cost that is generally 50 percent higher than the average or standard rate charged in the individual insurance market for a comparable plan. Individuals in Colorado, Illinois, and North Dakota who are denied coverage from one or more carriers can obtain insurance through the high-risk pool for $52 to $122 more each month. Arizona is the only state we visited that did not have guaranteed issue or a high-risk pool. Unhealthy individuals in this state who are most in need of coverage are not guaranteed access to any insurance product and will most likely be uninsured. Several state insurance regulators and a representative of the National Association of Insurance Commissioners (NAIC) expressed concern that some carriers may use closed block durational rating, a carrier rating practice used in the individual health insurance markets of many states. Under this practice, carriers offer a guaranteed renewable product at an artificially low rate to attract large numbers of new enrollees and increase their market share. These carriers eventually increase premium rates to more adequate levels and close the block of business by no longer accepting any new applicants. Because insurance pools rely on a steady influx of new, healthy applicants to maintain rates, the rates in the closed block rise even faster. Healthy members of the block tend to migrate—and are sometimes actively solicited by the carriers—to lower priced products that are not similarly available to the unhealthy members of the block. The unhealthy members must either remain in the closed block with its spiral of poorer risks and increasing rates or leave the carrier and face the uncertain prospect of obtaining coverage from another carrier on the open market. Consequently, this practice allows carriers to shed poorer risks and retain favorable risks. Though legal in most states, some regulators strongly object to this practice. They suggest it penalizes those individuals who have dutifully purchased and maintained their health coverage but eventually become unhealthy. Some states, through guaranteed-issue requirements and premium rate restrictions, have prohibited this practice. Although medical underwriting results in the exclusion of individuals from the private health insurance market, many carrier representatives and analysts suggest that it plays a role in keeping insurance premiums more affordable for most individuals. They contend that coverage of uninsurable individuals is a public policy concern and should be addressed through public initiatives such as high-risk pools, not through the private sector insurance market. Insurance industry representatives explain that where states prohibit carriers from using medical underwriting, individuals are essentially guaranteed access to insurance regardless of their health status. They suggest that guaranteed access to coverage can result in adverse selection. Adverse selection refers to the tendency of some individuals to refrain from purchasing insurance coverage while they are younger or healthier because they know it will be available to them in the future should their health status decline. If a significant number of younger, healthier individuals decide to forgo coverage, the average health status of those remaining in the insured pool diminishes. Higher claims costs for this less healthy group will result in higher premium prices, which in turn, could force additional healthy individuals to forgo coverage. The resulting spiral of poorer risks and higher premiums could make insurance less affordable for everyone. Many state insurance regulators and analysts disagree with this premise or suggest that its impact is overstated by the insurance industry. They present data to support their position as do insurance industry representatives to support theirs. The appropriate degree of regulatory intervention in private insurance markets will continue to be a subject of debate, underscoring the importance of thorough, ongoing evaluation of the impact of various state insurance reforms. A wide range of initiatives to increase access to various segments of the heath insurance market have been undertaken by states and more recently the federal government. While almost all of the states have enacted insurance reforms designed to, among other things, improve portability, limit waiting periods for coverage of preexisting conditions, and restrict rating practices for the small employer health insurance market, they have been slower to introduce similar reforms to the individual market. From 1990 through 1995, a number of states passed similar insurance reforms in the individual market, and by year-end 1995, about 25 states created high-risk insurance pools to provide a safety net for otherwise uninsurable individuals. Eight states and the District of Columbia have Blue Cross and Blue Shield plans that provide all individuals a product on an open enrollment basis. At least seven states have no insurance rating restrictions, operational high-risk pool, or an insurer of last resort. Table 5.1 catalogs state initiatives to increase individuals’ access to health insurance. Recent legislative efforts at the federal level also attempt to increase individuals’ access to this health insurance market. To improve the availability and affordability of health insurance coverage to individual consumers, a number of states have passed legislation in recent years to modify the terms and conditions under which health insurance is offered to this market. These reforms may seek to restrict carriers’ efforts to limit eligibility and charge higher premiums because of an individual’s health history or demographic characteristics. We identified 25 states that from 1990 through 1995 had passed one or more reforms in an effort to improve individuals’ access to this market. We found substantial variations in the ways states approached reform in this market, although reforms commonly passed included guaranteed issue, guaranteed renewal, limitations on preexisting condition exclusions, portability, and premium rate restrictions. More states may soon enact reforms in this market because of NAIC’s recent recommendation of two model laws for reforms in the individual insurance market. An explanation of the reforms follows. Table 5.2 catalogs the reforms passed by each state. Guaranteed issue requires all carriers that participate in the individual market to offer at least one plan to all individuals and accept all applicants, regardless of their demographic characteristics or health status. We found that 11 states required all carriers participating in the individual market to guarantee issue one or more health plans to all applicants. This provision, however, did not necessarily guarantee coverage to all individuals on demand. To limit adverse selection, carriers in most states did not have to accept individuals who qualify for employer- or government-sponsored insurance. Also, some states only required carriers to accept all applicants during a specified and usually limited open enrollment period. States also varied in the number of plans they required carriers to guarantee issue. In states such as Idaho, the legislation explicitly defined a basic and standard benefits plan that each carrier must offer all individuals. Other states, like Maine and New Hampshire, required carriers to guarantee issue all health plans they sold in the individual market. New Jersey explicitly defined and limited the number and type of plans carriers offered in the market. Guaranteed-renewal provisions prohibit carriers from not renewing coverage to plan participants because of their health status or claims experience. Exceptions to guaranteed renewal include cases of fraud or failure to pay premiums. A carrier may choose not to renew all of its individual policies by exiting a state’s market but is then prohibited from reentering the market for at least 5 years. Twenty-two states limited the period of time coverage can be excluded for a preexisting condition. States typically defined a preexisting condition as a condition that would have caused an ordinarily prudent person to seek medical advice, diagnosis, care, or treatment during the 12 months immediately preceding the effective date of coverage; a condition for which medical advice, diagnosis, care, or treatment was recommended or received during the 12 months immediately preceding the effective date of coverage; or a pregnancy existing on the effective date of coverage. Most reform states allowed carriers to exclude coverage for a preexisting condition for up to 12 months. Some states, however, such as Oregon and Washington, limited this exclusionary period to 6 or 3 months. Portability provisions require carriers to waive any preexisting condition limitations for covered services if comparable services were previously covered under another policy, and this previous policy was continuous to a date not more than a specified number of days before the new coverage went into effect. Among states that had passed portability reforms, the specified number of days ranged from 0 to 90. Six states had enacted portability provisions of 30 days, the most common duration among reform states. Eighteen of the 25 states included provisions in their legislation that in some way attempted to limit the amount carriers can vary premium rates or the characteristics that can be used to vary these rates. Among the seven states we visited, New Jersey, New York, and Vermont restricted carriers’ rating practices and generally required all carriers to community rate their individual products with limited or no qualifications. Under community rating, carriers must set premiums at the same level for all plan participants. That is, all participants are generally charged the same price for similar coverage regardless of age, gender, health status, or any other factor. North Dakota had limited rating restrictions, and Arizona, Colorado, and Illinois essentially had no rate limitations in place. Most of the 18 states with restrictions, however, allowed carriers to vary, or modify, the premium rates charged to individuals within a specified range according to differences in certain demographic characteristics, such as age, gender, industry, geographic area, and smoking status. For example, New Hampshire only allowed carriers to modify premium rates for differences in age, while South Carolina allowed carriers to use differences in age, gender, geographic area, industry, smoking status, occupational or avocational factors, and any additional characteristics not explicitly specified, to set premium rates. Most of the 18 states, however, limited the range over which carriers may vary rates among individual consumers. Carriers usually establish an index, or base rate, and all premium prices must fall within a given range of this rate. For example, in Idaho premium rates were permitted to vary by no more than +/-25 percent from the applicable index rate and only for differences in age and gender. Carriers in Louisiana were allowed to vary premium rates more liberally. The state’s legislation allowed carriers to vary premium rates +/-10 percent because of health status and allowed unlimited variation for specified demographic characteristics and other factors approved by the Department of Insurance. In addition, about 25 states have created high-risk insurance programs that act as a safety net to ensure that individuals who need coverage can obtain it, although at a cost that is generally 50 percent higher than the average or standard rate charged in the individual insurance market for a comparable plan. To qualify for the high-risk pool, applicants generally have to demonstrate they have been rejected by at least one carrier for health reasons or have one of a number of specified health conditions. Officials from at least two of the state insurance departments we visited suggested that their states’ high-risk pools ensure the availability of health insurance to all who needed it and prove that no access problem exists—provided the individual can afford the higher priced coverage. Although high-risk pools exist as a safety net for otherwise uninsurable individuals, they essentially enroll an insignificant number of individuals. In fact, in at least 22 of these 25 states, less than 5 percent of those under 65 with individual insurance obtain coverage through the high-risk pool. Only in Minnesota does the pool’s enrollment exceed 10 percent of the individually insured population. The low enrollment in these high-risk pools may be due in part to limited funding, lack of public awareness, and their relative expense. Some states limit enrollment and may have waiting lists. For example, California has an annual, capped appropriation to subsidize the cost of enrollees’ medical care and curtails enrollment in the program to ensure that it remains within its budget. Also, insurance department officials in each of the states we visited with high-risk pools recognized the public is often unaware that these pools exist, even though carriers are often required by law to notify rejected applicants of it. Officials in two of these three states were generally unaware of the extent to which carriers complied with this requirement. And finally, although these programs provide insurance to individuals who are otherwise uninsurable, they remain relatively expensive, and many people are simply unable to afford this higher priced coverage. In addition to the 11 states that require all carriers to guarantee issue at least one health plan to all individuals, the Blue Cross and Blue Shield plans in 8 states and the District of Columbia voluntarily offer at least one product to individuals during an annual open enrollment period, which usually lasts 30 days. Although these plans accept all applicants during this open enrollment period, they are not limited in the premium price they can charge an individual applicant. Our analysis also shows that by the end of 1995, seven states neither had passed reforms that attempted to increase access to the individual insurance market nor had an operational high-risk pool or a Blues plan that acted as insurer of last resort. In these states, individuals who are unhealthy, and thus most likely to need insurance coverage, may be unable to obtain it. These states are Alabama, Arizona, Delaware, Hawaii,Nevada, South Dakota, and Texas. In addition to state efforts, recently passed federal legislation also attempts to increase access to the individual health insurance market. The Health Insurance Portability and Accountability Act of 1996 will affect the individual market in several ways. It will, among other things, guarantee access to the individual market to consumers with previous qualifying group coverage, guarantee the renewal of individual coverage, authorize federally tax-exempt medical savings accounts (MSA), and increase the tax deduction for health insurance for self-employed individuals. Under this act, individuals who have had at least 18 months of continuous coverage have guaranteed access to an individual market product and do not need to fulfill a new waiting period for preexisting conditions if they move from a group plan to an individual market plan. It is important to note that although this law guarantees portability, it in no way limits the premium price carriers may charge individuals for this coverage. Also, with some exceptions, the legislation requires all carriers that provide individual health insurance coverage to renew or continue in force such coverage at the option of the individual. In addition, self-employed individuals who purchase health insurance will, beginning in 1997, have the option of establishing tax-deductible MSAs. An MSA is an account into which an individual deposits funds for later payment of unreimbursed medical expenses. To be eligible for the tax deduction, self-employed individuals must be covered under a high-deductible health plan (defined as a health plan with an annual deductible of $1,500 to $2,250 for an individual and $3,000 to $4,500 for family coverage) and have no other comprehensive coverage. As noted in chapter 3, many participants in the individual market already purchase high-deductible health coverage. An individual with an MSA can claim a tax deduction for 65 percent of his or her health plan’s deductible for self-only coverage and 75 percent for family coverage. Finally, the act increases the tax deductibility of health insurance for self-employed individuals, who constitute about one-fourth of individual market participants. Currently, self-employed individuals may deduct 30 percent of the amount they paid for health insurance for themselves as well as for their spouse and dependents. Beginning in 1997, these individuals may deduct 40 percent of this cost; 45 percent in 1998 through 2002; 50 percent in 2003; 60 percent in 2004; 70 percent in 2005; and 80 percent in 2006 and thereafter. While employer-sponsored group plans are still the dominant source of health insurance coverage for most Americans, millions depend on an accessible and affordable individual market outside the workplace. Many Americans, including family farmers, self-employed individuals, and those working for small firms that do not offer coverage, must rely on the individual market as their permanent source of health insurance coverage. Others rely on this market between jobs and during other periods of transition. Recent trends suggest a growing share of the U.S. population will probably turn to the individual market at some point in their lives. The days of rapid expansion of both private employer and government program coverage are probably behind us. Meanwhile, employer downsizing continues, job mobility increases, and the ranks of part-time and contract workers grow. The individual insurance market is complex, and consumers, unlike those who have access to employer-sponsored plans, are largely on their own in obtaining and financing coverage. Consumers can access the market in a variety of ways; must choose among multiple, usually nonstandardized, products offered by multiple carriers; and must select one of many cost-sharing options, each of which will have a different impact on the amount of money consumers will ultimately pay. Further adding to the complexity of this market is its high geographic variability. Depending on the state or even on the markets within a state, consumers may face an entirely different set of choices. Many consumers face barriers to coverage in the individual market. Absent state restrictions, carriers base coverage and pricing decisions on each individual’s demographic characteristics and health status. Thus in most states, those who are older or in poor health may be charged significantly higher premiums or may be denied coverage altogether. Among those with coverage in the individual market, many may be underinsured. Increasingly sold are very high deductible plans with lower premiums but greater financial risk for consumers. Many consumers may purchase these plans because they cannot afford premiums otherwise, suggesting that, unlike under medical savings accounts, a reserve to pay the high deductibles may not exist. Some consumers can only obtain coverage that permanently excludes the very medical condition for which they are most likely to need care. And other consumers—intentionally or unintentionally—purchase limited benefit policies as their only source of coverage. Twenty-five states have recently passed legislative reforms for their individual health insurance markets and more are likely to follow. The reforms vary widely in scope from limited measures, such as those intended only to limit the length of preexisting condition waiting periods a carrier may impose, to comprehensive reforms requiring carriers to provide coverage to all who apply and use community rating to set premiums. Some states use other measures to increase individual market access or affordability, such as high-risk pools and insurers of last resort. At the federal level, the Health Insurance Portability and Accountability Act of 1996 is a recent example of federal legislation that will affect the individual health insurance market. The act guarantees access to the individual market to consumers with qualifying previous group coverage and guarantees the renewability of individual coverage. For the self-employed, the act authorizes federally tax-deductible medical savings accounts and increases the tax deductibility of health insurance. The importance of the individual insurance market to millions of Americans is a factor to be considered in weighing any further incremental measures to improve the accessibility and affordability of private health insurance.

Pursuant to a congressional request, GAO provided information on the private individual health insurance market, focusing on the: (1) size of the market and characteristics of its participants; (2) structure of the market, including how individuals access the market, the prices, other characteristics of health plans offered, and the number of individual carriers offering plans; and (3) insurance reforms and other measures states have taken to increase individuals' access to health insurance. GAO found that: (1) about 10.5 million Americans under 65 years of age relied on private individual health insurance as their only source of health coverage during 1994; (2) when compared with those enrolled in employer-sponsored group coverage, individual health insurance enrollees are, on average, older and have lower income, but they are similar in their self-reported health status; (3) individual insurance is more prevalent among particular segments of the labor force, such as the self-employed and farm workers; (4) individuals must identify and evaluate multiple health insurance products and then obtain and finance the coverage on their own; (5) individuals in the states reviewed could select products from 7 to over 100 carriers, with deductibles ranging from $250 to $10,000; (6) in the majority of states, which permit medical underwriting, individuals may be excluded from the private insurance market, may only be able to obtain limited benefit coverage, or may pay premiums that are significantly higher than the standard rate for similar coverage; (7) carriers in these states determine premium price and eligibility on the basis of the risk indicated by each individual's demographic characteristics and health status; (8) carriers GAO visited declined coverage to up to 33 percent of applicants because of medical conditions, such as acquired immunodeficiency syndrome and heart disease; (9) if they do not decline coverage, carriers may permanently exclude from coverage certain conditions or body parts, or charge significantly higher premiums to those expected to incur large health care costs; (10) at least 43 states have sought to increase the health coverage options available to otherwise uninsurable individuals; and (11) a new federal law contains provisions intended to enhance access to the individual insurance market, particularly regarding portability and guaranteed renewal.

You are an expert at summarizing long articles. Proceed to summarize the following text: To help conduct human-capital planning efforts for the department’s civilian workforce, DOD’s Strategic Human Capital Planning Office used functional community categories to group together employees who perform similar functions. Each of these communities includes a varying number of mission-critical occupations. For the 2010-2018 strategic workforce plan, 11 functional communities provided some information on their 22 mission-critical occupations in an appendix to the plan. Mission- critical occupations are positions key to DOD’s current and future mission requirements, as well as those that present recruiting and retention challenges. Table 1 lists the 11 functional communities along with their mission-critical occupations. DOD’s mandated strategic workforce plans are developed by the Defense Civilian Personnel Advisory Service’s Strategic Human Capital Planning Office, which is within the Office of the Under Secretary of Defense for Personnel and Readiness. To collect data and information from the functional communities, the Strategic Human Capital Planning Office develops a reporting template that it sends to the 11 functional community managers within the Office of the Secretary of Defense (OSD). The template consists of three sections that request information and data on areas such as workforce end-strength forecasts, constraints that impact the ability to meet end-strength targets, status of competency development, and strategies to fill gaps. To complete the template, the functional community managers work with their counterparts at the component level to collect the necessary information and data for the mission-critical occupations. Once the component-level functional community managers collect the necessary information and data, they send their completed templates back to the functional community integrators, who compile all the information and data for each community into one cohesive functional community document. The Strategic Human Capital Planning Office then compiles the various reports from the functional community managers and integrators and issues the report after it passes an internal review. Figure 1 identifies the key offices that develop the strategic workforce plan. Our previous work has found that, in general, DOD’s efforts to develop workforce plans have been mixed. In our February 2009 report, we recommended that DOD develop performance plans for its program offices that have responsibilities to oversee development of the strategic workforce plan. Specifically, we recommended that the performance plans include establishing implementation goals and time frames, measuring performance, and aligning activities with resources to guide its efforts to implement its strategic workforce plan. DOD partially concurred with our recommendations and noted that efforts were underway to develop performance plans. DOD assessed, to varying degrees, the existing and future critical skills and competencies for all but one of its mission-critical occupations, but the department did not assess gaps for most of them. Further, DOD’s report did not include the most up-to-date or timely information when it issued its most recent report. Section 115b of Title 10 of the United States Code requires that DOD’s strategic workforce plan include an assessment of the critical skills and competencies of the existing civilian-employee workforce and DOD, in response to that requirement, assessed to varying degrees the existing critical skills and competencies for 21 of its 22 mission-critical occupations. We have previously reported that it is essential for agencies to determine the skills and competencies that are critical to successfully achieving their missions and goals. This is especially important as changes in national security, technology, budget constraints, and other factors change the environment within which federal agencies operate. The assessments contained in DOD’s 2010-2018 plan, however, varied significantly in terms of the amount of detail provided. This variation can be attributed, in part, to the fact that some communities are able to draw on existing requirements and standards. For example, the information technology functional community used the Clinger-Cohen Competencies for the Information Technology Workforce, which provide a description of the technical competencies for various information technology occupations, to assess the critical skills and competencies within its workforce. Accordingly, the information technology functional community manager was able to provide detail and specificity when describing this community’s assessment processes and the results of those assessments. Similarly, the medical functional community was able to use existing national standards for licensure and board certification for physicians when it assessed particular critical skills and competencies. This community was able to provide specific details about its assessment processes and the results from those assessments. In contrast, while the installations and environment functional community reported on the competency models available for assessing its two mission-critical occupations, firefighters and safety-and-health managers, this community did not provide the results of any analyses using these models. DOD is also required to report on the critical skills and competencies that will be needed in its future workforces. We have previously reported that an agency needs to define the critical skills and competencies that it will require in the future to meet its strategic program goals. Doing so can help an agency align its human-capital approaches that enable and sustain the contributions of all the critical skills and competencies needed for the future. Our assessment of DOD’s 2010-2018 strategic workforce plan found that for 17 of the 22 mission-critical occupations, DOD provided some discussion of future competencies. For the remaining five mission-critical occupations, DOD reported that functional community managers were waiting for the completion of competency models for their specific mission-critical occupations before assessing future competencies. One functional community, Intelligence, did not provide an assessment of skills and competencies for either its existing or future mission-critical occupations. DOD officials told us that the intelligence community’s assessments are maintained in classified documents and could not be provided in the department’s 2010-2018 strategic workforce plan. According to the plan, the Offices of the Under Secretary of Defense for Intelligence and the Under Secretary of Defense for Personnel and Readiness, along with the Office of the Director of National Intelligence, agreed instead to capture the reporting requirements in already established human-capital employment plans that were submitted by intelligence-community elements to the Office of the Director of National Intelligence. Officials from the Office of the Under Secretary of Defense for Intelligence acknowledged that they should provide input into DOD’s strategic workforce plan and stated that they would provide input into the next submission of the plan. DOD officials responsible for developing the strategic workforce plan said they followed a collaborative process and met numerous times to seek input and guidance for developing the plan. To obtain information and data from each functional community, the Strategic Human Capital Planning Office distributed a reporting template to the functional community managers that contained a series of questions related to the requirements of section 115b of Title 10 of the United States Code. For the 2010-2018 plan, from May 2009 through October 2010 the Strategic Human Capital Planning Office provided informal guidance for template development to functional community managers, integrators, and action officers. This office also provided additional training and one-on-one sessions with integrators, and tailored meetings with functional community managers to address completion. The template, however, did not define key terms such as skills and competencies. Accordingly, we found that the functional community managers interpreted the questions within the template differently and developed different understandings of key terms. For example, officials in one functional community explained to us that they viewed skills as a subset of a larger category of competencies. Officials in a separate functional community associated skills with employee capabilities and competencies with occupational descriptions. Without clear guidance for assessing skills and competencies, functional community managers are likely to continue to provide inconsistent responses that vary in detail and usefulness to decision makers. Section 115b of Title 10 of the United States Code requires DOD to include an assessment of gaps in the existing and future civilian employee workforce that should be addressed to ensure that the department has continued access to the critical skills and competencies needed to accomplish its mission. We have previously reported that once an agency identifies the critical skills and competencies that its future workforce must possess, it can develop strategies tailored to address gaps in the number, skills and competencies, and deployment of the workforce. Our analysis found, however, that functional community managers reported conducting competency gap assessments for only 8 of the 22 mission-critical occupations. These 8 occupations include nurses, pharmacists, clinical psychologists, social workers, medical officers, security specialists, police officers, and human-resources managers. Further, in cases where the functional community managers did conduct gap analyses, they did not report the results of these assessments. Officials responsible for developing the 2010-2018 plan told us that they focused on identifying critical-skill gaps based on staffing levels in the mission-critical occupations. According to these officials, competency gaps will be assessed using the Defense Competency Assessment Tool that is scheduled for initial deployment in late fiscal year 2013. In some cases, competency models are still being developed that will enable the functional communities to conduct gap assessments for their mission-critical occupations. For example, the financial-management functional community stated specifically in DOD’s plan that it did not complete a gap assessment because competency models for its mission- critical occupations remain incomplete. The financial-management community reported in the plan that, upon completion of its competency models, it will be able to fully assess gaps in knowledge and skills. DOD officials responsible for the plan told us that they anticipate these models to be completed by the end of 2012. Some functional communities, similarly, are waiting for the completion of an automated competency assessment tool in order to complete their gap assessments. The logistics functional community stated in the plan, for example, that it will use DOD’s Defense Competency Assessment Tool when it becomes available. Because this community, as of September 2010, had more than 18,000 personnel serving in the mission-critical occupation of logistics-management specialist, community officials explained that the workforce is too large to track without an automated tool. Further, some officials attributed the absence of gap analyses to other priorities that took precedence. Officials acknowledged that they did not address all of the statutory requirements and explained that their work on the Secretary of Defense’s 2010 efficiency initiatives—which were introduced to reduce duplication, overhead, and excess—preempted their efforts to develop responses for DOD’s 2010 Strategic Workforce Plan. Finally, of the functional communities that reported completing gap assessments for eight of the mission-critical occupations, none reported the results. For example, the medical functional community reported that DOD’s Medical Health System analyzed a variety of data monthly to ensure goals are met and to assess and respond to gaps for all five of its mission-critical occupations: nurses, pharmacists, clinical psychologists, social workers, and physicians. However, the plan did not report the results of any of these assessments. Our analysis of the template DOD sent to the functional community managers found that it was not clear in all cases that each functional community should report the results of any gap analyses or report the reasons why it could not conduct these assessments—if that is the case—or report timelines for when the assessments would be conducted. Without this information, DOD is limited in its ability to identify where its critical shortages lie so that it may direct limited resources to the areas of highest priority. Under a previous strategic-plan requirement, DOD was required to submit a strategic plan to Congress by January 6, 2007, with updates of that plan to be submitted on March 1 of each subsequent year through 2009. The National Defense Authorization Act for Fiscal Year 2010 repealed this requirement, and enacted section 115b of Title 10 of the United States Code. From October of 2009 until December 2011, section 115b required the submission of the plan on an annual basis, rather than on any specific date. In December of 2011, the National Defense Authorization Act for Fiscal Year 2012 amended section 115b to make the strategic plan a biennial requirement, rather than an annual one. Our analysis shows, based on these requirements, that DOD’s first three submissions were 304, 115, and 395 days late, respectively. Additionally, while DOD issued its third strategic workforce plan on March 31, 2010, the department issued its fourth, and most recent, plan 24 months later on March 27, 2012. When DOD began development of its fourth plan, the department was required to submit its workforce plan on an annual basis; by the time DOD issued the plan the reporting requirement had been revised from an annual to a biennial requirement. We note, however, that DOD’s report was already at least 8 months overdue at the time of that revision. Further, while DOD delayed issuance of its fourth plan until March 2012, it continued to use fiscal year 2010 data as its baseline. Figure 2 shows the number of days each of DOD’s strategic workforce plans has been late since 2007. Officials attributed the delays in the production of DOD’s 2010 strategic workforce plan to long internal processing times and staff turnover. According to these officials, the plan’s progress was affected by turnover among contractor personnel as well as the leadership and staff within the strategic workforce planning office at DOD. DOD recognized these delays, and the Deputy Assistant Secretary for Defense for Civilian Personnel Policy testified before the House Armed Services Committee in July 2011 that the 2010-2018 report would be issued in late August 2011. However, it remained in draft form for another 7 months and was not issued until March 2012. Our prior work on internal control standards for the federal government has shown that agencies rely on timely information to carry out their responsibilities. For an agency to manage and control its operations effectively, it must have relevant, reliable, and timely communications relating to internal as well as external events. We found that although the Strategic Human Capital Planning Office provided suggested timeframes, DOD officials did not adhere to this schedule. Without up-to-date information, decision makers do not have relevant information for managing the critical needs of the federal workforce in a timely manner. Officials responsible for the plan told us they anticipate issuing the 2012 strategic workforce plan between July and September of 2013. DOD, in its 2010-2018 workforce plan, did not include an assessment of the appropriate mix of military, civilian, and contractor personnel or an assessment of the capabilities of each of these workforces. Section 115b of Title 10 of the United States Code requires DOD to conduct an assessment of the appropriate mix of military, civilian, and contractor personnel capabilities. To compile the workforce mix data, DOD officials responsible for the plan developed and distributed a reporting template to be completed by functional community managers. This template requested the functional community managers to provide the percentages of DOD civilian personnel, military personnel, and contractors in each mission-critical occupation. Additionally, the template requested each functional community to provide information on the desired workforce mix for fiscal year 2016, and interim goals if possible. Our review found that 2 of the 11 functional communities provided the mix of their workforces, while 9 communities provided partial or no data. Specifically, the medical and human-resources functional communities provided the percentages of military, civilian, and contractor personnel for their current workforce, and reported their desired mix for fiscal year 2016, as the template requested. For example, the medical functional community provided workforce mix data for its military, civilian, and contractor personnel in each of its mission-critical occupations. According to officials responsible for the strategic workforce plan, the medical functional community was able to provide workforce mix data because the community already tracked personnel data as a way to maintain oversight. Conversely, the logistics and information-technology functional communities provided only the military and civilian workforce data and did not include contractor data. The intelligence functional community did not provide any workforce mix data for inclusion in the 2010 strategic workforce plan. Moreover, data on contractor personnel was incomplete. During this review, DOD officials responsible for the plan stated that they have difficulties tracking contractor data, explaining that DOD contracts for services rather than for individuals. We note, however, that this issue is not new. DOD guidance requires defense officials to consider personnel costs, among other factors, when making certain workforce decisions. For example, a February 2005 DOD directive states that missions shall be accomplished using the least costly mix of personnel (military, civilian, and contract) consistent with military requirements and other needs of the department. Subsequently, in April 2010, DOD issued an instruction that included guidance on implementing the prior directive. Further it is DOD policy that DOD components follow prescribed business rules when performing an economic analysis in support of workforce decisions. These rules apply when, among other circumstances, DOD’s components decide whether to use DOD civilians to perform functions that are currently being performed by contractors but could be performed by DOD civilians. By law, DOD is required to annually compile and review an inventory of activities performed pursuant to contracts to help provide better insights into the number of contractor full-time equivalents providing services to the department, and the functions they are performing. Additionally, the National Defense Authorization Act for Fiscal Year 2012 requires appropriate DOD officials to develop a plan, including an enforcement mechanism, to ensure that this inventory of contracted services is used to inform strategic workforce planning, among other things. The act also directed the Secretary of Defense to establish policies and procedures for determining the most appropriate and cost-efficient mix of military, civilian, and contractor personnel to perform the mission of the department. Further, the act directed that these policies and procedures should specifically require DOD to use the strategic workforce plan, among other things, when making these determinations, and that these policies and procedures, once developed, should inform the strategic workforce planning process. Earlier this year, we reported that DOD has difficulty collecting data on the number of contractors performing work, and that DOD is working on a means to collect the data. We also reported that DOD has submitted to Congress a plan to collect personnel data directly from contractors that would help inform the department of the number of full-time-equivalent contractor staff. According to this plan, DOD will institute a phased-in approach to develop an inventory of contracted services database by fiscal year 2016. In the meantime, the functional communities did not provide all required information, in part, because the department did not request it. The template, for example, did not ask the functional communities to report the capabilities of their civilian, military and contractor personnel in mission-critical occupations, and as a result none of the functional communities reported them. Further, the template did not ask the functional communities to report on their assessments of the appropriate mix of these workforces within their communities and, accordingly, none of the communities provided this type of assessment. Without a complete assessment, it is difficult for DOD to know if its civilian workforce is properly sized to carry out its vital missions. DOD developed five performance measures to assess progress in implementing its strategic workforce plan, and the measures generally align with the department’s goals. We have previously reported that performance measures should align with goals and track progress toward the goals of the organization. However, it is not clear in all cases how these measures will help DOD demonstrate progress in meeting all of the reporting requirements contained in section 115b of Title 10 of the United States Code. In response to statutory requirements, DOD developed five results- oriented performance measures to assess progress in implementing its strategic workforce plan. Specifically, the Office of the Undersecretary of Defense for Personnel and Readiness developed five baseline performance measures, which address: workforce-mission readiness (the percentage of managers reporting that they have the talent needed to meet their mission); mission-critical occupations’ end-strength (the percentage difference between the actual end-strength and the target end-strength for mission-critical occupations); key milestones (the percentage of key milestones met by each mission-critical occupation); competency-model development (the number of competency models developed for mission-critical occupations); and loss rates for new hires (18-month loss rate from hiring date for new federal-civilian hires in mission-critical occupations). According to the 2010-2018 plan, the Office of the Undersecretary of Defense for Personnel and Readiness based the first four of these measures—workforce mission readiness, mission-critical occupations’ end-strength, key milestones, and competency-model development—on goals identified in DOD’s companion document to its overall civilian human-capital strategic plan. According to the plan, officials developed the fifth measure—loss rates for new hires—to support the overall strategic plan for the Office of the Undersecretary of Defense for Personnel and Readiness. Collectively, these baseline measures were established relative to the strategic objectives set for tracking and supporting organizational decision making within the Office of the Undersecretary of Defense for Personnel and Readiness. We have previously reported that performance measures should align with goals and track progress toward the goals of the organization. Additionally, OPM best practices state that performance measures can help drive desired behavior, provide direction, and enable an organization to test its progress in achieving goals. Accordingly, DOD developed the five measures to meet goals and objectives identified in a key DOD strategic document. All five performance measures include targets to track progress toward goals—such as a 70 percent target for key milestones in mission-critical occupations—so that the results of any progress can be easily compared to the targets. Additionally, the performance measures are quantifiable. For example, one of the performance measures establishes a 15 percent variance between the actual end-strength and the target end-strength of mission-critical occupations. While DOD introduced these measures for the first time in its 2010-2018 strategic workforce plan, the department conducted preliminary assessments of its progress against those measures. In this plan, DOD reported in its preliminary observations that it has met two performance measures—key milestones and competency-model development—and partially met two other measures—workforce-mission readiness and the end-strength of mission-critical occupations. For example, according to OSD’s preliminary assessment, more than half of the mission-critical occupations were within the 15 percent variance. DOD will use the fifth performance measure, which addresses loss rates for new hires, to assess the department’s progress in implementing the plan in the next strategic workforce planning cycle. We have previously recommended that DOD develop a performance plan that includes establishing implementation goals and time frames, measuring performance, and aligning activities with resources. While the performance measures that DOD established to monitor the department’s progress in implementing its strategic workforce plan generally align with departmental goals and priorities, it is not clear in all cases how the five measures will help DOD demonstrate progress in meeting all the reporting requirements contained in section 115b of Title 10 United States Code. While DOD is not required to develop performance measures that monitor progress in meeting the statutory requirements, our prior work has shown that agencies that have been successful in measuring their performance generally developed measures that are responsive to multiple priorities and complement different program strategies. Additionally, DOD is required to develop performance measures to monitor progress in implementing the strategic workforce plan, and the plan itself states that one of its goals is to make progress toward meeting the statutory requirements. Section 115b of Title 10 of the United States Code requires DOD to include in its 2010-2018 strategic workforce plan an assessment of, among other things, gaps in the existing and future civilian workforce that should be addressed to ensure that the department has continued access to the critical skills and competencies, and the appropriate mix of military, civilian, and contractor personnel capabilities. During this review, we found, as we reported earlier in this report, that the department did not conduct comprehensive assessments in these two areas. Although one of DOD’s performance measures—key milestones—identifies assessments of competency gaps and workforce mix as key milestones, the plan does not describe how the department assessed progress in these areas or interim steps as to how it plans to meet these milestones. As a result, it is unclear how this measure addresses DOD’s progress in implementing the portions of the plan related to these two requirements, and how the performance measures and the department’s efforts align with and address congressional requirements. According to prior GAO work, performance measures should align with and indicate progress toward the goals of the organization. Without a clear, effective alignment of DOD’s performance measures with United States Code requirements, the department will not be in the best position to measure and report how it is meeting its congressional requirements. With about a third of DOD’s civilian workforce eligible to retire by 2015— during a time of changing national security threats and challenging fiscal realities—it is imperative that decision makers in DOD and Congress have access to complete and timely information on the skills, competencies, and any associated gaps within DOD’s civilian workforce. However, because the office responsible for developing the plan did not provide sufficiently detailed guidance to the managers who were responsible for providing key data, the information in the current plan on skills and competencies varies significantly. Further, while DOD officials have stated that they do not have the necessary tools in place to conduct gap analyses across the board, the department has not reported the results of any gap analyses that it has conducted nor provided reporting timeframes for conducting remaining gap analyses; this situation diminishes the plan’s utility as a workforce planning document. To the extent that DOD provided data in 2012, the data was based on information from 2010, which further limits this document’s use for planning purposes. When the reports use dated information, decision makers do not have relevant information for managing the critical needs of the federal workforce. Further, DOD did not collect all required information for its 2010-2018 strategic workforce plans, including the number or percentage of military, civilian, and contractor personnel and the capabilities for those three workforces. Without revised guidance specifying the need to collect all information required for a complete assessment to determine the appropriate mix of the three workforces, DOD will have difficulty in determining if its civilian workforce is properly sized to carry out essential missions. Finally, where DOD has identified performance measures and indicated progress toward the goals of the strategic plan, those measures are not, in all cases, aligned with DOD’s congressionally mandated reporting requirements; also, the measures do not provide detail about how DOD plans to meet those requirements, making it difficult for DOD to demonstrate progress. To meet the congressional requirement to conduct assessments of critical skills, competencies, and gaps for both existing and future civilian workforces, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Personnel and Readiness to include in the guidance that it disseminates for developing future strategic workforce plans clearly defined terms and processes for conducting these assessments. To help ensure that Congress has the necessary information to provide effective oversight over DOD’s civilian workforce, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Personnel and Readiness to conduct competency gap analyses for DOD’s mission- critical occupations and report the results. When managers cannot conduct such analyses, we recommend that DOD report a timeline in the strategic workforce plan for providing these assessments. To help ensure that the data presented in DOD’s strategic workforce plans are current and timely, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Personnel and Readiness to establish and adhere to timelines that will ensure issuance of future strategic workforce plans in accordance with statutory timeframes. To enhance the information that DOD provides Congress in its strategic workforce plan, we recommend that the Secretary of Defense direct the Under Secretary of Defense for Personnel and Readiness to provide guidance for developing future strategic workforce plans that clearly directs the functional communities to collect information that identifies not only the number or percentage of personnel in its military, civilian, and contractor workforces but also the capabilities of the appropriate mix of those three workforces. To better develop and submit future DOD strategic workforce plans, we recommend that the Secretary of Defense direct the Office of the Under Secretary of Defense for Personnel and Readiness to enhance the department’s results-oriented performance measures by revising existing measures or developing additional measures that will more clearly align with DOD’s efforts to monitor progress in meeting the strategic workforce planning requirements in section 115b of Title 10 of the United States Code. In written comments on a draft of this report, DOD concurred with our first recommendation and partially concurred with the remaining four recommendations. DOD comments are reprinted in appendix II. While DOD acknowledged that we had conducted a thorough review and assessment of DOD’s Fiscal Year 2010-2018 Strategic Workforce Plan for, DOD also expressed its disappointment that we did not appear to give the department credit for the major progress that it has made, including actions to reframe its planning progress from the current state to a comprehensive future state by 2015. Further, DOD stated that the overall negative tone – in its opinion – overshadowed the monumental efforts of the department. We disagree. The objectives in our final report are consistent with the objectives we presented to DOD when we first notified the department of our review at the beginning of this engagement, and we did provide positive examples where DOD had responded to congressional direction, especially as those actions related to our report’s objectives. For example, we state clearly in our report, among other things, that DOD assessed to varying degrees the existing and future critical skills and competencies for all but one of its mission-critical occupations. This has been a longstanding issue and represents progress. Further, we reported that DOD developed performance measures to assess progress in implementing its workforce plan. This was a new reporting requirement for DOD, and we reported that DOD had been responsive to this requirement. DOD also asserted that our recommendations simply restate areas for improvement that the department already identified in its plan, and which have already been implemented since the plan was published. We note, however, that these issues are not new. We first reported on DOD’s strategic workforce planning for its civilian workforce in 2004. Subsequently, Congress mandated that DOD develop and submit civilian workforce strategic plans to the congressional defense committees, and that we conduct our own independent assessment of those plans. We have previously conducted 3 reviews of DOD’s plans since 2008 and our work has reported mixed results. We recommended in 2008, for example, that DOD address all of its statutory reporting requirements, and note that DOD did not concur with this recommendation. (In 2010, we reported that DOD’s civilian workforce plan addressed 5 and partially addressed 9 of DOD’s 14 legislative requirements.) In 2009, we recommended, among other things, that DOD develop a performance plan that includes establishing implementation goals and timeframes, measuring performance, and aligning activities with resources. DOD partially concurred with these recommendations. Given the response by DOD to our previous reports and recommendations on these issues, we have reviewed the recommendations that we present in this report and continue to believe that corrective action is needed. DOD concurred with our first recommendation to include in guidance that it disseminates for developing future workforce plans clearly defined terms and processes for conducting these assessments. DOD stated in its agency comments, among other things, that it has already provided numerous governance and policy documents, and more, to assist key stakeholders in meeting strategic workforce plan reporting requirements. We make similar statements in our report. DOD also stated in its agency comments, however, that the department strives for continuous improvement and has already provided additional guidance for the next planning cycle, for this reason they believe no additional direction from the Secretary of Defense is needed. We do not disagree that DOD strives for continuous improvement. However, during the course of our audit work, we found, as we state in our report, that functional community managers interpreted questions in DOD’s guiding template differently and developed different understandings of key terms. Therefore, we continue to believe that this recommendation will enhance the development of DOD’s next strategic workforce plan. DOD partially concurred with our second recommendation that DOD conduct gap analyses for DOD’s mission-critical occupations and report on the results, and, when managers cannot conduct such analyses, report a timeline for providing these assessments. DOD also stated its belief that no additional direction from the Secretary of Defense is needed with regard to this recommendation. In its agency comments, DOD stated that the department focused on the identification of critical skill gaps based on staffing levels in its mission-critical occupations. We agree that DOD’s plan includes these data. However, we reported that DOD is required to include an assessment of competency gaps in its existing and future civilian employee workforces, and that our analyses found that DOD’s functional community managers reported conducting gap assessments for only 8 of DOD’s 22 mission-critical occupations. Therefore we continue to believe that DOD needs to conduct these analyses and, for clarity, we added references to competency gap analyses in our finding and recommendation, as appropriate. DOD stated in its agency comments that competency gaps will be assessed in the future. DOD also partially concurred with our third recommendation that DOD establish and adhere to timelines that will ensure issuance of future strategic workforce plans in accordance with statutory timeframes but, similarly to its other responses, added that no additional direction is needed from the Secretary of Defense at this time. In its comments, DOD stated that the department does have an established planning process and timeline, and that this established process aligns with the budget cycle and takes about a year to complete because of the size and complexity of the department. DOD added that the planning cycle timeline is flexible enough to allow for significant events, among other things, and provided a notional strategic workforce plan timeline as an attachment to its agency comments. However, we continue to believe it is key that DOD take steps to adhere to the timelines it establishes to meet congressional reporting requirements and enhance the utility of its future reports. As we note in our report, DOD has issued all of its strategic workforce plans late since 2007. Regarding our fourth recommendation, DOD also partially concurred that DOD provide guidance for developing future workforce plans that clearly directs the functional communities to collect information that identifies not only the number or percentage of personnel in its military, civilian, and contractor workforces but also the capabilities of the appropriate mix of those three workforces. While DOD agreed that additional improvements are necessary, the department again stated that it did not believe additional direction is necessary from the Secretary of Defense. In its comments, DOD stated that is preparing to pilot a capabilities-based approach to assess civilian and military workforce and contract support. We continue to note DOD’s existing requirement to conduct an assessment of the appropriate mix of military, civilian, and contractor personnel capabilities, and we look forward to seeing the results of DOD’s pilot program. Finally, DOD also partially concurred with our fifth recommendation that the department enhance its results-oriented performance measures by revising existing measures or developing additional measures that will more clearly align with DOD’s efforts to monitor progress in meeting the strategic workforce planning requirements contained in statute. However, again, DOD did not believe any additional direction from the Secretary of Defense was needed. In its response, DOD stated that the measures in the fiscal year 2010-2018 strategic workforce plan do assess progress both in implementing the strategic workforce plan and in meeting the statutory requirements and, as an attachment to its comments, provided a matrix—that it developed in response to our draft report—to show linkages between the two. Based on the matrix, we agree with DOD’s assertion that some alignment does exist between the performance measures and the statutory criteria. However, the justification that DOD provided in its matrix for demonstrating these linkages is not always clear. Further, DOD did not include this analysis in its plan. We did not state in our report that the performance measures that DOD developed were inappropriate in some way. However, our analysis did find that DOD continues to struggle to meet its statutory reporting requirements. Therefore, we continue to believe that DOD can enhance its performance measures by more clearly aligning them to those requirements. We are sending copies of this report to the Secretary of Defense, the Under Secretary of Defense for Personnel and Readiness, and appropriate congressional committees. In addition, this report will also be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions regarding this report, please contact me at (202) 512-3604 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. For all three objectives, we evaluated DOD’s 2010-2018 Strategic Workforce Plan and supporting documentation. We also interviewed Department of Defense (DOD) officials responsible for developing the Strategic Workforce Plan. These include officials from the Strategic Human Capital Planning Office and the Defense Civilian Personnel Advisory Service within the Office of the Under Secretary of Defense for Personnel and Readiness, the Office of the Under Secretary of Defense for Intelligence, and the military departments. We also met with functional community managers in the information technology, financial management, logistics, and law enforcement communities to determine how each of these communities conducted their strategic workforce planning and how coordination occurred between the various levels of DOD. We selected these four functional communities because they represent three of the largest and one of the smallest functional communities included in the plan. Further, DOD business-systems modernization (information technology), financial management, and DOD supply-chain management (logistics) are on GAO’s High-Risk list. To aid in all aspects of our review, we also met with Office of Personnel Management (OPM) officials to identify relevant policy or guidance to federal agencies. Finally, we found the data contained in DOD’s 2010- 2018 plan to be sufficiently reliable for purposes of assessing efforts in developing and producing civilian strategic workforce plans and providing context of these efforts. To determine the extent to which DOD assessed existing and future critical skills, competencies, and gaps in its civilian workforce, we reviewed information and data contained in DOD’s 2010-2018 strategic workforce plan to identify which of the functional communities completed these assessments, the methods and tools that the functional communities used to conduct the assessments, and the extent to which the functional communities reported the results of their assessments. We obtained and reviewed existing DOD guidance, including guidance related to any automated systems the department may use to facilitate these assessments. We also obtained and reviewed OPM guidance on conducting assessments of the skills, competencies, and gaps of the federal civilian workforces. This included a review of documents to ascertain how DOD used OPM’s Workforce Analysis Support System and Civilian Forecasting System to develop the department’s civilian- workforce forecasts and projections. Finally, to evaluate the timeliness of DOD’s submissions of its strategic workforce plans, we reviewed GAO’s prior work on DOD’s previous plans as well as our work on internal control standards. To determine the extent to which DOD assessed its workforces to identify the appropriate mix of military, civilian, and contractor personnel capabilities, we reviewed information and data contained in DOD’s 2010- 2018 strategic workforce plan to identify which functional communities assessed their workforce mix and the process those communities used to carry out their assessments. We also analyzed DOD’s plan to determine the extent to which the plan included an evaluation of the specific capabilities of military, civilian, and contractor personnel. Additionally, we obtained and reviewed DOD guidance on conducting assessments of the appropriateness of the mix of workforces in the federal government. To determine the extent to which DOD assessed its progress in implementing its strategic workforce plan by using results-oriented performance measures, we reviewed DOD’s 2010-2018 strategic workforce plan to identify the performance measures DOD chose to assess its implementation of its plan. We also obtained and reviewed DOD and OPM guidance on using results-oriented performance measures and then evaluated DOD’s efforts to apply such guidance. We evaluated DOD’s results-oriented performance measures and compared them to the statutory requirements for the plan as identified in the section 115b of Title 10 of the United States Code to determine the extent to which the measures developed addressed the requirements. We also evaluated the performance measures using best practices identified in our previous work to determine their validity and appropriateness. We conducted this performance audit from July 2011 to September 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Brenda S. Farrell, (202) 512-3604 or [email protected]. In addition to the individual named above, Marion Gatling, Assistant Director; David Moser, Assistant Director; Jerome Brown; Julie Corwin; Brian Pegram; Richard Powelson, Courtney Reid; Terry L. Richardson; Norris Smith; Jennifer Weber; and Michael Willems made key contributions to this report. Human Capital: Complete Information and More Analysis Needed to Enhance DOD’s Civilian Senior Leader Strategic Workforce Plan. GAO-12-990R. Washington, D.C.: September 19, 2012. DOD Civilian Workforce: Observations on DOD’s Efforts to Plan for Civilian Workforce Requirements. GAO-12-962T. Washington, D.C.: July 26, 2012. Defense Acquisition Workforce: Improved Processes, Guidance, and Planning Needed to Enhance Use of Workforce Funds. GAO-12-747R. Washington, D.C.: June 20, 2012. Defense Acquisitions: Further Actions Needed to Improve Accountability for DOD’s Inventory of Contracted Services. GAO-12-357. Washington, D.C.: April 6, 2012. Defense Workforce: DOD Needs to Better Oversee In-sourcing Data and Align In-sourcing Efforts with Strategic Workforce Plans. GAO-12-319. Washington, D.C.: February 9, 2012. DOD Civilian Personnel: Competency Gap Analyses and Other Actions Needed to Enhance DOD’s Strategic Workforce Plans. GAO-11-827T. Washington, D.C.: July 14, 2011. High-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 16, 2011. Human Capital: Opportunities Exist for DOD to Enhance Its Approach for Determining Civilian Senior Leader Workforce Needs. GAO-11-136. Washington, D.C.: November 4, 2010. Human Capital: Further Actions Needed to Enhance DOD’s Civilian Strategic Workforce Plan. GAO-10-814R. Washington, D.C.: September 27, 2010. Human Capital: Opportunities Exist to Build on Recent Progress to Strengthen DOD’s Civilian Human Capital Strategic Plan. GAO-09-235. Washington, D.C.: February 10, 2009. Human Capital: The Department of Defense’s Civilian Human Capital Strategic Plan Does Not Meet Most Statutory Requirements. GAO-08-439R. Washington, D.C.: February 6, 2008. DOD Civilian Personnel: Comprehensive Strategic Workforce Plans Needed. GAO-04-753. Washington, D.C.: June 30, 2004. Human Capital: Key Principles for Effective Strategic Workforce Planning. GAO-04-39. Washington, D.C.: December 11, 2003. Human Capital: Strategic Approach Should Guide DOD Civilian Workforce Management. GAO/T-GGD/NSIAD-00-120. Washington, D.C.: March 9, 2000.

As of June 2012, DOD reported a full-time civilian workforce of about 780,000 personnel. According to DOD, about 30 percent of its civilian workforce and 60 percent of its civilian senior leaders will be eligible to retire by March 31, 2015. Such potential loss may result in significant skill gaps. The National Defense Authorization Act for Fiscal Year 2010 requires GAO to submit a report on DOD's 2010-2018 strategic civilian workforce plan. In response, GAO determined the extent to which DOD identified critical skills, competencies, and gaps; assessed its workforce mix; and measured progress in implementing its strategic workforce plan. GAO analyzed DOD's strategic workforce plan and supporting documents, and met with managers of four functional communities within the civilian personnel community (information technology, financial management, logistics, and law enforcement), because they represent the three largest and the one smallest of the functional communities, to determine how they conducted their strategic workforce planning. Over the last decade, Congress has passed legislation requiring the Department of Defense (DOD) to conduct human capital planning efforts for the department's civilian workforce. Specifically, section 115b of Title 10 of the United States Code, enacted in October 2009, requires DOD to develop and submit to congressional defense committees a strategic workforce plan to shape and improve the department's civilian workforce. Among other things, the law requires DOD to report on the mission-critical skills, competencies, and gaps in its existing and future civilian workforces; the appropriate mix of military, civilian, and contractor personnel capabilities; and the department's progress in implementing its strategic workforce plan using results-oriented performance measures. While DOD has addressed some of its reporting requirements to some extent, it has not addressed others. DOD, to varying degrees, assessed the existing and future critical skills and competencies for 21 of the 22 occupations that it has identified as mission critical, but conducted competency gap assessments only for 8 of these 22 occupations. In some but not all cases, DOD provided details about skills and competencies. However, it did not report the results of any of its gap analyses for its mission-critical occupations. DOD did not assess the appropriate mix of military, civilian, and contractor workforces or provide an assessment of the capabilities of each of these workforces. Only two of the civilian community managers who provided input presented data on all three workforces. The remaining nine community managers provided data only on military and civilian personnel. DOD guidance requires, among other things, that DOD missions be accomplished with the least costly mix of military, civilian, and contractor personnel, consistent with military requirements and other needs of the department. DOD assessed progress in implementing its strategic workforce plan by using newly developed measures that contain characteristics of valid results-oriented performance measures, but these measures are not aligned with DOD's statutory reporting requirements. For example, although DOD is required to conduct gap analyses and assess its workforce mix, it is unclear how the measures that DOD developed will help to address these requirements. The input to DOD's strategic workforce plan on critical skills and competencies varied, in part, because the reporting template that DOD sent to its civilian personnel community managers did not contain sufficient detail and clear definitions. Also, the template did not provide departmental expectations for conducting gap analyses or communicate clear guidance for reporting on workforce mix assessments. Without sufficiently detailed guidance to help ensure complete reporting, input into future plans will continue to vary and the plan's usefulness as a workforce planning document will be diminished. Further, in those cases where DOD's performance measures are not aligned with its congressionally mandated reporting requirements, it is difficult for DOD to demonstrate progress against those requirements. GAO recommendations include that DOD issue clearer guidance for assessing its skills and competencies, conduct and report on gap analysis of mission-critical occupations, clarify its guidance for assessing workforce mix issues, and enhance its performance measures to align with congressionally mandated reporting requirements. DOD concurred or partially concurred with GAO's recommendations. While DOD raised some issues about the need for further actions, GAO continues to believe that DOD's workforce planning could be enhanced.

You are an expert at summarizing long articles. Proceed to summarize the following text: One of FHA’s primary goals is to assist those households that are unable to meet the requirements of the private market for mortgages and mortgage insurance or that live in underserved areas where mortgages may be harder to obtain. In doing so, FHA applies more flexible underwriting standards than the private market generally allows. Borrowers seeking FHA-insured loans may make smaller down payments (as a percentage of the purchase price) than the private market requires and may also include in the amount they borrow most costs associated with closing the loan, rather than using cash for those expenses, as private lenders generally require. FHA is required by statute to set limits on the dollar amount of individual loans it will insure. These limits are based, in part, on local median home prices. The Finance Board surveys major mortgage lenders each month, collecting information on the terms and conditions (including the sales prices of homes) of conventional single-family home loans closed during the last 5 business days of the month. The Finance Board may not require that lenders participate in its survey. Those doing so participate voluntarily. Fannie Mae and Freddie Mac, both government-sponsored enterprises, are parts of the secondary mortgage market, through which many single-family home mortgages are ultimately sold. Federal law requires that Fannie Mae and Freddie Mac use information from the Finance Board’s survey on the year-to-year change in house prices to annually adjust the conforming loan limit (currently $240,000), which is a legislative restriction on the size of any individual loan that either may buy. FHA also uses information from the Finance Board to set limits on the dollar value of loans it will insure, which are based on the conforming loan limit and median home prices. That is, FHA sets an area’s loan limit at the greater of 48 percent of the conforming loan limit or 95 percent of the median home sales price for the area, but no greater than 87 percent of the conforming loan limit. Consequently, FHA loan limits vary depending on the location of the home and the median home sales price there but are no lower than $115,200 and no higher than $208,800—48 percent and 87 percent, respectively, of the conforming loan limit. FHA is not required by statute to use a particular source of information on home prices to determine the median price of homes in an area and, consequently, the loan limit for the area. However, FHA has chosen to use the Finance Board survey for this purpose. FHA relies heavily on the survey to measure median home sales prices because it is the most comprehensive source of published house price data readily available to the agency. The Office of Federal Housing Enterprise Oversight (OFHEO) also collects information on home sales. Specifically, both Fannie Mae and Freddie Mac provide data to OFHEO on all of the mortgages they purchase in order for OFHEO to construct a house price index. OFHEO uses the house price index to account for changes in the values of the homes securing the mortgages that the enterprises have purchased and their potential impact on credit risk. By definition, the index includes only conforming loans—those with values less than the conforming loan limit—because neither enterprise may purchase loans that exceed the conforming loan limit. In addition, the index excludes all government-insured loans. In 1997, Fannie Mae and Freddie Mac purchased 37 percent of all conventional loans originated that year for single-family homes. In about two-thirds of the 42 metropolitan areas we reviewed, no substantive difference existed in the 1997 median house prices calculated with Finance Board and OFHEO data. As figure 1 shows, in 27 of these areas, the difference between the higher and lower estimates of median prices according to the two sets of data was 5 percent or less. In an additional 10 areas, the two agencies’ estimates were within 10 percent of each other. For the 15 areas where the two estimates differed by more than 5 percent, the Finance Board estimated a higher median home sales price than OFHEO in 10 areas, while OFHEO estimated a higher median in 5 areas. Less than or equal to 5% (27 areas) Because one basis for measuring the median price—the Finance Board’s data—does not result in a substantively different price than another—OFHEO’s data—for about two-thirds of the areas we reviewed, FHA loan limits in those areas would be similar using either source of data. The median price determines whether FHA sets its loan limit at a percentage of the conforming limit or at 95 percent of the median home price. The Finance Board’s data were a reasonable measure of an area’s median home sales price (for homes with conventional financing), according to officials at the Finance Board, Fannie Mae, and Freddie Mac. As support for this position, they cited the similarity in the median prices that the Finance Board and OFHEO calculated in about two-thirds of the areas we reviewed. Given the differences in the nature of the data the Finance Board collects through a survey of lenders versus OFHEO’s data, which represent all the conforming loans Fannie Mae and Freddie Mac purchased, these officials stated that they viewed each data set as supportive of the other. Regardless of the similarities and differences in the median home prices derived from these two sources, the different methods by which the Finance Board and OFHEO collect home price data could explain some variation between them. For example, while the Finance Board survey is intended to estimate house prices at the national level, estimates at the local level are likely to be less representative of all non-government-insured home sales for that area. These officials added that there would be even fewer differences between the two if we analyzed trends in median price data over a number of years. The Finance Board’s survey included some higher-priced homes that would not be reflected in OFHEO’s data, sometimes resulting in a higher calculated median price than OFHEO’s data reflected. In fact, in 26 of the areas we reviewed, the Finance Board data showed higher median home sales prices than did the OFHEO data. According to officials from Fannie Mae and Freddie Mac, including these jumbo loans is the primary reason for that difference. Specifically, the Finance Board’s data included purchase prices up to $750,000 and loan amounts up to $500,000.Conversely, OFHEO’s data excluded all jumbo loans because they exceed the conforming loan limit ($214,600 in 1997), meaning neither Fannie Mae nor Freddie Mac could have purchased them. Supplementing the Finance Board’s or OFHEO’s data with information on prices of homes financed with government-insured mortgages reduces the estimates of median prices across the board and within all of the metropolitan areas we reviewed. Homes financed with government-insured mortgages typically cost less than homes financed with conventional mortgages, but the Finance Board and OFHEO (with few exceptions) collect data only on homes financed with conventional mortgages. Hence, including data on government-insured mortgages in the calculation for a given area results in a lower median price of homes. As table 1 shows, the effect of adding data on homes with government-insured mortgages to the Finance Board’s and OFHEO’s median price estimates is not uniform across all of the metropolitan areas; that is, it does not reduce the median in each area by the same amount. When we added data on homes with government-insured loans to the Finance Board’s data, median prices in individual metropolitan areas were 2 to 30 percent lower. When we added these data to OFHEO’s data, median prices were 6 to 31 percent lower. The effect that including government-insured loans has on the estimated median price of homes in any given area depends on how much government-insured lending (relative to all other types of lending) was taking place in that area. Where government-insured lending was a relatively higher percentage of home loans, median prices decreased by a greater degree than the decrease for the 42 areas taken as a whole. Conversely, where there was relatively less government-insured lending in any given area, median prices also decreased—but to a lesser degree than in metropolitan areas with more government-insured lending. FHA is exploring additional data sources to supplement the Finance Board’s data and to improve its own measurement of median house prices. In part, this is in recognition of the importance and value of timely and comprehensive data on house prices at the local level for its own purposes as well as larger, research-oriented uses. Also, recent legislative changes have made it more important for FHA to have accurate local-area measures of house prices on which to base loan limits. However, FHA has found no source that systematically collects house price data on an ongoing basis in all of the areas—metropolitan areas and counties—for which FHA must set loan limits. As a result, FHA has stepped up its efforts to determine the availability of, and any limitations associated with, additional data sources on home prices. FHA’s most pressing reason for developing additional data sources is a provision in recent legislation mandating that the highest loan limit of any county within a metropolitan area must apply to loans insured in all the counties in that area. To implement this provision as part of a recent comprehensive update of all FHA loan limits, FHA supplemented its primary data source, the Finance Board survey, with data from the National Association of Realtors and a private marketing firm that collects and sells data from real estate transaction records. To a limited extent, FHA also had its field staff work with local interested parties, such as realtors’ associations, to gather sufficient recent data on which to base an estimate of an area’s median house price. Nonetheless, FHA officials told us that for over half of those areas whose loan limits were not automatically indexed to the conforming loan limit, the Finance Board’s survey was their primary source of median house price data. FHA’s goal is to comprehensively update all of its loan limits annually and, in doing so, to make use of additional data sources to broaden the extent to which its estimates of median house prices cover more of the housing market. To do so, FHA recently initiated preliminary discussions with OFHEO about making use of its data (similar to the data OFHEO provided to us) in its next comprehensive update. In addition, FHA is considering obtaining data on jumbo loans as well as other loans that Fannie Mae and Freddie Mac have not purchased. FHA has no specific timetable for including such data, in large part because the sources of the data on some of these loans do not include information on house sales prices, which makes using the data much more methodologically complex and time-consuming than using a database such as OFHEO’s. FHA has substantial discretion in choosing the source of median house price data it will use to set loan limits because, unlike the conforming loan limit, there is no statutory requirement for it to use a specific data source. Lacking a nationwide source of data that systematically collects comprehensive house price information in each and every area where FHA must set loan limits, the agency is left with the challenge of assembling the best data available to it. At present, its use of the Finance Board’s survey appears reasonable given that the only more comprehensive source of data that we found—HUD’s Office of Federal Housing Enterprise Oversight—usually yielded a similar median price. Nonetheless, while both the Finance Board and OFHEO offer measures of median prices that capture one particular segment of the housing market—homes with conventional financing—neither covers all of the housing market. As a result, FHA’s efforts to broaden its coverage of the housing market will be guided by a need to identify what its data sources are not capturing and a need to consider the implications for its loan limits and potential FHA borrowers of using any new data sources. We provided a draft of this report to the Department of Housing and Urban Development (HUD), the Federal Housing Finance Board (the Finance Board), the Office of Federal Housing Enterprise Oversight, the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation for their review and comment. HUD agreed that the Finance Board’s survey is a reasonable source of home sales price data even though neither the survey nor the Office of Federal Housing Enterprise Oversight’s information on home sales covers the entire housing market. HUD commented that the report effectively describes the practices and resources it used to set FHA loan limits and identifies the data collection obstacles associated with this activity. HUD also provided technical corrections to the report, which we have incorporated. HUD’s comments are included as appendix II of this report. The Finance Board agreed that our analysis indicates its survey is a reasonable measure of 1997 home sales prices in the areas we reviewed. However, the Finance Board also commented that because its data come from a voluntary sample of mortgage lenders, it cannot ensure that its sample size in individual metropolitan areas or counties is large enough to provide statistically reliable results. The Finance Board stated that if the Congress wants HUD to use the survey, it should provide the Finance Board with the authority to require lenders to participate in the survey. We have reported in the past that users of the Finance Board’s data suggested the sample size would need to be expanded to make the data more reliable for measuring local housing prices. We have revised our description of the Finance Board’s survey to clarify that lenders participate in it voluntarily. The Finance Board’s comments are included as appendix III of this report. The Office of Federal Housing Enterprise Oversight provided technical corrections and clarifications to the report, which we have incorporated as appropriate. The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation also commented on the draft report. Both stated that they consider the data they provide the Office of Federal Housing Enterprise Oversight to be proprietary and confidential. We agreed to add this information to the report. The Federal Home Loan Mortgage Corporation also provided technical corrections to the report, which we have incorporated as appropriate. Our review covered homes sold in selected metropolitan areas in calendar year 1997 (1) for which FHA insured or the Department of Veterans Affairs guaranteed the mortgages on the homes; (2) about which the lenders issuing the mortgages for the homes reported data on the loans in the Federal Housing Finance Board’s monthly interest rate survey; or (3) that had mortgages that Fannie Mae or Freddie Mac subsequently purchased, reporting data on those loans to OFHEO. For this analysis, we focused on the 42 metropolitan statistical areas (MSA) for which the Finance Board publicly reports data annually. By definition, MSAs have at least one city with 50,000 inhabitants or are urbanized areas with a total metropolitan population of at least 100,000. Most MSAs consist of more than one county. For the 42 areas, we obtained (1) from FHA and the Department of Veterans Affairs, data on the median price of all of the homes sold for which the federal government insured or guaranteed the mortgages and (2) from the Finance Board, the median purchase price of all the homes sold whose mortgages were reflected in the Board’s monthly interest rate survey. Using data on loan amounts and loan-to-value ratios, OFHEO calculated and provided to us an estimate of the median price of all homes sold in these areas that had mortgages that were subsequently purchased by Fannie Mae or Freddie Mac. For this calculation, OFHEO used the data Fannie Mae and Freddie Mac provide it for the calculation of its house price index (unlike OFHEO’s house price index, the data it provided us for this review are not publicly released). We then compared the median purchase prices according to these sources of data. Because homes financed with government-insured loans are typically lower priced and neither the Finance Board nor OFHEO includes data on government-insured mortgages, we also calculated median purchase prices that included data from FHA and the Department of Veterans Affairs with the data from OFHEO and the Finance Board. Throughout our review, we discussed issues related to data sources for measuring house price changes with officials from FHA, OFHEO, HUD’s Office of Policy Development and Research, the Finance Board, Fannie Mae, and Freddie Mac. We also supplemented this information by discussing these issues with officials of private organizations having an interest or expertise in this area, including the National Association of Homebuilders and the Mortgage Insurance Companies of America. We also discussed the results of our analysis comparing median prices from the various sources with officials from the agencies that provided these data. We did not directly assess the reliability of the data we obtained from FHA, the Department of Veterans Affairs, OFHEO, or the Finance Board. To assure ourselves that each data set was sufficiently reliable for our purposes, we reviewed the procedures each agency had in place to ensure its data are reliable and accurate. We conducted our review from July 1998 through March 1999 in accordance with generally accepted government auditing standards. We are sending copies of this report to the appropriate congressional committees; the Honorable Andrew Cuomo, Secretary of Housing and Urban Development; the Honorable Bruce A. Morrison, Chairman of the Federal Housing Finance Board; the Honorable Mark Kinsey, Acting Director of the Office of Federal Housing Enterprise Oversight; the Honorable Franklin D. Raines, Chairman and Chief Executive Officer of Fannie Mae; the Honorable Leland C. Brendsel, Chairman and Chief Executive Officer of Freddie Mac; and the Honorable Jacob J. Lew, Director of the Office of Management and Budget. We will make copies available to others upon request. Please call me at (202) 512-7631 if you or your staff have any questions about the material in this report. Major contributors to this report are listed in appendix IV. Judy A. England-Joseph DuEwa A. Kamara Bill MacBlane Mathew Scire The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO provided information on housing prices from sources other than the Federal Housing Finance Board, focusing on: (1) comparing data on house prices from the Finance Board with data the Department of Housing and Urban Development's Office of Federal Housing Enterprise Oversight (OFHEO) collects to measure house price changes; (2) views of officials of the agencies involved on the results of this analysis; (3) the effect on median prices of supplementing the Finance Board's and OFHEO's data with information each does not already include on lower-priced homes with government-insured mortgages; and (4) the Federal Housing Administration's (FHA) recent efforts to explore alternative sources of data for measuring median home prices. GAO noted that: (1) the Finance Board and OFHEO's estimates of 1997 median home sales prices were similar in about two-thirds of the metropolitan areas GAO reviewed; (2) in 27 of the 42 areas, the two agencies' estimates were within 5 percent of each other; (3) loan limits based on either set of data would be similar in these areas; (4) for the remaining 15 areas GAO reviewed, the Finance Board estimated a higher median home sales price in 10 of the areas, while OFHEO's estimate was higher in 5 areas; (5) officials familiar with these data cited the low number of substantive differences in GAO's analysis as an indicator of the validity of the Finance Board's data; (6) because no substantive difference existed between the two sets of data in about two-thirds of the areas GAO reviewed, the officials indicated the Finance Board's data are a reasonable measure of an area's median sales price for homes without government-insured financing; (7) in those areas for which substantive differences did exist, officials from the different agencies involved agreed the reason was that the Finance Board includes larger loans, and thus higher home purchase prices, in its survey than does OFHEO; (8) the Finance Board's 1997 data include loan amounts up to $500,000 and house purchase prices up to $750,000; (9) OFHEO's data for 1997 included no loans greater than $214,600; (10) these officials also cited normal variations associated with surveys and statistical sampling as a reason for some differences between the two sets of data; (11) supplementing the data from either the Finance Board or the OFHEO with data on homes financed with government-insured loans would lower the estimated median home sales price in any given area by 2 to 31 percent; (12) the purchase prices of homes financed with mortgages insured by FHA and the Department of Veterans Affairs are, on average, lower than those of homes bought with privately insured financing; (13) these lower prices result from the limits on the size of individual loans FHA may insure and because government-insured financing tends to be focused on first-time homebuyers; (14) FHA is engaged in an effort to use additional sources of data; (15) FHA relies heavily on the Finance Board's survey for the data it needs to set its loan limits, but to a limited extent it has also supplemented that survey with data its field offices gather on local home sales prices; and (16) FHA is considering using data on loans that neither the Federal National Mortgage Association nor the Federal Home Loan Mortgage Corporation has purchased.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Davis-Bacon Act requires workers on federal construction projects valued in excess of $2,000 to be paid, at a minimum, wages and fringe benefits that the Secretary of Labor determines to be prevailing for corresponding classes of workers in the locality where the contract is to be performed. The act covers every contract to which the United States or the District of Columbia is a party for construction, alteration, or repair of public buildings or public works. Labor’s Wage and Hour Division (WHD), within Labor’s Employment Standards Administration (ESA), has responsibility for administering the Davis-Bacon Act. Approximately 50 staff in the Washington, D.C., headquarters and in six regional offices are involved in the wage determination process. Two other Labor offices are sometimes involved in the administration of Davis-Bacon: Labor’s Administrative Review Board hears appeals of prevailing wage determinations, and the Office of the Solicitor provides legal advice and assistance to Labor personnel relative to the act and represents WHD in Davis-Bacon wage determination cases before the Administrative Review Board. also improved Labor’s ability to administer the wage determination process. Despite these changes, however, we reported in 1994 that data verification problems still existed. In setting prevailing wages, Labor’s task is to determine and issue prevailing wage rates in a wide range of job classifications in each of four types of construction (building, residential, heavy, and highway) in more than 3,000 counties or groups of counties. It also needs to update these wage determinations frequently enough that they continue to represent the prevailing wages. Labor’s process for determining the wage rates is based primarily on a survey of the wages and fringe benefits paid to workers in similar job classifications on comparable construction projects in the particular area. This information is submitted voluntarily by employers and third parties. Labor encourages the submission of wage information from all employers and third parties, including employee unions and industry associations that are not directly involved with the surveyed projects. Although an individual wage survey typically covers only one kind of construction, most surveys gather information on projects in more than one county. In fiscal year 1995, Labor completed 104 survey efforts resulting in wage determinations for over 400 counties. The wage determination process consists of four basic stages: planning and scheduling surveys, conducting the surveys, clarifying and analyzing respondents’ wage data, and issuing the wage determinations. In addition, any employer or interested party who wishes to contest or appeal Labor’s final wage determination can do so. counties for which the wage determination should be conducted and determines what construction projects will be surveyed. The work of conducting the surveys and clarifying and analyzing the data is done by about 30 staff distributed among six regional offices. The survey is distributed to the participant population, which includes the general contractor for each construction project identified as comparable and within the survey’s geographic area. In surveying the general contractors, Labor requests information on subcontractors to solicit their participation. Labor also surveys interested third parties, such as local unions and construction industry associations that are located or active in the survey area. Once the data submissions are returned, the analysts review and analyze the returned survey forms. They follow up with the employer or third parties to clarify any information that seems inaccurate or confusing. The analysts then use this information to create computer-generated recommended prevailing wages for key construction job classifications. The recommended prevailing wages are reviewed and approved by Labor’s National Office in Washington, D.C. Labor publishes the final wage determinations in printed reports and on its electronic bulletin board. The opportunity to appeal a final wage determination is available to any interested party at any time after the determination is issued. For example, appeals could come from contractors, contractor associations, construction workers, labor unions, or federal, state, or local agencies. Appeals may take the form of informal inquiries resolved at the regional office level or formal requests for reconsideration that are reviewed at the regional office or the National Office and may be appealed to the Administrative Review Board for adjudication. Labor’s wage determination process contains weaknesses that could permit the use of fraudulent or inaccurate data for setting prevailing wage rates. These weaknesses include limitations in the degree to which Labor verifies the accuracy of the survey data it receives, limited computer capability to review wage data before calculating prevailing wage rates, and an appeals process that may not be well publicized to make it accessible to all interested parties. Wage determinations based on erroneous data could result in wages and fringe benefits paid to workers that are higher or lower than the actual prevailing rates. Labor’s regional staff rely primarily on telephone responses from employers or third parties to verify the information received on Labor’s WD-10 wage reporting forms. Regional office staff told us that most of the verification—clarifications concerning accuracy, appropriateness, or inclusion—was done by telephone. Labor’s procedures also do not require and Labor staff rarely request supporting documentation—for example, payroll records—to supplement the information on the forms submitted by employers. Labor officials and staff told us that if an employer insists that the wages reported are accurate, the wage analyst generally accepts that statement. It is because of resource constraints, according to Labor headquarters officials, that verification is limited to telephone contacts without on-site inspections or reviews of employer payroll records to verify wage survey data. In recent years, Labor has reduced the number of staff allocated to Davis-Bacon wage-setting activities. For example, the number of staff in Labor’s regional offices assigned to the Davis-Bacon wage determination process—who have primary responsibility for the wage survey process—decreased from a total of 36 staff in fiscal year 1992 to 27 staff in fiscal year 1995. Labor officials in one region also told us that staff had only received two work-related training courses in the last 6 years. Labor’s regional staff told us that the staff decline has challenged their ability to collect and review wage survey data for accuracy and consistency. Labor’s administration of the Davis-Bacon wage determination process is also hampered by limited computer capabilities. Labor officials reported a lack of both computer software and hardware that could assist wage analysts in their reviews. Instead, they said that analysts must depend on past experience and eyeballing the wage data for accuracy and consistency. For example, Labor offices do not have computer software that could detect grossly inaccurate data reported in Labor’s surveys. Regional staff reported only one computer edit feature in the current system that could eliminate duplicate entry of data received in the wage surveys. As a result, several review functions that could be performed by computers are conducted by visual reviews by one or more wage analysts or supervisory wage analysts in Labor’s regional offices. capabilities, Labor staff told us that they are unable to store historical data on prior wage determinations that would allow wage analysts to compare current with prior recommendations for wage determinations in a given locality. These limitations could be significant given the large number of survey forms received and the frequency of errors on the WD-10 reporting forms. In fiscal year 1995, Labor received wage data on about 75,000 WD-10 wage reporting forms; these were from over 37,000 employers and third parties, some of whom provided information on multiple construction projects. Labor staff reported that submissions with some form of data error were quite common. The frequency of errors could be caused in part by employer confusion in completing the wage reporting forms. Depending on the employer’s size and level of automation, completing the WD-10 reporting forms could be somewhat difficult and time consuming. For example, employers must conduct so-called peak week calculations where they must not only compute the hourly wages paid to each worker who was employed on the particular project in a certain job classification but also do so for the time period when the most workers were employed in each particular job classification. We were told that this can be especially difficult for many smaller, nonunion employers. Although Labor staff reported that wage surveys with data errors are fairly common, agency officials believe that it is very unlikely that erroneous wage data went undetected and were used in the prevailing wage determination. They said that a key responsibility of Labor’s wage analysts is to closely scrutinize the WD-10 wage reporting forms and contact employers as necessary for clarification. Labor officials contended that, over time, this interaction with employers and third parties permitted Labor staff to develop considerable knowledge of and expertise in the construction industry in their geographic areas and to easily detect wage survey data that are inaccurate, incomplete, or inconsistent. Labor’s appeals process could provide an important safeguard against reliance on inaccurate data in that it allows any interested party to question the validity of the determinations. But our review suggests that this mechanism is not understood well enough to serve its purpose. most inquiries on its wage determinations are informal and are generally resolved quickly over the telephone at the regional offices. If an informal inquiry is not resolved to the satisfaction of the interested party, he or she may submit a formal request for reconsideration to either the regional or National Office. A formal request for reconsideration of a wage determination must be in writing and accompanied by a full statement of the interested party’s views and any supporting wage data or other pertinent information. A successful request for reconsideration typically results in Labor modifying an existing determination or conducting a new wage survey. An interested party may appeal an unsuccessful request—that is, one in which he or she is dissatisfied with the decision of the WHD Administrator—to Labor’s Administrative Review Board for adjudication. Labor officials said it is extremely rare for anyone to appeal formal requests for reconsideration of a determination to the Board, reporting that there had been only one such case in the last 5 years. The infrequency of formal appeals to the Board can be interpreted in more than one way. Labor officials interpreted this record to mean that there is little question about the accuracy and fairness of the prevailing wage determinations issued. Alternatively, this could reflect interested parties’ lack of awareness of their rights and the difficulty they face in collecting the evidence necessary to sustain a case. Representatives of construction unions and industry trade associations told us that employers were generally unaware of their rights to appeal Labor’s final wage determinations. Officials with a state Labor Department also told us that, even if an interested party wanted to appeal a wage determination to the National Office and the Administrative Review Board, the effort it takes to independently verify wage data submissions could discourage such an action. They reported that it took a state investigation team a full month to gather information to support the need for Labor to reconsider some wage determinations—and that involved investigating and verifying the information for only three construction projects. A private employer or organization wishing to appeal a determination might experience similar difficulties. Wage determinations based on erroneous data could result in workers being paid higher or lower wages and fringe benefits than those prevailing on federal construction projects. Higher wages and fringe benefits would lead to increased government construction costs. On the other hand, lower wages and fringe benefits would result in construction workers being paid less than is required by law. Although they considered it unlikely, Labor officials acknowledged that, in general, there could be an incentive for third parties, particularly union contractors, to report higher wages than those being paid on a particular construction project. By reporting higher wages, they could influence the prevailing wages in a local area toward the typically higher union rate. The use of inaccurate data could also lead to lower wages for construction workers on federal projects than would otherwise be prevailing. Labor officials acknowledged that an employer in a largely nonunion area who had been paying lower than average wages would have an incentive to “chisel” or report wages and fringe benefits levels somewhat lower than what he or she was actually paying, in an attempt to lower the Davis-Bacon rate. However, officials also said that it is much more likely for some employers to report data selectively in an effort to lower the prevailing wage rate. For example, a contractor may only submit data on those projects where the wages paid were relatively low, ignoring projects where a somewhat higher wage was paid. In addition, the wages required under the Davis-Bacon Act have implications for construction projects other than those specifically covered by the act. Industry association members and officials told us that in several parts of the country, employers, especially nonunion contractors, paid wages on their private projects below the prevailing wage levels specified by the Davis-Bacon Act in their areas. These officials told us that this differential sometimes proved problematic for contractors in retaining their skilled labor force. An official of an employer association told us, for example, that an employer who successfully bid on a Davis-Bacon contract but who typically paid wages below the prevailing rate would be required to pay the workers employed on the new project at the higher Davis-Bacon wage rates. Depending on the local labor market conditions, when the project was completed, these workers typically received their pre-Davis-Bacon, lower wages and fringe benefits on any future work. In such cases, some employees became disgruntled, believing that they were being cheated, and may have suffered lower morale that sometimes led to increased staff turnover. Depending on local labor market conditions, if the employer did not bid on the Davis-Bacon project, he or she could still be affected if the employer’s skilled workers quit to search for work on the new, higher wage federally funded project. Labor has acknowledged the weaknesses of its current wage determination process and it has proposed both short- and long-term initiatives to improve the accuracy of the data used to make prevailing wage determinations. One recent change improves the verification process for data submitted by third parties. In August 1995, Labor began requiring its wage analysts to conduct telephone verifications with the employer on all third-party data that appear to be inaccurate or confusing. In addition, the new policy requires analysts to verify with the employers at least a 10-percent sample of third-party data that appear to be accurate. Labor has also proposed a change that would specifically inform survey respondents of the possible serious consequences of providing false data, since it is a crime under federal law to knowingly submit false data to the government or use the U.S. mail for fraudulent purposes. In February 1996, Labor solicited comments in the Federal Register on its proposal to place a statement on the WD-10 survey reporting form that respondents could be prosecuted if they willfully falsify data in the Davis-Bacon wage surveys. The comment period for this proposal ended in May 1996, and the proposed regulation has now been sent to the Office of Management and Budget. Labor has also proposed a long-term strategy to review the entire Davis-Bacon wage determination process. In late 1995, Labor established an ongoing task group to identify various strategies for improving the process it uses to determine prevailing wages. These continuing discussions have led to the identification of various weaknesses in the wage determination process and steps Labor might take to address them. In its fiscal year 1997 budget request, Labor asked for about $4 million to develop, evaluate, and implement alternative reliable methodologies or procedures that will yield accurate and timely wage determinations at reasonable cost. Approaches that it is considering include alternatives such as use of other existing databases to extrapolate wage data instead of collecting its own survey data. Labor anticipates making a general decision on the overall direction of its strategy for improving its wage determination process by late 1996. inaccurate data. Therefore, we recommended that, while it continues its more long-term evaluation and improvement of the overall wage determination process, it move ahead immediately to improve its verification of wage data submitted by employers. We also recommended that it make the appeals process a more effective internal control to guard against the use of fraudulent or inaccurate data. Specifically, we recommended that Labor improve the accessibility of the appeals process by informing employers, unions, and other interested parties about the process—about their right to request information and about procedures for initiating an appeal. In its response to our draft report, Labor agreed to implement these recommendations. Our review confirmed that vulnerabilities exist in Labor’s current wage determination process that could result in wage determinations based on fraudulent or otherwise inaccurate data. Although we did not determine the extent to which Labor is using inaccurate data in its wage calculations nor the consequences, in terms of wages paid, of such use, we believe that these vulnerabilities are serious and warrant correction. We believe that the process changes we recommended address those vulnerabilities and, if implemented in a timely manner, could increase confidence that the wage rates are based on accurate data. Specifically, Labor needs to move ahead immediately to improve its verification of wage data submitted by employers. We recognize, however, that the wage determinations could be flawed for other reasons. For example, other problems with the survey design and implementation, such as the identification of projects to survey or the response rates obtained, could affect the validity of the determinations. In addition, untimely updating of the wage rates decreases confidence in their appropriateness. Nevertheless, using only accurate data in the wage determination process is, in our view, a minimum requirement for ultimately issuing appropriate wage determinations. Mr. Chairmen, that concludes my prepared statement. At this time, I will be happy to answer any questions you or other members of the Subcommittees may have. For information on this testimony, please call Charles A. Jeszeck, Assistant Director, at (202) 512-7036; or Linda W. Stokes, Evaluator-in-Charge, at (202) 512-7040. 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GAO discussed the vulnerabilities in the Department of Labor's prevailing wage determination process under the Davis-Bacon Act. GAO noted that: (1) Labor sets prevailing wage rates for numerous job classifications in about 3,000 geographic areas; (2) Labor's wage determination process depends on employers' and third parties' voluntary participation in a survey that reports wage and fringe benefits paid for similar jobs on comparable construction projects in a given area; (3) due to limited resources, Labor concentrates on those geographical areas most in need of wage rate revisions; (4) Labor wage determinations can be appealed by any interested party; (5) process weaknesses include limited data verification, limited computer capabilities to detect erroneous data, and the lack of awareness of the appeals process; (6) erroneous data could result in setting the wage rate too low so that construction workers are underpaid or setting the wage rate too high so that the government incurs excessive construction costs; (7) Labor initiatives to improve its rate-setting process include having employers verify certain third-party data, informing survey respondents of the serious consequences of willfully falsifying wage data, and proposing a long-term strategy to review the entire wage determination process; and (8) Labor should immediately improve its verification of employer wage data and make the appeals process more effective.

You are an expert at summarizing long articles. Proceed to summarize the following text: Our survey of the largest sponsors of DB pension plans reveals that they have made a number of revisions to their benefit offerings over approximately the last 10 years or so. Generally, respondents reported that they revised benefit formulas, converted some plans to hybrid plans (such as cash balance plans), or froze some of their plans. For example, 81 percent of responding sponsors reported that they modified the formulas of one or more of their DB plans. Respondents were asked to report changes for plans or benefits that covered only nonbargaining employees, as well as to report on plans or benefits that covered bargaining unit employees. Fifty-eight percent of respondents who reported on plans for collective- bargaining employees indicated they had generally increased the generosity of their DB plan formulas between January 1997 and the time of their response (see app. I, slide 12). In contrast, 48 percent of respondents reporting on plans for their nonbargaining employees had generally decreased the generosity of their DB plan formulas since 1997. “Unpredictability or volatility of DB plan funding requirements” was the key reason cited for having changed the benefit formulas of plans covering nonbargaining employees (see app. I, slide 14). “Global or domestic competitive pressures” in their industry was the key reason cited for the changes to the plans covering collectively bargained employees (see app. I, slide 13). With regard to plans for bargaining employees, however, a number of the sponsors who offered reasons for changes to bargaining unit plans also volunteered an additional reason for having modified their plans covering bargaining employees. Specifically, these sponsors wrote that inflation or a cost-of- living adjustment was a key reason for their increase to the formula. This suggests that such plans were flat-benefit plans that may have a benefit structure that was increased annually as part of a bargaining agreement. Meanwhile, sponsors were far more likely to report that they had converted a DB plan covering nonbargaining unit employees to a hybrid plan design than to have converted DB plans covering collectively bargained employees. For example, 52 percent of respondents who reported on plans for nonbargaining unit employees had converted one or more of their traditional plans to a cash balance or other hybrid arrangement (see app. I, slide 15). Many cited “trends in employee demographics” as the top reason for doing so (see app. I, slide 16). Among respondents who answered the cash balance conversion question for their collectively bargained plans, 21 percent reported converting one or more of their traditional plans to a cash balance plan. Regarding plan freezes, 62 percent of the responding firms reported a freeze, or a plan amendment to limit some or all future pension accruals for some or all plan participants, for one or more of their plans (see app. I, slide 18). Looking at the respondent’s plans in total, 8 percent of the plans were described as hard frozen, meaning that all current employees who participate in the plan receive no additional benefit accruals after the effective date of the freeze, and that employees hired after the freeze are ineligible to participate in the plan. Twenty percent of respondents’ plans were described as being under a soft freeze, partial freeze, or “other” freeze. Although not statistically generalizable, the prevalence of freezes among the large sponsor plans in this survey is generally consistent with the prevalence of plan freezes found among large sponsors through a previous GAO survey that was statistically representative. The vast majority of respondents (90 percent) to our most recent survey also reported on their 401(k)-type DC plans. At the time of this survey, very few respondents reported having reduced employer or employee contribution rates for these plans. The vast majority reported either an increase or no change to the employer or employee contribution rates, with generally as many reporting increases to contributions as reporting no change (see app. I, slide 21). The differences reported in contributions by bargaining status of the covered employees were not pronounced. Many (67 percent) of responding firms plan to implement or have already implemented an automatic enrollment feature to one or more of their DC plans. According to an analysis by the Congressional Research Service, many DC plans require that workers voluntarily enroll and elect contribution levels, but a growing number of DC plans automatically enroll workers. Additionally, certain DC plans with an automatic enrollment feature may gradually escalate the amount of the workers’ contributions on a recurring basis. However, the Pension Protection Act of 2006 (PPA) provided incentives to initiate automatic enrollment for those plan sponsors that may not have already adopted an automatic enrollment feature. Seventy- two percent of respondents reported that they were using or planning to use automatic enrollment for their 401(k) plans covering nonbargaining employees, while 46 percent indicated that they were currently doing so or planning to do so for their plans covering collective-bargaining employees (see app. I, slide 22). The difference in automatic enrollment adoption by bargaining status may be due to the fact that nonbargaining employees may have greater dependence on DC benefits. That is, a few sponsors noted they currently automatically enroll employees who may no longer receive a DB plan. Alternatively, automatic enrollment policies for plans covering collective-bargaining employees may not yet have been adopted, as that plan feature may be subject to later bargaining. Health benefits are a large component of employer offered benefits. As changes to the employee benefits package may not be limited to pensions, we examined the provision of health benefits to active workers, as well as to current and future retirees. We asked firms to report selected nonwage compensation costs or postemployment benefit expenses for the year 2006 as a percentage of base pay. Averaging these costs among all those respondents reporting such costs, we found that health care comprised the single largest benefit cost. Active employee health plans and retiree health plans combined to represent 15 percent of base pay (see app. I, slide 24). DB and DC pension costs were also significant, representing about 14 percent of base pay. All of the respondents reporting on health benefits offered a health care plan to active employees and contributed to at least a portion of the cost. Additionally, all of these respondents provided health benefits to some current retirees, and nearly all were providing health benefits to retirees under the age of 65 and to retirees aged 65 and older. Eighty percent of respondents offered retiree health benefits to at least some future retirees (current employees who could eventually become eligible for retiree benefits), although 20 percent of respondents offered retiree health benefits that were fully paid by the retiree. Further, it appears that, for new employees among the firms in our survey, a retiree health benefit may be an increasingly unlikely offering in the future, as 46 percent of responding firms reported that retiree health care was no longer to be offered to employees hired after a certain date (see app. I, slide 25). We asked respondents to report on how an employer’s share of providing retiree health benefits had changed over the last 10 years or so for current retirees. Results among respondents generally did not vary by the bargaining status of the covered employees (app. I, slide 27). However, 27 percent of respondents reporting on their retiree health benefits for plans covering nonbargaining retirees reported increasing an employer’s share of costs, while only 13 percent of respondents reporting on their retiree health benefits for retirees from collective-bargaining units indicated such an increase. Among those respondents with health benefits covering nonbargained retirees, they listed “large increases in the cost of health insurance coverage for retirees” as a major reason for increasing an employer’s share—not surprisingly. This top reason was the same for all of these respondents, as well as just those respondents reporting a decrease in the cost of an employer’s share. Additionally, a number of respondents who mentioned “other” reasons for the decrease in costs for employers cited the implementation of predefined cost caps. Our survey also asked respondents to report on their changes to retiree health offerings for future retirees or current workers who may eventually qualify for postretirement health benefits. As noted earlier, 46 percent of respondents reported they currently offered no retiree health benefits to active employees (i.e., current workers) hired after a certain date. Reporting on changes for the last decade, 54 percent of respondents describing their health plans for nonbargaining future retirees indicated that they had decreased or eliminated the firm’s share of the cost of providing health benefits (see app. I, slide 30). A smaller percentage (41 percent) of respondents reporting on their health benefits for collectively bargained future retirees indicated a decrease or elimination of benefits. The need to “match or maintain parity with competitor’s benefits package” was the key reason for making the retiree health benefit change for future retirees among respondents reporting on their collective-bargaining employees (app. I, slide 32). We asked respondents to report their total, future liability (i.e., present value in dollars) for retiree health as of 2004. As of the end of the 2004 plan year, 29 respondents reported a total retiree health liability of $68 billion. The retiree health liability reported by our survey respondents represents 40 percent of the $174 billion in DB liabilities that we estimate for these respondents’ DB plans as of 2004. According to our estimates, the DB liabilities for respondents reporting a retiree health liability were supported with $180 billion in assets as of 2004. We did not ask respondents about the assets underlying the reported $68 billion in retiree health liabilities. Nevertheless, these liabilities are unlikely to have much in the way of prefunding or supporting assets, due in large part to certain tax consequences. Although we did not ask sponsors about the relative sustainability of retiree health plans given the possible difference in the funding of these plans relative to DB plans, we did ask respondents to report the importance of offering a retiree health plan for purposes of firm recruitment and retention. Specifically, we asked about the importance of making a retiree health plan available relative to making a DB or DC pension plan available. Only a few respondents reported that offering DB or DC plans was less (or much less) important than offering a retiree health plan. Responding before October 2008—before the increasingly severe downturns in the national economy—most survey respondents reported they had no plan to revise benefit formulas or freeze or terminate plans, or had any intention to convert to hybrid plans before 2012. Survey respondents were asked to consider how their firms might change specific employee benefit actions between 2007 and 2012 for all employees. The specific benefit actions they were asked about were a change in the formula for calculating the rates of benefit accrual provided by their DB plan, a freeze of at least one DB plan, the conversion of traditional DB plans to cash balance or other hybrid designs, and the termination of at least one DB plan. For each possibility, between 60 percent and 80 percent of respondents said their firm was not planning to make the prospective change (see app I, slide 34). When asked about how much they had been or were likely to be influenced by recent legislation or account rule changes, such as PPA or the adoption of Financial Accounting Standards Board (FASB) requirements to fully recognize obligations for postretirement plans in financial statements, responding firms generally indicated these were not significant factors in their decisions on benefit offerings. Despite these legislative and regulatory changes to the pension environment, most survey respondents indicated that it was unlikely or very unlikely that their firms would use assets from DB plans to fund qualified health plans; increase their employer match for DC plans; terminate at least one DB plan; amend at least one DB plan to change (either increase or decrease) rates of future benefit accruals; convert a DB plan to a cash balance or hybrid design plan, or replace a DB plan with a 401(k)-style DC plan. Additionally, most respondents indicated “no role” when asked whether PPA, FASB, or pension law and regulation prior to PPA had been a factor in their decision (see app 1, slide 35). Though the majority of these responses indicated a trend of limited action related to PPA and FASB, it is interesting to note that, among the minority of firms that reported they were likely to freeze at least one DB plan for new participants only, most indicated that PPA played a role in this decision. Similarly, while only a few firms indicated that it was likely they would replace a DB plan with a 401(k)-style DC plan, most of these firms also indicated that both PPA and FASB played a role in that decision. There were two prospective changes that a significant number of respondents believed would be likely or very likely implemented in the future. Fifty percent of respondents indicated that adding or expanding automatic enrollment features to 401(k)-type DC plans was likely or very likely, and 43 percent indicated that PPA played a major role in this decision. This is not surprising, as PPA includes provisions aimed at encouraging automatic enrollment and was expected to increase the use of this feature. Forty-five percent of respondents indicated that changing the investment policy for at least one DB plan to increase the portion of the plan’s portfolio invested in fixed income assets was likely or very likely—with 21 percent indicating that PPA and 29 percent indicating that FASB played a major or moderate role in this decision (see app 1, slide 36). Our survey did not ask about the timing of this portfolio change, so we cannot determine the extent of any reallocation that may have occurred prior to the decline in the financial markets in the last quarter of 2008. Finally, responding sponsors did not appear to be optimistic about the future of the DB system, as the majority stated there were no conditions under which they would consider forming a new DB plan. For the 26 percent of respondents that said they would consider forming a new DB plan, some indicated they could be induced by such changes as a greater scope in accounting for DB plans on corporate balance sheets and reduced unpredictability or volatility of plan funding requirements (see app I, slides 38). Conditions less likely to cause respondents to consider a new DB plan included increased regulatory requirements of DC plans and reduced PBGC premiums (see app I, slide 39). Until recently, DB pension plans administered by large sponsors appeared to have largely avoided the general decline evident elsewhere in the system since the 1980s. Their relative stability has been important, as these plans represent retirement income for more than three-quarters of all participants in single-employer plans. Today, these large plans no longer appear immune to the broader trends that are eroding retirement security. While few plans have been terminated, survey results suggest that modifications in benefit formulas and plan freezes are now common among these large sponsors. This trend is most pronounced among nonbargained plans but is also apparent among bargained plans. Yet, this survey was conducted before the current economic downturn, with its accompanying market turmoil. The fall in asset values and the ensuing challenge to fund these plans places even greater stress on them today. Meanwhile, the survey findings, while predating the latest economic news, add to the mounting evidence of increasing weaknesses throughout the existing private pension system that include low contribution rates for DC plans, high account fees that eat into returns, and market losses that significantly erode the account balances of those workers near retirement. Moreover, the entire pension system still only covers about 50 percent of the workforce, and coverage rates are very modest for low-wage workers. Given these serious weaknesses in the current tax-qualified system, it may be time for policymakers to consider alternative models for retirement security. We provided a draft of this report to the Department of Labor, the Department of the Treasury, and PBGC. The Department of the Treasury and PBGC provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Secretary of Labor, the Secretary of the Treasury, and the Director of the PBGC, appropriate congressional committees, and other interested parties. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you have or your staffs any questions about this report, please contact me at (202) 512-7215 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions are listed in appendix III. the nation’s largest private sector DB plans: 1) What recent changes have employers made to their pension and benefit offerings? 2) What changes might employers make with respect to their pensions in the future, and how might these changes be influenced by changes in pension law and other factors? generalizable to all DB plan sponsors. However, the sample can serve as an important indicator of the health of the private DB system and the sample’s possible importance to the Pension Benefit Guaranty Corporation (PBGC) The 44 sponsoring firms that responded represent an estimated: 25 percent (or $370 billion) of total DB system liabilities as of 19 percent (or 6 million) of the system’s DB participants (active, separated-vested, retired as of 2004) business line was manufacturing, with other key areas being finance and information. (Figure 1) These firms reported employing on average 75,000 employees in their U.S. operations in 2006. increased or did not change employer contributions to 401(k) plans for their NB employees. (Figure 8) Main reasons for change included redesigned matching formula as well as compensation adjustments to attract top employees. The vast majority of respondents reported that plans covering NB employees either increased or did not change employee contributions. Main reasons among respondents reporting increased contributions included addition of automatic enrollment feature to one or more plans. 72 percent of large sponsors reported either using or planning to use auto enrollment for plans covering NB employees (Figure 9). either increased or did not change employer contributions to 401(k) plans for their bargaining unit employees. (Figure 8) No single reason stood out for this result. Bargaining unit employees of most sponsors did not change employee contributions. (Figure 8) 50 percent of large sponsors with plans covering CB employees reported either not using or not planning to use auto enrollment (Figure 9). (Figure 10) All responding DB plan sponsors offered health insurance to active employees and contributed to the cost All responding DB plan sponsors offered health insurance to at least some current retirees—nearly all to both pre-age 65 and age 65-plus employees 80 percent provided health insurance to at least some active employees who become eligible for the benefit upon retirement 20 percent provided health insurance that was fully paid by the retired employee (Figure 11) Compared to respondents reporting on their benefits covering CB employees, respondents with NB employees reported decrease in the employer’s share of the cost of providing health benefits to current retirees (Figure 12) Main reasons were increases in cost of health insurance for retirees and for active employees (Figure 13) 46 percent of plan sponsors no longer offered retiree health benefits to active employees hired after a certain date. 54 percent decreased or eliminated the firm's share cost of providing health benefits for future retirees who were non-bargaining employees; (Figure 14) Primary reasons cited were large cost increases in health insurance for both retirees and active employees (Figure 15) 41 percent of sponsors with bargaining unit employees reported decrease in or elimination of firm's share of health care costs for future retirees (Figure 14) 26 percent reported no change Primary reason cited was match/maintain parity with competitor’s benefits package (Figure 16) them definitely consider forming a new DB plan 26 percent of sponsors reported that there were conditions under which they would have considered offering a new DB plan; the most common conditions selected were: Provide sponsors with greater scope in accounting for DB plans on corporate balance sheets DB plans became more effective as an employee retention Reduced unpredictability or volatility in DB plan funding requirements (Figure 17) To achieve our objectives, we conducted a survey of sponsors of large defined-benefit (DB) pension plans. For the purposes of our study, we defined “sponsors” as the listed sponsor on the 2004 Form 5500 for the largest sponsored plan (by total participants). To identify all plans for a given sponsor, we matched plans through unique sponsor identifiers. We constructed our population of DB plan sponsors from the 2004 Pension Benefit Guaranty Corporation’s (PBGC) Form 5500 Research Database by identifying unique sponsors listed in this database and aggregating plan- level data (for example, plan participants) for any plans associated with this sponsor. As a result of this process, we identified approximately 23,500 plan sponsors. We further limited these sponsors to the largest sponsors (by total participants in all sponsored plans) that also appeared on the Fortune 500 or Fortune Global 500 lists. We initially attempted to administer the survey to the first 100 plans that met these criteria, but ultimately, we were only able administer the survey to the 94 sponsoring firms for which we were able to obtain sufficient information for the firm’s benefits representative. While the 94 firms we identified for the survey are an extremely small subset of the approximately 23,500 total DB plan sponsors in the research database, we estimate that these 94 sponsors represented 50 percent of the total single-employer liabilities insured by PBGC and 39 percent of the total participants (active, retired, and separated-vested) in the single-employer DB system as of 2004. The Web-based questionnaire was sent in December 2007, via e-mail, to the 94 sponsors of the largest DB pension plans (by total plan participants as of 2004) who were also part of the Fortune 500 or Global Fortune 500. This was preceded by an e-mail to notify respondents of the survey and to test our e-mail addresses for these respondents. This Web questionnaire consisted of 105 questions and covered a broad range of areas, including the status of current DB plans; the status of frozen plans (if any) and the status of the largest frozen plan (if applicable); health care for active employees and retirees; pension and other benefit practices or changes over approximately the last 10 years and the reasons for those changes (parallel questions asked for plans covering collectively bargained employees and those covering nonbargaining employees); prospective benefit plan changes; the influence of laws and accounting practices on possible prospective benefit changes; and opinions about the possible formation of a new DB plan. The first 17 questions and last question of the GAO Survey of Sponsors of Large Defined Benefit Pension Plans questionnaire mirrored the questions asked in a shorter mail questionnaire (Survey of DB Pension Plan Sponsors Regarding Frozen Plans) about benefit freezes that was sent to a stratified random sample of pension plan sponsors that had 100 or more participants as of 2004. Sponsors in the larger survey were, like the shorter survey, asked to report only on their single-employer DB plans. To help increase our response rate, we sent four follow-up e-mails from January through November 2008. We ultimately received responses from 44 plan sponsors, representing an overall response rate of 44 percent. To pretest the questionnaires, we conducted cognitive interviews and held debriefing sessions with 11 pension plan sponsors. Three pretests were conducted in-person and focused on the Web survey, and eight were conducted by telephone and focused on the mail survey. We selected respondents to represent a variety of sponsor sizes and industry types, including a law firm, an electronics company, a defense contractor, a bank, and a university medical center, among others. We conducted these pretests to determine if the questions were burdensome, understandable, and measured what we intended. On the basis of the feedback from the pretests, we modified the questions as appropriate. The practical difficulties of conducting any survey may introduce other types of errors, commonly referred to as nonsampling errors. For example, differences in how a particular question is interpreted, the sources of information available to respondents, or the types of people who do not respond can introduce unwanted variability into the survey results. We included steps in both the data collection and data analysis stages for the purpose of minimizing such nonsampling errors. We took the following steps to increase the response rate: developing the questionnaire, pretesting the questionnaires with pension plan sponsors, and conducting multiple follow-ups to encourage responses to the survey. We performed computer analyses of the sample data to identify inconsistencies and other indications of error and took steps to correct inconsistencies or errors. A second, independent analyst checked all computer analyses. We initiated our audit work in April 2006. We issued results from our survey regarding frozen plans in July 2008. We completed our audit work for this report in March 2009 in accordance with all sections of GAO’s Quality Assurance Framework that are relevant to our objectives. The framework requires that we plan and perform the engagement to obtain sufficient and appropriate evidence to meet our stated objectives and to discuss any limitations in our work. We believe that the information and data obtained, and the analysis conducted, provide a reasonable basis for any findings and conclusions. Barbara D. Bovbjerg, (202) 512-7215 or [email protected]. In addition to the contact above, Joe Applebaum, Sue Bernstein, Beth Bowditch, Charles Ford, Brian Friedman, Charles Jeszeck, Isabella Johnson, Gene Kuehneman, Marietta Mayfield, Luann Moy, Mark Ramage, Ken Stockbridge, Melissa Swearingen, Walter Vance, and Craig Winslow made important contributions to this report.

The number of private defined benefit (DB) pension plans, an important source of retirement income for millions of Americans, has declined substantially over the past two decades. For example, about 92,000 single-employer DB plans existed in 1990, compared to just under 29,000 single-employer plans today. Although this decline has been concentrated among smaller plans, there is a widespread concern that large DB plans covering many participants have modified, reduced, or otherwise frozen plan benefits in recent years. GAO was asked to examine (1) what changes employers have made to their pension and benefit offerings, including to their defined contribution (DC) plans and health offerings over the last 10 years or so, and (2) what changes employers might make with respect to their pensions in the future, and how these changes might be influenced by changes in pension law and other factors. To gather information about overall changes in pension and health benefit offerings, GAO asked 94 of the nation's largest DB plan sponsors to participate in a survey; 44 of these sponsors responded. These respondents represent about one-quarter of the total liabilities in the nation's single-employer insured DB plan system as of 2004. The survey was largely completed prior to the current financial market difficulties of late 2008. GAO's survey of the largest sponsors of DB pension plans revealed that respondents have made a number of revisions to their retirement benefit offerings over the last 10 years or so. Generally speaking, they have changed benefit formulas; converted to hybrid plans (such plans are legally DB plans, but they contain certain features that resemble DC plans); or frozen some of their plans. Eighty-one percent of responding sponsors reported that they modified the formula for computing benefits for one or more of their DB plans. Among all plans reported by respondents, 28 percent of these (or 47 of 169) plans were under a plan freeze--an amendment to the plan to limit some or all future pension accruals for some or all plan participants. The vast majority of respondents (90 percent, or 38 of 42 respondents) reported on their 401(k)-type DC plans. Regarding these DC plans, a majority of respondents reported either an increase or no change to the employer or employee contribution rates, with roughly equal responses to both categories. About 67 percent of (or 28 of 42) responding firms plan to implement or have already implemented an automatic enrollment feature to one or more of their DC plans. With respect to health care offerings, all of the (42) responding firms offered health care to their current workers. Eighty percent (or 33 of 41 respondents) offered a retiree health care plan to at least some current workers, although 20 percent of (or 8 of 41) respondents reported that retiree health benefits were to be fully paid by retirees. Further, 46 percent of (or 19 of 41) responding firms reported that it is no longer offered to employees hired after a certain date. At the time of the survey, most sponsors reported no plans to revise plan formulas, freeze or terminate plans, or convert to hybrid plans before 2012. When asked about the influence of recent legislation or changes to the rules for pension accounting and reporting, responding firms generally indicated these were not significant factors in their benefit decisions. Finally, a minority of sponsors said they would consider forming a new DB plan. Those sponsors that would consider forming a new plan might do so if there were reduced unpredictability or volatility in DB plan funding requirements and greater scope in accounting for DB plans on corporate balance sheets. The survey results suggest that the long-time stability of larger DB plans is now vulnerable to the broader trends of eroding retirement security. The current market turmoil appears likely to exacerbate this trend.

You are an expert at summarizing long articles. Proceed to summarize the following text: FPA includes several provisions designed to protect fish, wildlife, and the environment from the potentially damaging effects of a hydropower project’s operations. Specifically: Section 4(e) states that licenses for projects on federal lands reserved by Congress for other purposes—such as national forests—are subject to the mandatory conditions set by federal resource agencies, including the Forest Service and the Bureau of Indian Affairs, Bureau of Land Management, Bureau of Reclamation, and FWS. Section 10(a) requires FERC to solicit recommendations from federal and state resource agencies and Indian tribes affected by a hydropower project’s operation on the terms and conditions to be proposed for inclusion in a license. Section 10(j) authorizes federal and state fish and wildlife agencies to recommend license conditions to benefit fish and wildlife. FERC must include section 10(j) recommendations in the hydropower licenses unless it (1) finds them to be inconsistent with law and (2) has already established license conditions that adequately protect fish and wildlife. Section 18 requires FERC to include license prescriptions for fish passage prescribed by resource agencies, such as FWS and NMFS. Under section 241 and the interim rules, licensees and other nonfederal stakeholders may request a trial-type hearing with duration of up to 90 days on any disputed issue of material fact with respect to a preliminary condition or prescription. An administrative law judge (ALJ), referred by the relevant resource agency, must resolve all disputed issues of material fact related to an agency’s preliminary conditions or prescriptions in a single hearing. The interim rules contain procedures for consolidating multiple hearing requests involving the same project. Under section 241 and the interim rules, licensees and other nonfederal stakeholders may also propose alternatives to the preliminary conditions or prescriptions proposed by the resource agencies. Under section 241, resource agencies are required to adopt the alternatives if the agency determines that they adequately protect the federal land and either cost significantly less to implement or result in improved electricity production. If the alternatives do not meet these criteria, the agencies may reject them. In either case, under section 241, resource agencies must formally submit a statement to FERC explaining the basis for any condition or prescription the agency adopts and reason for not accepting any alternative under this section. The statement must demonstrate that the Secretary of the department gave equal consideration to the effects of the alternatives on energy supply, distribution, cost, and use; flood control; navigation; water supply; and air quality (in addition to the preservation of other aspects of environmental quality). In addition, the resource agencies often negotiate with the stakeholders who submitted the alternatives and settle on modifications of the agencies’ preliminary conditions and prescriptions. FPA requires licensees to pay reasonable annual charges in amounts fixed by FERC to reimburse the United States for, among other things, the costs of FERC’s and other federal agencies’ administration of the act’s hydropower provisions. To identify these costs—virtually all of which are related to the relicensing process—FERC annually requests federal agencies to report their costs related to the hydropower program for the prior fiscal year. FERC then bills individual licensees for their share of FERC’s and the other federal agencies’ administrative costs, basing these shares largely on the generating capacity and amount of electricity generated by the licensees’ projects. FERC deposits the licensees’ reimbursements—together with other annual charges and filing fees that it collects—into the U.S. Treasury as a direct offset to its annual appropriation. Receipts that exceed FERC’s annual appropriation are deposited in the General Fund of the U.S. Treasury. Nonfederal stakeholders—licensees, states, environmental groups, and an Indian tribe—used the section 241 provisions for 25 of the 103 (24 percent) eligible hydropower projects being relicensed, although the use of these provisions has decreased since its first year. In response to the use of these provisions, resource agencies modified most of the conditions and prescriptions that they had originally proposed. In addition, trial-type hearings were completed for three projects, with the resource agencies prevailing in most of the issues in these hearings. From November 17, 2005, through May 17, 2010, 103 hydropower projects being relicensed, including 49 transition projects, were eligible for nonfederal stakeholders to use the section 241 provisions to submit alternative conditions or prescriptions or request a trial-type hearing. Nonfederal stakeholders have used the provisions for 25 of these 103 projects, including 15 of the 49 transition projects. Table 1 shows the 25 projects, the nonfederal stakeholder proposing alternatives, the affected federal resource agency, and whether the stakeholder requested a trial- type hearing. In each of these projects, the licensee submitted one or more alternatives. In addition, in the DeSabla-Centerville, Klamath, and McCloud-Pit projects, stakeholders other than the licensee also submitted alternatives. The use of section 241 provisions has decreased since the first year. In fiscal year 2006, nonfederal stakeholders used section 241 provisions for 19 projects undergoing relicensing. By comparison, after fiscal year 2006, nonfederal stakeholders used the provisions for only 6 projects. Fifteen of the 19 projects in which stakeholders used the provisions in fiscal year 2006 were transition projects. These transition projects included 11 projects that had expired original licenses and were operating on annual licenses at the time that the interim rules were implemented, which helped create the initial surge of projects eligible to use section 241. As table 2 shows, the number of eligible nontransition projects—projects that had received preliminary conditions and prescriptions from federal resource agencies after section 241 was enacted—for which nonfederal stakeholders have sought to use section 241 provisions has declined since the first year. However, the number of nontransition projects becoming subject to these provisions has not widely varied. Licensees and other nonfederal stakeholders had proposed a total of 211 alternatives—194 alternative conditions and 17 alternative prescriptions—for the 25 projects where section 241 provisions were used. However, these numbers do not necessarily reflect the number of issues considered because section 4(e) conditions and section 18 fishway prescriptions are counted differently. For example, a resource agency may issue a section 4(e) condition for each part of a particular topic. However, NMFS or FWS will typically issue single section 18 fishway prescriptions with multiple sections. Of the 25 projects, stakeholders proposed alternative conditions for 19 and alternative prescriptions for 9. Table 3 provides the number of alternative conditions proposed, accepted, rejected, and pending, and the number of preliminary conditions modified or removed for 19 of the 25 projects. Table 4 provides the number of alternative prescriptions proposed, accepted, rejected, and pending and the number of preliminary prescriptions modified or removed in settlement for 9 of the 25 projects. As the tables show, instead of accepting or rejecting alternative conditions and prescriptions, resource agencies most frequently modified the original conditions and prescriptions in settlement negotiations with the nonfederal stakeholders. In all, resource agencies did not formally accept any alternatives as originally proposed and instead modified a total of 140 preliminary conditions and prescriptions for 22 of rejected a total of 42 alternative conditions and prescriptions in 5 projects, and removed a total of 9 preliminary conditions and prescriptions in 4 projects. Licensees submitted 204 of the 211 alternative conditions and prescriptions. State agencies or nongovernmental organizations submitted the remaining 7 alternative conditions, 4 of which were rejected by the resource agencies, and 3 were being considered as of May 17, 2010. Section 241 directs the Secretary of the relevant resource agency to explain the basis for any condition or prescription the agency adopts, provide a reason for not accepting any alternative condition under this section, and demonstrate that it gave equal consideration to the effects of the alternatives on energy supply, distribution, cost, and use; flood control; navigation; water supply; and air quality (in addition to the preservation of other aspects of environmental quality). Similarly, the agencies’ interim rules provide, “The written statement must explain the basis for the modified conditions or prescriptions and, if the Department did not accept an alternative condition or prescription, its reasons for not doing so.” While the agencies provided an explanation for rejecting all 42 alternative conditions and prescriptions, they did not explain the reasons for not accepting a proposed alternative for 127 of the 140 modified conditions and prescriptions. Without an explanation, it is difficult to determine the extent, type, or basis of changes that were made and difficult to determine if and how the proposed alternatives affected the final conditions and prescriptions issued by the agencies. As of May 17, 2010, nonfederal stakeholders requested trial-type hearings for 18 of the 25 projects in which the section 241 provisions were used, and 3 trial-type hearings were completed. Most of these requests were made by licensees. The requests for hearings in 14 of the 18 projects were withdrawn when nonfederal stakeholders and resource agencies reached a settlement agreement before the ALJ made a ruling, and 1 request is pending as of May 17, 2010, because the licensee is in negotiations to decommission the project. Prior to a trial-type hearing, an ALJ holds a prehearing conference to identify, narrow, and clarify the disputed issues of material fact. The ALJ must issue an order that recites any agreements reached at the conference and any rulings made by the ALJ during or as a result of the prehearing conference, which can include dismissing issues the ALJ determines are not disputed issues of material fact. For the three projects that have completed trial-type hearings, the number of issues in these projects was reduced from 96 to 37 after prehearing conferences. In addition, in a fourth project in which the federal resource agencies and the licensee eventually reached a settlement before going to a hearing, the number of issues was reduced from 13 to 1 after the prehearing conference. As table 5 shows, the three trial-type hearings were held for the Klamath project, in California and Oregon; the Spokane River project, in Idaho and Washington; and the Tacoma project, in Colorado, all of which are nontransition projects. In addition to the licensees requesting hearings, one nongovernmental organization and one tribe requested a hearing for the Klamath project. The Spokane River and Tacoma hearings were completed in 90 days, the time allotted by the interim rule, while Klamath required 97 days. As table 5 shows, of the 37 issues presented, the ALJ ruled in favor of the federal resource agency on 25 issues, ruled in favor of the licensee on 6 issues, and offered a split decision on 6 issues. According to the relicensing stakeholders we spoke with, section 241 provisions have had a variety of effects on relicensing in three areas: (1) settlement agreements between licensees and resource agencies, (2) conditions and prescriptions that the resource agencies set, and (3) agencies’ workload and cost. Most licensees and a few resource agency officials that we spoke with said that section 241 encourages settlement agreements between the licensee and resource agency. In contrast, other agency officials we spoke with said that section 241 made the relicensing process more difficult to reach a settlement agreement with the licensee. Regarding conditions and prescriptions, some stakeholders commented that under section 241, resource agencies generally researched their conditions and prescriptions more thoroughly, while all seven of the environmental groups’ representatives and some resource agency officials we spoke with said that resource agencies issued fewer or less environmentally protective conditions and prescriptions. Resource agency officials also raised concerns about increases in workload and costs as a result of section 241. Finally, many of the stakeholders offered suggestions for improving the use of section 241. Most of the licensees and a few resource agency officials we spoke with said that section 241 encourages settlement agreements between the licensee and resource agency. Several licensees commented that before section 241 was enacted, they had little influence on the mandatory conditions and prescriptions and that the resource agencies had made decisions on which conditions and prescriptions to issue without the potential oversight of a third-party review. One licensee commented that resource agencies had little incentive to work collaboratively with the licensee during relicensing prior to section 241. Several licensees and a few resource agency officials said that under section 241, some resource agencies have been more willing to negotiate their conditions and prescriptions to avoid receiving alternatives and requests for trial-type hearings. Some resource agency officials, however, said that in some cases, reaching a settlement with the licensee has been more difficult under section 241 than in previous negotiations. Specifically, they noted the following: If licensees request a trial-type hearing, resource agencies and licensees have to devote time and resources to preparing for the potential upcoming trial-type hearing instead of negotiating a settlement. Section 241 made the relicensing process less cooperative and more antagonistic when, for example, a licensee did not conduct the agencies’ requested studies, the agencies had less information to support their conditions and prescriptions. As a case in point, one NMFS regional supervisor told us that a licensee declined to conduct a study about the effects of its dams’ turbines on fish mortality. However, the licensee subsequently requested a trial-type hearing because, it argued, the agency had no factual evidence to support the agency’s assertion that the turbines injured or killed fish. Some licensees used their ability to request a trial-type hearing as a threat against the agencies’ issuance of certain conditions, prescriptions, or recommendations. For example, two NMFS biologists and their division chief told us that a licensee had threatened to issue a trial-type hearing request on fish passage prescriptions if NMFS made flow rate recommendations that it did not agree with. The Hydropower Reform Coalition, a coalition of conservation and recreational organizations, commented that from its experience, participation in settlement negotiations under section 241 is “almost exclusively limited to licensees.” It also commented that agreements reached by the license applicant and resource agency are not comprehensive settlement agreements in which licensees, state and federal resource agencies, tribes, nongovernmental organizations, and other interested parties are involved in the agreement. Some licensees said agencies now put more effort into reviewing and providing support for their conditions and prescriptions because licensees or other nonfederal stakeholders could challenge the terms in a trial-type hearing. Several agency officials commented that they generally conduct more thorough research and provide a more extensive explanation about mandatory conditions and prescriptions than they had for projects prior to section 241. A few agency officials also commented they are requesting licensees to conduct more extensive studies about the effects of their hydropower projects to ensure that the agencies have sufficient information for writing conditions and prescriptions. Views differed on whether conditions and prescriptions were as protective or less protective since section 241 was enacted. All seven environmental group representatives that we spoke with expressed concerns that resource agencies were excluding and writing less protective conditions, prescriptions, and recommendations to avoid trial-type hearings. For example, one group commented that in one hydropower project, under section 241, agency officials settled for stream flow rates that were lower than necessary for protecting and restoring the spawning habitat for fish that swam in the project area. Some agency officials said the conditions and prescriptions they have issued are as protective as those issued prior to the enactment of section 241. Others said that they now issue fewer or less environmentally protective conditions or prescriptions to avoid a costly trial-type hearing. In addition, some other officials commented that instead of issuing conditions and prescriptions that could result in a trial- type hearing, agencies have either issued recommendations or reserved authority to issue conditions and prescriptions at a later time. While a reservation of authority allows the resource agency to issue conditions and prescriptions after the issuance of the license, one regional agency official told us that in his experience, this rarely occurs. At one regional office, two staff biologists and their division chief told us that while they still issue prescriptions that meet the requirements of resource protection, these prescriptions are less protective than they would have been without the possibility of a trial-type hearing. Many agency officials said that the added efforts they put into each license application since the passage of section 241 has greatly increased their workloads for relicensing. Several agency officials also told us that even greater efforts are needed when a trial-type hearing is requested. To complete the work needed for a trial-type hearing, agencies often need to pull staff from other projects. According to these officials, at the local level, pulling staff from other projects can result in the agency’s neglect of its other responsibilities. Officials commented that whether they win or lose a trial-type hearing, agencies must provide the funding for an ALJ, expert witnesses, and their attorneys at a trial-type hearing. Although they did not track all costs, the Bureau of Indian Affairs, Bureau of Land Management, Interior’s Office of the Solicitor, FWS, Forest Service, and NMFS provided individual estimates that totaled to approximately $3.1 million in trial-type hearings for the following three projects: Approximately $300,000 for the Tacoma project. Approximately $800,000 for the Spokane River project. Approximately $2 million for the Klamath project. Among all the resource agencies, only NMFS has dedicated funding for section 241 activities. However, this funding only covers administrative costs related to a trial-type hearing and does not fund NMFS’s program staff or General Counsel staff for a hearing. Many of the agency officials, licensees, and other stakeholders we spoke with had suggestions on how to improve section 241 and the relicensing process. For example, several licensees and agency officials raised concerns that the 90-day period for a trial-type hearing, including a decision, was too short and resulted in the need to complete an enormous amount of work in a compressed time frame. Some said that an ALJ who did not have a background in hydropower issues needed more time to review the information presented following the hearing. Some stakeholders suggested allowing the ALJ to make his or her decision outside of the 90-day period. Other stakeholders, however, commented that an extension of the 90-day period could result in greater costs for all parties. One regional hydrologist suggested using a scientific peer review panel rather than an ALJ to hear arguments. Some stakeholders also suggested providing an opportunity to delay the start date of a trial-type hearing if all parties were close to reaching a settlement. The stakeholders we spoke with also had several suggestions that were specific to their interests, which included the following: A couple of licensees noted that while the provisions of section 241 may be used after preliminary conditions and prescriptions are issued, they would like to be able to use these provisions after the issuance of final conditions and prescriptions because of concerns that the final conditions and prescriptions could differ from the agreed-upon terms that were arrived at through negotiations. These licensees assert that if they do not have this option, their only recourse is to sue in an appeals court, after the license has been issued. These licensees were not aware of any instance in which the terms had drastically changed between negotiations and the issuance of the final license. Several environmental group representatives commented that while section 241 allows stakeholders to propose alternative conditions and prescriptions, they would like to be allowed to propose additional conditions and prescriptions to address issues that the resource agencies have not addressed in their preliminary conditions and prescriptions. Three of these representatives also commented that the section 241 criteria for the acceptance of an alternative—adequately or no less protective and costs less to implement—favored licensees, not conservation groups. Instead, one representative suggested that the criterion for an alternative should be that it is more appropriately protective and not that it costs less to implement. In addition, another representative suggested that all interested parties should be allowed to participate in negotiations to modify the preliminary conditions and prescriptions after the submission of an alternative. In his experience, these negotiations have been limited to the stakeholder who uses the provisions of section 241 and the resource agency. A few resource agency officials suggested that licensees who lose the trial- type hearing should pay court costs, such as the costs of the ALJ. They also suggested that licensee reimbursements for the relicensing costs go directly to the resource agencies rather than the General Fund of the U.S. Treasury. Almost 5 years have passed since the interim rules were issued, and several stakeholders that we spoke with expressed interest in having an opportunity to comment on a draft of the revised rules when they become available and before these rules become final. In addition, on June 2, 2009, the National Hydropower Association—an industry trade group—and the Hydropower Reform Coalition submitted a joint letter addressed to Interior, NMFS, and USDA expressing interest in an opportunity to comment on the revised rules before they become final. Section 241 of the Energy Policy Act of 2005 changed the hydropower relicensing process, including permitting licensees and other nonfederal stakeholders to propose alternative conditions and prescriptions. All parties involved in relicensing a hydropower project have an interest in understanding how the conditions and prescriptions for a license were modified, if at all, in response to proposed alternatives. Indeed, the interim rules require agencies to provide, for any condition or prescription, a written statement explaining the basis for the adopted condition and the reasons for not accepting any alternative condition or prescription. While we found that the agencies have provided a written explanation for all 42 rejected conditions and prescriptions, they provided a written explanation of the reasons for not accepting a proposed alternative for only 13 of the 140 modified conditions and prescriptions. The absence of an explanation makes it difficult to determine the extent or type of changes that were made. Furthermore, when the interim rules that implemented section 241 were issued on November 17, 2005, the federal resource agencies stated that they would consider issuing final rules 18 months later. Instead, nearly 5 years later, final rules have not yet been issued. Given this delay and the amount of experience with section 241’s interim rules, many stakeholders we spoke with had ideas on how to improve section 241 and several expressed interest in providing comments when a draft of the final rules becomes available. To encourage transparency in the process for relicensing hydropower projects, we are recommending that the Secretaries of Agriculture, Commerce, and the Interior take the following two actions: Direct cognizant officials, where the agency has not adopted a proposed alternative condition or prescription, to include in the written statement filed with FERC (1) its reasons for not doing so, in accordance with the interim rules and (2) whether a proposed alternative was withdrawn as a result of negotiations and an explanation of what occurred subsequent to the withdrawal; and Issue final rules governing the use of the section 241 provisions after providing an additional period for notice and an opportunity for public comment and after considering their own lessons learned from their experience with the interim rules. We provided the departments of Agriculture, Commerce, and the Interior; FERC; the Hydropower Reform Coalition; and the National Hydropower Association with a draft of this report for their review and comment. FERC had no comments on the report. Commerce’s National Oceanic and Atmospheric Administration (NOAA), Interior, USDA’s Forest Service, the Hydropower Reform Coalition, and the National Hydropower Association provided comments on the report and generally agreed with the report’s recommendations. While Forest Service, Interior, and NOAA generally agreed with our recommendation that they file a written statement with FERC on their reasons for not accepting a proposed alternative, they all cited a circumstance in which they believed that they were not required to do so. Specifically, the three agencies commented that under the interim rules, they do believe that they are required to explain their reasons for not accepting a proposed alternative when the alternatives were withdrawn as a result of negotiations. Two of the agencies, Interior and NOAA, agreed to indicate when a proposed alternative was voluntarily withdrawn, and NOAA acknowledged that providing an explanation on what occurred after the withdrawal of an alternative may be appropriate in some circumstances. We continue to believe that providing an explanation for not accepting a proposed alternative is warranted, even when the proposed alternative is voluntarily withdrawn as a result of negotiations, and we have modified our recommendation to address this situation. The agencies could add transparency to the settlement process by laying out the basis for the modifications made to the preliminary conditions and prescriptions; the reasons the agencies had for not accepting the proposed alternative, including those alternatives withdrawn as a result of negotiations; and an explanation of what occurred subsequent to the withdrawal. Further, no provision of the interim rules discusses withdrawal of proposed alternatives or provides an exemption from the requirement to explain why a proposed alternative was not accepted. The agencies have an opportunity to clarify their approach to withdrawn conditions and prescriptions as they consider revisions to the interim rules. Interior and NOAA commented that they agreed with our recommendation regarding the issuance of final rules and are considering providing an additional public comment opportunity. According to Interior and NOAA, the resource agencies are currently working on possible revisions to the interim rules. NOAA also commented that resource agencies use the term “modified prescription” as a “term of art” to refer to the agencies’ final prescription, regardless of whether the final prescription actually differs from the preliminary one. As we noted in table 4 of this report, we counted a preliminary prescription as modified if the resource agency does not explicitly accept or reject the proposed alternative. In response to this comment, we added an additional clarifying footnote in the report. Interior suggested that we clarify in our report that agencies have no reason to write less protective recommendations because recommendations cannot be the basis for trial-type hearing requests. We did not change the language in our report because we believe that Interior’s assertion that agencies have no reason to write less protective recommendations may not always be the case. For example, as stated in our report, NMFS officials told us that a licensee had threatened to issue a trial-type hearing request on fish passage prescriptions if NMFS made flow rate recommendations that it did not agree with. The Hydropower Reform Coalition suggested that we collect additional information and conduct further analysis on the use of the section 241 provisions. We did not gather the suggested additional information or conduct additional analysis because in our view, they fell outside of the scope and methodology of our report. Appendixes I, II, III, IV, and V present the agencies’, the Hydropower Reform Coalition’s, and the National Hydropower Association’s comments respectively. Interior, NOAA, and the Hydropower Reform Coalition also provided technical comments, which we incorporated into the report as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees; the Secretaries of Agriculture, Commerce, and the Interior; the Chairman of the Federal Energy Regulatory Commission; and other interested parties. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed are listed in appendix VI. In addition to the contact named above, Ned Woodward, Assistant Director; Allen Chan; Jeremy Conley; Richard Johnson; Carol Herrnstadt Shulman; Jay Smale; and Kiki Theodoropoulos made key contributions to this report.

Under the Federal Power Act, the Federal Energy Regulatory Commission (FERC) issues licenses for up to 50 years to construct and operate nonfederal hydropower projects. These projects must be relicensed when their licenses expire to continue operating. Relevant federal resource agencies issue license conditions to protect federal lands and prescriptions to assist fish passage on these projects. Under section 241 of the Energy Policy Act of 2005, parties to the licensing process may (1) request a "trial-type hearing" on any disputed issue of material fact related to a condition or prescription and (2) propose alternative conditions or prescriptions. In this context, GAO was asked to (1) determine the extent to which stakeholders have used section 241 provisions in relicensing and their outcomes and (2) describe stakeholders' views on section 241's impact on relicensing and conditions and prescriptions. GAO analyzed relicensing documents filed with FERC and conducted a total of 61 interviews with representatives from relevant federal resource agencies, FERC, licensees, tribal groups, industry groups, and environmental groups. Since the passage of the Energy Policy Act in 2005, nonfederal stakeholders--licensees, states, environmental groups, and an Indian tribe--used section 241 provisions for 25 of the 103 eligible hydropower projects being relicensed, most of which occurred within the first year. Of these 25 projects, stakeholders proposed a total of 211 alternative conditions and prescriptions. In response, the federal resource agencies (U.S. Department of Agriculture's Forest Service, Department of Commerce's National Marine Fisheries Service, and several bureaus in the Department of the Interior) accepted no alternatives as originally proposed but instead modified a total of 140 and removed a total of 9 of the agencies' preliminary conditions and prescriptions and rejected 42 of the 211 alternatives; the remaining alternatives are pending as of May 17, 2010. Under section 241, resource agencies must submit a statement to FERC explaining the basis for accepting or rejecting a proposed alternative. While agencies generally provided explanations for rejecting alternative conditions and prescriptions, with few exceptions, they did not explain the reasons for not accepting alternatives when they modified conditions and prescriptions. As a result, it is difficult to determine the extent, type, or basis of changes that were made and difficult to determine if and how the proposed alternatives affected the final conditions and prescriptions issued by the agencies. As of May 17, 2010, nonfederal stakeholders requested trial-type hearings for 18 of the 25 projects in which section 241 provisions were used, and three trial-type hearings were completed. Of the remaining 15 projects, requests for hearings were withdrawn for 14 of them when licensees and agencies negotiated a settlement agreement before the administrative law judge made a ruling, and one is pending because the licensee is in negotiations to decommission the project. In the three hearings held to date, the administrative law judge ruled in favor of the agencies on most issues. According to the federal and nonfederal relicensing stakeholders GAO spoke with, the section 241 provisions have had a variety of effects on the relicensing process and on the license conditions and prescriptions. While most licensees and a few agency officials said that section 241 encourages settlement agreements between the licensee and resource agency, some agency officials said that section 241 made agreements more difficult because efforts to negotiate have moved to preparing for potential hearings. Regarding conditions and prescriptions, some stakeholders commented that under section 241, agencies put more effort into reviewing and providing support for their conditions and prescriptions, but environmental groups and some agency officials said that in their opinion, agencies issued fewer or less environmentally protective conditions and prescriptions. Many agency officials also raised concerns about increases in workload and costs as a result of section 241. For example, their estimated costs for the three hearings to date totaled approximately $3.1 million. Furthermore, many of the stakeholders offered suggestions for improving the use of section 241, including adjusting the time frame for a trial-type hearing. GAO recommends that cognizant officials who do not adopt a proposed alternative include reasons why in their statement to FERC. The resource agencies generally agreed, but commented that no explanation is required when an alternative is withdrawn as a result of negotiations.

You are an expert at summarizing long articles. Proceed to summarize the following text: The low priority assigned to increasing revenue results, in part, from the importance or emphasis given to other values and concerns, especially protecting resources and providing goods and services. Language in federal statutes implies that maximizing revenue should not be the overriding criterion in managing national forests. Moreover, increasingly, legislative and administrative decisions and judicial interpretations have required the Forest Service to give priority to non-revenue-generating uses over uses that can and have produced revenue. For example, the Endangered Species Act and other environmental and planning laws and their judicial interpretations limit the agency’s ability to generate revenue, requiring instead that priority be given to protecting species’ diversity and other natural resources, including clean water and clean air. In addition, both the Congress and the administration have increasingly set aside National Forest System lands for conservation—as wilderness, wild and scenic rivers, national monuments, and recreational areas. Only limited revenue-generating uses, such as timber sales and oil and gas leasing, are allowed in some of these areas. When the Forest Service can generate revenue, it is sometimes required to provide goods and services at less than their fair market value. For instance, the fee system for ski areas on national forests, developed by the ski industry and enacted into law in 1996, does not ensure that fees collected from ski areas reflect fair market value. Other legislative decisions not to charge fees for the use of most recreational sites and areas managed directly by the agency reflect a long-standing philosophy of free access to public lands. In addition, federal statutes and regulations have narrowly defined the instances in which the Forest Service can charge fees for noncommercial recreational activities, such as hunting and fishing by individuals on national forests, and the agency generally defers to state laws regulating these activities. As a result, forest managers do not charge individuals for hunting and fishing on their lands. Other legislative requirements that limit the generation of revenue from activities such as hardrock mining and livestock grazing reflect a desire to promote the economic stability of certain historic commodity uses. For example, the Mining Law of 1872 was enacted to promote the exploration and development of domestic mineral resources as well as the settlement of the western United States. Under the act’s provisions, the federal government receives no financial compensation for hardrock minerals, such as gold and silver, extracted from Forest Service and other federal lands. In contrast, the 11 western states that lease state-owned lands for mining purposes impose a royalty on minerals extracted from those lands. Similarly, the formula that the Forest Service uses to charge for grazing livestock on its lands keeps fees low to promote the economic stability of western livestock grazing operators with federal permits. In addition, revenue-retention and revenue-sharing provisions discourage efforts to control costs. For example, legislation allows the Forest Service to retain a portion of the revenue it generates from timber sales and requires the agency to share a portion of that revenue with states and counties, without deducting its costs. The costs to prepare and administer the sales are funded primarily from annual appropriations rather than from the revenue generated by the sales. As a result, neither the agency nor the states and counties have an incentive to control costs, and the Forest Service may be encouraged to sell timber at prices that would not always allow it to recover its costs. From fiscal year 1992 through fiscal year 1997, the Forest Service spent about $2.5 billion in appropriated funds and other moneys to prepare and administer timber sales but returned less than $600 million in timber sale revenue to the General Fund of the U.S. Treasury. When the Congress has given the Forest Service the authority to obtain fair market value for goods or to recover costs for services, the agency often has not done so. As a result, forgone revenue has cost taxpayers hundreds of millions of dollars, as the following examples from our prior work show. In June 1997, we reported that the sealed bid auction method is significantly and positively related to higher bid premiums on timber sales. However, the Forest Service used oral bids at single-bidder sales rather than sealed bids, resulting in an estimated decrease in timber sale receipts of $56 million from fiscal year 1992 through fiscal year 1996. In December 1996, we reported that, in many instances, the Forest Service has not obtained fair market fees for commercial activities on the national forests, including resort lodges, marinas, and guide services, or for special noncommercial uses, such as private recreational cabins and special group events. Fees for such activities are the second largest generator of revenue for the agency, after timber sales. The Forest Service’s fee system, which sets fees for most commercial uses other than ski operations, has not been updated for nearly 30 years and generally limits fees to less than 3 percent of a permittee’s gross revenue. In comparison, fees for similar commercial uses of nearby state-held lands averaged 5 to 15 percent of a permittee’s total revenue. In December 1996, we also reported that although the Forest Service has been authorized to recover the costs incurred in reviewing and processing all types of special-use permit applications since as far back as 1952, it has not done so. On the basis of information provided by the agency, we estimated that in 1994 the costs to review and process special-use permits were about $13 million. In April 1996, we reported that the Forest Service’s fees for rights-of-way for oil and gas pipelines, power lines, and communication lines frequently did not reflect fair market value. Agency officials estimated that in many cases—particularly in high-value areas near major cities—the Forest Service may have been charging as little as 10 percent of the fair market value. The Forest Service’s failure to obtain fair market value for goods or recover costs for services when authorized by the Congress results, in part, because the agency lacks a financial incentive to do so. One incentive would be to allow the agency to retain and spend the revenue generated to address its unmet needs. For example, from the end of World War II through the late 1980s, the Forest Service emphasized timber production on national forests, in part, because a substantial portion of the receipts from timber sales are distributed into a number of funds and accounts that the agency uses to finance various activities on a sale area. Even now, many forest managers have the opportunity to increase their budgets by increasing timber sales. Conversely, before fiscal year 1996, the Land and Water Conservation Act of 1965, as amended, required that revenue raised through collections of recreational fees be deposited in a special U.S. Treasury account. The funds in this account could become available only through congressional appropriations and were generally treated as a part of, rather than a supplement to, the Forest Service’s regular appropriations. However, in fiscal year 1996, the Congress authorized the fee demonstration program to test recreational fees as a source of additional financial resources for the Forest Service and three other federal land management agencies. The demonstration program legislation allows these agencies to experiment with new or increased fees at up to 100 sites per agency. The Congress directed that at least 80 percent of the revenue collected under the program be spent at the unit collecting the fees. The remaining 20 percent can be spent at the discretion of each agency. In essence, the more revenue that a national forest can generate through new or increased fees, the more it will have to spend on improving conditions on the forest. By allowing the agency to retain the fees collected, the Congress created a powerful incentive for forest managers to emphasize fee collections. Gross revenue from recreational fees on the national forests increased from $10.0 million in fiscal year 1996 to $18.3 million in fiscal year 1997, or by 83 percent, and to $26.3 million in fiscal year 1998, or by 163 percent compared with fiscal year 1996. Five sites each generated over $1 million in fiscal year 1998 compared with only two sites in fiscal year 1997. Two sites—the Mount St. Helens National Volcanic Monument on the Gifford Pinchot National Forest in Washington State and the Enterprise Forest Project in Southern California—each generated over $2.3 million in fiscal year 1998. The legislation also provided an opportunity for the four federal land management agencies to be creative and innovative in developing and testing fees by giving them the flexibility to develop a wide range of fee proposals. As a result, the Forest Service has, among other things, developed new methods for collecting fees and has experimented with more businesslike practices, such as peak-period pricing. These practices can help address visitors’ and resource management needs and can lower operating costs. According to Forest Service officials, the agency is evaluating whether to issue regulations that would allow forest managers to charge fees to recover their costs to review and process special-use permit applications. The administration also plans to forward legislative proposals to the Congress in the near future that would allow the agency to retain and spend all of the revenue generated by fees for commercial filming and photography on the national forests. Other legislative changes being considered by the agency would allow it to retain and spend all or a portion of the (1) revenue generated by fees charged to recover the costs to review and process special-use permit applications and (2) fees collected for resort lodges, marinas, guide services, private recreational cabins, special group events, and other commercial and noncommercial activities on the national forests. On the basis of our work, we offer the following observations on the Forest Service’s ongoing efforts to secure alternative sources of revenue. First, sustained oversight by the Congress will be needed to ensure that the agency maximizes revenue under existing legislative authorities. For instance, according to Forest Service officials, the agency is evaluating whether to issue regulations to allow forest managers to charge fees to recover their costs to review and process special-use permit applications. However, the agency has been authorized by the Congress to recover these costs since 1952 and has twice in the past 12 years developed, but not finalized, draft regulations to implement the authority. According to Forest Service headquarters officials, both times, staff assigned to develop and publish the regulations were reassigned to other higher-priority tasks. As a result, the agency estimates that it forgoes $5 million to $7 million annually. Second, new legislation that would allow the Forest Service to retain and spend more of the revenue generated by fees would provide forest managers with additional incentive to emphasize fee collections. However, providing the agency with this authority at this time would involve risks and difficult trade-offs. In particular, the Forest Service would not be able to accurately account for how it spent the money and what it accomplished with it. While the agency has made progress in recent years, it is still far from achieving financial accountability and possibly a decade or more away from being fully accountable for its performance. Because of its serious long-standing financial management deficiencies and the problems it has encountered in implementing its new accounting system, we recently designated the Forest Service’s financial management as a high-risk area vulnerable to waste, fraud, abuse, and mismanagement. In addition, allowing the Forest Service to retain and spend revenue that is generally treated as a part of, rather than an addition to, its regular appropriations would be included under the limits on discretionary spending imposed by the Budget Enforcement Act, as amended. Allowing the agency to retain fee revenue—rather than depositing the money in the General Fund of the Treasury—would also reduce the Congress’s ability to use these funds for other priorities. Furthermore, while this fee revenue may be initially earmarked for the Forest Service, nothing would prevent the Congress from using the revenue to offset, rather than supplement, the agency’s regular appropriations. Finally, new legislation being proposed or considered by the Forest Service is limited to special-use fees and, as such, does not address other potential sources of revenue. For instance, in a July 1998 report, a team of Forest Service employees identified steps that the agency should take to improve the way it conducts its business. In addition to recreational and special-use fees, the team identified the minerals and geology program and the relicensing of hydroelectric sites on the national forests as the greatest opportunities for securing alternative sources of revenue. In addition, we have reported that enacting legislation to impose a royalty on hardrock minerals extracted from Forest Service and other federal lands could generate hundreds of millions of dollars in increased revenue. However, allowing the Forest Service to collect, retain, and spend more of the revenue generated by goods and services on the national forests would require difficult policy choices and trade-offs. For example, collecting recreational fees conflicts with the long-standing philosophy of free access to public lands. Imposing a royalty on hardrock minerals extracted from national forests conflicts with the desire to promote the economic stability of this historic commodity use. And allowing forest managers to retain and spend revenue from oil and gas leasing and production would give them a strong financial incentive to lease lands that they might otherwise set aside for resource protection or conservation. Therefore, if the Congress believes that increasing revenue from the sale or use of natural resources should be a mission priority for the Forest Service, it will need to work with the agency to identify legislative and other changes that are needed to clarify and modify the Congress’s intent and expectations for revenue generation relative to ecological, social, and other values and concerns. Mr. Chairman, this concludes our prepared statement. We will be pleased to respond to any questions that you or Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. 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Pursuant to a congressional request, GAO discussed the barriers and opportunities for generating revenue on lands managed by the Forest Service. GAO noted that: (1) legislative and administrative decisions and judicial interpretations of statutory requirements have required the agency to shift its emphasis from uses that generate revenue, such as producing timber, to those that do not, such as protecting species and their habitats; (2) the Forest Service is required by law to continue providing certain goods and services at less than fair market value; (3) certain legislative provisions also serve as disincentives to either increasing revenue or decreasing costs; (4) because the costs are funded from annual appropriations rather than from the revenue generated, the agency does not have an incentive to control costs; (5) when Congress has provided the Forest Service with the authority to obtain fair market value for certain uses, or to recover costs for services, the agency often has not done so; (6) as a result, the Forest Service forgoes at least $50 million in revenue annually; (7) given a financial incentive and flexibility, the Forest Service can and will increase revenue; (8) for example, the recreational fee demonstration program, first authorized by Congress in fiscal year (FY) 1996, allows the agency to: (a) test new or increased fees at up to 100 sites; and (b) retain the revenue to help address unmet needs for visitor services, repairs and maintenance, and resource management; (9) by allowing the agency to retain the fees collected, Congress created an incentive for forest managers to emphasize fee collections; (10) gross revenue from recreational fees on the national forests increased from $10.0 million in FY 1996 to $26.3 million in FY 1998; (11) the administration plans to forward legislative proposals to Congress, and the Forest Service is considering other legislative changes that would allow the agency to collect, retain, and spend more fee revenue; (12) however, allowing forest managers to retain and spend all or a portion of the revenue they collect would involve risks and difficult trade-offs; (13) in particular, the Forest Service is still far from achieving financial and performance accountability and thus cannot accurately account for how it spends money and what it accomplishes with it; and (14) allowing the agency to collect, retain, and spend more of the revenue generated by goods and services on the national forests would also require difficult trade-offs or policy choices between increasing revenue and other values and concerns.

You are an expert at summarizing long articles. Proceed to summarize the following text: The national airspace system is a complex, interconnected, and interdependent network of systems, procedures, facilities, aircraft, and people that must work together to ensure safe and efficient operations. DOT, FAA, airlines, and airports all affect the efficiency of national airspace system operations. DOT works with FAA to set policy and operating standards for all aircraft and airports. As the agency responsible for managing the air traffic control system, FAA has the lead role in developing technological and other solutions that increase the efficiency and capacity of the national airspace system. FAA also provides funding to airports. The funding that airports receive from FAA for airport improvements is conditioned on open and nondiscriminatory access to the airlines and other users, and the airlines are free to schedule flights at any time throughout the day, except at airports that are subject to limits on scheduled operations. The airlines can also affect the efficiency of the airspace system through the number and types of aircraft that they choose to operate. As we previously reported, achieving the most efficient use of the capacity of the aviation system is difficult because it depends on a number of interrelated factors. The capacity of the aviation system is affected not only by airports’ infrastructure, including runways and terminal gates, but at any given time, can also be affected by such factors as weather conditions, resulting in variation in available airport capacity. For example, some airports have parallel runways that can operate simultaneously in good weather but are too close together for simultaneous operations in bad weather, a fact that reduces the number of aircraft that can take off and land. Another factor affecting capacity, apart from the capacity of individual airports, is the number of aircraft that can be safely accommodated in a given portion of airspace. If too many aircraft are trying to use the same airspace, some may be delayed on the ground and/or en route. Achieving the most efficient use of the national aviation system is contingent on a number of factors, among them the procedures and equipment used by FAA, the proficiency of the controllers to efficiently use these procedures and equipment to manage traffic, and whether and in what ways users are charged for the use of the airspace and airports. DOT and FAA can address flight delays primarily through enhancing and expanding capacity and implementing demand management measures. Capacity improvements: Capacity improvements can be in the form of expanding capacity or enhancing existing capacity in the system. Expanding capacity includes the addition of new runways, taxiways, and other infrastructure improvements, which can reduce delays by increasing the number of aircraft that can land and depart and provide an airport with more flexibility during high-demand periods and inclement weather. Enhancing capacity includes improvements in air traffic control procedures or technologies that increase the efficiency of existing capacity thereby reducing delays and maximizing the number of takeoffs and landings at an airport. Demand management measures: Examples include using administrative measures or economic incentives to change airline behavior. Administrative measures include DOT issuing limits on hourly operations at specific airports, while economic incentives include FAA’s amended policy on rates and charges that clarified the ability of airport operators to charge airlines landing fees that differ based on time of day. FAA’s actions to address flight delays are outlined in the agency’s strategic and annual business plans and the NextGen Implementation Plan. FAA’s 2009-2013 strategic plan, titled the Flight Plan, provides a 5-year view of the agency’s goals, related performance measures, and actions to achieve those goals. FAA’s Flight Plan and related annual business plans include four primary goals: Increased Safety, Greater Capacity, International Leadership, and Organizational Excellence. FAA’s goal of greater capacity is to “work with local governments and airspace users to provide increased capacity and better operational performance in the U.S. airspace system that reduces congestion and meets projected demand in an environmentally sound manner.” As part of this goal, FAA has outlined three objectives, one of which is to increase the reliability and on-time performance of the airlines. FAA’s progress toward meeting this goal is measured by its ability to achieve a national airspace system on-time arrival rate of 88 percent at the 35 OEP airports and maintain that level through 2013. Additionally, FAA’s Flight Plan and annual business plans assign actions across the agency—within FAA’s Air Traffic Organization and Office of Airports—to achieve this and other Flight Plan goals. In addition to outlining actions in FAA’s Flight Plan, the agency also issues an annual NextGen Implementation Plan that provides an overview of FAA’s ongoing transition to NextGen and lays out the agency’s vision for NextGen, now and into the midterm (defined as 2012 to 2018). The plan moreover identifies FAA’s goals for NextGen technology and program deployment and commitments made in support of NextGen. Recognizing the importance of near-term and midterm solutions, FAA requested that RTCA, Inc.—a private, not-for-profit corporation that develops consensus- based recommendations on communications, navigation, surveillance, and air traffic management system issues—create a NextGen Midterm Implementation Task Force to reach consensus within the aviation community on how to move forward with NextGen. The latest version of the NextGen Implementation Plan, issued in March 2010, incorporated the task force’s recommendations, which identified operational improvements that can be accelerated between now and 2018. FAA’s actions described in these plans are designed not only to reduce delays, but can also improve safety, increase capacity, and reduce aviation’s environmental impact. Although these actions might reduce delays, flight delays can also be affected by factors generally outside FAA’s control, such as airline scheduling and business practices. For example, some airline business models rely on tight turnaround times between flights, which could make it more likely that flights scheduled later in the day are delayed. Additionally, except at slot-controlled airports, airlines can schedule flights at any time throughout the day without consideration of the extent to which the number of scheduled flights during a particular time period might exceed the airport’s available capacity. DOT and FAA collect information on aviation delays through three primary databases—Airline Service Quality Performance (ASQP), Aviation System Performance Metrics (ASPM), and OPSNET. As table 1 shows, these databases vary in their purposes, scope, and measurement of delays. Figure 1 illustrates FAA facilities that control and manage air traffic over the United States and how each database captures points where flights could be delayed. For example, ASQP and ASPM measure delays against airlines’ schedules or flight plans, while OPSNET measures delays that occurred while an aircraft is under FAA’s control. The difference in how delays are measured in these data sets will result in some flights being considered delayed in one database but not in another, and vice versa. For example, a delay relative to an airline’s schedule can occur if a flight crew is late, causing the flight to leave the gate 15 minutes or more behind schedule, which would be reported as a delay in the ASQP and ASPM databases. If that flight, once under FAA control, faces no delay in the expected time it should take taxiing to the runway and lifting off as well as traveling to the destination airport, it would not be reported as a delayed flight in OPSNET, even if it reaches the gate at the destination airport late, relative to its scheduled arrival time. Conversely, a flight could be ready to take off on time, suffering no departure delay in pushing back from the gate. However, if once under FAA control, the flight is held on the ground at the departure airport by more than 15 minutes because of an FAA facility instituting a traffic management initiative in response to weather conditions, increased traffic volume, or other conditions, it will be recorded as experiencing an OPSNET delay—even if, relative to the airline’s schedule, it is actually able to reach the gate at the destination airport within 15 minutes of its scheduled arrival time. The percentage of delayed arrivals has decreased systemwide since 2007, according to ASQP data. As shown in figure 2, in 2009, about 21 percent of flights were delayed systemwide—that is, arrived at least 15 minutes late at their destination or were canceled or diverted—representing a decrease of 6 percentage points from 2007. Arrival delay times have also decreased systemwide since 2007 (fig. 2). Average delay times for delayed arrivals decreased by about 2 minutes— from 56 minutes in 2007 to 54 minutes in 2009. However, there was a 1- minute increase in average arrival delay time from 2007 to 2008, likely because of the slight increase in the percentage of arrivals delayed 3 hours or more from 2007 to 2008. As figure 3 shows, in 2009, about 41 percent of delayed arrivals had delays of less than 30 minutes. Also, the percentage of arrivals delayed more than 30 minutes decreased from 2007 through 2009. In addition to the decrease in arrivals delayed more than 30 minutes, the number of flights experiencing tarmac delays of over 3 hours also decreased—from 1,654 flights in 2007 (0.02 percent of total flights) to 903 flights in 2009 (0.01 percent of total flights). As of April 29, 2010, DOT requires airlines to, among other things, adopt contingency plans for tarmac delays of more than 3 hours that must include, at a minimum, making reasonable accommodations (i.e., offer food, water, or medical services) during such delays. Failure to comply will be considered an unfair or deceptive practice and may subject the airline to enforcement action and a fine of up to $27,500 per violation. See appendix II for trends in long tarmac delays from 2000 through 2009. The percentage of delayed arrivals also decreased across almost all of the 34 OEP airports since 2007, according to ASPM data, although the declines varied by airport. As shown in figure 4, such decreases ranged from about 3 percentage points to 12 percentage points. For example, New York’s LaGuardia (LaGuardia) and John F. Kennedy International (JFK) airports registered decreases of about 10 percentage points—to 28 percent and 26 percent in 2009, respectively. Arrival delays at Newark Liberty International (Newark) decreased about 5 percentage points, to about 32 percent in 2009. An increase in delayed arrivals at Atlanta Hartsfield International (Atlanta) occurred between 2008 and 2009, primarily driven by an increase in the number of scheduled flights and the extent of the peaks in scheduled flights throughout the day. Although Atlanta experienced a 0.6 percentage point decrease in the number of delayed arrivals from 2007 to 2008, the percentage of delayed arrivals increased 2.5 percentage points from 2008 through 2009—to about 27 percent. According to FAA analysis, the average number of scheduled flights exceeded the airport’s average called rate—that is, the number of aircraft that an airport can accommodate in a quarter hour given airport conditions—for more periods in March 2009 than in March 2008, demonstrating how changes in the airlines’ schedules likely contributed to Atlanta’s increased delays. Fewer flights since 2007, because of a downturn in passenger demand and airline cuts in capacity, have likely been the largest contributor to the decrease in delayed arrivals. FAA, airport, and airline officials that we spoke with attributed the majority of improvements in delays to the systemwide reduction in the number of flights. As shown in figure 5, trends in the percentage of delayed arrivals appear to generally track with trends in the number of arrivals. For example, when the number of total arrivals in the system decreased 7 percent from 2000 through 2002, the percentage of delayed arrivals decreased systemwide by 7 percentage points, according to DOT data. To corroborate FAA and stakeholder views on the relationship between the recent reductions in flights and declines in delays, we performed a correlation analysis between the number of total arrivals and delayed arrivals. This analysis found a significant correlation between these two factors, confirming the various stakeholders’ views that the recent decrease in flights from 2007 through 2009, therefore, is likely a significant driver of the decrease in delays. Recent runway improvements also helped reduce delays at some airports. As shown in table 2, from 2007 through 2009, new runways at Chicago O’Hare International (Chicago O’Hare), Seattle-Tacoma International (Seattle), and Washington Dulles International (Washington Dulles) and a runway extension in Philadelphia International (Philadelphia) have opened. According to project estimates, the new runway projects are expected to provide these airports with the potential to accommodate over 320,000 additional flights annually and decrease the average delay time per operation by about 1 minute to 3.5 minutes at these airports. For example, since 2007, Chicago O’Hare has seen the largest decrease in the percentage of arrivals delayed for the 34 OEP airports, according to FAA data, and some of this improvement is likely because of the new runway. In examining Chicago O’Hare’s called rates, we found that after Chicago O’Hare’s new runway opened in the summer of 2009, the airport had the potential to accommodate, on average, about 9 percent more flights than it had been able to handle in the summer of 2008. According to FAA officials, the new runway allowed Chicago O’Hare to accommodate an additional 10 to 16 arrivals per hour because of additional options with respect to its runway configuration. More importantly, this increased capacity helps reduce delays the most when an airport is constrained because of, for example, weather or runway construction. For example, Chicago O’Hare’s new runway allows it to accommodate 84 arrivals per hour during poor weather, whereas prior to the new runway, it could accommodate only 68 to 72 arrivals in such weather. This increased capacity results in fewer delayed flights during bad weather. However, not all of the reduction in delayed arrivals can be attributed to the new runways because another key factor—the decline in the number of flights—also helped to reduce delays. According to FAA officials, FAA does not analyze the extent to which the estimated delay benefits are realized once a runway is opened because delay reduction is expected. They also noted that measuring the benefits of these projects is difficult because a myriad of factors, such as the installation of new technologies or procedures or changes in airline schedules, may also affect the number of flights and delays at an airport, making it difficult to isolate the benefits of the new runway. More notably, the recent drop in the number of flights was outside the bounds of FAA’s analysis of these projects’ delay estimates, making it is difficult to determine the actual realized benefits. Despite these challenges, by not measuring the actual benefits against estimated benefits, FAA cannot verify the accuracy of its analysis or modeling for future runway projects. The extent to which FAA’s operational and policy actions contributed to reduced delays since 2007 is unclear, although they likely resulted in some limited delay reduction benefits. In 2007, the DOT-convened New York Aviation Rulemaking Committee (New York ARC) developed a list of operational improvements targeted at the three New York area airports— Newark, JFK, and LaGuardia. To avoid a repeat of 2007 delays, FAA also instituted hourly limits on the number of scheduled flights at these airports. As we reported in July 2008, the collective benefit of DOT’s and FAA’s actions was expected to be limited. FAA’s hourly schedule limits at Newark, JFK, and LaGuardia likely contributed to some delay reduction benefits beginning in 2008 by reducing the level of peak operations and spreading flights throughout the day. During the summer of 2008, each of these airports experienced an increase in the number of arrivals and a decrease in the percentage of arrivals delayed. For example, the number of arrivals at JFK increased by 2 percent from the summer of 2007 through the summer of 2008, while arrival delays decreased by about 5 percentage points. The effect of these limits in 2009 was likely less pronounced because these three airports experienced fewer flights as a result of the economic downturn. However, without these limits, the number of flights and delays might have increased in 2008 given that airlines proposed to increase their schedules by 19 percent over 2007 levels. See appendix V for more information on how the limits were set and FAA’s analysis of the effect of the limits at the three New York area airports for 2007, 2008, and 2009. According to FAA, as of March 2010, 36 of the 77 operational and procedural initiatives identified by the New York ARC have been “completed,” meaning that these procedures are in place and available for use. However, as we reported in our July 2008 testimony, operational and procedural initiatives are designed to be used only in certain situations. Furthermore, although some of the procedures are available for use, they are not currently being used by the airlines, because some of the procedures were designed to reduce delays when the airports were handling more flights and experiencing higher levels of delay. For example, airlines have opted not to use one procedure that involves routing aircraft around the New York airports, which lengthens the route and could increase the airlines’ fuel and crew costs. According to FAA officials, airlines have opted not to use this procedure, not only because of these additional costs, but also because delays are down with the current reduction in flights, making it unnecessary. FAA has also implemented various systemwide actions that may have had some effect in reducing delays. For example, in 2007, FAA implemented the adaptive compression tool—which identifies unused arrival slots at airports that are due to FAA’s traffic management initiatives, such as initiatives that delay aircraft on the ground, and shifts new flights into these otherwise unused slots. FAA estimated that this tool reduced delays and saved airlines $27 million in 2007. See appendix VI for additional information on DOT’s and FAA’s actions to reduce delays at locations across the national airspace system. Despite fewer delayed flights since 2007, some airports still experienced substantial delays in 2009, according to FAA’s ASPM data. For example, five airports—Newark, LaGuardia, Atlanta, JFK, and San Francisco—had at least a quarter of their arrivals delayed in 2009 (fig. 6). In addition, these delayed arrivals had average delay times of almost an hour or more. Excluding the 10 airports with the highest percentage of delayed flights, the remaining OEP airports had fewer than one in five arrivals delayed, with average delay times of about 53 minutes. The 10 airports with the highest percentage of delayed flights generally had more delays associated with the national aviation system than other OEP airports, according to ASQP data. For example, over 70 percent of Newark’s delays were reported as national aviation system delays, which refer to a broad set of circumstances affecting airport operations, heavy traffic volume, and air traffic control, including nonextreme weather conditions such as wind or fog (fig. 7). In addition, these 10 airports accounted for about half of all the reported national airspace system delays for the 34 OEP airports in 2009, according to DOT data. See appendix IV for airline-reported sources of delay for delayed and canceled flights for the 34 OEP airports. The high percentage of national aviation system delays at these airports likely reflects that these airports are more sensitive to changes in airport capacity because they frequently operate near or exceed their available capacity. For example, the DOT Inspector General reported that at Newark, LaGuardia, JFK, and Philadelphia, airlines scheduled flights above the average capacity in optimal conditions at these airports in the summer of 2007. In further examining the relationship between the level of delay and the relationship of scheduled flights to an airport’s available capacity, we selected the 4 airports with the highest percentage of delayed flights—Newark, LaGuardia, JFK, and Atlanta—along with 2 airports that are among the 34 OEP airports with the lowest percentage of delayed flights—Chicago Midway and Lambert-St. Louis International (St. Louis)— and analyzed data on the number of scheduled flights and available capacity at these 6 airports. We found that all 4 of the delay-prone airports had flights scheduled above the airports’ capacity levels for at least 4 hours of the day, while the 2 airports with lower levels of delay never had the number of scheduled flights exceeding capacity. Operating close to capacity becomes especially problematic when weather conditions temporarily diminish the capacity at an airport. In particular, while flights to and from an airport operating close to or exceeding capacity might become very delayed in inclement weather conditions, flights to and from another airport that has unused capacity may not be delayed by a similar weather event. While the flight delay data from DOT and FAA data sources previously discussed serve as the primary source of air travel information for consumers, OPSNET helps the agency understand which FAA facilities are experiencing delays, why the delays are occurring (e.g., weather or heavy traffic volume), and uniquely, which facilities are the source of that delay. Unlike the other databases, which measure delays against airline schedules, OPSNET database collects data on delays that occur solely while flights are under FAA control. For example, a flight would be recorded as delayed in OPSNET if it is held on the ground at the departure airport for more than 15 minutes because of an FAA facility instituting a traffic management initiative in response to weather conditions, increased traffic volume, or other circumstances. FAA measures delays within the air traffic control system to assess its performance because an inefficient air traffic control system contributes to higher levels of delayed flights. As figure 8 shows, many of the delay-prone airports that we identified earlier in the report based on our analysis of arrival delays also experience the most departure delays, according to OPSNET. In OPSNET terminology, these delays are called occurred-at delays because they represent delays that happened at the given airport. In addition to capturing where the delay occurred (as shown above), OPSNET provides information on what facility the delay was attributed to—that is, which facility instituted a traffic management initiative that resulted in flights being delayed. If, for example, a flight departing Atlanta was delayed because of weather problems in Atlanta, Atlanta would be recorded as both the occurred-at facility and the attributed-to facility in OPSNET. However, if fog in San Francisco delays a flight leaving Minneapolis bound for San Francisco, Minneapolis is the occurred-at facility, but San Francisco is the attributed-to facility. This concept of assigning attribution for delays is different than the notion of “propagated delay,” in which a delayed flight early in the day may cause delays to flights later in the day because of a late-arriving aircraft or crew. Instead, delay that is attributed to a facility in OPSNET relates only to a given flight segment and is determined to be associated with the airport or other air traffic control facility that had a traffic management initiative in place that held flights at a particular location. As figure 9 shows, almost half—49 percent—of all departure delays occurring at the 34 OEP airports were attributed to just 3 airports— Atlanta, Newark, and La Guardia, according our analysis of OPSNET. However, these 3 airports accounted for only 13 percent of departures among these 34 airports in 2009. In addition, 7 airports and their associated TRACONs were the source of approximately 80 percent of all departure delays captured in OPSNET in 2009 (see fig. 10). Figure 10 also shows that in the case of the combined New York airports as well as for 3 of the 4 remaining airports (the exception is Atlanta), a majority of the departure delays that were attributed to these airports actually occurred at—or were experienced at—other airports. For example, Philadelphia was the source of over 26,000 delayed departures throughout the national airspace system in 2009, but fewer than 7,500 of these delays (or 28.2 percent) occurred at Philadelphia. Further analysis (see pie chart in fig. 10) shows that for all of the departure delays among the 34 OEP airports that occurred at an airport other than the airport that generated the delay, 83 percent were attributed to these 7 airports. FAA has identified these same 7 airports as among the most delayed airports in the system in need of further monitoring for possible changes in airline schedules and potential delays—a process that we discuss later in this report. FAA’s actions have the potential to reduce delays in the next 2 to 3 years and are generally being implemented at airports that experience and contribute substantial delays to the system, including the 7 airports that are the source of a majority of the delays in the system (Newark, LaGuardia, Atlanta, JFK, Philadelphia, Chicago O’Hare, and San Francisco). While FAA’s long-term solution to expanding capacity and reducing delays is NextGen improvements that will not be fully implemented until 2025, we used FAA’s Flight Plan and NextGen Implementation Plan to identify several actions that are slated to be implemented in the next 2 to 3 years, have the potential to help meet short- term capacity needs, and improve the operational performance of the U.S. aviation system. These actions include implementing near-term elements of NextGen, constructing runways, implementing a new airspace structure for the airports serving the New York/New Jersey/Philadelphia metropolitan area, and revising air traffic control procedures. More detailed information on the actions and their locations can be found in appendix VI. According to FAA, the purpose of many of these actions is not only to reduce delays, but just as importantly, they can also improve safety, increase capacity, and reduce fuel burn. Many of the actions for reducing delays over the next 2 to 3 years are being implemented at some of the most congested airports in the system. For example, Actions that FAA has in place or planned for the New York area airports— such as the New York ARC initiatives, the New York/New Jersey/Philadelphia airspace redesign, and hourly schedule limits—are being implemented to help address widespread delays at the congested New York airports. The remaining ARC initiatives and other actions to reduce delays at the New York airports were recently incorporated into the New York Area Delay Reduction Plan, which FAA expects to update monthly. The agency continues to maintain the schedule limits, which were designed to limit airline overscheduling and limit delays in the New York area to below the levels experienced in summer 2007. Additionally, FAA issued an order in January 2009 outlining its plans to reduce the number of hourly scheduled flights at LaGuardia from 75 to 71 through voluntary reductions and retirements of slots by the airlines. FAA has also continued to implement various air traffic management improvements and begun implementation of NextGen procedures and technologies, many of which are expected to be implemented at the most congested airports. The RTCA NextGen Mid-Term Implementation Task Force recommended that FAA target key airports when implementing NextGen capabilities between now and 2018. FAA used these recommendations to help develop its 2010 NextGen Implementation Plan, which includes actions to be implemented in the next 2 to 3 years, including additional Area Navigation (RNAV) and Required Navigation Performance (RNP) procedures, often called performance-based navigation procedures. In response to the RTCA recommendations, FAA plans to focus on increasing the use of performance-based navigation at some of the key airports identified by the task force. According to FAA air traffic officials, an automated metering tool used to help manage arrival aircraft—Traffic Management Advisor (TMA)—has contributed to more efficient departure and arrival performance at several OEP airports, including Atlanta and Newark. To help reduce delays at San Francisco and other busy airports, FAA has also tested tailored arrival procedures, which allow the pilot to fly the most efficient descent into the arrival airport. Over the next 2 to 3 years, Chicago O’ Hare, JFK, Charlotte/Douglas International (Charlotte), and Portland International (Portland) will continue to pursue infrastructure projects to increase the capacity of their airports and surrounding airspace. Chicago O’Hare—one of the airports that contributes substantial delays to the national airspace system—is scheduled to open another new runway in 2012 that is expected to provide the airport with the potential to accommodate as many as 30,900 additional flights annually. At Charlotte, a new runway opened in February 2010 that has the potential to accommodate as many as 80,000 additional flights annually. Later this year, Portland is expected to complete a runway extension, although benefits for this project are not estimated. Airport infrastructure projects such as these will help reduce delays at these airports and should also help decrease delays elsewhere in the system. Many delay reduction actions face implementation challenges that may limit their ability to reduce delays in the next 2 to 3 years. For example, according to officials, one challenge FAA faces in implementing the remaining New York ARC initiatives is that airlines do not have a current need for or interest in using some of the procedures because of recent declines in air traffic. Implementation may be difficult for other air traffic management tools—such as TMA—because, according to the DOT Inspector General, they represent a significant change in how air traffic controllers manage traffic. Effective training will be required to ensure air traffic managers and controllers become familiar with and gain confidence in newly automated functions. However, TMA has been deployed and is currently being used at many airports, including Newark, LaGuardia, and JFK. Some airline officials noted that TMA implementation has been beneficial, but there have been some implementation challenges because of the transition to an automated system. While introducing new RNAV and RNP procedures could help reduce delays in the next 2 to 3 years, as we have previously reported, developing these procedures in a timely manner is a challenge. In the New York area, for example, some of these procedures cannot be implemented until the New York/New Jersey/Philadelphia airspace redesign is completed, which is currently behind schedule. FAA did not fully account for future use of new technology such as RNAV in its analysis, so the New York/New Jersey/Philadelphia airspace redesign has to be completed in order to implement new performance-based navigation procedures in the study area. In addition, most procedures that FAA has implemented are overlays of existing routes rather than new procedures that allow more direct flights. Overlays can be deployed more quickly and do not involve an extensive environmental review, but they do not maximize the delay reduction benefits of RNAV and RNP. FAA’s goals for RNAV and RNP focus on the number of procedures produced, not whether they are new routes or the extent to which they provide benefits or are used. For example, FAA believes that it can annually develop about 50 RNAV and RNP procedures, 50 RNAV routes, and 50 RNP approaches. Given that FAA plans to implement a total of 2,000 to 4,000 RNAV and RNP arrival and departure procedures alone, it is clear that only a limited number of new procedures—which could provide delay reduction benefits—will be implemented in the next 2 to 3 years. Implementation of NextGen also faces several challenges, including operating in a mixed equipage environment, addressing environmental issues, and changing FAA’s culture. For example, it is difficult for air traffic controllers to manage aircraft equipped with varying NextGen capabilities, particularly in busy areas, because controllers would have to use different procedures depending on the level of equipage. It is also difficult for FAA to complete all the required environmental reviews quickly because any time an airspace redesign or new procedure changes the noise footprint around an airport, an environmental review is initiated under the National Environmental Policy Act (NEPA). FAA also faces cultural and organizational challenges in integrating and coordinating activities across multiple lines of business. Sustaining a high level of involvement and collaboration with stakeholders—including operators, air traffic controllers, and others—will also be necessary to ensure progress. More recently, software and other technical issues experienced at test sites have delayed systemwide implementation of core NextGen functionality. FAA has various tools for measuring and analyzing how its actions might reduce delays, including establishing an on-time performance target, estimating delay reduction benefits for NextGen and some individual initiatives, and regularly monitoring system performance across the national airspace system and at individual airports. FAA measures improvements in delays through its NAS on-time performance target: FAA established an 88 percent national airspace system (NAS) on-time arrival performance target to measure how its actions help meet its Flight Plan goal of increasing the reliability and on- time performance of the airlines. According to FAA, this performance target provides information on FAA’s ability to provide air traffic control services to the airlines and is set based on 3 years of historical trending data. Because DOT’s ASQP data are used for this target and contain flight delays caused by incidents outside FAA’s control—such as extreme weather or carrier-caused delay—FAA removes such delays not attributable to the agency to provide a more accurate method of measuring FAA’s performance. Even with these modifications to the data, FAA notes that the actual measure can still be influenced by factors such as airline schedules or nonextreme weather. FAA analyzes the delay reduction benefits of some actions: FAA has modeled and estimated total delay reduction benefits from NextGen. In addition to benefits from safety, fuel savings, and increased capacity, FAA estimates that, in aggregate, planned NextGen technologies—including the New York/New Jersey/Philadelphia airspace redesign and RNAV and RNP routes—and planned runway improvements will reduce delays by about 21 percent by 2019 as measured against doing nothing at all (fig. 11). In particular, given the estimated growth in traffic, FAA estimates that NextGen and other planned efforts will keep delays from growing as fast as they would without them, but delays are still expected to grow from today’s levels. According to FAA’s model simulations, total delay minutes are predicted to double from current levels, even when assuming all planned NextGen and other runway improvements occur. At the airport level, FAA provided us with additional results from its simulations that suggest that, even after taking into consideration the benefits of new runways and NextGen technologies, flights at several airports may experience higher average delays per flight in 2020 than experienced today. FAA has also analyzed delay reduction benefits for elements of some major projects and individual actions, though we did not verify or evaluate these analyses or estimates. For example, postimplementation analysis for the first phase of the New York/New Jersey/Philadelphia airspace redesign showed that both Newark and Philadelphia airports experienced increases in the number of departures during times when the new departure headings were used, resulting in an estimated decrease of almost 1 minute of taxi time and a 2.5 percent decrease in the time between when the aircraft pushes back from the gate to when it takes off from the airport— which is referred to as “out to off time”—during the morning departure push at Newark. FAA also assessed capacity and delay reduction benefits for some air traffic management improvements. For example, FAA estimates that the implementation of TMA improved FAA’s ability to manage aircraft, resulting in capacity increases of 3 to 5 percent. As part of the review process for the New York ARC initiatives, FAA officials selected some of the ongoing and completed initiatives for further analysis based on their potential to reduce delays. For example, FAA conducted a study of the simultaneous instrument approaches at JFK that showed an increase in arrival capacity of 12 flights per hour. According to FAA officials, it is difficult to isolate the overall benefit of an individual initiative given the complexity of assessing all the actions in place and all of the factors affecting the system at any given time. FAA monitors system performance: FAA also monitors airport and system delays using tools, such as targeted analysis and performance dashboards, that track operational performance on a daily basis. This routine monitoring allows officials to try to assess how a given event may have affected performance. FAA officials recently added data to its dashboards to enable users to compare current performance with that for previous days, months, or years and to provide additional insight on performance trends. Also, FAA recently began to implement a process for monitoring airport performance. In response to peak summer delays in 2007, FAA officials began using airline schedules to estimate delay trends at the OEP airports and identify airports that may experience significant delays in the next 6 to 12 months. If an airport is expected to experience significant delays—that is, aircraft waiting to depart for more than 5 minutes—FAA would then evaluate whether a congestion action team should be formed to develop actions in response to these potential delays. However, because of the recent decline in the number of flights systemwide, FAA has yet to take any new actions based on this monitoring. Although FAA’s target of 88 percent on-time arrival performance provides a measure of the agency’s overall goal to provide efficient air traffic control services, it masks the wide variation in airport performance, making it difficult to understand how individual airport performance relates to the overall target. For example, in fiscal year 2009, Newark had an on-time arrival rate of only 72 percent, while St. Louis easily exceeded the target with 95 percent on-time performance. Despite this variability in performance, FAA has not established airport-specific targets for on-time performance. FAA officials noted that they are trying to develop airport- specific on-time performance targets, but efforts in developing these targets are in the very early stages, and they do not currently have plans to make these targets publicly available or hold FAA officials at the local airport or national level accountable for achieving these targets. The absence of performance targets for individual airports hinders FAA, aviation stakeholders, and the public from understanding a desired level of on-time performance for individual airports and results in FAA lacking a performance standard by which it can prioritize and demonstrate how its actions reduce delays at the most congested airports and throughout the system. For example, as previously noted, FAA’s implementation of new departure headings resulted in performance improvements at Philadelphia and Newark, according to the MITRE analysis. Yet those improvements lack a performance standard against which FAA might prioritize its actions and determine if the improvements helped meet or exceed, or still fall short of, the overall targeted level of performance for these airports or how they affected the overall on-time performance goal. For example, reducing delays at the airports that currently impose approximately 80 percent of all departure delays within the air traffic control system could not only have a measurable benefit at these airports, but could also improve performance of the overall national airspace system. Furthermore, although FAA’s analyses of delay reduction benefits demonstrate improvements at various airports, it remains unclear whether further actions are required to achieve a targeted level of performance at these airports since targeted levels of airport performance have not been established. As part of its NextGen Mid-Term Implementation Task Force recommendations, RTCA is encouraging FAA to move away from traditional national deployments of new technologies to an airport-centric approach that deploys solutions at key airports and for large metropolitan areas where problems with congestion and delay are most acute. Airport- specific performance targets could help in measuring the extent to which FAA’s airport-focused actions are helping to improve performance or whether additional actions are needed to address delays at the most congested airports. Moreover, although NextGen will keep delays at many airports from getting worse than would be expected without NextGen, FAA’s NextGen modeling indicates that even if all ongoing and planned NextGen technologies are implemented, a few airports, such as Atlanta, Washington Dulles, and possibly Philadelphia, may not be able to meet the projected increases in demand, and if market forces do not dampen that demand, additional actions may be required at these airports. However, without airport-specific targets, FAA cannot determine what additional actions might be required to achieve a targeted level of performance at these airports. Over the next 2 to 3 years, FAA has numerous actions planned or under way that are expected to increase capacity and improve the performance of the overall aviation system. Although these actions may reduce delays and help FAA achieve its overall on-time performance goal, FAA’s ability to prioritize these actions and communicate their benefits is inhibited by the absence of individual airport on-time performance targets. Identifying performance targets for individual airports and how these targets relate to the overall agency goal will provide a standard by which FAA can measure and prioritize its actions to reduce delays at these airports and overall. This is particularly important in understanding the extent to which FAA’s actions are addressing delays at the 7 airports—Newark, LaGuardia, Atlanta, JFK, San Francisco, Chicago O’Hare, and Philadelphia—that are currently responsible for about 80 percent of the delays across the air traffic control system. Although airport-specific on-time performance targets should not be the only measure of FAA’s performance in reducing delays in the system, by setting these targets, FAA may be motivated to better focus its actions at these airports, resulting in reduced delays not only at these airports but also at other airports in the national airspace system. Airport-specific goals would also help FAA better communicate how actions at the airport and national levels contribute to the agency’s overall goals, improve airport performance, and demonstrate how its actions are affecting delays. Additionally, even with NextGen, delays at some of the most congested airports are expected to continue and could get worse, requiring FAA to consider additional policy actions to maintain airport performance. Airport-specific goals could help FAA identify and communicate what additional actions might be required to achieve a targeted level of performance at these airports. We recommend that the Secretary of Transportation direct the Administrator of FAA to develop and make public airport-specific on-time performance targets, particularly for the most congested airports that impose delays throughout the air traffic control system, to better prioritize FAA’s actions to reduce delays and demonstrate benefits of those actions. We provided a draft of this report to DOT for its review and comment. DOT and FAA officials provided technical comments that we incorporated as appropriate. In addition, in e-mailed comments, an FAA official reiterated that the agency has been working to develop and implement airport-specific performance targets, but that this process remains ongoing given the complex nature of compiling historical data and airport-specific performance information to create baseline targets. The official also noted that airport-specific on-time performance targets are one of the many tools that FAA can use to manage and measure delays at the airport level and systemwide and that the agency continues to identify ways to improve how it measures performance. For example, FAA plans to use new radar and airport surface detection data to help refine its causal delay data. While we agree that these measures could help FAA further understand delays, we continue to believe that airport-specific on-time performance targets could help FAA demonstrate how its actions are affecting delays at individual airports and throughout the national airspace system, but they could also help FAA, aviation stakeholders, and the public understand the desired level of airport performance. Furthermore, establishing airport- specific targets in addition to the agency’s overall on-time performance target would help FAA focus its actions on those airports where improvements could result in the greatest impact and communicate to stakeholders how its actions relate to its goals. We are sending copies of this report to the Secretary of Transportation and the Administrator of the Federal Aviation Administration. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, please call me at (202) 512-2834 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VII. In this report, we examined the extent to which (1) delays in the U.S. national aviation system have changed since 2007 and the factors contributing to these changes, and (2) actions by the Department of Transportation (DOT) and the Federal Aviation Administration (FAA) are expected to reduce delays in the next 2 to 3 years. To determine how delays have changed, we analyzed DOT and FAA data on U.S. passenger airline flight delays by airport and for the entire aviation system through 2009. Using DOT’s Airline Service Quality Performance (ASQP) data, we analyzed systemwide trends in flight delays, including cancellations, diversions, long tarmac delays, and average delay minutes, for calendar years 2000 through 2009. Using FAA’s Aviation System Performance Metrics (ASPM) data, we analyzed airport-specific trends in the number of total flights, delayed flights, and delay time for 34 of the 35 airports in FAA’s Operational Evolution Partnership (OEP) program for calendar years 2007 through 2009. We focused on these 34 OEP airports because they serve major metropolitan areas located in the continental United States and handled more than 70 percent of passengers in the system in 2008; additionally, much of the current delays in air traffic can be traced to inadequate capacity relative to demand at these airports, according to FAA. We also analyzed DOT’s ASQP data on airline-reported sources of delayed and canceled flights for these 34 airports for calendar year 2009. To assess the extent to which these 34 airports experienced and contributed delays to the aviation system, we analyzed calendar year 2009 data from FAA’s Operations Network (OPSNET), which measures departure delays, airborne delays, and delays resulting from traffic management initiatives taken by FAA in response to weather conditions, increased traffic volume, runway conditions, equipment outages, and other affecting conditions. Our analysis included data from the OEP airports (excluding Honolulu) and their associated terminal radar approach control facilities (TRACON). Since 16 location identifiers are used for a combination of airports and TRACONs, resulting in combined data, we worked with FAA to determine how to identify the number of departures and departure delays to attribute to each individual airport and TRACON in our universe. To separate out these data, we examined the different categories of OPSNET delays: departure delays (flights incurring a delay at the origin airport prior to departure), airborne delays (flights held en route), and two categories of traffic management delays—delays occurring at one facility resulting from a traffic management initiative instituted by another facility (“traffic management from” delays) and delays charged to the facility instituting the traffic management initiative, which may occur at another facility in the system (“traffic management to” delays). Since TRACONs handle airborne flights only and airports handle flights preparing for takeoff or landing, we allocated all airborne delays to the TRACONs and all departure and traffic management from delays to the airport for these combined facilities. In separating out the traffic management to delays, we allocated all of these delays to the OEP airport, unless the delay occurred at another airport associated with that TRACON—in which case, we allocated those delays to the TRACON. Our analysis focused on departures, departure delays, and both categories of traffic management delays because the majority of delays recorded in OPSNET occur before an aircraft takes off from an airport and therefore are captured in these delay categories. Once we separated the delay for each air traffic control tower and TRACON, we calculated the following measures for the facilities in our universe: the number of departures at a facility as a percentage of the total; percentage of delayed departures occurring at each facility; and percentage of delayed departures charged, or attributed to each facility and where that delay occurred. Our analysis of OSPNET includes only calendar year 2009 because in recent years, FAA has made changes in how data are collected for OPSNET, including automating the collection of its data in fiscal year 2008 and capturing additional delay categories in fiscal year 2009, making it difficult to do year-over-year comparisons of these data. To assess the reliability of ASQP, ASPM, and OPSNET data, we (1) reviewed existing documentation related to the data sources, (2) electronically tested the data to identify obvious problems with completeness or accuracy, and (3) interviewed knowledgeable agency officials about the data. We determined that the data were sufficiently reliable for the purposes of this report. To determine the factors affecting changes in flight delays since 2007, we reviewed relevant FAA reports; interviewed DOT, FAA, airport, and airline officials and industry experts; and examined estimated delay reduction benefits of actions, when available. To understand the relationship between the number of flights and delays, we performed a simple correlation analysis between the number of monthly arrivals and delayed arrivals from calendar years 2000 through 2009 for the OEP airports (excluding Honolulu). See appendix III for additional information on this analysis. To determine the extent to which DOT’s and FAA’s actions reduced delays since 2007, we reviewed FAA analysis of estimated delay reduction benefits of its actions, including runway projects and other capacity improvements, and interviewed agency officials about these analyses. Additionally, using FAA data on Chicago O’Hare’s called rate (a measure of capacity reflecting the number of aircraft that an airport can accommodate within a 15-minute period), we determined the extent to which capacity had increased after the new runway was opened. To assess the effect of the hourly limits on scheduled arrivals and departures at LaGuardia, John F. Kennedy International (JFK), and Newark Liberty International airports, we examined analysis done by the MITRE Corporation on airline schedules before and after the schedule limits were established. See appendix V for more information on this analysis. To identify DOT’s and FAA’s ongoing and planned actions to reduce delays in the next 2 to 3 years, we analyzed key FAA documents, including the agency’s strategic plan (referred to as the Flight Plan), the NextGen Implementation Plan, FAA’s Response to Recommendations of the RTCA NextGen Mid-Term Implementation Task Force, and the New York Aviation Rulemaking Committee Report. In assessing these documents, we identified a set of capacity improvements and demand management policies with the potential to reduce delays by 2013. FAA has many ongoing and planned initiatives—such as longer-term Next Generation Air Transportation System (NextGen) procedures and technologies—that could also reduce delays, but these actions are not included in our discussion because they are not expected to realize delay reduction benefits in the next 2 to 3 years. These actions to reduce delays are available or planned at various OEP airports, but we did not assess the extent to which they are being used at a given location. To determine the extent to which DOT and FAA actions are being implemented at the most congested airports, we reviewed related reports and studies, including FAA’s 2009 Performance and Accountability Report, the RTCA NextGen Mid-Term Implementation Task Force Report, and FAA’s Capacity Needs in the National Airspace System, 2007-2025 (FACT 2), and interviewed airport officials at some of these airports and FAA officials at both the national and local airport levels. To determine the status of DOT’s and FAA’s actions to reduce delays and their potential to reduce delays, we interviewed officials in FAA’s Air Traffic Organization; Office of Aviation Policy, Planning and Environment; Office of Airport Planning and Programming; and local airport officials. To gain an understanding of aviation stakeholder perspectives on the expected impact of DOT’s and FAA’s actions in the next 2 to 3 years, we spoke with industry and academic experts, airport and airline officials, the DOT Inspector General, the Air Transport Association, the Airports Council International-North America, the National Air Traffic Controllers Association, the National Business Aviation Association, the Air Carrier Association of America, and the Regional Airline Association. To identify the extent to which FAA has modeled or assessed the delay reduction impact of its actions, including NextGen, we interviewed officials from MITRE, FAA’s Performance Analysis and Strategy Office, and FAA’s Air Traffic Organization NextGen offices. FAA officials also provided information based on model simulations that examine future benefits of NextGen technologies. In particular, we received analysis of expected delay minutes for the OEP airports in future years under various assumptions—a baseline scenario that estimates the delays that may occur if no improvements are made to the system; a runway scenario that estimates the delays that may occur if only runway improvements are made over the next 10 years, but no NextGen air traffic management improvements; and the NextGen case that estimates the delays that may occur if planned runway improvements and NextGen technologies and procedures are implemented. As part of the assumptions underlying these analyses, FAA also provided us with the extent to which future demand growth is “trimmed” under these scenarios as a means of limiting future traffic projections to reflect anticipated airport infrastructure constraints. While we reviewed some of FAA’s assumptions and analyses, we did not verify the accuracy of the models. To identify how FAA measures whether its actions contribute to changes in delays, we reviewed FAA’s Flight Plan and related documents to determine how FAA measures its performance in achieving its goal of increasing the reliability and on-time performance of the airlines. We also interviewed FAA officials on the agency’s performance targets and any planned improvements to these targets. Finally, we reviewed previous GAO reports, including our prior work on aviation infrastructure, NextGen, aviation congestion, and regional airport planning. We conducted this performance audit from May 2009 to May 2010, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. A tarmac delay occurs when a flight is away from the gate and delayed either during taxi-out: the time between when a flight departs the gate at the origin airport and when it lifts off from that airport (i.e., wheels-off); during taxi-in: the time between a flight touching down at its destination airport (wheels-on) and arriving at the gate; prior to cancellation: flight left the gate but was canceled at the origin during a diversion: the tarmac time experienced at an airport other than the destination airport; or as a result of a multiple gate departure: the flight left the gate, then returned, and then left again; the tarmac time is the time before the return to the gate. Figure 12 shows trends in tarmac delays greater than 3 hours from calendar years 2000 through 2009. Table 3 shows the breakdown of tarmac delays by month and phase of flight since October 2008, when these more detailed data were first collected. To corroborate FAA and stakeholder views on the relationship between the recent reductions in flights and declines in delays, we performed a correlation analysis between the number of total arrivals and delayed arrivals. Our correlation analysis yielded a correlation coefficient that captures only the relationship between the number of arrivals and arrival delays at the 34 OEP airports (excluding Honolulu). Coefficient variables take a value between negative 1 and 1. A correlation coefficient of zero would indicate that there was no relationship between the variables. A correlation coefficient close to 1 would indicate a strong positive relationship, while a correlation coefficient close to negative 1 would indicate a strong negative relationship. Our results showed a correlation coefficient of 0.72, indicating a significant relationship between arrivals and arrival delays. Although this result likely indicates that arrival delays will rise with increases in arrivals, for several reasons, it should not be viewed as highly predictive of the exact pattern with which delays will track arrivals. Many other factors—that we do not account for—also affect delays at a given airport or set of airports and thus affect the measured relationship between the number of flights and delays. For example, how close the number of flights is to the airport’s capacity—i.e., the number of flights an airport can handle in a given period of time—is a key factor underlying the relationship between the number of flights and delays. In particular, the relationship between the number of flights and delays is likely not stable in the sense that as the number of flights grows and becomes closer to the capacity of an airport, the influence of additional flights on delays becomes greater. For example, in addition to looking at the relationship for all airports, we also performed a correlation for all airports that were among the 10 airports with the highest percentage of delayed flights in any year since 2007. In total, there were 15 airports used for this most delayed airports analysis. Our analysis yielded a correlation coefficient of 0.79, indicating that the most delay-prone airports—which likely handle a number of flights closer to their capacity than others—experience a stronger relationship between the level of flights and delays than airports that have more available capacity. Additionally, a host of factors—such as airport infrastructure (e.g., available airport gates, taxiways, and runways)—influence an airport’s capacity at a given time and, therefore, how many flights an airport can handle. Capacity can be a changing value hour to hour or day to day, depending on such elements as weather, the mix of aircraft used at the airport, and air traffic procedures. Airport projects that provide greater capacity—such a new runway, taxiway improvements, or additional gates—will enable more flights with fewer impacts on delays and therefore also affect the relationship between the number of flights and delays. Also, the level of delays at one airport or throughout the national airspace system can affect delays elsewhere. For example, FAA officials provided an analysis to us suggesting that as the number of flights, and therefore delays, rapidly grew at the John F. Kennedy (JFK) airport after 2007, other airports—that did not see a significant rise in the number of flights they handled—had measurably worse delays. Finally, how airlines use airport infrastructure can affect the relationship between the number of flights and delays. Notably, FAA officials told us that airlines scheduling large numbers of flights at the same time (e.g., airline peaking) at the busy airports is a key factor that affects the relationship between the number of flights and delays. That is, a given number of flights will likely result in more delays if there are strong peaks in the number of flights scheduled that tax the airport’s capacity at certain times of the day rather than a more evenly spaced schedule of flights across the entire day. ppendix IV: Airline-Reported Sources of A Delays for Dela Ranked b Percey Airports with the Highest ntage of Flight Delays, 2009 Ntionl Avition Stem DOT collects delay data in one of five causal categories: national aviation system (i.e., a broad set of circumstances affecting airline flights, such as nonextreme weather that slows down the system, but does not prevent flying), late-arriving aircraft (i.e., a previous flight using the same aircraft arrived late, causing the subsequent flight to depart late), airline (i.e., any delay that was within the control of the airlines, such as aircraft cleaning, baggage loading, crew issues, or maintenance), extreme weather (i.e., serious weather conditions that prevent the operation of a flight, such as tornadoes, snowstorms, or hurricanes), and security (i.e., evacuation of an airport, reboarding because of a security breach, and long lines at the passenger screening areas). Security delays do not appear this graphic because they make up less than 1 percent of the delays at these airports. Severe wether DOT collects cancellation causal data in one of four categories: national aviation system (i.e., a broad set of circumstances affecting airline flights, such as nonextreme weather that slows down the system, but does not prevent flying), airline (i.e., any delay that was within the control of the airlines, such as aircraft cleaning, baggage loading, crew issues, or maintenance), extreme weather (i.e., serious weather conditions that prevent the operation of a flight, such as tornadoes, snowstorms, or hurricanes), and security (i.e., evacuation of an airport, reboarding because of a security breach, and long lines at the passenger screening areas). Security delays do not appear on this graphic because they make up less than 1 percent of the delays at these airports. In 2008, FAA and its federally funded research and development center, the MITRE Corporation’s Center for Advanced Aviation System Development, undertook an analysis to set limits on scheduled operations (often called slots) for Newark and JFK airports in the New York area in order to address congestion and delay at these airports. Because the level of operations and associated delays had increased during 2006 and 2007 at JFK, and airlines were indicating further increases in planned operations for the summer of 2008, FAA determined that schedule limits needed to be applied to that airport. While LaGuardia already had a schedule cap in place, Newark airport did not, and FAA decided to also set a cap for Newark so that a limit on operations at JFK did not lead to increased operations and delays at Newark. From a performance perspective, the goal in setting the level of caps at these airports was to reduce average delays at JFK by about 15 percent compared with their 2007 level, and to keep delays at Newark from worsening over their 2007 level. To determine how schedule limitations would be applied, FAA and MITRE used a model that estimated the level of delay associated with various levels of operations at both JFK and Newark airports. The first key model input is a level of demand on a particular busy day in August 2007. The source of that data is airlines’ scheduled departure and arrival operations at the two airports for that day according to the Official Airline Guide (OAG). In addition to scheduled operations, each day the airports also service nonscheduled operations (i.e., operations not in the OAG). To properly capture the total demand levels at these airports, nonscheduled operations are added as part of the demand input to the model. Thus the “demand” input is a profile of all scheduled and nonscheduled operations across that day. The second key model input is airport capacity—the number of operations an airport can handle in any given time period. The level of airport capacity is not a constant; it varies on an ongoing basis with runway configuration, weather, and other factors. For the analysis, airport capacities for each hour across all weekdays over many months were determined. As an input, the model used what is called adjusted capacities. Adjusted capacities are based upon an airport’s called rates— the projected level of operations the airport could handle based on conditions at the airport at that time, and actual throughput—the number of aircraft that landed and departed. With few exceptions, the adjusted capacities in the model were set at the maximum of actual throughput or called rate for any specific hour. For each of the airports, multiple iterations of the demand profile were run against the adjusted capacities, and the model provided “predicted delays.” These predicted delays were compared with actual delays that had occurred at those airports across varied combinations of operations and capacity. FAA and MITRE found that the model’s predicted delays followed patterns that were in line with the patterns of actual delays. That is, the manner in which the predicted level of delay responded to changes in operations and/or capacity in the model paralleled the patterns of actual delay response to those factors. These parallels helped to validate the model’s structure. The results of the model were used in part to determine the limits on scheduled operations by evaluating the amount of delay that would be associated with varying levels of operations at each airport. In particular, MITRE staff provided model results that indicated, for sequentially lower levels of hourly operations, the level of delay that could be expected across the day at each airport. For both JFK and Newark airports, this exercise resulted in scheduling limitations set at 81 operations per hour, with some hourly exceptions, as this level of operations was predicted to result in the target level of delay for each of the airports. While LaGuardia already had a schedule cap in place, FAA and MITRE used this same approach to model estimated levels of delay at various levels of operations. More recently, this analysis was used in issuing a new order decreasing the limit of scheduled hourly operations at LaGuardia from 75 to 71. Existing flights were not affected, but slots that are returned or withdrawn by FAA will be limited to the 71 per hour limit. Figures 15 through 17 illustrate how the schedule limits affected hourly operations at the three New York area airports, using a busy day in August—typically a very busy month—to be representative of the summer schedules. More specifically, the figures show how airlines scheduled operations throughout the day in 2007, the schedule they planned to submit for 2008 without caps—or the “wish list”—and the actual operations scheduled in 2008 and 2009 with the caps in place. The 2008 wish list data are based on the proposed schedules submitted by the airlines during the negotiations and discussions held to determine the limits on scheduled operations at the airports. The JFK and Newark figures show that peak period operations have smoothed and fallen since the caps were put in place. This change in peak hour operations has enabled the airports to provide more throughput with less impact on delay than a more peaked profile of operations would have provided. Other factors may also have had an impact on hourly operations at the three airports (i.e., the economic downturn has led airlines to reduce their scheduled operations below the scheduling limits during some hours at these airports). For Newark, the decline in peak hour operations is most significant when comparing the actual 2008 schedule with the airlines’ 2008 wish list, especially during the busy afternoon and evening period. Because LaGuardia has capped operations for many years, and the orders have roughly maintained the same caps, the airport has experienced significantly less variation in hourly operations over the last 3 years. In addition, the carriers never submitted a 2008 wish list because the airport was already capped. Our report examined DOT and FAA actions to reduce delays over the next 2 to 3 years. Table 4 describes how each action could help reduce delays and demonstrates that most of the ongoing and planned actions are capacity improvements designed to address flight delays by enhancing and expanding existing capacity. As table 5 demonstrates, these actions generally are being implemented at the most delayed airports in the country. For example, DOT convened a special aviation rulemaking committee (New York ARC) in the fall of 2007 specifically to address delays and other airline service issues in the New York metropolitan area, and one of the committee’s working groups assessed 77 operational improvement initiatives for the New York area. In addition to being implemented at the most delayed airports, many of these actions are also available at other OEP airports across the national airspace system. These actions are available or planned at various locations, but we did not assess the extent to which they are being used at a given location. For example, we did not assess the extent to which RNAV and RNP procedures are in use at these airports. In addition to the contact named above, Paul Aussendorf (Assistant Director), Amy Abramowitz, Lauren Calhoun, Colin Fallon, Heather Krause, John Mingus, Sara Ann Moessbauer, Josh Ormond, Melissa Swearingen, and Maria Wallace made key contributions to this report.

Flight delays have beset the U.S. national airspace system. In 2007, more than one-quarter of all flights either arrived late or were canceled across the system, according to the Department of Transportation (DOT). DOT and its operating agency, the Federal Aviation Administration (FAA), are making substantial investments in transforming to a new air traffic control system--the Next Generation Air Transportation System (NextGen)--a system that is expected to reduce delays over the next decade. This requested report explains the extent to which (1) flight delays in the U.S. national airspace system have changed since 2007 and the contributing factors to these changes, and (2) actions by DOT and FAA are expected to reduce delays in the next 2 to 3 years. We analyzed DOT and FAA data for FAA's Operational Evolution Partnership (OEP) airports because they are in major metropolitan areas, serving over 70 percent of passengers in the system. We reviewed agency documents and interviewed DOT, FAA, airport, and airline officials and aviation industry experts. Flight delays have declined since 2007, largely because fewer flights have been scheduled by airlines as a result of the economic downturn, but some airports still experience and contribute substantial delays to the system. The percentage of flights that were delayed--that is, arrived at least 15 minutes after their scheduled time or were canceled or diverted--decreased 6 percentage points from 2007 to 2009, according to DOT data. Even with this decrease in delays, during 2009, at least one in four U.S. passenger flights arrived late at 5 airports--Newark Liberty International (Newark), LaGuardia, John F. Kennedy (JFK), Atlanta Hartsfield International (Atlanta), and San Francisco International--and these late arrivals had an average delay time of almost an hour or more. In addition to these airports having the highest percentage of flights with delayed arrivals, these 5 airports, along with Chicago O'Hare International and Philadelphia International (Philadelphia), were also the source of most of the departure delays within FAA's air traffic control system. FAA measures delays within the air traffic control system to assess its performance because an inefficient air traffic control system contributes to higher levels of delayed flights. An FAA air traffic control tower or other facility may delay flights departing from or destined to an airport because of inclement weather or heavy traffic volume at that airport. In 2009, of the 34 OEP airports in GAO's analysis, about 80 percent of departure delays occurring at airports across the national airspace system were the result of conditions affecting air traffic at just these 7 airports. DOT's and FAA's actions--including near-term elements of NextGen and other air traffic management improvements--could help reduce delays over the next 2 to 3 years and are generally being implemented at the airports that contribute to the most delays in the system. However, the extent to which these actions will reduce delays at individual airports or contribute to the agency's overall target is unclear. FAA has an 88 percent on-time arrival performance target for the national airspace system to measure how its actions help to improve systemwide on-time performance. This target, however, masks the wide variation in airport performance. For example, in fiscal year 2009, Newark had an on-time arrival rate of 72 percent, while St. Louis International exceeded the target with 95 percent. FAA has not established airport-specific performance targets, making it difficult to assess whether FAA's actions will lead to the desired on-time performance at these airports or whether further actions are required to improve performance, especially at airports affecting delays systemwide. Also, FAA's modeling indicates that even if all ongoing and planned NextGen and other improvements are implemented, a few airports, such as Atlanta, Washington Dulles International, and Philadelphia, may not be able to meet the projected increases in demand, and if market forces do not dampen that demand, additional actions may be required at these airports. However, without airport-specific targets, FAA cannot determine what additional actions might be required to achieve a targeted level of performance at these airports.

You are an expert at summarizing long articles. Proceed to summarize the following text: ILOVEYOU is both a “virus” and “worm.” Worms propagate themselves through networks; viruses destroy files and replicate themselves by manipulating files. The damage resulting from this particular hybrid— which includes overwhelmed e-mail systems and lost files–is limited to users of the Microsoft Windows operating system. ILOVEYOU typically comes in the form of an e-mail message from someone the recipient knows with an attachment called LOVE-LETTER- FOR-YOU.TXT.VBS. The attachment is a Visual Basic Script (VBS) file.As long as recipients do not run the attached file, their systems will not be affected and they need only to delete the e-mail and its attachment. When opened and allowed to run, however, ILOVEYOU attempts to send copies of itself using Microsoft Outlook (an electronic mail software program) to all entries in all of the recipient’s address books, infect the Internet Relay Chat (IRC) programso that the next time a user starts “chatting” on the Internet, the worm can spread to everyone who connects to the chat server, search for picture, video, and music files and overwrite or replace them with a copy of itself, and install a password-stealing program that will become active when the recipient opens Internet Explorerand reboots the computer. (Internet accounts set up to collect this information were reportedly disabled early Friday). In short, ILOVEYOU looks a lot like Melissa in operation: it comes via e- mail; it attacks Microsoft’s Outlook; it’s a hybrid between a worm and a virus; and it does some damage–but it mostly excels at using the infected system to e-mail copies of itself to others. The one main difference is that it proliferated much faster than Melissa because it came during the work week, not the weekend. Moreover, ILOVEYOU sent itself to everyone on the recipient’s e-mail lists, rather than just the first 50 addressees as Melissa did. In fact, soon after initial reports of the worm/virus surfaced in Asia on May 4, ILOVEYOU spread rapidly throughout the rest of the world. By 6 pm the same day, Carnegie Mellon’s CERT Coordination Centerhad received over 400 direct reports involving more than 420,000 Internet hosts. And by the next day, ILOVEYOU appeared in new guises, labeled as “Mother’s Day,” “Joke,” “Very Funny,” among others. At least 14 different variants of the virus had been identified by the weekend, according to DOD’s Joint Task Force-Computer Network Defense. These variations retriggered disruptions because they allowed the worm/virus to bypass filters set up earlier to block ILOVEYOU. At least one variant—with the subject header “VIRUS ALERT!!!”–was reportedly even more dangerous than the original because it was also able to overwrite system files critical to computing functions. Reports from various media, government agencies, and computer security experts indicate that the impact of ILOVEYOU was extensive. The virus reportedly hit large corporations such as AT&T, TWA, and Ford Motor Company; media outlets such as the Washington Post and ABC news; international organizations such as the International Monetary Fund, the British Parliament, and Belgium’s banking system; state governments; school systems; and credit unions, among many others, forcing them to take their networks off-line for hours. The virus/worm also reportedly penetrated at least 14 federal agencies—including the Department of Defense (DOD), the Social Security Administration, the Central Intelligence Agency, the Immigration and Naturalization Service, the Department of Energy, the Department of Agriculture, the Department of Education, the National Aeronautics and Space Administration (NASA), along with the House and Senate. We still do not know the full effect of this virus on the agencies that were penetrated. While many were forced to shut down their e-mail networks for some time, many also reported that mission- critical systems and operations were not affected. Of course, if an agency’s business depends on e-mail for decision-making and service delivery, then the virus/worm probably had a significant impact on day- to-day operations in terms of lost productivity. It also appears that major efforts were required to control the virus. Based on a discussion with military CERT representatives, for example, responding to the virus/worm has been a tremendous task that took several days to get under control. Some DOD machines required complete software reloads to overcome the extent of the damage. The virus/worm spread rapidly through the department, penetrating even some classified systems. DOD’s operational commands responded in widely varying ways—some made few changes to their daily operational procedures while others cut off all e-mail communications for an extended period of time. Representatives of DOD’s Joint Task Force- Computer Network Defense said that they will recommend new procedures to better coordinate the department’s response to future incidents, based on experience with the ILOVEYOU virus/worm. While the ILOVEYOU worm/virus resulted in relatively limited damage in terms of systems corrupted, the incident continues to underscore the formidable challenge that the federal government faces in protecting its information systems assets and sensitive data. It again shows, for example, that computer attack tools and techniques are becoming increasingly sophisticated; viruses are spreading faster as a result of the increasing connectivity of today’s networks; commercial-off-the-shelf (COTS) products can be easily exploited for attack by all their users; and there is no “silver bullet” solution to protecting systems, such as firewalls or encryption. Moreover, ILOVEYOU illustrates the difficulty of investigating cyber crime. In particular, investigations of computer attacks such as ILOVEYOU must be conducted on an international scale. Moreover, only the computer used to launch the virus can be traced–not the programmer. Lastly, evidence is fleeting–the more time that passes between the first attack and an arrest, the more time the programmer has to destroy all links to the crime. Additionally, ILOVEYOU once again proved that governmentwide reporting mechanisms are ineffective. Like Melissa more than a year ago, little information was available early enough for agencies to take proactive steps to mitigate the damage. The CERT Coordination Center posted its advisory at approximately 9:30 pm May 4, while FBI’s National Infrastructure Protection Center (NIPC) issued a brief notice at 11:00 am on May 4 and more information at 10:00 pm. In addition, there is still no complete information readily available on the impact that this virus had across the federal government. More important, like Melissa and other attacks this Subcommittee has focused on, our experience with ILOVEYOU is a symptom of broader information security concerns across government. Over the past several years, our analyses as well as those of the inspectors general have found that virtually all of the largest federal agencies have significant computer security weaknesses that place critical federal operations and assets at risk to computer-based attacks. Our most recent individual agency review, of the Environmental Protection Agency (EPA),identified many security weaknesses associated with the computer operating systems and the agencywide computer network that support most of EPA’s mission-related and financial operations. In addition, EPA’s own records identified serious computer incidents in the last 2 years. EPA is currently taking significant steps to address these weaknesses, but resolving them on a lasting basis will require substantial ongoing management attention and changes in the way EPA views information security. EPA is not unique. Within the past 12 months, we have identified significant management weaknesses and control deficiencies at a number of agencies, including DOD, NASA, State, and VA. Although the nature of operations and related risks at these and other agencies vary, there are striking similarities in the specific types of weaknesses reported. I would like to briefly highlight six areas of management and general control problems since they are integral to understanding and implementing long-term solutions. First, we continue to find that poor security planning and management is the rule rather than the exception. Most agencies do not develop security plans for major systems based on risk, have not formally documented security policies, and have not implemented programs for testing and evaluating the effectiveness of controls they rely on. These are fundamental activities that allow an organization to manage its information security risks cost-effectively rather than by reacting to individual problems ad hoc. Second, agencies often lack effective access controls to their computer resources (data, equipment, and facilities) and, as a result, are unable to protect these assets against unauthorized modification, loss, and disclosure. These controls would normally include physical protections such as gates and guards and logical controls, which are controls built into software that (1) require users to authenticate themselves through passwords or other identifiers and (2) limit the files and other resources that an authenticated user can access and the actions that he or she can take. Third, in many of our audits we find that application software development and change controls are weak. For example, testing procedures are undisciplined and do not ensure that implemented software operates as intended, and access to software program libraries is inadequately controlled. Fourth, many agencies lack effective policies and procedures governing the segregation of duties. We commonly find that computer programmers and operators are authorized to perform a wide variety of duties, such as independently writing, testing, and approving program changes. This, in turn, provides them with the ability to independently modify, circumvent, and disable system security features. Fifth, our reviews frequently identify systems with insufficiently restricted access to the powerful programs and sensitive files associated with the computer system’s operation, e.g., operating systems, system utilities, security software, and database management system. Such free access makes it possible for knowledgeable individuals to disable or circumvent controls. Sixth, we have found that service continuity controls are incomplete and often not fully tested for ensuring that critical operations can continue when unexpected events (such as a temporary power failure, accidental loss of files, major disaster such as a fire, or malicious disruptions) occur. Agencies can act immediately to address the weaknesses I just described and thereby reduce their vulnerability to computer attacks, including the ILOVEYOU worm/virus. Specifically, as explained in figure 1, they can (1) increase awareness, (2) ensure that existing controls are operating effectively, (3) ensure that software patches are up-to-date, (4) use automated scanning and testing tools to quickly identify problems, (5) expand their best practices, and (6) ensure that their most common vulnerabilities are addressed. Ensure that agency personnel at all levels understand the significance of their dependence on computer support and the related risks to mission-related operations. Better understanding of risks allows senior executives to make more informed decisions regarding appropriate levels of financial and personnel resources to protect these assets over the long term. Ensure that policies and controls already implemented are operating as intended. Our audits often find that security is weak, not because agencies have no policies and controls, but because the policies and controls they have implemented are not operating effectively. Ensure that known software vulnerabilities are reduced by promptly implementing software patches. Security weaknesses are frequently discovered in commercial software packages after the software has been sold and implemented. To remedy these problems, vendors issue software “patches” that users can install. In addition, organizations such as the CERT Coordination Center routinely issue alerts on software problems. Use readily available software tools to help ensure that controls are operating as intended and that systems are secure. Examples of such tools are (1) scanners that automatically search for system vulnerabilities, (2) password cracking tools, which test password strength, and (3) network monitoring tools, which can be used to monitor system configuration and network traffic, help identify unauthorized changes, and identify unusual or suspicious network activity. Expand on the good practices that are already in place in the agency. Our audits have shown that even agencies with poor security programs often have good practices in certain areas of their security programs or certain organizational units. In these cases, we recommend that the agency expand or build on these practices throughout the agency. Develop and distribute lists of the most common types of vulnerabilities, accompanied by suggested corrective actions. Such lists enable individual organization units to take advantage of experience gained by others. They can be developed based on in-house experience, or adapted from lists available through professional organizations and other centers of expertise. To combat viruses and worms specifically, agencies could take steps such as ensuring that security personnel are adequately trained to respond to early warnings of attacks and keeping antivirus programs up- to-date. Strengthening intrusion detection capabilities may also help. Clearly, it is difficult to sniff out a single virus attached to an e-mail coming in but if 100 e-mails with the same configuration suddenly arrive, an alert should be sounded. User education is also key. In particular, agencies can teach computer users that e-mail attachments are not always what they seem and that they should be careful when opening them. By no means, should users open attachments whose filenames end in “.exe” unless they are sure they know what they are doing. Users should also know that they should never start a personal computer with an unscanned floppy disk or CD-ROM in the computer drive. I would like to stress, however, that while these actions can jump-start security improvement efforts, they will not result in fully effective and lasting improvements unless they are supported by a strong management framework. Based on our 1998 studyof organizations with superior security programs, this involves managing information security risks through a cycle of risk management activities that include assessing risks and determining protection needs, selecting and implementing cost-effective policies and controls to meet these needs, promoting awareness of policies and controls, and of the risks that prompted their adoption, among those responsible for complying with them, and implementing a program of routine tests and examinations for evaluating the effectiveness of policies and related controls and for reporting the resulting conclusions to those who can take appropriate corrective action. Additionally, a strong central focal point can help ensure that the major elements of the risk management cycle are carried out and can serve as a communications link among organizational units. Such coordination is especially important in today’s highly networked computer environment. I would also like to emphasize that while individual agencies bear primary responsibility for the information security associated with their own operations and assets, there are several areas where governmentwide criteria and requirements also need to be strengthened. First, there is a need for routine periodic independent audits of agencies to provide (1) a basis for measuring agency performance and (2) information for strengthened oversight. Except for security audits associated with financial statement audits, current information security reviews are performed on an ad hoc basis. Second, agencies need more prescriptive guidance regarding the level of protection that is appropriate for their systems. Currently, guidance provided by the Office of Management and Budget (OMB) and the National Institute of Standards and Technology (NIST) allows agencies wide discretion in deciding what computer security controls to implement and the level of rigor with which they enforce these controls. As a result, existing guidance does not ensure that agencies are making appropriate judgments in this area and that they are protecting the same types of data consistently throughout the federal community. More specific guidance could be developed in two parts: the first being a set of data classifications that could be used by all federal agencies to categorize the criticality and sensitivity of the data they generate and maintain and the second being a set of minimum mandatory control requirements for each classification which would cover such issues as the strength of system user authentication techniques, appropriate types of cryptographic tools, and the frequency and rigor of testing. Third, there is a need for stronger central leadership and coordination of information security related activities across government. Under current law, responsibilities for guidance and oversight of agency information security is divided among a number of agencies, including OMB, NIST, the General Services Administration, and the National Security Agency. Other organizations have become involved through the administration’s critical infrastructure protection initiative, including the FBI’s National Infrastructure Protection Center and the Critical Infrastructure Assurance Office. The federal Chief Information Officers Council is also supporting these efforts. While all of these organizations have made positive contributions, some roles and responsibilities are not clear, and central coordination is lacking in key areas. In particular, as this latest attack showed, information on vulnerabilities and related solutions is not being adequately shared among agencies, and requirements related to handling and reporting security incidents are not clear. In conclusion, more than 12 months later, not much is different with the ILOVEYOU worm/virus than with Melissa. Many agencies were hit; most were fortunate that the worst damage done was to shut down e-mail systems and temporarily disrupt operations; and early warning systems for incidents like these still need to be improved. Moreover, our audits continue to find that most agencies continue to lack the basic management framework needed to effectively detect, protect against, and recover from these attacks. Lastly, as seen with ILOVEYOU’s variations, we can still expect the next virus to propagate faster, do more damage, and be more difficult to encounter. Consequently, it is more critical than ever that federal agencies and the government act as whole to swiftly implement both short- and long-term solutions identified today to protect systems and sensitive data. Madam Chairwoman, this concludes my testimony. I would be happy to answer any questions you or Members of the Subcommittee may have. For information about this testimony, please contact Keith Rhodes at (202) 512-6415. Cristina Chaplain made key contributions to this testimony. (511998)

Pursuant to a congressional request, GAO discussed the "ILOVEYOU" computer virus, focusing on the need for agency and governmentwide improvements in information security. GAO noted that: (1) ILOVEYOU is both a virus and a worm; (2) the damage resulting from this particular hybrid is limited to users of the Microsoft Windows operating system; (3) ILOVEYOU typically comes in the form of an electronic mail (e-mail) message from someone the recipient knows; (4) as long as recipients do not run the attached file, their systems will not be affected and they need only to delete the e-mail and its attachment; (5) if opened, the ILOVEYOU can spread and infect systems by sending itself to everyone in the recipient's address book; (6) there are areas of management and general control that are integral to improving problems in information security; (7) most agencies do not develop security plans for major systems based on risk, have not formally documented security policies, and have not implemented programs for testing and evaluating the effectiveness of controls they rely on; (8) these are fundamental activities that allow an organization to manage its information security risks cost-effectively rather than by reacting to individual problems ad hoc; (9) agencies often lack effective access controls to their computer resources and, as a result, are unable to protect these assets against unauthorized modification, loss, and disclosure; (10) these controls would normally include physical protections such as gates and guards and logical controls, which are controls built into software that: (a) require users to authenticate themselves through passwords or other identifiers; and (b) limit the files and other resources that an authenticated user can access and the actions that he or she can take; (11) testing procedures are undisciplined and do not ensure that implemented software operates as intended, and access to software program libraries is inadequately controlled; (12) GAO found that computer programmers and operators are authorized to perform a wide variety of duties; (13) this, in turn, provides them with the ability to independently modify, circumvent, and disable system security features; (14) GAO's reviews frequently identify systems with insufficiently restricted access to the powerful programs and sensitive files associated with the computer system's operation; (15) such free access makes it possible for knowledgeable individuals to disable or circumvent controls; (16) service continuity controls are incomplete and often not fully tested for ensuring that critical operations can continue when unexpected events occur; and (17) agencies can act immediately to address computer weaknesses and reduce their vulnerability to computer attacks.

You are an expert at summarizing long articles. Proceed to summarize the following text: Under the Small Business Act, SBA plays an important role in ensuring that small businesses gain access to federal contracting opportunities. SBA negotiates specific agency-wide goals to ensure that the federal government collectively meets the 23 percent statutory goal for contract dollars awarded to small businesses. In addition, SBA negotiates goals for the socioeconomic categories of businesses. The current goals are: 5 percent of prime contracts and subcontract dollars are to be awarded to women-owned small businesses, 5 percent of prime contracts and subcontract dollars are to be awarded to small disadvantaged businesses, 3 percent of prime contracts and subcontract dollars are to be awarded to service-disabled veteran-owned small businesses, and 3 percent of prime and subcontract dollars are to be awarded to HUBZone small businesses. Appendix II provides more information on the extent that federal agencies obligated federal contract dollars to minority-owned businesses by various socioeconomic categories. The federal government has established a number of programs that can assist small and small disadvantaged businesses—including those that may be minority-owned—that seek to contract with federal agencies. MBDA promotes the growth and competitiveness of minority-owned businesses of any size.clients identify federal procurement opportunities, analyze solicitations, and prepare bids and proposals. It also facilitates relationships between minority-owned businesses and federal agencies, and researches contracting trends at federal agencies. MBDA’s Federal Procurement Center (FPC) provides research on federal agency contracting trends, identifies large federal contracts, and helps minority-owned businesses identify possible contracting opportunities. MBDA’s network of business centers helps SBA administers programs that are targeted to small businesses and that provide assistance with federal contracting opportunities. SBA’s 8(a) Business Development Program is one of the federal government’s primary means of developing small businesses owned by socially and economically disadvantaged individuals. Participating businesses, which are generally referred to as 8(a) firms, are eligible to participate in the program for 9 years. Businesses receive technical assistance, mentoring, counseling, and financial assistance so that they can become competitive in the federal marketplace. Additionally, participating businesses may bid on competitive federal contracts that are open only to 8(a) firms as well as on noncompetitive federal contracts. SBA’s Procurement Center Representatives (PCR) and Commercial Market Representatives (CMR) play an important role in helping ensure that small businesses gain access to contracting and subcontracting opportunities. PCRs and CMRs are the primary SBA staff who implement SBA’s prime contracts and subcontracting assistance programs, which are intended to increase contracting opportunities for small businesses and help ensure that small businesses receive a fair and equitable opportunity to participate in federal prime contracts and subcontracts. PCRs also can make recommendations to agency contracting officers that proposed contracts be set aside for eligible small businesses. In particular, a PCR’s key responsibilities include reviewing potentially bundled or consolidated solicitations—those in which two or more procurement requirements previously provided or performed under separate smaller contracts are grouped into a solicitation for a single contractcontracting officers. —and making set-aside recommendations to agency The OSDBU within federal agencies advocate on behalf of small businesses. Section 15(k) of the Small Business Act describes the functions of OSDBU directors—which include implementing and executing the agency’s functions and duties related to the award of contracts and subcontracts to small and small disadvantaged businesses. Other responsibilities of the OSDBU include identifying bundled contracts, potentially revising them to encourage small business participation, and facilitating small business participation in the contracts. OSDBU directors also help small businesses obtain payments from agencies and subcontractors, recommend set-asides, coordinate with SBA, and oversee OSDBU personnel. Agencies also conduct outreach activities for small and small disadvantaged businesses, including minority-owned firms that are seeking federal contracts. Some agencies host monthly vendor outreach sessions, a series of appointments with either agency officials (such as small business or procurement officials) or prime contractors that have subcontracting needs. These sessions give the businesses an opportunity to discuss their capabilities and learn about potential contracting opportunities. One of MBDA’s primary outreach efforts is the Minority Enterprise Development Week Conference. During this conference, participants from minority-owned businesses that have been vetted and designated by MBDA are offered appointments with federal and corporate partners to discuss contracting opportunities that will be made available within the next 6 to 18 months. Finally, a number of online resources are also available to businesses seeking to contract with the federal government. For example, federal agencies list their contract solicitations of $25,000 or more on the Federal Business Opportunities website (www.FedBizOpps.gov)–managed by GSA. The website provides online business tools, training videos, and event announcements for small business owners. USA Spending, established by the Office of Management and Budget, also contains information on federal spending trends across the government, including grants and contracts. In addition, federal agencies such as SBA provide online contracting courses designed to help small businesses understand the basics of contracting with government agencies.provides a summary of selected programs, resources, and outreach activities available to minority-owned businesses. Agency and advocacy group officials we interviewed identified a number of challenges that small businesses—including minority-owned businesses—may face when seeking to contract with the federal government. In particular, these officials generally agreed that the lack of performance history and knowledge of the federal contracting process were significant challenges minority-owned businesses may face in contracting with the federal government. However, the officials offered varying opinions on the extent to which minority-owned businesses faced other challenges, such as a lack of access to contracting officials and a lack of monitoring subcontracting plans, and difficulties accessing needed resources such as capital. Some agency officials we contacted indicated that outreach activities they conduct and practices they undertake in their contract solicitation activities address some of these challenges. Federal agency and advocacy group officials that we interviewed differed in their opinions on challenges that small businesses—including those that are minority-owned—may face when seeking to contract with the federal government. The challenges identified included a lack of performance history and knowledge of the federal contracting process, contract bundling, a lack of access to contracting officials, lack of monitoring of subcontracting plans, and difficulties assessing capital. Officials from federal agencies and advocacy groups we contacted cited the lack of a performance history and a full understanding of the federal contracting process as significant challenges that minority-owned businesses may face. According to the statement of Guiding Principles of the Federal Acquisition System, when selecting contactors to provide products or perform services, the government will use contractors that have a track record of successful past performance or that have demonstrated a current superior ability to perform. SBA officials told us that historically and currently, small, minority-owned businesses that lacked a performance history have had difficulty entering the federal contracting market. MBDA officials also said that lack of a past performance record with government contracts or private contracts of similar size, made obtaining federal contracts more difficult for minority- owned businesses because of the weight given to performance history. However, some agency officials, including those from two DHS contracting offices, noted that because prior commercial experience—not just government contracting experience—was considered, the lack of prior government experience would not necessarily make a minority- owned business noncompetitive. Officials from a GSA contracting office said that most small businesses seeking to contract with its office had a performance history with the private sector, not the federal government. The officials said that they considered past performance with the private sector when making contract award decisions, and thus would not consider lack of past performance history with the federal government as a challenge. Finally, officials from an HHS contracting office noted that the Federal Acquisition Regulation (FAR) requires that businesses receive a neutral rating if they do not have a performance history and that some small businesses may not be aware of this requirement. However, some advocacy group officials indicated that certain prerequisites and past performance requirements were difficult for minority-owned businesses to meet. For example, officials from one group said that these businesses might partner with other more established businesses to help meet the performance requirements. See 48 C.F.R. § 15.305(a)(2)(iv). The FAR states that offerors without a record of relevant past performance may not be evaluated favorably or unfavorably on past performance—in other words, they must be given a neutral rating for the past performance evaluation factor. bidding process works, and learning how to secure a government contract. Further, MBDA officials noted that the federal contracting process was very different from contracting with private sector companies. They added that although federal agencies spend time and money holding sessions on doing business with the federal government, these sessions offered general information that could not be transferred to bidding on specific projects. Similarly, agency officials also cited the lack of understanding of agencies’ contracting needs. For example, an OSDBU official from HHS emphasized that businesses that did not understand the mission of the agency with which they were seeking a contract or did not know what the agency bought and acquired might not know how to market their product or service appropriately to win the contract. Advocacy group officials cited contract bundling as a significant challenge, although a majority of agency officials disagreed. Advocacy group officials whom we interviewed said that contract bundling could reduce the number of contracting opportunities available for small and minority-owned businesses. MBDA officials said that they believe that many contracts are bundled unnecessarily and agreed that this practice limited minority-owned businesses’ ability to compete for these contracts. However, other federal agency officials we interviewed said that they did not believe that contract bundling was a significant challenge for minority- owned businesses at their agencies. In addition, some agency officials told us that they had specific policies regarding contract bundling. For example, HHS and DOD contracting officials noted that their offices had policies that prohibited contract bundling and added that small businesses could protest a contract that they believed was unjustifiably bundled. Further, officials from one HHS contracting office indicated that they worked with small business specialists to determine if contracts should be separated. Advocacy group officials cited a lack of access to contracting officials as a significant challenge. Officials from six advocacy groups that we interviewed stated that the agency officials present at outreach events, such as matchmaking events, often did not have the authority to make decisions about awarding a contract. However, with the exception of MBDA, none of the federal agency officials we contacted said that access to contracting officers was a challenge at their agencies. The officials emphasized efforts that their agencies were making to assist businesses. For example, officials participate in industry days, where businesses can meet prime contractors as well as interact with agency procurement staff, and also conduct one-on-one appointments with businesses that seek to contract with their agencies. Some federal contracting officials did note that limited resources might pose a challenge in accessing the contracting officers. For example, contracting officials from DHS and GSA indicated that any perceived access issues would be due to limited resources in contracting offices. GSA contracting officials said that when the office had a large number of contracts to complete, they could not meet with each business owner seeking contract opportunities. Advocacy group officials also cited a lack of monitoring of subcontracting plans by federal agencies as a significant challenge for minority-owned businesses, although SBA officials noted that this issue was a challenge for all small businesses, not just those owned by minorities. Officials from five advocacy groups described instances in which prime contractors did not use the small, minority-owned business subcontractors that they initially said they would use. Further, one advocacy group official said that because federal contracting officials generally had relationships with prime contractors and not subcontractors, small, minority-owned subcontractors often had no recourse when a problem arose. An official from another advocacy group stated that contracting officers have no accountability to federal agencies to justify any subcontractor changes. SBA officials noted that prime contractors’ “dropping” of subcontractors from their plans after the contracts were obligated was not an issue exclusive to minority-owned businesses but was a challenge for small subcontractors in general. In addition, we previously reported that CMRs cited a lack of authority to influence subcontracting opportunities. was difficult to enforce prime contractors’ performance under subcontracting plans because determining that a contractor was not acting in good faith was difficult. Officials from one DOD contracting office said that they did not communicate with subcontractors directly and that prime contractors did have the right to pick a subcontractor of their choice throughout the duration of a contract. An OSDBU official from DOD added that the contracting officer would review and approve a replacement subcontractor under certain circumstances. If a prime contractor’s subcontracting plan included a certain percentage of work that was designated for a small disadvantaged business, the contracting officer might not approve the proposed replacement subcontractor if the change did not adhere to the original percentage. GAO, Improvements Needed to Help Ensure Reliability of SBA’s Performance Data on Procurement Center Representatives, GAO-11-549R (Washington, D.C.: June 15, 2011). less likely to apply for loans because they feared their applications would be denied. Further, officials from two advocacy groups noted that bonding requirements could prevent small, minority-owned businesses from competing for large contracts. Bonding is required to compete for certain contracts to ensure that businesses have the financial capacity to perform the work and pay for labor and supplies. advocacy group indicated that to be considered for large contracts, businesses may be required to obtain $25 million to $50 million in bonding capacity. Since few small businesses can obtain this bonding capacity, this official said that these businesses rely on “teaming” arrangements—two or more businesses that collectively pursue larger procurement contracts—to expand their opportunities. For example, an official at one In general, advocacy groups identified linguistic and cultural barriers as a challenge for minority-owned businesses on a limited basis. One advocacy group official said that linguistic barriers may be a challenge because business owners with strong accents could have difficulty communicating. Officials from a few Asian-American advocacy groups noted that business owners with limited English proficiency (LEP) may experience challenges. For example, one official said that business owners in the construction industry may have difficulty obtaining a required design certification if English was not the business owner’s first language. Another advocacy group official cited challenges such as discrimination against subcontractors by prime contractors because of accents or LEP. Officials from advocacy groups also cited examples of cultural barriers. For example, one noted that some first generation Americans might have an aversion to working with the federal government and therefore would not be willing to seek government contracts. Some officials from Hispanic advocacy groups said Hispanic contracting officials were underrepresented in the federal government. A surety bond is form of insurance that guarantees contract completion. Officials from another group also said that some minority groups, including those in nonmetropolitan areas, could lack the infrastructure needed (e.g., Internet service and transportation) to conduct business in these areas. Officials from all but one federal agency—SBA—that we contacted said that they did not know of any linguistic or cultural issues that posed a barrier for minority-owned businesses seeking to contract with the government. SBA officials told us that cultural barriers may be a challenge for minority-owned businesses seeking federal government contracts and emphasized that minority-owned businesses would be hesitant to reveal any linguistic barriers. The officials noted that some cultural barriers existed for Asian-Americans, Alaskan Natives, Native- Americans, and Native Hawaiians, because their traditional ways of conducting business involved intangibles that did not translate well into a “faceless” electronic contracting community. These officials also said that some minority-owned businesses may have informal business practices—for example, they may obtain financing from a friend or family member instead of through a bank—and therefore a business owner might not have the documentation required by some federal programs. As we have previously noted, federal agencies conduct outreach to help minority-owned businesses seeking federal government contracts. For example, federal contracting officials with whom we spoke cited “industry days,” conferences, and meetings with businesses as efforts to help businesses address challenges they could face in seeking federal contracts. During industry days small businesses are invited to meet prime contractors in their industries and potentially obtain subcontracts. Businesses can also interact directly with contracting office staff. For example, contracting officers said that they participated in panel discussions to provide business owners with information on the acquisition process and forecasts of contract opportunities. Contracting officers also accept requests from business owners that schedule meetings to discuss their business capabilities. Many agency officials, including an OSDBU official and contracting officials, told us they also work with and refer businesses to Procurement Technical Assistance Centers (PTAC) so that the businesses may receive one-on-one assistance. Agency outreach to businesses is generally directed by agency OSDBUs, the agencies’ advocates for small businesses. OSDBU directors use a variety of methods—including internal and external collaboration, outreach to small businesses, and oversight of agency small business contracting—to help small businesses overcome challenges they may face such as understanding the federal contracting process. OSDBU officials from three federal agencies we contacted indicated that they collaborate with several agency offices, such as acquisition and small business specialists, and with organizations such as MBDA. We previously reported that nearly all of the OSDBU directors saw outreach activities as a function of their office. For example, 23 of the 25 OSDBU directors we surveyed between November and December 2010 viewed hosting conferences for small businesses as one of their responsibilities, and 23 had hosted such conferences. More specifically, these 23 agencies had hosted an average of 20 conferences within the previous 2 years. In addition, 20 of the 25 OSDBU directors surveyed saw sponsoring training programs for small businesses as one of their responsibilities, and 18 had hosted such events in the last 2 years. Federal agencies we contacted generally collect and report information on contracting assistance they provide to small and small disadvantaged businesses. Federal agencies are required to report annually to SBA on participation in the agency’s contracting activities by small disadvantaged businesses, veteran-owned small businesses (including service-disabled veterans), qualified HUBZone small businesses, and women-owned small businesses. SBA compiles and analyzes the information and reports the results to the President and Congress.report to SBA plans to achieve their contracting goals, which can include outreach activities. In addition, Executive Order 11,625 requires the Secretary of Commerce—the umbrella agency of MBDA—and other agencies to report annually on activities related to minority business development and to provide other information as requested. Finally, federal agencies are also required to develop and implement systematic Agencies are also required to data collection processes and provide MBDA with current data that will help in evaluating and promoting minority business development efforts. A majority of the federal agencies we contacted told us that the extent to which they met SBA prime and subcontracting goals for the various socioeconomic categories of businesses (including the small disadvantaged business goal) provided a measure of their efforts to assist minority-owned businesses in contracting with the federal government. As figure 1 shows, in fiscal year 2011 the federal government met its 5 percent goal for prime contracting and subcontracting with small disadvantaged businesses. In addition, all four agencies we reviewed met their prime contracting goals of 5 percent, and three met their 5 percent subcontracting goals for this category. Contracting officials at these agencies generally attributed their success in contracting with small businesses—including small disadvantaged businesses—to a variety of factors, including support from the agency OSDBU and upper management, staff commitment, and the use of set-asides. They also noted several other factors that contributed to their contracting performance, including market research, a strategy for small businesses, and outreach efforts. Federal agency officials also said that some outreach activities might be targeted to certain socioeconomic categories to assist in meeting agency SBA goals. For example, DHS contracting office officials said that as a result of monitoring their progress in meeting SBA goals, they conducted outreach to women-owned and HUBZone businesses with contract set-asides. SBA also issues an annual scorecard as an assessment tool to measure how well federal agencies reach their small business and socioeconomic prime contracting and subcontracting goals, to provide accurate and transparent contracting data, and to report agency-specific progress. An overall grade assesses an agency’s entire small business procurement performance, and three quantitative measures show achievements in prime contracting, subcontracting, and plan progress, or an agency’s efforts and practices to meet its contracting goals.given for government-wide performance, and individual agencies receive their own grades. For fiscal year 2011, SBA gave a grade of “B” for overall government-wide performance. For the federal agencies that we included in our analysis, GSA scored an overall grade of A+, DHS and HHS scored an overall grade of A, and DOD scored an overall grade of B. Two agencies we reviewed collected and reported data by minority group. For example, MBDA reports data categorized by minority group, on contracting assistance that its business centers provide as required by executive order. For fiscal year 2011, MBDA reported that its business centers helped minority-owned businesses obtain 1,108 transactions (the sum of contracts and financings) totaling over $3.9 billion (see table 1). SBA also collects some information for its various programs, including information by minority group for the 8(a) Business Development Program, as required by statute. For example, SBA reported that of the 7,814 8(a) program participants in fiscal year 2011—the most recent data available—more than 90 percent of the participants were minority-owned businesses (see fig. 2). SBA also reported that 8(a) program participants reported total year-end revenues exceeding $21.7 billion in fiscal year 2010, with 43.4 percent of these revenues coming from 8(a) contracts. During that same year, SBA provided technical assistance to 2,000 8(a) businesses. SBA officials we interviewed said that SBA generally did not collect information by minority group for any of its other programs. Most federal agencies that we contacted indicated that they collected some general information on outreach events and activities and some demographic data, although collecting such data was not required. For example, for outreach events such as the Minority Enterprise Development week conference, MBDA officials told us that they collect general demographic information from participants on their businesses and experience, but not by minority group. The officials told us that they also collect aggregated data on its outreach activities for minority-owned businesses, such as number of meetings and participants. For example, MBDA officials told us that they conducted 119 of the 129 one-on-one meetings scheduled between minority-owned and small businesses and corporations and prime contractors during this event. Officials from DOD, DHS, GSA, and HHS said that they asked participants in their outreach events questions (sometimes by survey or evaluation) about the value or helpfulness of the events. Officials from three agencies noted that they used the survey results to determine the effectiveness of, or how to improve, the event. In addition, agencies may ask questions to obtain general information about a business and potentially its socioeconomic status. Officials also said that they collected some information by socioeconomic group, but none by minority group. Finally, the OSDBU Council—which comprises OSDBU officials from various federal agencies—hosts an annual procurement conference that provides assistance to businesses seeking federal government contracts, and some information is collected for this event. According to the council’s website, more than 3,500 people registered for the 2012 conference, and more than 130 matchmaking sessions were conducted. According to the council’s president, 2012 is the first year that such information was collected. We provided a draft of this report to Commerce, DHS, DOD, GSA, HHS, and SBA for review and comment and received comments only from Commerce. Commerce provided written comments which are reprinted in appendix V. Commerce made two observations on our draft report. First, the department stated that the report was a good start at capturing the federal government’s effort to support small, minority-owned businesses, but did not include all federal programs that supported federal contracting with minority-owned businesses. The department added that GAO had missed an opportunity to provide a more comprehensive picture of the federal government’s efforts in this area, noting, for example, that the Departments of Agriculture, Housing and Urban Development, and Transportation had programs (other than OSDBUs) geared toward increasing federal contracts with minority-owned firms. In addition, the department stated that an Office of Minority and Women Inclusion was recently established at each of the financial regulatory agencies. While providing support to minority-owned businesses, these agencies and offices were outside of the scope of our review, which as we stated in our report, focused on the four agencies—DHS, DOD, GSA, and HHS—that accounted for about 70 percent of total federal obligations to small, minority-owned businesses in fiscal year 2010. We also included SBA and Commerce’s MBDA in our review because of their roles in assisting minority-owned businesses. We are reviewing the efforts of the Office of Minority and Women Inclusion in an ongoing study that will be issued in 2013. Second, Commerce noted that although the dollar amount of federal contracts obligated to small, minority-owned businesses was encouraging, the report did not analyze the number of minority-owned firms that actually secured federal contracts. The department said that it was possible that a handful of minority-owned firms had secured sizable federal contracts but that the majority of minority-owned firms continued to fail in obtaining them. However, data are not available on the total universe of small, minority-owned businesses that entered bids in response to federal contract solicitations. Just as with our reporting of funds obligated for contracts, data on the number of minority-owned businesses that secured federal contracts would not provide information on the number of such businesses that did not obtain them. Likewise, while we do report MBDA’s statistics on contracting assistance provided to minority-owned businesses, again such data do not provide information on how many businesses sought but did not obtain federal contracts. We conducted interviews with officials from MBDA, SBA, contracting offices at the federal agencies in our scope, and advocacy groups to obtain their perspectives on the challenges minority-owned businesses may face in seeking to contract with the federal government. We are sending copies of this report to appropriate congressional committees; the Attorney General; the Secretaries of Defense, Homeland Security, and Health and Human Services; the Acting Secretary of Commerce; and the Administrators of the General Services Administration and Small Business Administration. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions on the matters discussed in this report, please contact me at (202) 512-8678 or by email at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. Our objectives were to describe: (1) what federal agency officials and advocacy groups identified as challenges that small, minority-owned businesses may face in seeking to contract with the federal government— including any linguistic or cultural barriers—and agencies’ efforts to address them, and (2) what information is available on federal efforts to assist small, minority-owned businesses in contracting with the federal government. To determine which programs and resources to include in our scope, we conducted a web-based search for initial information on programs and resources available from federal government agencies using terms such as contracting assistance for minorities. We analyzed information on programs that provide federal contracting assistance and resources on contracting opportunities, and are available to minority-owned businesses. We describe programs and resources provided by the Minority Business Development Agency (MBDA) as they are tasked with the growth and promotion of minority-owned businesses. We also describe programs and resources available from the Small Business Administration (SBA), as this agency is responsible for providing assistance to small businesses—which can be minority owned—and programs and resources available from other selected federal agencies based on the criteria described below. Finally, we interviewed officials from these selected agencies and advocacy groups that provide assistance to businesses owned by Asian-, Black-, Hispanic-, and Native- Americans. We selected these minority groups because they received the largest share of federal obligations to small, minority-owned businesses based on business owners self-identifying as a member of these groups. To select agencies to include in our scope, we reviewed data from Federal Procurement Data System-Next Generation (FPDS-NG) on contract awards to small businesses owned by the minority groups in our scope by federal agency. Although we could not independently verify the reliability of these data, we reviewed system documentation and conducted electronic data testing for obvious errors in accuracy and completeness. On the basis of these efforts, we determined that the FPDS-NG data on federal contract dollars to socioeconomic groups by self-reported minority group were sufficiently reliable for purposes of our review. We selected the top four agencies that accounted for about 70 percent of total federal obligations to small, minority-owned businesses in fiscal year 2010—the most recent data available at the time of our selections. These agencies were the Departments of Defense (DOD), Health and Human Services (HHS), and Homeland Security (DHS), and, the General Services Administration (GSA). To select a purposive, non-representative sample of contracting offices for purposes of conducting interviews, we first selected the top two divisions within DOD, DHS, and HHS in terms of the percentage of their agency’s obligations to small, minority-owned businesses. Those divisions included the Departments of the Army and Navy for DOD; the Bureau of Customs and Border Protection and the United States Coast Guard for DHS, and the National Institute of Health and the Centers for Medicaid and Medicare for HHS. We selected only one division for GSA—the Public Buildings Service—as this division represented over 76 percent of GSA’s funds obligated for contracts to small, minority-owned businesses. Using this approach, we selected a total of seven divisions within the four agencies in our scope. Within each division, we selected one of the top contracting offices based on the office’s percentage of their division’s obligations to businesses owned by the minority groups in our scope. We selected two contracting offices from the Department of the Army because the percentage of obligations to small, minority-owned businesses by any of its top contracting offices was small. Our final sample consisted of eight contracting offices. To describe the challenges that small, minority-owned businesses may face in contracting with the federal government, we interviewed agency officials—including those from contracting offices and the Office of Small Disadvantaged Business Utilization—from the purposive, non- representative sample of eight contracting offices. We also interviewed officials from MBDA and SBA. Further, we conducted interviews with officials from 12 advocacy groups. We selected groups that provided assistance to businesses owned by the minority groups in our scope based on a web-based search on national organizations that represent and provide assistance to minority-owned businesses in obtaining federal contracts. To describe information on improving access to services for persons with limited English proficiency, we reviewed Executive Order 13,166—Improving Access to Services for Persons with Limited English Proficiency (LEP)—to understand its applicability to outreach activities associated with federal contracting. We reviewed guidance from the Department of Justice (DOJ), as well as existing LEP plans for each agency in our scope. We could not review the LEP plans for DOD and for SBA, as the plan for each agency had not yet been completed. We also obtained and reviewed written responses from DOJ. To describe the information available on the extent of federal efforts to assist small, minority-owned businesses in contracting with the federal government, we reviewed federal government prime contracting and subcontracting goals and SBA procurement scorecards for fiscal year 2011 for DOD, HHS, DHS and GSA. We also reviewed documentation for programs that assist small businesses owned and controlled by socially and economically disadvantaged individuals—which can include businesses that are minority-owned—to determine the types of contracting assistance available. We conducted interviews with officials from the selected agencies and contracting offices to identify and obtain available information on their outreach efforts to assist minority-owned businesses. In addition, we conducted interviews with officials from 12 advocacy groups that provide contracting assistance to the minority groups in our scope. For information on the percentage of funds obligated for contracts in fiscal year 2011 to each socioeconomic category of small businesses by minority group—including small disadvantaged, women-owned, service- disabled veteran-owned, and Historically Underutilized Business Zone (HUBZone)—we analyzed data from FPDS-NG, which receives data from the Central Contractor Registration System (CCR)—the system in which all businesses seeking federal government contracts must register. In CCR, registrants (i.e., business owners) can self identify as minority- owned and can specify a minority group(s). Registrants can select from the following six categories: Asian Pacific, Subcontinent Asian, Black- American, Hispanic-American, Native-American, and Other. We conducted electronic testing for obvious errors in accuracy and completeness. As a part of this assessment, we analyzed the FPDS-NG data to determine cases in which contracting firms were identified as belonging to a particular minority group, such as Subcontinent Asian, but did not designate the firm as being minority-owned. This occurred in less than 3 percent of the cases. We conducted the same assessment within different socioeconomic categories, such as small disadvantaged business, and found a potential undercount of the minority-owned designation in less than 4 percent of the cases. In addition, businesses that selected “other minority” and those that self-identified as more than one minority group were categorized as other minority. We determined the minority-owned designations data were sufficiently reliable for the purposes of our report. However, because we cannot verify the minority group that contractors self-report, we characterize these data as self- reported. We conducted this performance audit from November 2011 through September 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We analyzed data from the Federal Procurement Data System – Next Generation to determine the amount of obligated funds for contracts that federal agencies made to small businesses by minority group for fiscal year 2011. As figure 3 shows, the federal government obligated over $36 billion (35.1 percent) to small, minority-owned businesses in fiscal year 2011. Figure 4 shows the amount of federal obligated funds for contracts to small disadvantaged businesses. For example, about $28.8 billion (85.6 percent) was obligated to small disadvantaged businesses that were minority-owned. Figures 5 shows the amount of federal obligated funds for contracts to small women-owned businesses. For example, $8.2 billion (45.7) percent were obligated to small women-owned businesses that were minority- owned. Figure 6 shows the amount of federal obligated funds for contracts to small HUBZone businesses. For example, nearly $5.5 billion (54.3 percent) were obligated to small HUBZone businesses that were minority- owned. Figure 7 shows the amount of federal obligated funds for contracts to small service-disabled veteran-owned businesses. For example, nearly $3.9 billion (33 percent) were obligated to small service-disabled veteran- owned businesses that were minority-owned. This table shows programs, resources, outreach activities, and examples of contracting assistance that agencies provide to assist minority-owned businesses in contracting with the federal government. Executive Order 13,166, Improving Access to Services for Persons with Limited English Proficiency, issued on August 11, 2000, requires federal agencies to prepare a plan to improve access to federally conducted programs and activities for those with limited English proficiency (LEP). Under the order, federal agencies must take reasonable steps to provide meaningful access to persons with LEP for federally conducted programs and activities. In addition, the Department of Justice (DOJ) serves as a central repository for agency plans to address LEP and provides guidance to agencies for developing such plans. According to DOJ guidance issued on August 16, 2000 and available at LEP.GOV, the four factors to be considered in determining what constitutes “reasonable steps to ensure meaningful access” include (1) the number or proportion of such individuals in the eligible population, (2) the frequency with which they come into contact with the program, (3) the importance of the service provided by the program, and (4) the resources available to the recipients. In May 2011, DOJ also issued a Language Access Assessment and Planning Tool for Federally Conducted and Federally Assisted Programs to provide guidance to recipients of federal financial assistance and federal agencies. The first step in the assessment tool is a self-assessment that determines what type of contact an agency has with the LEP population and describes the elements that are part of effective language access policy directives and implementation plans. “Generally, current practice with regard to announcing federal government contracts and grants would not be altered under the Executive Order. In determining what is required, the focus of the analysis in this situation is on the first factor—the number or proportion of eligible LEP persons. Except, perhaps, in territories, it is reasonable to expect that the number or proportion of eligible contract or grant recipients who are LEP and are themselves attempting to find and respond to announcements of grants and contracts is negligible.” Federal agency officials and advocacy groups we spoke with cited linguistic barriers as a challenge on a limited basis. In addition, few agencies had taken action to address possible linguistic barriers, and most told us that they had not taken such action because they had not encountered this challenge. For example, based on its efforts as of July 2012, GSA found that only one region reported significant contact with persons with LEP. In addition to the contact named above, Marshall Hamlett (Assistant Director), Emily Chalmers, Pamela Davidson, Meredith Graves, Julia Kennon, Shamiah T. Kerney, Katherine Leigey, and Andrew J. Stephens made key contributions to this report.

Each year, the government obligates billions in contracts to businesses—nearly $537 billion in fiscal year 2011. About $104 billion (19.4 percent) was obligated to small businesses, and over $36 billion of this amount was obligated to small businesses that identified themselves as minority-owned (see figure). In this report, GAO describes (1) what federal agency officials and advocacy groups identified as challenges small, minority-owned businesses may face in seeking federal government contracts—including any linguistic or cultural barriers—and agencies’ efforts to address them, and (2) what information is available on federal efforts to assist small, minority-owned businesses in contracting with the federal government. For selected agencies, GAO analyzed data on obligations to minority-owned businesses, reviewed information on programs and resources that can assist minority-owned businesses, reviewed relevant information from the Department of Justice on agencies’ Limited English Proficiency plans, and interviewed officials from selected federal agencies and advocacy groups that provide assistance to minority-owned businesses. In written comments, Commerce said that GAO had not covered all federal efforts to support small, minority-owned business contracting. As GAO noted in the report, this study focused on selected agencies and contracting activities that accounted for about 70 percent of total federal obligations to small, minority-owned businesses in fiscal year 2010. While their views varied to some degree, federal agency officials and advocacy groups GAO contacted identified a number of challenges that small, minority-owned businesses may face in pursuing federal government contracts. For example, officials and advocacy groups pointed to a lack of performance history and knowledge of the federal contracting process as significant barriers. Officials from advocacy groups cited additional challenges, such as difficulty gaining access to contracting officials and decreased contracting opportunities resulting from contract bundling—the consolidation of two or more contracts previously performed under smaller contracts, into a single contract. Officials from agencies that accounted for 70 percent of federal contracting with small, minority-owned businesses—(the Departments of Defense, Health and Human Services, and Homeland Security, and the General Services Administration) told GAO that they conducted outreach to help small, minority-owned businesses with these challenges. Their outreach efforts include one-on-one interviews between contracting office staff and businesses seeking federal contracts. Linguistic and cultural barriers were identified as a challenge on a limited basis. Federal agencies GAO contacted collected and reported some information on the contracting assistance provided to small disadvantaged businesses—including those that are minority-owned. Two agencies GAO reviewed collected and reported data by minority group. The Minority Business Development Agency in the Department of Commerce—created to foster the growth of minority-owned businesses of all sizes—reported that its business centers helped these businesses obtain 1,108 financings and contracts worth over $3.9 billion in fiscal year 2011. For the same fiscal year, the Small Business Administration (SBA) reported that more than 90 percent of its primary business development program participants were minority-owned businesses. Federal agencies that GAO contacted said that the goals SBA negotiated with federal agencies for contracting with various socioeconomic categories, including small disadvantaged businesses, provided some information on efforts to assist minority-owned businesses. In fiscal year 2011, agencies GAO contacted met their prime contracting goal and three out of four agencies met their subcontracting goals. GAO generally found limited data on participants in agency outreach efforts because the agencies are not required to, and therefore generally do not, collect data on the minority group or socioeconomic category of businesses that participate in outreach events for federal contracting opportunities.

You are an expert at summarizing long articles. Proceed to summarize the following text: In our four annual reports issued from 2011 through 2014, we identified over 180 areas with approximately 440 actions that the executive branch and Congress could take to address fragmentation, overlap, and duplication; achieve other cost savings; or enhance revenue. Figure 1 outlines the definitions we use for fragmentation, overlap, and duplication. Although it may be appropriate for multiple agencies or entities to be involved in the same programmatic or policy area due to the nature or magnitude of the federal effort, the instances of fragmentation, overlap, or duplication that we include in our annual reports are in areas where multiple programs and activities may be creating inefficiencies. We consider programs or activities to be fragmented when more than one federal agency (or more than one organization within an agency) is involved in the same broad area of national need, which may result in inefficiencies in how the government delivers services. We have identified fragmentation in multiple programs we reviewed. For example, in our 2014 annual report, we reported that the Department of Defense (DOD) does not have a consolidated agency-wide strategy to contract for health care professionals, resulting in a contracting approach that is largely fragmented. Although some of the military departments attempted to consolidate their health care staffing requirements through joint-use contracts, such contracts only accounted for approximately 8 percent of the $1.14 billion in obligations for health care professionals in fiscal year 2011. Moreover, in May 2013 we identified several instances in which a single military department awarded numerous task orders for the same type of health care professional in the same area or facility. For example, we identified 24 separate task orders for contracted medical assistants at the same military treatment facility. By not consolidating its requirements, this facility missed the opportunity to achieve potential cost savings and other efficiencies. Fragmentation also can be a harbinger of overlap or duplication. Overlap occurs when multiple agencies or programs have similar goals, engage in similar activities or strategies to achieve them, or target similar beneficiaries. We found overlap among federal programs or initiatives in a variety of areas, including housing assistance. In particular, in our 2012 annual report, we reported that 20 different entities administered 160 programs, tax expenditures, and other tools that supported homeownership and rental housing in fiscal year 2010. In addition, we identified 39 programs, tax expenditures, and other tools that provided assistance for buying, selling, or financing a home and 8 programs and tax expenditures that provide assistance to rental property owners. We found overlap in products offered and markets served by the Department of Agriculture’s (USDA) Rural Housing Service and the Department of Housing and Urban Development’s Federal Housing Administration, among others. In August 2012, we questioned the need for maintaining separate programs for rural areas. In other areas, we found evidence of duplication, which occurs when two or more agencies or programs engage in the same activities or provide the same services to the same beneficiaries. For example, we reported in 2013 that a total of 31 federal departments and agencies invested billions of dollars to collect, maintain, and use geospatial information— information linked to specific geographic locations that supports many government functions, such as maintaining roads and responding to natural disasters. We found that federal agencies had not effectively implemented policies and procedures that would help them identify and coordinate geospatial data acquisitions across the government. As a result, we found that agencies made duplicative investments and risk missing opportunities to jointly acquire data and save millions of dollars. In addition, opportunities exist to reduce the cost of government operations or enhance revenue collections. For example, our body of work has raised questions about whether DOD’s efforts to reduce headquarters overhead will result in meaningful savings. In 2013, the Secretary of Defense directed a 20 percent cut in management headquarters spending throughout DOD, to include the combatant commands and service component commands. However, our work found that mission and headquarters-support costs for the five geographic combatant commands and their service component commands we reviewed more than doubled from fiscal years 2007 through 2012, to about $1.7 billion. We recommended that DOD more systematically evaluate the sizing and resourcing of its combatant commands. If the department applied the 20 percent reduction in management headquarters spending to the $1.7 billion DOD used to operate and support the five geographic combatant commands in fiscal year 2012, we reported that DOD could achieve up to an estimated $340 million in annual savings. In our 2013 report, we reported that refining return-on-investment measures could improve how the Internal Revenue Service (IRS) allocates enforcement resources (subject to other considerations, such as minimizing compliance costs and ensuring equitable treatment of taxpayers). Our work illustrated that a small shift in existing resources— from examinations of less productive groups of tax returns to more productive groups—could potentially increase enforcement revenue by more than $1 billion. In addition, in our 2011 annual report, we identified opportunities for improving the Department of the Interior’s management of federal oil and gas resources. In particular, increasing the diligent development of federal lands and waters leased for oil and gas exploration and production and considering adjustments to Interior’s royalty rates to a level that would ensure the government a fair return, among other actions, could result in approximately $2 billion in revenues over 10 years. We found that the executive branch agencies and Congress have made progress in addressing the actions identified in our 2011–2014 annual reports. As shown in table 1, of the approximately 440 actions needed in these areas, 135 (29 percent) were addressed, 202 (44 percent) were partially addressed, and 103 (22 percent) were not addressed as of November 2014. Examples of progress made include DOD and Congressional actions to reduce DOD’s fragmented approach for acquiring combat uniforms. In 2013, we found that DOD’s fragmented approach could lead to increased risk on the battlefield for military personnel and increased development and acquisition costs. In response, DOD developed and issued guidance on joint criteria that will help to ensure that future service-specific uniforms will provide equivalent levels of performance and protection. In addition, a provision in the National Defense Authorization Act for Fiscal Year 2014 established as policy that the Secretary of Defense shall eliminate the development and fielding of service-specific combat and camouflage utility uniforms in order to adopt and field common uniforms for specific environments to be used by all members of the armed forces.Subsequently, the Army chose not to introduce a new family of camouflage uniforms into its inventory, in part, because of this legislation, resulting in a cost avoidance of about $4.2 billion over 5 years. In addition, progress has been made in addressing the proliferation of certain programs. For example, the National Science and Technology Council’s (NSTC) implemented our suggested actions to better manage overlap across science, technology, engineering, and mathematics (STEM) education programs. Specifically, NSTC released guidance to agencies on how to align their programs and budget submissions with the goals of NSTC’s 5-Year strategic plan for STEM education and on developing evaluations for the programs. In addition, several programs were eliminated or consolidated into new programs, with the total number of STEM education programs dropping from 209 funded in fiscal year 2010 to 158 funded in 2012. The President’s fiscal year 2016 budget proposes to further consolidate and eliminate 20 STEM programs across eight agencies. These efforts help agencies better target resources toward programs with positive outcomes and achieve the greatest impact in developing a pipeline of future workers in STEM fields. As another example, the Workforce Innovation and Opportunity Act, enacted in July 2014, includes provisions to strengthen the workforce development system under which a variety of employment and training services are provided to program participants. In particular, the law requires that states develop a unified state plan that covers all designated core programs to receive certain funding. States’ implementation of the requirement may enable them to increase administrative efficiencies in employment and training programs—a key objective of our prior recommendations on employment and training programs. We estimated that executive branch and congressional efforts to address suggested actions resulted in roughly $20 billion in financial benefits from fiscal years 2011 through 2014, with another approximately $80 billion in additional benefits projected to be accrued through 2023. For example, in our 2011 annual report, we stated that the ethanol tax credit would cost about $5 billion in forgone revenues in 2011 and that Congress could reduce annual revenue losses by addressing duplicative federal efforts directed at increasing domestic ethanol production. To reduce these revenue losses, we suggested that Congress consider whether revisions to the ethanol tax credit were needed and suggested options to consider, including allowing the credit for the volumetric ethanol excise tax (for fuel blenders that purchase and blend ethanol with gasoline) to expire at the end of 2011. Congress allowed the tax credit to expire at the end of 2011. In our 2012 annual report, we presented options for adjusting the Transportation Security Administration’s (TSA) passenger security fee—a uniform fee on passengers of U.S. and foreign air carriers originating at airports in the United States—to offset billions of dollars in civil aviation security costs. The Bipartisan Budget Act of 2013 modifies the passenger security fee from its current per enplanement structure ($2.50 per enplanement with a maximum one-way-trip fee of $5.00) to a structure that increases the passenger security fee to a flat $5.60 per one-way-trip, effective July 1, 2014. Specifically, this legislation identifies $12.6 billion in fee collections that, over a 10-year period beginning in fiscal year 2014 and continuing through fiscal year 2023, will contribute to deficit reduction. Fees collected beyond those identified for deficit reduction are available, consistent with existing law, to offset TSA’s aviation security costs. This fee is expected to cover 43 percent of aviation security costs beginning in fiscal year 2014, compared with the approximately 30 percent offset under the previous fee structure. Table 2 outlines a number of addressed actions that resulted in or are expected to result in cost savings or enhanced revenue. We plan to release an update on the status of all actions presented in our 2011–2014 reports in conjunction with our next annual report in April 2015. The executive branch agencies and Congress have made progress in addressing some suggested actions, but many other actions require leadership attention to ensure that they will be fully addressed. More specifically, 68 percent of actions directed to Congress and 66 percent of actions directed to executive branch agencies identified in our 2011–2014 annual reports remain partially addressed or not addressed. As illustrated below, our work identified areas of fragmentation, overlap, or duplication that spanned the range of government activities, along with opportunities to address these issues. Without increased or renewed leadership focus, opportunities will be missed to improve the efficiency and effectiveness of programs and save taxpayer dollars. Our work on defense has highlighted opportunities to address overlapping and potentially duplicative services that result from multiple entities providing the same service, including the following examples: Defense Satellite Control Operations: In our 2014 annual report, we reported that DOD has increasingly had deployed dedicated satellite control operations networks, as opposed to shared networks that support multiple kinds of satellites. For example, at one Air Force base in 2013, eight separate control centers operated satellites for 10 satellite programs. Furthermore, the Air Force alone funded about $2.1 billion in While dedicated networks can fiscal year 2011 on satellite operations.offer some benefits to programs, they also can be more costly to maintain and have led to fragmented and potentially duplicative networks that require more infrastructure and personnel to manage as compared with shared networks. We suggested that DOD take actions to improve its ability to identify and then assess the appropriateness of a shared versus dedicated satellite control system, which DOD has begun to address. Electronic Warfare: We reported in 2011 that all four military services in DOD had been separately developing and acquiring new airborne electronic attack systems and that spending on new and updated systems was projected to total more than $17.6 billion during fiscal years 2007–2016. While the department has taken steps to better inform its investments in airborne electronic attack capabilities, it has yet to assess its plans for developing and acquiring two new expendable jamming decoys to determine if these initiatives should be merged. For example, in fiscal year 2015 one DOD decoy system is already in production, while DOD defines performance requirements for another decoy system. Without an assessment for potential duplication, DOD may preclude the timely identification and prevention of unnecessary overlap between its systems. Unmanned Aircraft Systems: We reported in 2012 that DOD’s cost estimates for acquisition programs for unmanned aircraft systems (UAS) and related systems exceeded $37.5 billion for fiscal years 2012–2016. We found that military service-driven requirements, rather than an effective department-wide strategy, led to overlap in DOD’s UAS capabilities, resulting in programs and systems being pursued that have similar flight characteristics and mission requirements. To reduce the likelihood of overlap and potential duplication in DOD’s UAS portfolio, we suggested several actions to DOD that have not been fully implemented. The overlap in current UAS programs, as well as continued potential for overlap in future programs, shows that DOD must do more to implement these actions. Our analysis suggests that the potential for savings would be significant, and with DOD’s continued commitment to UAS for meeting strategic requirements, action is all the more imperative. More broadly, we identified multiple weaknesses in the way DOD acquires weapon systems and the actions that are needed to address these issues, which we recently highlighted in our high-risk series update. For example, further progress must be made in tackling the incentives that drive the acquisition process and its behaviors, applying best practices, attracting and empowering acquisition personnel, reinforcing desirable principles at the beginning of programs, and improving the budget process to allow better alignment of programs and their risks and needs. Addressing these issues could help DOD improve the returns on its $1.5 trillion investment in major weapon systems and find ways to deliver capabilities for less than it has in the past. The federal government plans to spend $79 billion on information technology (IT) in fiscal year 2015. The magnitude of these expenditures highlights the importance of avoiding duplicative investments to better ensure the most efficient use of resources. Opportunities remain to reduce duplication and the cost of government operations in critical IT areas, many of which require agencies to work together to improve systems, including the following examples: Information Technology Investment Portfolio Management: To better manage existing IT systems, the Office of Management and Budget (OMB) launched the PortfolioStat initiative. PortfolioStat requires agencies to conduct an annual, agency-wide review of their IT portfolios to reduce commodity IT spending and demonstrate how their IT investments align with their missions and business functions, among other things. In 2014, we reported that while the 26 federal agencies required to participate in PortfolioStat had made progress in implementing OMB’s initiative, weaknesses existed in agencies’ implementation of the initiative, such as limitations in the Chief Information Officers’ authority. As noted in our recent high-risk update, we made more than 60 recommendations to improve OMB and agencies’ implementation of PortfolioStat and provide greater assurance that agencies will realize the nearly $6 billion in savings they estimated they would achieve through fiscal year 2015. Federal Data Centers: In 2014, we found that consolidating federal data centers would provide an opportunity to improve government efficiency and achieve cost savings and avoidances of about $5.3 billion by fiscal year 2017. Although OMB has taken steps to identify data center consolidation opportunities across agencies, weaknesses exist in the execution and oversight of the consolidation efforts. For example, we previously reported that all 24 departments and agencies in the Federal Data Center Consolidation Initiative had not yet completed a data center inventory or the consolidation plans to implement their consolidation initiative. It will continue to be important for agencies to complete their inventories and implement their plans for consolidation to better ensure continued progress toward OMB’s planned consolidation, optimization, and cost-savings goals. DOD and Department of Veterans Affairs (VA) Electronic Health Records System: DOD and VA abandoned their plans to develop a single electronic system for health records that both departments would share. Although the departments’ 2008 study showed that over 97 percent of inpatient functional requirements were common to both DOD and VA, they decided to pursue separate electronic health record system modernization efforts. In February 2014, we reported that the departments had based this decision on the assertion that pursuing separate systems would be less expensive and faster than the single, shared-system approach. However, they had not supported this assertion with cost and schedule estimates that compared the separate efforts with estimates for the single-system approach. Through continued duplication of these efforts, the departments may be incurring unnecessary system development and operation costs and missing opportunities to support higher-quality health care for servicemembers and veterans. The departments plan to make the separate systems interoperable as required by law. Given the federal government’s continued experience with failed and troubled IT projects, coupled with the fact that OMB initiatives to help address such problems have not been fully implemented, we added improving the management of IT acquisitions and operations to our 2015 high-risk list. The federal information technology acquisition reforms enacted in December 2014 reinforce a number of the actions that we have recommended to address IT management issues. For example, the law containing these reforms codifies federal data center consolidation, emphasizing annual reporting on cost savings and detailed metric reporting, and OMB’s PortfolioStat process, focusing on reducing duplication, consolidation, and cost savings. If effectively implemented, this legislation should improve the transparency and management of IT acquisitions and operations across the government. Twenty-seven federal agencies plan to spend about $58 billion—almost three-quarters of the overall $79 billion budgeted for federal IT in fiscal year 2015—on the operations and maintenance of legacy (i.e., steady-state) investments. The significance of these numbers highlights the importance of ensuring that OMB’s PortfolioStat and Data Center Consolidation initiatives meet their cost-savings goals. We identified several opportunities to help address the proliferation of certain education and training programs and improve the delivery of benefits, which the executive branch agencies and Congress have been working to address. However, additional opportunities remain to more effectively invest in education and training programs, including the following examples: Teacher Quality: Federal efforts to improve teacher quality led to the creation and expansion of a variety of programs across the federal government; however, there is no government-wide strategy to minimize fragmentation, overlap, or duplication among these programs. Specifically, in our 2011 annual report we identified 82 distinct programs designed to help improve teacher quality, either as a primary purpose or as an allowable activity. Many of these programs (administered across 10 federal agencies) shared similar goals. We suggested that Congress could enact legislation to eliminate teacher quality programs that are too small to evaluate cost-effectively or to combine programs serving smaller target groups into a larger program. In February 2015, the House Committee on Education and Workforce reported the Student Success Act, H.R. 5. According to House Report 114-24, H.R. 5 would consolidate most teacher quality programs into a new flexible grant program. In addition, we suggested that Congress could include legislative provisions to help the Department of Education reduce fragmentation, such as by giving broader discretion to the agency to move resources from certain programs. In February 2015, the Senate Committee on Health, Education, Labor, and Pensions reported the Strengthening Education through Research Act, S. 227, which would authorize the Department of Education to reserve and consolidate funds from Elementary and Secondary Education Act programs to carry out high-quality evaluations and increase the usefulness of those evaluations. These bills, if enacted, could help eliminate some of the barriers to educational program alignment and help invest scarce resources more effectively. Employment for Persons with Disabilities: In June 2012, we reported on 45 programs administered by nine federal agencies that supported employment for people with disabilities and found these programs were fragmented and often provided similar services to similar populations. OMB has worked with executive agencies to propose consolidating or eliminating some of these programs. In particular, three programs were eliminated in the Workforce Innovation and Opportunity Act: the Veterans’ Workforce Investment Program, administered by the Department of Labor, and the Migrant and Seasonal Farmworker Program and Projects with Industry, administered by the Department of Education. However, OMB has not yet systematically looked across all agencies and programs—beyond those already identified in the Departments of Education and Labor— for opportunities to streamline and improve service delivery, which could help achieve greater efficiency and effectiveness. Table 3 outlines these and other examples of opportunities for consolidating or streamlining programs to better provide services. Opportunities also exist to achieve cost savings or enhance revenue collection. As with the opportunities to address fragmentation, overlap and duplication, fully achieving these opportunities will require sustained leadership by executive branch agencies and Congress. Examples of these actions include rescinding unobligated funds, improving fiscal oversight over Medicare and Medicaid, reducing contract spending through strategic sourcing, and increasing tax revenue collections. We reported in March 2013 that the Department of Energy (DOE) was not actively considering any applications under the Advanced Technology Vehicle Manufacturing loan program that was established to provide loans for projects to produce more fuel-efficient passenger vehicles and In our 2014 annual report, we suggested that unless their components.DOE could demonstrate a demand for new loans and viable applications, Congress might wish to consider rescinding all or part of the remaining $4.2 billion in credit subsidy appropriations made available under this program. Since our April 2014 annual report, DOE has not yet demonstrated a demand for these loans that would substantially use the remaining credit subsidy appropriations. The department received four complete applications seeking a total of $945 million in loans, which represents 5.7 percent of the program’s remaining $16.6 billion in loan authority. DOE officials stated that the program anticipated issuing conditional commitments for loans in fiscal year 2015. In January 2015, the Savings, Accountability, Value, and Efficiency Act of 2015 was introduced in the House of Representatives, and includes a provision to rescind unobligated balances of funding for the program, including the remaining credit subsidy appropriations. Improving Fiscal Oversight of Medicare and Medicaid Over the years, we identified a number of actions that have the potential for sizable cost savings through improved fiscal oversight in the Medicare and Medicaid programs. For example, the Centers for Medicare & Medicaid Services (CMS), the agency in the Department of Health and Human Services (HHS) that is responsible for overseeing both programs, could save billions of dollars by improving the accuracy of its payments to Medicare Advantage programs, such as through methodology adjustments to account for diagnostic coding differences between Medicare Advantage and traditional Medicare. In addition, we found that federal spending on Medicaid demonstrations could be reduced by billions of dollars if HHS were required to improve the process for reviewing, approving, and making transparent the basis for spending limits approved for Medicaid demonstrations.between 2002 and 2013 has shown that HHS approved several demonstrations without ensuring that they would be budget neutral to the federal government. In particular, our work To address this issue, we suggested that Congress could require the Secretary of Health and Human Services to improve the Medicaid demonstration review process, through steps such as improving the review criteria, better ensuring that valid methods are used to demonstrate budget neutrality, and documenting and making clear the basis for the approved limits. In September 2014, the Chairman, House Committee on Energy and Commerce, and Ranking Member, Senate Committee on Finance, sent a letter to CMS asking for additional information on steps the agency was taking to improve the budget neutrality of demonstrations. Enhancing the process HHS uses to demonstrate budget neutrality of its demonstrations could save billions in federal expenditures. Reducing Contract Spending through Strategic Sourcing In 2013, we reported that federal agencies could achieve significant cost savings annually by expanding and improving their use of strategic sourcing—a contracting process that moves away from numerous individual procurement actions to a broader aggregated approach. In particular, we reported that a reduction of 1 percent in spending from large procurement agencies, such as DOD, would equate to over $4 billion in savings. However, a lack of clear guidance on metrics for measuring success has hindered the management of ongoing strategic sourcing efforts across the federal government. Since our 2013 report, OMB has made progress by issuing guidance on calculating savings for government-wide strategic sourcing contracts and in December 2014 issued a memorandum on category management, which in part identifies federal spending categories suitable for strategic sourcing. These categories cover some of the government’s largest spending categories, including IT and professional services. As part of this effort, OMB directed the General Services Administration to develop additional guidance and performance metrics. However, until OMB sets government-wide goals and establishes metrics, the government may miss opportunities for cost savings though strategic sourcing. In addition, strategic sourcing could play a role in helping DOD acquire services more efficiently. In our recent high-risk work, we noted that DOD made some progress in acquiring services through strategic sourcing, but had more to do. For example, as of March 2014, DOD had identified some of high-spend categories as candidates for strategic sourcing, such as IT. Further, DOD appointed individuals within specified portfolios of major areas of DOD services spending to help coordinate strategic sourcing efforts. But according to DOD officials, DOD still is developing the roles, responsibilities and authorities for some of these offices. Additionally, the department has not yet issued guidance establishing goals and metrics to track progress. IRS estimated that the gross tax gap—the difference between taxes owed and taxes paid on time—was $450 billion for tax year 2006 (the most recent year for which data were available). IRS estimated that it eventually would recover about $65 billion of this amount through late payments and enforcement actions, leaving a net tax gap of $385 billion. Because of its magnitude, even a 1 percent improvement in net tax gap would generate almost $4 billion in revenue collections annually. Over the last 4 years, our work identified multiple opportunities for the government to increase revenue collections. For example, in 2014, we identified three actions that Congress could authorize and that could increase tax revenue collections from delinquent taxpayers by hundreds of millions of dollars over a 5-year period: limiting issuance of passports to applicants, levying payments to Medicaid providers, and identifying security clearance applicants. For example, Congress could consider requiring the Secretary of State to prevent individuals who owe federal taxes from receiving passports. We found that in fiscal year 2008, passports were issued to about 16 million individuals; about 1 percent of these collectively owed more than $5.8 billion in unpaid federal taxes as of September 30, 2008. According to a 2012 Congressional Budget Office estimate, the federal government could save about $500 million over a 5- year period by revoking or denying passports in cases of certain federal tax delinquencies. Table 4 highlights these and other opportunities that could result in tens of billions of dollars in cost savings or enhanced revenue. Addressing fragmentation, overlap, and duplication within the federal government is challenging. Even with sustained leadership, these are difficult issues to address because they may require agencies and Congress to re-examine (within and across various mission areas) the fundamental structure, operation, funding, and performance of a number of long-standing federal programs or activities with entrenched constituencies. As we have previously reported, these challenges are compounded by a lack of reliable budget and performance information. If fully and effectively implemented, the GPRA Modernization Act of 2010 (GPRAMA) and the Digital Accountability and Transparency of 2014 (DATA Act) hold promise for helping to improve performance and budget information and helping to address challenges in identifying and addressing areas of fragmentation, overlap, and duplication. In particular: GPRAMA establishes a framework aimed at taking a more crosscutting and integrated approach to focusing on results and improving government performance. Effective implementation of GPRAMA could help clarify desired outcomes, address program performance spanning multiple organizations, and facilitate future actions to reduce, eliminate, or better manage fragmentation, overlap, and duplication. The DATA Act requires actions that would help make spending data comparable across programs, allowing executive branch agencies and Congress to accurately measure the costs and magnitude of federal investments. As we have previously reported, better data and a greater focus on expenditures and outcomes are essential to improving the efficiency and effectiveness of federal efforts. We are committed to monitoring the implementation of these acts to improve budget and performance information and help executive branch agencies and Congress address fragmentation, overlap, and duplication. Reducing improper payments could result in significant cost savings. The Improper Payments Information Act of 2002 (IPIA)—as amended by the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA)—requires executive branch agencies to (1) review all programs and activities, (2) identify those that may be susceptible to significant improper payments, (3) estimate the annual amount of improper payments for those programs and activities, (4) implement actions to reduce improper payments and set reduction targets, and (5) report on the results of addressing the foregoing requirements. For the first time in recent years, the government-wide improper payment estimate increased in fiscal year 2014, primarily due to significant increases in the improper payment estimates for Medicare, Medicaid, and the Earned Income Tax Credit (EITC). These programs combined account for over 76 percent of the government-wide estimate. We have made numerous recommendations that if effectively implemented, could help improve program management, reduce improper payments in these programs, and achieve cost savings. While recent laws and guidance have focused attention on the issue, agencies continue to face challenges in reducing improper payments, such as statutory limitations and compliance issues. Agency improper payment estimates totaled $124.7 billion in fiscal year 2014, a significant increase ($19 billion) from the prior year’s estimate of $105.8 billion. The estimated improper payments for fiscal year 2014 were attributable to 124 programs spread among 22 agencies. Table 5 shows the 12 programs with reported improper payment estimates exceeding $1 billion for fiscal year 2014, which accounted for approximately 93 percent of the government-wide estimate. When excluding DOD’s Defense Finance and Accounting Service Commercial Pay program, the reported government-wide error rate was 4.5 percent of program outlays in fiscal year 2014 compared to 4.0 percent reported in fiscal year 2013. The increase in the 2014 estimate is attributed primarily to increased error rates in three major programs: HHS’s Medicare Fee-for-Service, HHS’s Medicaid, and Treasury’s Earned Income Tax Credit. As shown in figure 2, improper payment estimates for Medicare, Medicaid, and the Earned Income Tax Credit accounted for approximately 76 percent of the government-wide estimate for fiscal year 2014. Improper payment estimates for Medicare, Medicaid, and the EITC are among the highest estimates government-wide, and federal spending in Medicare and Medicaid is expected to significantly increase.Consequently, it is critical that actions are taken to reduce improper payments in these programs. Over the past several years, we made numerous recommendations that, if effectively implemented, could improve program management, help reduce improper payments in these programs, and achieve cost savings. In fiscal year 2014, Medicare financed health services for approximately 54 million elderly and disabled beneficiaries at a cost of $603 billion and reported an estimated $60 billion in improper payments. Medicare spending generally has grown faster than the economy, and in the coming years, continued growth in the number of Medicare beneficiaries and in program spending will create increased challenges for the federal government. CMS, which administers Medicare, has demonstrated strong commitment to reducing improper payments, particularly through its dedicated Center for Program Integrity. For example, CMS centralized the development and implementation of automated edits—prepayment controls used to deny Medicare claims that should not be paid—which will help ensure greater consistency in paying only those claims that align with national policies. Additionally, CMS awarded a contract to a Federal Bureau of Investigation-approved contractor that will enable the agency to conduct fingerprint-based criminal history checks of high-risk providers and suppliers. Nevertheless, in our February 2015 update to our high-risk series, we reported that while CMS has demonstrated efforts to reduce improper payments in the Medicare program, improper payment rates have remained unacceptably high. To achieve and demonstrate reductions in the amount of Medicare improper payments, CMS should fully exercise its authority related to strengthening its provider and supplier enrollment provisions and address our open recommendations related to prepayment and postpayment claims review activities. Table 6 summarizes recommendations we made that are still open and procedures authorized by the Patient Protection and Affordable Care Act (PPACA) that CMS should implement to help reduce Medicare improper payments. Specifically, the following actions could help reduce Medicare improper payments. Improving use of automated edits. To help ensure that payments are made properly, CMS uses controls called edits that are programmed into claims processing systems to compare claims data with Medicare requirements in order to approve or deny claims or flag them for further review. In November 2012, we reported that use of prepayment edits saved Medicare at least $1.76 billion in fiscal year 2010, but savings could have been greater if prepayment edits had been more widely used. To promote greater use of effective prepayment edits and better ensure that payments are made properly, we recommended that CMS require Medicare administrative contractors to (1) share information about the underlying policies and savings related to their most effective edits; and (2) improve automated edits that assess all quantities provided to the same beneficiary by the same provider on the same day, so providers cannot avoid claim denials by billing for services on multiple claim lines or multiple claims. Monitoring postpayment claims reviews. CMS uses four types of contractors to conduct postpayment claims reviews to identify improper payments. In July 2013, we found that although postpayment claims reviews involved the same general process regardless of which type of contractor conducted them, CMS had different requirements for many aspects of the process across the four contractor types. Some of these differences might impede efficiency and effectiveness of claims reviews by increasing administrative burden for providers. Furthermore, in July 2014, we reported that while CMS had taken steps to prevent its contractors from conducting certain duplicative postpayment claims reviews, CMS did not have reliable data or provide sufficient oversight and guidance to measure and fully prevent duplication. To improve the efficiency and effectiveness of Medicare program integrity efforts, we recommended that CMS reduce differences between contractor postpayment review requirements, when possible, and monitor the database used to track recovery audit activities to ensure that all data were submitted, accurate, and complete. Removing Social Security numbers from Medicare cards. The health insurance claims number on Medicare beneficiaries’ cards includes as one component the Social Security number of the beneficiary (or other eligible person’s, such as a spouse). This introduces risks that the beneficiaries’ personal information could be obtained and used to commit identity theft. In September 2013, we reported that CMS had not taken needed steps that would result in selecting and implementing a technical solution for removing Social Security numbers from Medicare cards.agency to efficiently and cost-effectively identify, design, develop, and implement a solution to address this issue, we recommended that CMS direct the initiation of an IT project for identifying, developing, and implementing changes that would have to be made to CMS’s affected systems. Implementing actions authorized by PPACA. In addition to provisions to expand health insurance coverage, PPACA provides CMS with certain authorities to combat fraud, waste, and abuse in Medicare. We reported in our February 2015 update to our high-risk series that CMS should fully exercise its PPACA authority related to strengthening its provider and supplier enrollment provisions. For example, CMS should require surety bonds—a three-party agreement in which a company, known as a surety, agrees to compensate the bondholder if the bond purchaser failed to keep a specified promise— for certain providers and suppliers. In fiscal year 2014, the federal share of estimated Medicaid outlays was $304 billion, and HHS reported approximately $17.5 billion in estimated Medicaid improper payments. The size and diversity of the Medicaid program make it particularly vulnerable to improper payments—including payments made for people not eligible for Medicaid or for services not actually provided. CMS has an important role in overseeing and supporting state efforts to reduce and recover improper payments and has demonstrated some leadership commitment in this area. For example, CMS issued guidance to improve corrective actions taken by states. CMS also established the Medicaid Integrity Institute, which provides training and technical assistance to states on approaches to prevent improper payments and guidance on program integrity issues. In our February 2015 high-risk update, we reported that while CMS had taken these positive steps in recent years, in several areas, CMS had still to address issues and recommendations that had not been fully implemented. These issues include improving the completeness and reliability of key data needed for ensuring effective oversight, implementing effective program integrity processes for managed care, ensuring clear reporting of overpayment recoveries, and refocusing efforts on approaches that are cost-effective. Table 7 summarizes recommendations we made that remain open and that CMS should implement to help reduce Medicaid improper payments. Specifically, we recommended the following actions to help reduce Medicaid improper payments and improve program integrity. Improving third-party liability efforts. Congress generally established Medicaid as the health care payer of last resort, meaning that if enrollees have another source of health care coverage—such as private insurance—that source should pay, to the extent of its liability, before Medicaid does. This is referred to as third-party liability. However, there are known challenges to ensuring that Medicaid is the payer of last resort. For example, states have reported challenges working with private insurers, including willingness to release coverage information to states and denying claims for procedural reasons. While CMS has issued guidance to states, we recommended additional actions that could help to improve cost- saving efforts in this area, such as monitoring and sharing information on third-party liability efforts and challenges across all states and providing guidance to states on oversight of third-party liability efforts related to Medicaid managed care plans. Increasing oversight of managed care. Medicaid finances the delivery of health care services to beneficiaries through fee-for-service payments to participating providers and capitated payments to managed care organizations. Most Medicaid beneficiaries are in managed care, and managed care expenditures have been growing at a faster rate than fee-for-service expenditures. In May 2014, we reported that most state and federal program integrity officials we interviewed told us that they did not closely examine managed care payments, focusing on fee-for-service claims instead. To help improve the efficiency and effectiveness of program integrity efforts, we recommended that CMS require states to conduct audits of payments to and by managed care organizations, update managed care guidance on program integrity practices, and provide states with additional support in overseeing managed care program integrity. Strengthening program integrity. CMS has taken positive steps to oversee program integrity efforts in Medicaid, including implementing certain recommendations we made.address issues and recommendations that have not been fully CMS needs to take action to implemented, such as improving reporting of key data, strengthening its efforts to calculate return on investment for its program integrity efforts, and using knowledge gained from its comprehensive reviews of states to better focus audit resources and improve recovery of improper payments. In fiscal year 2014, IRS reported program payments of $65.2 billion for the EITC. According to IRS, an estimated 27.2 percent, or $17.7 billion, of these program payments were improper. The estimated improper payment rate for EITC has remained relatively unchanged since fiscal year 2003 (the first year IRS had to report estimates of these payments to Congress), but the amount of improper EITC payments increased from an estimated $10.5 billion in fiscal year 2003 to nearly $18 billion in fiscal year 2014. GAO-15-290. child requirements, taxpayers’ filing status, and EITC claims associated with complex or nontraditional living situations. Verification errors relate to IRS’s inability to identify individuals improperly reporting income to erroneously claim EITC amounts to which they are not entitled. Verification errors include underreporting and overreporting of income by wage earners as well as taxpayers who report that they are self- employed. Although the EITC program has been modified a number of times since its enactment in 1975 to reduce complexity and help improve the program’s administration, complexity has remained a key factor contributing to improper payments in the program. IRS has undertaken a number of compliance and enforcement activities to reduce EITC improper payments, and in fiscal year 2014 it protected an estimated $3.5 billion in federal revenue. Among other things, IRS uses audits to help identify EITC improper payments, and in June 2014, we reported that about 45 percent of correspondence audits (audits done by mail) that closed in fiscal year 2013 focused on EITC issues. IRS has reported that tax returns with EITC claims were twice as likely to be audited as other tax returns. However, we found that the effectiveness of these audits may be limited because of regular backlogs in responding to taxpayers since 2011 and unclear correspondence that generated additional work for IRS, such as telephone calls to IRS examiners. These issues have imposed unnecessary burdens on taxpayers and costs for IRS. IRS acknowledged these concerns and the limitations faced in significantly reducing EITC improper payments using the traditional audit process. Consequently, IRS initiated several programs to address EITC improper payments, such as increasing outreach and education to taxpayers and return preparers. Legislative action and significant changes in IRS compliance processes likely would be necessary to make any meaningful reduction in improper payments. Recently, we recommended matters for congressional consideration or executive actions that if effectively implemented, could help to reduce EITC improper payments. Regulating paid tax preparers. In August 2014, IRS reported that 68 percent of all tax returns claiming the EITC in tax years 2006 and 2007 were prepared by paid tax preparers—most of whom were not subject to any IRS regulation—and that from 43–50 percent of the returns overclaimed the credit. Similarly, in our undercover visits to randomly selected tax preparers, a sample that cannot be generalized, we found errors in EITC claims, resulting in significant overstatement of refunds. Establishing requirements for paid tax return preparers could improve the accuracy of the tax returns they prepare. Based in part on our recommendation, in 2010 IRS initiated steps to regulate certain preparers through testing and education requirements. However, the courts ruled that IRS lacked such regulatory authority. Although IRS began a voluntary program to recognize preparers who complete continuing education and testing requirements, mandating these requirements could have a greater impact on tax compliance. In 2014, we suggested that Congress consider granting IRS the authority to regulate paid tax preparers, if it agrees that significant paid preparer errors exist. Accelerating W-2 filing deadlines. IRS estimates that it paid $5.8 billion in fraudulent identity theft refunds during the 2013 filing season. While we do not know the extent to which invalid EITC payments are the result of identity theft, IRS has reported that improper payments are a mix of unintentional mistakes and fraud. A common EITC error is misreporting income. IRS issues most refunds months before receiving and matching information returns, such as the W-2 “Wage and Tax Statement,” to tax returns. Treasury recently proposed to Congress that the W-2 deadlines be moved to January 31 to facilitate the use of earnings information in the detection of noncompliance. In August 2014, we recommended that IRS estimate the cost and benefits of options to implement pre-refund matching using W-2 data. Because any change could impose burdens on employers and taxpayers as well as create additional costs to IRS for systems and process changes, Congress and other stakeholders would need information on this impact to fully assess any potential changes. Broadening math error authority. IRS has statutory authority— called math error authority—to correct certain errors, such as calculation mistakes or omitted or inconsistent entries, during tax return processing of EITC claims. According to the Treasury Inspector General for Tax Administration, IRS has math error authority to address some erroneous claims, but additional authority to systematically disallow certain erroneous EITC claims with unsupported wages could reduce improper payments.proposed expanding IRS authority to permit it to correct errors in cases where information provided by the taxpayer does not match information in government databases among other things. Expanding such authority—which at various times we have suggested Congress consider—could help IRS correct additional errors and avoid burdensome audits and taxpayer penalties. IPERIA is the latest in a series of laws aimed at reducing improper payments. IPERIA directs OMB to annually identify a list of high-priority programs for greater levels of oversight and review, including establishing annual targets and semi-annual or quarterly actions for reducing improper payments. IPERIA also enacted into law a Do Not Pay initiative, elements of which already were being developed under executive branch authority. The Do Not Pay initiative is a web-based, centralized data-matching service that allows agencies to review multiple databases to determine a recipient’s award or payment eligibility prior to making payments. Similarly, the DATA Act calls on Treasury to establish a data analysis center, or to expand an existing service, to provide data, analytic tools, and data-management techniques for preventing or reducing improper payments. Effective implementation of the DATA Act and the use of data analytic tools could help agencies to detect, reduce, and prevent improper payments. In addition to these legislative initiatives, OMB has continued to play a key role in the oversight of government-wide improper payments. OMB established guidance for federal agencies on reporting, reducing, and recovering improper payments as required by IPIA, as amended, and on protecting privacy while reducing improper payments with the Do Not Pay initiative. estimating improper payments directs agencies to report on the causes of improper payments using more detailed categories than previously required, such as program design issues or administrative errors at the federal, state, or local agency level. As we previously reported, detailed analysis of the root causes of improper payments can help agencies to identify and implement targeted corrective actions. Office of Management and Budget, Appendix C to Circular No. A-123, Requirements for Effective Estimation and Remediation of Improper Payments, OMB Memorandum M-15- 02 (Washington, D.C.: Oct. 20, 2014); Revised, Financial Reporting Requirements, OMB Circular No. A-136 (revised 2014); and Protecting Privacy while Reducing Improper Payments with the Do Not Pay Initiative, OMB Memorandum M-13-20 (Washington, D.C.: Aug. 16, 2013). estimates for all of the programs and activities they identified as susceptible to significant improper payments. Specifically, two federal agencies did not report estimated improper payment amounts for four risk-susceptible programs. For example, HHS did not report an improper payment estimate in fiscal year 2014 for its Temporary Assistance for Needy Families (TANF) program, which had program outlays of about $16.3 billion. Furthermore, IPERA established a requirement for agency IGs to report annually on agencies’ compliance with the criteria contained in IPERA. Under OMB implementing guidance, these reports should be completed within 180 days of the publication of the federal agencies’ annual performance and accountability reports (PAR) or agency financial reports (AFR). According to IPERA, if a program is found to be noncompliant in a fiscal year, the agency must submit a plan to Congress describing the actions that the agency will take to bring the program into compliance; for 2 consecutive fiscal years, and if OMB determines that additional funding would help the agency improve, the agency and OMB may take steps to transfer or request additional funding for intensified compliance efforts; and for 3 consecutive years, the agency must submit to Congress a reauthorization proposal for each noncompliant program or activity or any proposed statutory changes the agency deems necessary to bring the program or activity into compliance. In December 2014, we reported on agency compliance with the criteria contained in IPERA for fiscal year 2013, as reported by IGs. We found that the most common instances of noncompliance as reported by the IGs related to two criteria: (1) publishing and meeting improper payment reduction targets and (2) reporting improper payment estimates below 10 percent. For fiscal years 2012 through 2014, we also analyzed IG reports and agency PARs or AFRs and identified five programs with improper payment estimates greater than $1 billion that have been noncompliant with at least one of these criteria for 3 consecutive years, These five programs accounted for approximately as show in table 8.$75.9 billion, or 61 percent of the fiscal year 2014 government-wide improper payment estimate. In addition to the legislative criteria, various IGs reported deficiencies in their most recent annual compliance reports, including risk assessments that may not accurately assess the risk of improper payments and estimation methodologies that may not produce reliable estimates. Similarly, we recently reported on weaknesses in improper payment risk assessments at the Department of Energy and in the estimating methodology for DOD’s TRICARE program. In addition to the challenges that we and the IGs reported, some agencies reported in their fiscal year 2014 AFRs that program design issues could hinder efforts to estimate or recapture improper payments. Coordination with states. HHS cited statutory limitations for its state- administered TANF program, which prohibited it from requiring states to participate in developing an improper payment estimate for the program. Despite these limitations, HHS reported that it had taken actions to assist states in reducing improper payments, such as working with states to analyze noncompliance findings from audits related to TANF and requiring more accurate information about the ways states used TANF block grants. Recovery auditing. USDA reported that section 281 of the Department of Agriculture Reorganization Act of 1994 precluded the use of recovery auditing techniques. Specifically, the agency reported that section 281 provides that 90 days after the decision of a state, a county, or an area committee is final, no action may be taken to recover the amounts found to have been erroneously disbursed as a result of the decision, unless the participant had reason to believe that the decision was erroneous. This statute is commonly referred to as the Finality Rule, and according to USDA, it affects the Farm Service Agency’s ability to recover overpayments. With outlays for major programs, such as Medicare and Medicaid, expected to increase over the next few years, it is critical that actions are taken to reduce improper payments. In addition to agencies’ efforts, legislation, OMB guidance, and auditor oversight of agency spending and related internal controls have been important factors in addressing improper payments. There is considerable opportunity here to achieve cost savings without reducing or detrimentally affecting the valuable programs that serve our citizens. For this reason, we will continue to focus attention on improper payments to assist Congress in ensuring that taxpayer dollars are adequately safeguarded and used for their intended purposes. Chairman Enzi, Ranking Member Sanders, and Members of the Committee, this concludes my prepared statement. I would be pleased to answer questions. For further information on issues of fragmentation, overlap, duplication or cost savings, please contact Orice Williams Brown, Managing Director, Financial Markets and Community Investment, who may be reached at (202) 512-8678 or [email protected]; or A. Nicole Clowers, Director, Financial Markets and Community Investment, who may be reached at (202) 512-8678 or [email protected]. For information on improper payment issues, please contact Beryl H. Davis, Director, Financial Management and Assurance at (202) 512-2623 or [email protected]. Contact points for our Congressional Relations and Public Affairs offices may be found on the last page of this statement. Improper Payments: TRICARE Measurement and Reduction Efforts Could Benefit from Adopting Medical Record Reviews. GAO-15-269. Washington, D.C.: February 18, 2015. High-Risk Series: An Update. GAO-15-290. Washington, D.C.: February 11, 2015. Medicaid: Additional Federal Action Needed to Further Improve Third- Party Liability Efforts. GAO-15-208. Washington, D.C.: January 28, 2015. Identity and Tax Fraud: Enhanced Authentication Could Combat Refund Fraud, but IRS Lacks an Estimate of Costs, Benefits and Risks. GAO-15-119. Washington, D.C.: January 20, 2015. Improper Payments: DOE’s Risk Assessments Should Be Strengthened. GAO-15-36. Washington, D.C.: December 23, 2014. Improper Payments: Inspector General Reporting of Agency Compliance under the Improper Payments Elimination and Recovery Act. GAO-15-87R. Washington, D.C.: December 9, 2014. Federal Data Transparency: Effective Implementation of the DATA Act Would Help Address Government-wide Management Challenges and Improve Oversight. GAO-15-241T. Washington, D.C.: December 3, 2014. Identity Theft: Additional Actions Could Help IRS Combat the Large, Evolving Threat of Refund Fraud. GAO-14-633. Washington, D.C.: August 20, 2014. Medicare Program Integrity: Increased Oversight and Guidance Could Improve Effectiveness and Efficiency of Postpayment Claims Reviews. GAO-14-474. Washington, D.C.: July 18, 2014. Improper Payments: Government-Wide Estimates and Reduction Strategies. GAO-14-737T. Washington, D.C.: July 9, 2014. IRS Correspondence Audits: Better Management Could Improve Tax Compliance and Reduce Taxpayer Burden. GAO-14-479. Washington, D.C.: June 5, 2014. Medicaid Program Integrity: Increased Oversight Needed to Ensure Integrity of Growing Managed Care Expenditures. GAO-14-341. Washington, D.C.: May 19, 2014. 2014 Annual Report: Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits. GAO-14-343SP. Washington, D.C.: April 8, 2014. Paid Tax Return Preparers: In a Limited Study, Preparers Made Significant Errors. GAO-14-467T. Washington, D.C.: April 8, 2014. Medicare Information Technology: Centers for Medicare and Medicaid Services Needs to Pursue a Solution for Removing Social Security Numbers from Cards. GAO-13-761. Washington, D.C.: September 10, 2013. Medicare Program Integrity: Increasing Consistency of Contractor Requirements May Improve Administrative Efficiency. GAO-13-522. Washington, D.C.: July 23, 2013. 2013 Annual Report: Actions Needed to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits. GAO-13-279SP. Washington, D.C.: April 9, 2013. Medicaid Integrity Program: CMS Should Take Steps to Eliminate Duplication and Improve Efficiency. GAO-13-50. Washington, D.C.: November 13, 2012. Medicare Program Integrity: Greater Prepayment Control Efforts Could Increase Savings and Better Ensure Proper Payment. GAO-13-102. Washington, D.C.: November 13, 2012. 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue. GAO-12-342SP. Washington D.C.: February 28, 2012. Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011. Paid Tax Return Preparers: In a Limited Study, Chain Preparers Made Significant Errors. GAO-06-563T. Washington, D.C.: April 4, 2006. 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As the fiscal pressures facing the government continue, so too does the need for executive branch agencies and Congress to improve the efficiency and effectiveness of government programs and activities. Such opportunities exist throughout the government. GAO reports annually to Congress on federal programs, agencies, offices, and initiatives (both within departments and government-wide) that are fragmented, overlapping, or duplicative as well as opportunities for cost savings or enhanced revenues. One area that GAO has highlighted as offering the potential for significant cost savings is improper payments, which are payments that should not have been made or were made in the incorrect amount. This statement discusses the status of (1) actions taken and remaining opportunities to address fragmentation, overlap, and duplication issues, and achieve other financial benefits as identified in GAO's 2011-2014 annual reports; and (2) efforts to address government-wide improper payment issues. GAO reviewed and updated prior work and recommendations on issues of fragmentation, overlap, duplication, cost savings, and improper payments. GAO also reviewed reports of inspectors general and agency financial reports. The executive branch and Congress have made progress in addressing the approximately 440 actions across 180 areas that GAO identified in its past annual reports. These issues span the range of government services and programs, from the Medicare and Medicaid programs to transportation programs to weapon systems acquisitions. As of November 19, 2014, 29 percent of these actions were addressed, 44 percent were partially addressed, and 22 percent were not addressed. Executive branch and congressional efforts to address these actions over the past 4 years resulted in over $20 billion in financial benefits, with about $80 billion more in financial benefits anticipated in future years. Although progress has been made, fully addressing all the remaining actions identified in GAO's annual reports could lead to tens of billions of dollars of additional savings, with significant opportunities for improved efficiencies, cost savings, or revenue enhancements in the areas of defense, information technology, education and training, health care, energy, and tax enforcement. Sustained leadership by Congress and the executive branch is necessary to achieve this goal. Efforts to reduce improper payments could result in significant cost savings. For the first time in recent years, the government-wide improper payment estimate significantly increased—to $124.7 billion in fiscal year 2014, up from $105.8 billion in fiscal year 2013. This increase of almost $19 billion was primarily due to estimates for Medicare, Medicaid, and the Earned Income Tax Credit, which account for over 76 percent of the government-wide estimate. GAO has made numerous recommendations that, if effectively implemented, could improve program management and help reduce improper payments in these programs. Examples include improving the use of prepayment edits in Medicare and requiring states to audit Medicaid payments to and by managed care organizations. Recent laws and guidance have focused attention on the issue of improper payments. For example, the Improper Payments Elimination and Recovery Improvement Act of 2012 enacted into law elements of the Do Not Pay initiative, which is a web-based, centralized data matching service that could help prevent improper payments. However, agencies continue to face challenges, such as statutory limitations and compliance issues, in reducing improper payments.

You are an expert at summarizing long articles. Proceed to summarize the following text: Information security is a critical consideration for any organization that depends on information systems and computer networks to carry out its mission or business; and it is especially important for government agencies, where the public’s trust is essential. The dramatic expansion in computer interconnectivity and the rapid increase in the use of the Internet are changing the way our government, the nation, and much of the world communicate and conduct business. Without proper safeguards, systems are unprotected from individuals and groups with malicious intent to intrude and use the access to obtain sensitive information, commit fraud, disrupt operations, or launch attacks against other computer systems and networks. These concerns are well founded for a number of reasons, including the dramatic increase in reports of security incidents, the ease of obtaining and using hacking tools, the steady advance in the sophistication and effectiveness of attack technology, and the dire warnings of new and more destructive attacks to come. Computer-supported federal operations are likewise at risk. Our previous reports and reports by several agencies’ inspectors general describe persistent information security weaknesses that place a variety of federal operations at risk of inappropriate disclosure, fraud, and disruption. We have designated information security as a governmentwide high-risk area since 1997. Recognizing the importance of securing the information systems of federal agencies, Congress enacted the Federal Information Security Management Act (FISMA) in December 2002. FISMA requires each agency to develop, document, and implement an agencywide information security program for the data and systems that support the operations and assets of the agency, using a risk-based approach to information security management. Information security program requirements to be implemented include assessing risk; developing and implementing policies, procedures, and security plans; providing security awareness and training; testing and evaluating the effectiveness of controls; planning, implementing, evaluating, and documenting remedial actions to address information security deficiencies; detecting, reporting, and responding to security incidents; and ensuring continuity of operations. Following the stock market crash of 1929, Congress passed the Securities Exchange Act of 1934, establishing SEC to enforce securities laws, regulate the securities markets, and protect investors. To carry out its responsibilities and help ensure that fair, orderly, and efficient securities markets are maintained, the commission issues rules and regulations that promote adequate and effective disclosure of information to the investing public. The commission also oversees and requires the registration of other key participants in the securities industry, including stock exchanges, broker-dealers, clearing agencies, depositories, transfer agents, investment companies, and public utility holding companies. SEC is an independent, quasi-judicial agency that operates at the direction of five commissioners appointed by the President and confirmed by the Senate. In fiscal year 2006, SEC had a budget of about $888 million and staff of 3,590. Each year the commission accepts, processes, and publicly disseminates more than 600,000 documents from companies and individuals, including annual reports from more than 12,000 reporting companies. In fiscal year 2006, the commission collected $499 million in filing fees and $1.8 billion in penalties and disgorgements. To support its financial operations and store the sensitive information it collects, the commission relies extensively on computerized systems interconnected by local and wide area networks. To process and track financial transactions such as filing fees paid by corporations and penalties from enforcement activities, SEC relies on several applications—Momentum, Electronic Data Gathering, Analysis, and Retrieval system (EDGAR), and Case Activity Tracking System 2000 (CATS). Momentum, a commercial off-the-shelf accounting software product, is used to record the commission’s accounting transactions, to maintain its general ledger, and to maintain the information SEC uses to produce financial reports. EDGAR is an Internet- based system used to collect, validate, index, and accept the submissions of forms filed by SEC-registered companies. EDGAR transfers this information to the general ledger nightly. The commission’s Division of Enforcement uses CATS, a modified commercial off-the-shelf database application, to record enforcement data and create management reports. CATS tracks enforcement-related data, including SEC-imposed fines and penalties. In addition, the commission uses these systems to maintain sensitive information, including filing data for corporations, and legal information on enforcement activities. According to FISMA, the Chairman of the SEC has responsibility for providing information security protections commensurate with the risk and magnitude of the harm resulting from unauthorized access, use, disclosure, disruption, modification or destruction of the agency’s information systems and information. The Chairman of the SEC delegated authority to the chief information officer (CIO) to be responsible for establishing and maintaining a comprehensive information security program and governance framework. As part of its program, the CIO is to (1) ensure that policies, procedures, and control techniques to address all applicable information security requirements are effectively implemented and maintained; (2) work closely with designated authorizing officials to ensure that the SEC-wide program is effectively implemented and managed; and (3) delegate authority to the agency chief information security officer (CISO) to carry out information security responsibilities and to ensure compliance with applicable federal laws, regulations, and standards. The CISO serves as the CIO’s liaison with system owners and authorizing officials to ensure the agency security program is effectively implemented. The CISO also ensures certifications and accreditations are accomplished in a timely and cost-effective manner and that there is centralized reporting of all information security related activities. The objectives of our review were to assess (1) the status of SEC’s actions to correct or mitigate previously reported information security weaknesses and (2) the effectiveness of the commission’s information system controls for ensuring the confidentiality, integrity, and availability of its information systems and information. As part of our assessment of the effectiveness of SEC’s information system controls, we also evaluated the commission’s progress toward meeting the requirements for an agencywide security program mandated by FISMA. We conducted our review using our Federal Information System Controls Audit Manual (FISCAM), a methodology for reviewing information system controls that affect the confidentiality, integrity, and availability of computerized data. Specifically, we evaluated information security controls in the following areas: security management, which provides a framework and continuing cycle of activity for managing risk, developing security policies, assigning responsibilities, and monitoring the adequacy of the agency’s computer- related controls; access controls, which limit or detect access to computer resources (data, programs, equipment, and facilities), thereby protecting them against unauthorized modification, loss, and disclosure; configuration management, which prevents unauthorized changes to information system resources (for example, software programs and hardware configurations); segregation of duties, which includes policies, procedures, and an organizational structure to manage who can control key aspects of computer-related operations; and contingency planning, so that when unexpected events occur, critical operations continue without disruption or are promptly resumed, and critical and sensitive data are protected. For our first objective, we examined supporting documentation and conducted tests and evaluations of corrective actions taken by the commission to correct weaknesses previously reported as unresolved at the conclusion of our 2005 audit. To evaluate the effectiveness of the commission’s information security controls and program, we identified and examined its pertinent security policies, procedures, guidance, security plans, and relevant reports. Where federal requirements, laws, and other guidelines, including National Institute of Standards and Technology guidance, were applicable, we used these to assess the extent to which the commission had complied with specific requirements. We held discussions with key security representatives, system administrators, and management officials to determine whether information system controls were in place, adequately designed, and operating effectively. In addition, we conducted tests and observations of controls in operation using federal guidance, checklists and vendor best practices. SEC has corrected or mitigated 58 of the 71 security control weaknesses previously reported as unresolved at the conclusion of our 2005 audit. Specifically, the commission resolved all of the previously reported weaknesses in security related activities and contingency planning, and it has made significant progress in resolving access control weaknesses. A key reason for SEC’s progress was that its senior management was actively engaged in implementing information security related activities and mitigating the previously reported weaknesses. The commission has addressed 34 of the previously identified access control weaknesses. For example, SEC has implemented controls to enforce strong passwords, and removed excessive rights granted to certain users on their Microsoft Windows servers and workstations; established audit trails on its critical financial systems; reconfigured its internal network infrastructure to be configured securely; implemented virus protection on all of its Microsoft Windows servers; developed and implemented procedures to review employee and contractor access to the data center based on SEC-established criteria; assessed the physical security of each of its 11 field office locations and developed a plan to review each of the offices biannually; and developed an incident response program that includes policies and procedures for handling and analyzing incidents. SEC has also corrected or mitigated all 18 security related activity weaknesses previously reported as unresolved at the conclusion of our 2005 audit. For example, the commission has implemented a risk assessment process; established a process to ensure that effective information system controls exist to safeguard its payroll/personnel system; had 99 percent of employees and contractors complete security awareness training; developed and documented a process to ensure background investigations were conducted for employees and contractors; and established a process to identify and remove computer access rights accounts granted to separated contractors or nonpaid users of SEC systems. In addition, SEC has developed and updated its disaster recovery plans covering major applications. Moreover, the commission has tested its plans throughout the year through a series of disaster recovery exercises covering major applications and various scenarios. A key reason for its progress was that SEC’s senior management was actively engaged in implementing information security related activities and mitigating the previously reported weaknesses. The Chairman has received regular briefings on agency progress in resolving the previously reported weaknesses, and the CIO has coordinated efforts with other offices involved in implementing information security policies and controls at the commission. An executive-level committee with oversight responsibility for the commission’s internal controls was also established and has responsibility for approving programs and policies for internal control assessment and testing as well as developing policies to resolve internal control weaknesses. While SEC has made important progress in strengthening its information security controls and program, it has not completed actions to correct or mitigate 13 previously reported weaknesses. For example, the commission has not mitigated weaknesses in user account and password management, periodically reviewed software changes, or adequately controlled access to sensitive information. Failure to resolve these issues will leave the commission’s sensitive data vulnerable to unauthorized disclosure, modification, or destruction. SEC has not consistently implemented certain key controls to effectively safeguard the confidentiality, integrity, and availability of its financial and sensitive information and information systems. In addition to 13 previously identified weaknesses that remain unresolved, we identified 15 new information security weaknesses in access controls and configuration management. By the conclusion of our review, SEC had taken action to address 11 of the 15 new weaknesses. A primary reason for these control weaknesses is that SEC had not consistently implemented elements of its information security program. As a result, the commission cannot be assured that its controls are appropriate and working as intended and that its financial and sensitive data and systems are not at increased risk of unauthorized disclosure, modification, or destruction. Access controls limit or detect inappropriate access to computer resources (data, equipment, and facilities), thereby protecting them from unauthorized disclosure, modification, and loss. Specific access controls include boundary protection, identification and authentication, authorization, and physical security. Without adequate access controls, unauthorized individuals, including outside intruders and former employees, can surreptitiously read and copy sensitive data and make undetected changes or deletions for malicious purposes or personal gain. In addition, authorized users can intentionally or unintentionally modify or delete data or execute changes that are outside their span of authority. Boundary protection pertains to the protection of a logical or physical boundary around a set of information resources and implementing measures to prevent unauthorized information exchange across the boundary in either direction. Organizations physically allocate publicly accessible information system components to separate subnetworks with separate physical network interfaces, and they prevent public access into their internal networks. Unnecessary connectivity to an organization’s network increases not only the number of access paths that must be managed and the complexity of the task, but the risk of unauthorized access in a shared environment. SEC policy requires that certain automated boundary protection mechanisms be established to control and monitor communications at the external boundary of the information system and at key internal boundaries within the system. Additionally, SEC policy requires that if remote access technology is used to connect to the network, it must be configured securely. The commission did not configure a remote access application to include required boundary protection mechanisms. For example, the application was configured to allow simultaneous access to the Internet and the internal network. This could allow an attacker who compromised a remote user’s computer to remotely control the user’s secure session from the Internet. In addition, SEC did not securely configure the systems used for remote administration of its key information technology resources. Consequently, a remote attacker could exploit these vulnerabilities to launch attacks against other sensitive information systems within the commission. A computer system must be able to identify and authenticate different users so that activities on the system can be linked to specific individuals. When an organization assigns unique user accounts to specific users, the system is able to distinguish one user from another—a process called identification. The system must also establish the validity of a user’s claimed identity by requesting some kind of information, such as a password, that is known only by the user—a process known as authentication. SEC policy requires the implementation of automated identification and authentication mechanisms that enable the unique identification of individual users. The commission did not securely enforce identification and authentication controls on all of its information systems. For example, SEC did not remove default database accounts with known or weak passwords or ensure that these accounts had been locked. In addition, the commission was still unable to enforce strong password management on all of its systems and continued to have weak key-management practices for some of its secure connections. This increases the risk that unauthorized users could gain access to SEC systems and sensitive information. Authorization is the process of granting or denying access rights and privileges to a protected resource, such as a network, system, application, function, or file. A key component of granting or denying access rights is the concept of “least privilege.” Least privilege is a basic principle for securing computer resources and data. It means that users are granted only those access rights and permissions that they need to perform their official duties. To restrict legitimate users’ access to only those programs and files that they need in order to do their work, organizations establish access rights and permissions. “User rights” are allowable actions that can be assigned to users or to groups of users. File and directory permissions are rules that are associated with a particular file or directory, regulating which users can access it—and the extent of that access. To avoid unintentionally giving users unnecessary access to sensitive files and directories, an organization must give careful consideration to its assignment of rights and permissions. SEC policy requires that each user or process be assigned only those privileges needed to perform authorized tasks. SEC system administrators did not ensure that their systems sufficiently restricted system and database access and privileges to only those users and processes requiring them to perform authorized tasks. For example, administrators had not properly restricted access rights to sensitive files on some servers. Nor did the commission adequately restrict privileges to a system database. In addition, new requests or modifications for user access to the EDGAR system were not reviewed by its system owner; nor was current documentation maintained on user privileges granted to individuals based on their roles and divisions. The commission also continued to experience difficulty implementing a process to effectively remove network system accounts from separated employees and adequately controlling access to sensitive information. These conditions provide more opportunities for unauthorized individuals to escalate their privileges and make unauthorized changes to files. Physical security controls are important for protecting computer facilities and resources from espionage, sabotage, damage, and theft. These controls restrict physical access to computer resources, usually by limiting access to the buildings and rooms in which the resources are housed and by periodically reviewing the access granted in order to ensure that access continues to be appropriate. At SEC, physical access control measures (such as guards, badges, and locks—used alone or in combination) are vital to protecting the agency’s sensitive computing resources from both external and internal threats. SEC policy requires that specific procedures be followed to protect and control physical access to sensitive work areas in its facilities. SEC procedures for protecting and controlling physical access to sensitive work areas were not always followed. Specifically, the commission had not properly implemented perimeter security at a key location. Guards at the location did not inspect photo identification and expiration dates. In addition, the commission did not adequately restrict physical access to its network in public locations. Until SEC fully addresses its physical security vulnerabilities, there is increased risk that unauthorized individuals could gain access to sensitive computing resources and data and inadvertently or deliberately misuse or destroy them. To protect an organization’s information, it is important to ensure that only authorized applications and programs are placed in operation and that the applications are securely configured. This process, known as configuration management, consists of instituting policies, procedures, and techniques to help ensure that all programs and program modifications are properly authorized, tested, and approved. Specific controls for configuration management include policies and procedures over change control and patch management. Configuration management policies and procedures should be developed, documented, and implemented at the agency, system, and application levels to ensure an effective configuration management process. Patch management, including up-to-date patch installation, helps to mitigate vulnerabilities associated with flaws in software code, which could be exploited to cause significant damage. SEC policy requires vulnerability management of system hardware and software on all of its information systems. SEC continues to have difficulty implementing effective control over changes to software and other applications. For example, the commission lacked procedures to periodically review application code to ensure that only authorized changes were made to the production environment, did not document authorizations for software modifications, and did not always follow its policy of assigning risk classifications to application changes. As a result, unapproved changes to SEC production systems could be made. In addition, the commission did not ensure the application of timely and comprehensive patches and fixes to system software. For example, the commission did not consistently install critical patches for the operating system and third-party applications on its servers and end-user workstations. Failure to keep system patches up-to-date could allow unauthorized individuals to gain access to network resources or launch denial-of-service attacks against those resources. A malicious user can exploit these vulnerabilities to gain unauthorized access to network resources or disrupt network operations. As a result, there is increased risk that the integrity of these network devices and administrator workstations could be compromised. A primary reason for these control weaknesses is that SEC had not consistently implemented elements of its information security program. The effective implementation of an information security program includes implementing the key elements required under FISMA and the establishment of a continuing cycle of activity—which includes assessing risk, developing and implementing security procedures, and monitoring the effectiveness of these procedures—to ensure that the elements implemented under the program are effective. FISMA requires agencies to develop, document, and implement an information security program, which includes the following: developing and implementing policies and procedures; testing and evaluating the effectiveness of controls; and planning, implementing, evaluating, and documenting remedial actions to address information security deficiencies. A key task in developing, documenting, and implementing an effective information security program is to establish and implement risk-based policies, procedures, and technical standards that cover security over an agency’s computing environment. If properly implemented, policies and procedures can help to reduce the risk that could come from unauthorized access or disruption of services. Because security policies are the primary mechanism by which management communicates its views and requirements, it is important to document and implement them. Although SEC has developed and documented information security related policies and procedures, it has not consistently implemented them across all systems. According to SEC policy, heads of office and system owners are responsible for implementing policies and procedures as well as reviewing and enforcing security for their systems. However, our analysis showed that 13 of the 15 newly identified weaknesses were due to the inconsistent implementation of policies and procedures by the system owners and offices. Until the commission can verify that all system owners and offices implement agency policies and procedures, it will not have assurance that requirements are being followed and controls will work as intended. Testing and evaluating systems is a key element of an information security program that ensures that an agency is in compliance with policies and that the policies and controls are both appropriate and effective. This type of oversight is a fundamental element because it demonstrates management’s commitment to the security program, reminds employees of their roles and responsibilities, and identifies and mitigates areas of noncompliance and ineffectiveness. Although control tests and evaluations may encourage compliance with security policies, the full benefits are not achieved unless the results improve the security program. Analyzing the results of security reviews provides security specialists and business managers with a means of identifying new problem areas, reassessing the appropriateness of existing controls, and identifying the need for new controls. FISMA requires that the frequency of tests and evaluations be based on risk, but occur no less than annually. SEC did not sufficiently test and evaluate the effectiveness of controls for a major system as required by its certification and accreditation process. When the general ledger system underwent a significant change, agency policy required that the system undergo recertification and reaccreditation, which included system testing and evaluation of controls. However, SEC did not complete recertification and reaccreditation testing of controls for the system. We identified three control weaknesses associated with the change to the general ledger system that SEC had not detected. Since the commission has not completed sufficient testing and evaluation for the general ledger system after it underwent a significant change, it cannot be assured that its security policies and controls are appropriate and working as intended. Remedial action plans are a key component described in FISMA. These plans assist agencies in identifying, assessing, prioritizing, and monitoring the progress in correcting security weaknesses that are found in information systems. According to Office of Management and Budget guidance, agencies should take timely and effective action to correct deficiencies that they have identified through a variety of information sources. To accomplish this task, remedial action plans should be developed for each deficiency, and progress should be tracked for each. Although SEC developed remedial action plans to mitigate identified weaknesses in its systems and developed a mechanism to track the progress of actions to correct deficiencies, it did not consistently take effective and timely action to do so. Our analysis showed that 7 of the 15 new weaknesses had been previously identified in remedial action plans. Of the 7 weaknesses, 4 were not effectively mitigated, although SEC noted that they had been closed in prior year remedial action plans. Another known weakness had been listed in a remedial action plan since April 2004. This existed in part because until recently, system remedial action plans did not have completion dates for all deficiencies. These inconsistencies exist because the commission did not develop, document, and implement a policy on remedial action plans to ensure deficiencies were mitigated in an effective and timely manner. As a result, SEC will have limited assurance that all known information security weaknesses are mitigated or corrected in an effective and timely manner. Public trust is vital to the proper functioning of the securities markets. Because SEC relies heavily on computerized systems to maintain fair, orderly, and efficient securities markets, the security of its financial and sensitive data is paramount. While the commission has made important progress in addressing our previous information security recommendations and strengthening its information security program, both outstanding and newly identified weaknesses continue to impair SEC’s ability to ensure the confidentiality, integrity, and availability of financial and other sensitive data. Accordingly, these deficiencies represent a reportable condition in internal controls over SEC’s information systems. Sustained senior management involvement and oversight are vital for SEC’s newly developed security program to undergo the continuous cycle of activity required for the effective development, implementation, and monitoring of policies and procedures. If the commission continues to have senior management actively engaged and continues to implement a framework and continuous cycle of activity, it will help ensure that outstanding weaknesses are mitigated or resolved and that key controls are consistently implemented. If progress is not sustained, SEC will not have sufficient assurance that its processes can mitigate current weaknesses and detect new weakness, and its financial and sensitive data will remain at risk of unauthorized disclosure, modification, or destruction. To assist the commission in improving the implementation of its agencywide information security program, we recommend that the SEC Chairman take the following three actions: 1. verify that all system owners and offices implement agency security 2. complete recertification and reaccreditation testing and evaluation on the general ledger system; 3. develop, document, and implement a policy on remedial action plans to ensure deficiencies are mitigated in an effective and timely manner. In a separate report designated “Limited Official Use Only”, we also made 18 recommendations to the SEC Chairman to address actions needed to correct 15 information security weaknesses. In providing written comments on a draft of this report, the SEC Chairman and Chief Information Officer agreed that the agency needs to maintain momentum addressing the remaining gaps in its information security program and stated that it is actively working to complete corrective actions for findings that remain open and enhance its information security program by implementing our recommendations. They also identified several actions the agency has completed to resolve known weaknesses and stated that going forward the commission’s primary focus will be on making its information security program more aggressive in identifying and resolving issues as or before they arise, to ensure high levels of security compliance across the agency. Their written comments are reprinted in appendix I. This report contains recommendations to you. As you know, 31 U.S.C. 720 requires that the head of a federal agency submit a written statement of the actions taken on our recommendations to the Senate Committee on Homeland Security and Governmental Affairs and to the House Committee on Oversight and Government Reform not later than 60 days from the date of the report and to the House and Senate Committees on Appropriations with the agency’s first request for appropriations made more than 60 days after the date of this report. Because agency personnel serve as the primary source of information on the status of recommendations, GAO requests that the agency also provide us with a copy of your agency’s statement of action to serve as preliminary information on the status of open recommendation. We are sending copies of this report to the Chairmen and Ranking Minority Members of the Senate Committee on Banking, Housing, and Urban Affairs; Senate Committee on Homeland Security and Governmental Affairs; House Committee on Financial Services; House Committee on Oversight and Government Reform; and SEC’s Office of Managing Executive for Operations; Office of the Executive Director; Office of Financial Management; Office of Information Technology; and the SEC’s Inspector General. We will also make copies available to others on request. In addition, this report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions regarding this report, please contact me at (202) 512-6244 or by e-mail at [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix II. In addition to the individual named above, Charles Vrabel and Lon Chin, Assistant Directors; Angela Bell, Jason Carroll, Daniel Castro, West Coile, William Cook, Anh Dang, Kirk Daubenspeck, Valerie Hopkins, Henry Sutanto, Amos Tevelow, and Chris Warweg made key contributions to this report.

In carrying out its mission to ensure that securities markets are fair, orderly, and efficiently maintained, the Securities and Exchange Commission (SEC) relies extensively on computerized systems. Integrating effective information security controls into a layered control strategy is essential to ensure that SEC's financial and sensitive information is protected from inadvertent or deliberate misuse, disclosure, or destruction. As part of its audit of SEC's financial statements, GAO assessed (1) SEC's actions to correct previously reported information security weaknesses and (2) the effectiveness of controls for ensuring the confidentiality, integrity, and availability of SEC's information systems and information. To do this, GAO examined security policies and artifacts, interviewed pertinent officials, and conducted tests and observations of controls in operation. SEC has made important progress toward correcting previously reported information security control weaknesses. Specifically, it has corrected or mitigated 58 of the 71 weaknesses previously reported as unresolved at the conclusion of GAO's 2005 audit. The commission resolved all of the previously reported weaknesses in security related activities and contingency planning, and made significant progress in resolving access control weaknesses. A key reason for its progress was that SEC's senior management was actively engaged in implementing information security related activities. Despite this progress, SEC has not consistently implemented certain key controls to effectively safeguard the confidentiality, integrity, and availability of its financial and sensitive information and information systems. In addition to 13 previously identified weaknesses that remain unresolved, 15 new information security weaknesses were identified. By the conclusion of GAO's review, SEC took action to address 11 of the 15 new weaknesses. A primary reason for these control weaknesses is that SEC had not consistently implemented elements of its information security program. This included inconsistent implementation of agency policies and procedures, not sufficiently testing and evaluating the effectiveness of controls for a major system as required by its certification and accreditation process, and not consistently taking effective and timely action to correct deficiencies identified in remedial action plans. Until SEC does, it will have limited assurance that it will be able to manage risks and protect sensitive information on an ongoing basis.

You are an expert at summarizing long articles. Proceed to summarize the following text: Since the early 1970s, EPA’s organization and approach toward environmental regulation have mirrored the statutes that authorize the agency’s programs. These statutes generally assign pollution control responsibilities according to the regulated environmental medium (such as water or air) or the category of pollutant (such as pesticides or other chemical substances). As a result, the statutes have led to the creation of individual EPA program offices that focus on reducing pollution within the particular environmental medium for which each office has responsibility—rather than on reducing overall pollutant discharges. Among other problems, this structure has made it difficult for the agency to base its priorities on an assessment of risk across all environmental problems and to take into account the cost and feasibility of various approaches. The agency’s traditional approach toward environmental regulation has also been criticized as precluding innovative and more cost-effective ways to reduce pollution and as being inflexible in dealing with other stakeholders in the regulatory process, such as states and regulated entities. EPA’s efforts to address these issues go back at least as far as the mid-1980s, when the Administrator called on the agency to manage its resources and activities so that they (1) account for the relative risks posed by environmental problems, (2) recognize that pollution control efforts in one medium can cause pollution problems in another, and (3) lead to achieving measurable environmental results. Other efforts have also sought to involve stakeholders in the process in a more collaborative manner, calling, for example, for more negotiated rulemakings. Since that time, however, GAO, EPA’s Science Advisory Board, the National Academy of Public Administration, and other organizations have all pointed to the need to make significantly greater progress in this direction. The passage of the Government Performance and Results Act of 1993 set the stage for reinforced efforts to protect the environment more efficiently and effectively. The Results Act requires agencies to consult with the Congress and other stakeholders to clearly define their missions, establish long-term strategic goals (and annual goals linked to them), and measure their performance against the goals they have set. Importantly, the statute emphasizes the need for agencies to focus not on the performance of prescribed tasks and processes but on the achievement of measurable program results. EPA and state officials agree that early reinvention efforts were hampered by disagreements and misunderstandings over EPA’s and the states’ roles in developing and implementing reinvention projects. These differences centered around issues such as how much flexibility the states have to negotiate and approve reinvention projects and how to include stakeholders in negotiations. These differences came to a head in February 1997, when EPA temporarily withdrew from negotiations, begun in November 1996, on a proposal jointly prepared by ECOS and EPA outlining a framework for EPA and the states to promote and implement regulatory reinvention efforts. Among other things, the proposal was intended to “establish guiding principles for reinvention and an efficient process that is receptive to innovation proposals” and “improve decision-making between states and EPA on innovation proposals, emphasizing clear lines of communication, decision authority, accountability, and timeliness.” EPA and ECOS subsequently renewed negotiations. The renewed negotiations between EPA and ECOS led to a draft “Joint EPA/State Agreement to Pursue Regulatory Innovation,” which ECOS approved on September 24, 1997, and EPA recently published in the Federal Register for public comment. As its preamble states, the purpose of the joint agreement is to “establish a clear pathway and decision-making process for state innovations that have encountered federal barriers or need greater attention to help them succeed.” Toward this end, the draft agreement outlines (1) a set of general principles that will govern regulatory innovation activities that EPA and the states will manage jointly; (2) a process that EPA and the states will use to identify which innovation proposals to pursue, including the establishment of a mechanism for making decisions about how to manage innovation proposals that do not fit into ongoing reinvention programs; and (3) guidelines for EPA and the states to evaluate the success of innovation activities carried out under the agreement. The agreement outlines seven principles for guiding joint EPA/state regulatory innovation activities. The principles, as summarized in Part I of the agreement, are as follows: Experimentation: Innovation involves change, new ideas, experimentation, and some risk of failure. Experiments that will help achieve environmental goals in better ways are worth pursuing when success is clearly defined, costs are reasonable, and environmental and public health protections are maintained. Environmental Performance: Innovations must seek more efficient and/or effective ways to achieve environmental and programmatic goals, with the objective of achieving a cleaner, healthier environment and promoting sustainable ecosystems. Smarter Approaches: To reinvent environmental regulation, regulators must be willing to change the way traditionally look at environmental problems and be receptive to innovative, common sense approaches. Stakeholder Involvement: Stakeholders must have an opportunity for meaningful involvement in the design and evaluation of innovations. . . . The opportunities for stakeholder involvement should be appropriate to the type and complexity of the innovation proposal. Measuring and Verifying Results: Innovations must be based on agreed-upon goals and objectives with results that can be reliably measured in order to enable regulators and stakeholders to monitor progress, analyze results, and respond appropriately. Accountability/Enforcement: For innovations that can be implemented within the current regulatory framework, current systems of accountability and mechanisms of enforcement remain in place. For innovations that involve some degree of regulatory flexibility, innovators must be accountable to the public, both for alternative regulatory requirements that replace existing regulations and for meeting commitments that go beyond compliance with current requirements. . . . State-EPA Partnership: The states and EPA will promote innovations at all levels to increase the efficiency and effectiveness of environmental programs. must work together in the design, testing, evaluation, and implementation of innovative ideas and programs, utilizing each other’s strengths to full advantage. The draft agreement states that “where procedures currently exist, innovation proposals should be handled through normal EPA/state program activities or other ongoing reinvention activities.” Such ongoing reinvention activities would include, for example, Project XL and the Common Sense Initiative. Those proposals that do not fit into an existing reinvention effort can be handled by an optional process outlined in the agreement. Acknowledging that “the most challenging regulatory innovation proposals have been difficult to address,” the agreement says that the process provides an option “which states may use to get timely decisions on innovation proposals.” It establishes a management framework that identifies the steps to be taken in developing and reviewing innovation proposals; the decisionmakers for each step in the process; and the procedures for communicating decisions. The optional process also requires a 3-month time frame within which EPA must decide whether to approve a project. The new process for reviewing proposals also includes procedures for classifying projects into one of three categories: Category 1: Straightforward, transparent proposals that have clear advantages, present few obstacles, are technically achievable, and pose minimum environmental risk. Category 2: Experimental proposals that have a more uncertain environmental outcome; require more attention to design, implement, and evaluate; and may involve some risk of failure. Category 3: Strategic proposals that involve broad-based, new approaches (e.g., statutory changes) and require policy discussion. As the agreement notes, this categorization is intended to ensure that the level of EPA management attention takes into account a project’s complexity. For example, the agreement specifies that if a proposal involves a national policy or regulatory issue, the decision will be made jointly by the appropriate EPA regional administrator, relevant EPA national program managers, and officials from EPA’s Office of Reinvention. EPA and the state will determine the category into which a proposal falls, and this categorization will affect the time frame for its implementation. The draft agreement also stresses the importance of measuring both the success of the decision-making process outlined in the agreement and the success of individual innovation projects. In addition, the agreement acknowledges that developing useful measures is challenging. To help measure the success of the decision-making process, EPA and the states plan to collect a variety of information, including (1) the number and quality of innovation projects proposed, (2) the number and quality of innovations implemented, (3) the timeliness of the actions taken in the process, (4) the number of proposals appealed, and (5) the speed with which information about successful innovations is disseminated to other states. To measure the success of individual project proposals, the agreement stresses that common criteria must be used by both EPA and the states to evaluate projects. The agreement refers to a separate, ongoing effort by EPA and ECOS to develop core performance measures and suggests that the proposed measures developed to date under this effort be used as a starting point for evaluating projects initiated under the agreement. As might be expected with any such agreement, a number of practical questions and procedural issues will need to be clarified. Among the key issues needing clarification are (1) the extent to which the new optional process will be used to select and review project proposals and (2) the degree of environmental protection that innovation projects will be expected to meet. Until EPA and the states have had a chance to implement the agreement, it may be difficult to predict the extent to which the states will rely on the optional process in an effort to expedite the consideration of innovation proposals. For example, while the agreement states that current review procedures should be used where such procedures exist (such as in the case of XL or CSI projects), an official with EPA’s Office of Reinvention suggested that the process could also be used to address XL projects that run into difficulty. State officials we contacted who were involved in the negotiations also noted that the language in the draft is ambiguous and that it is presently unclear how many reinvention projects will actually go through this process. According to these officials, the extent of reliance on the optional process should become clearer during implementation. One of the most difficult issues for EPA and the states to resolve was the level of environmental protection to be required of innovation projects, as the following examples illustrate: Noting that the most desirable innovations result in both greater efficiency and a cleaner environment, EPA maintained that projects should achieve “superior environmental performance” and that the degree of superior performance must be proportional to the degree of flexibility sought. ECOS negotiators disagreed with this interpretation, contending that some projects should be allowed that only seek more cost-effective ways to meet current standards. Negotiators for EPA and ECOS debated the extent to which riskier projects should be held to higher environmental performance standards than other projects. EPA (and some states) argued that riskier projects should be held to a higher standard. The present agreement reflects compromises on both of these issues but also exhibits at least some ambiguity on key issues. On the first issue, the agreement provides that while “innovations may be designed primarily to improve the cost-effectiveness of achieving environmental goals, these projects must ensure that there is no adverse impact on environmental protection. . . .” It is unclear, however, how such assurances can always be provided, given the inherent uncertainty associated with some innovation projects. On the second issue, the two sides agreed that “for projects that have a greater uncertainty of the environmental outcome, or that involve experimental technologies or approaches, alternative requirements should be expected to have the clear potential to provide increased environmental protection. . . . “ The agreement further provides that in such cases, EPA and the state agency, in consultation with stakeholders, will determine whether such proposals can produce “appropriate” gains in environmental protection, improved sustainability of the ecosystem, or both. However, it is not clear that participants will easily agree on what constitutes “appropriate” gains in environmental protection. Also, since several environmental groups have already raised concerns about this part of the agreement, state officials involved in the negotiations said they expect this provision may be a subject of continuing debate while the agreement is out for public comment. Finally, negotiators for EPA and ECOS have worked hard to agree on the language in the present tentative agreement, but revisions resulting from the public comment process may affect this consensus. Specifically, EPA recently published the agreement in the Federal Register for public comment and changes may be made in response to the comments received. ECOS members will then vote on whether the agreement is still acceptable. ECOS members’ continued acceptance of the agreement could depend on the nature of the changes made. As pointed out in our July 1997 report, a number of broader issues still need to be effectively addressed if the agreement is to have its intended effect, and if, in the long run, environmental regulation is to be truly “reinvented.” Successful reinvention efforts require a clear understanding of an organization’s mission and of the role that individual efforts play in achieving that mission. However, our discussions with key participants in EPA’s reinvention process suggest that the large number of initiatives under way may be diverting attention from the high-priority efforts most in line with the agency’s reinvention objectives. Specifically, officials from two of the three EPA regional offices we visited during our review this past year cited the large number of initiatives as a problem and indicated that setting priorities among the initiatives would make the most efficient use of the agency’s resources. Under the current situation, they noted, the regional offices are expected to carry out reinvention activities with few resources beyond those the regions receive to carry out their traditional programs. Officials from each of the states we contacted cited similar problems. The problem is further compounded by confusion both within EPA and among other stakeholders over the primary purpose of some of the agency’s most important initiatives. An EPA-contracted analysis of the Common Sense Initiative, for example, pointed to the absence of specific objectives and expectations, noting that “instead of encouraging out-of-the-box thinking as hoped, this has led to delays. . . .as tried to figure out what EPA wanted or would accept instead of inventing their own priorities and processes.” In light of these issues and EPA’s efforts for several years to encourage its headquarters and regions to develop new initiatives, we concluded that it may be time for the agency to take stock of the full range and cumulative impact of its reinvention activities. Accordingly, our report recommended that the Associate Administrator for Reinvention be charged with leading a review of the agency’s reinvention initiatives to (1) determine whether there are any that no longer support the agency’s overall reinvention goals and should therefore be discontinued, (2) set priorities among those that will be continued, and (3) issue clarifying guidance, as needed, to help ensure that the specific objectives and expectations of continuing initiatives are clear to stakeholders within and outside the agency. EPA agreed with this recommendation. The agreement states that “regulators must be willing to change the way we traditionally look at environmental problems and be receptive to innovative approaches.” EPA staff and state officials we contacted generally agreed that EPA’s top management has articulated a clear commitment to the agency’s reinvention effort. But it has been considerably more difficult to translate this message into an agencywide commitment among EPA’s more than 17,000 employees so that everyday decisions reflect the Administrator’s stated reinvention principles. We found that program and regional offices do encourage staff, to varying degrees, to participate in reinvention activities and that these efforts have engendered wider staff participation. Nonetheless, we also found a consistent acknowledgement from both headquarters and regional management that achieving full commitment to reinvention by the agency’s rank and file will be difficult and will take time. One senior program official, for example, noted that it will take time for culture change to filter down to EPA line staff and to see if the change takes hold. Under EPA’s reinvention strategy, the agency’s goal is to share information and decision-making with all stakeholders, including those “external” to the agency, such as state regulators and representatives of industry and environmental organizations. Among other things, the agency hopes this strategy will help to avert litigation by getting up-front agreement among the affected parties and a commitment by industry to meet requirements it has acknowledged to be achievable. We found that the agency has, indeed, made strenuous efforts to involve stakeholders with different interests and perspectives but that achieving and maintaining consensus has been an enormous challenge. The greatest difficulties have come when EPA has sought to achieve—or was perceived as seeking to achieve—100 percent agreement. Officials from the three states we contacted noted that efforts to achieve unanimous agreement have been problematic, particularly in Common Sense Initiative negotiations. Industry representatives agreed, some of whom have cited the problem as a reason for thinking of terminating their participation in the initiative. Accordingly, we recommended in our report that EPA improve the prospects for achieving consensus among concerned parties in the agency’s reinvention efforts by clarifying the circumstances under which unanimous agreement is required. EPA agreed with this recommendation. Some of EPA’s earlier reinvention projects were affected by miscommunication and other problems among the agency’s headquarters and regional offices and other participants. In one notable instance involving an XL project submitted by the 3M Company, Minnesota and 3M officials withdrew their participation because they believed EPA headquarters and regional officials were raising new issues late in their negotiations. To help address these kinds of problems, the agency designated certain senior managers in September 1996 as “reinvention ombudsmen” to respond to stakeholders’ questions and resolve problems in a timely fashion. This process has helped in the negotiation of a number of XL projects, but many stakeholders have noted that in the longer term, senior management will not be able to intervene each time a problem arises. They cite the need for a more sustainable process that distinguishes between problems that can be resolved at lower levels within the agency and those that require senior management’s attention. To at least some extent, the agreement negotiated between EPA and ECOS does appear to address this issue by providing for the attention of senior-level management and specific decision time frames in planning and approving complex innovation projects. According to an official in EPA’s Office of Reinvention, projects that are not successful under other reinvention efforts can use the project review process outlined in the draft EPA/ECOS agreement to resolve problems. To the extent that projects unsuccessful under other reinvention efforts are subject to the new agreement, it could help facilitate decisions on reinvention proposals that need extra attention and cannot be handled through other reinvention efforts. Measuring performance allows organizations to track their progress toward achieving their goals and gives managers crucial information needed to make organizational and management decisions. EPA has, in fact, made some progress in measuring the effectiveness of its reinvention initiatives. The agency’s Office of Enforcement and Compliance Assurance, for example, has responded to the charge to measure the results of its programs by implementing a comprehensive effort with numerous stakeholders to identify innovative ways to measure environmental compliance. If successful, the initiative (the “National Performance Measures Strategy”) could facilitate the use of a broader range of methods to engender compliance beyond the traditional enforcement response that has been relied on so heavily until now. At the same time, officials with the agency’s Regulatory Reinvention Team acknowledged that the agency has neither sufficient performance data nor an evaluation component for many of its initiatives. Accordingly, our report recommended that each of the agency’s initiatives include an evaluation component that measures the extent to which the initiative has accomplished its intended effect. We found wide disagreement over whether the current environmental statutes must be revised for reinvention to succeed. Many state and industry officials have cited the need for statutory revisions, both in the near term to encourage experiments in alternative methods of achieving environmental compliance and in the longer term to achieve a more fundamental change in the conduct of environmental regulation. For example, after identifying problems experienced by industry participants in some of EPA’s initiatives, a September 1996 industry report concluded that “there is no short-cut, no way around the difficult task of trying to legislate a better system.” In contrast, EPA, supported by some in the environmental community, maintains that the current statutory framework is sufficiently flexible to allow for real progress on most reinvention initiatives. On the basis of our past evaluations, the results to date of EPA’s key reinvention efforts, and our contacts with a variety of stakeholders for this review, we concluded in our July 1997 report that constructive modifications can be made under the current environmental statutory framework. However, the framework does establish standards that lead to many of the existing regulatory and behavioral practices the agency is seeking to change. Consequently, as we and other organizations have noted in the past, EPA will be limited in its ability to achieve major changes in environmental regulation within the legislative framework as presently constructed. EPA’s Deputy Administrator told us that the agency will reexamine this issue in light of the recommendations of a key advisory group (the Enterprise for the Environment) later this year. In summary, Mr. Chairman, the EPA-ECOS agreement helps to clarify some of the difficult issues that have arisen in defining EPA’s and the states’ roles in promoting reinvention. The agreement also sets forth a process that can be used to resolve particularly difficult problems that may arise in obtaining agreement on project proposals. Only actual experience in implementing this agreement will tell how well the agreement accomplishes these purposes. At the same time, EPA and the states face a number of fundamental barriers to regulatory innovation that do not fall within the scope of the agreement. We believe these barriers, discussed in our July 1997 report, will need to be addressed before environmental regulation can be substantially reinvented. Mr. Chairman, this concludes our prepared statement. We would be pleased to answer any questions you or Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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GAO discussed the Environmental Protection Agency's (EPA) and the states' roles in promoting and implementing innovative methods of environmental regulation, focusing on: (1) a draft agreement between EPA and the Environmental Council of the States (ECOS) on environmental regulation; and (2) the findings of a GAO report on EPA's and the states' efforts to reinvent environmental regulation. GAO noted that: (1) the draft EPA-ECOS agreement provides a useful framework in two key respects; (2) it attempts to clarify EPA's and the states' roles in promoting and implementing innovative regulatory projects; (3) in particular, the agreement addresses sensitive issues that had been the subject of much debate between EPA and many states, such as the extent to which innovation projects must demonstrate improved environmental performance; (4) the agreement attempts to help EPA manage a growing number of innovation projects by establishing a process that distinguishes between those projects that can be handled at lower levels within the agency and those that require senior management's attention; (5) as with any such agreement, there are a number of practical questions and procedural issues that need to be clarified--some of which may be fully addressed only after EPA and ECOS have had experience implementing the agreement; (6) beyond these practical considerations, however, a number of broader issues need to be addressed effectively to create a climate in which regulatory innovation can succeed and in which environmental regulation can be truly be reinvented; (7) among these barriers are: (a) many key stakeholders in the reinvention process have expressed concern over the large number of complex and demanding initiatives now being undertaken--as well as confusion over the underlying purpose of some of the agency's major initiatives; (b) EPA has had difficulty achieving buy-in among the agency's rank and file, who have grown accustomed to a regulatory structure that has largely been in place throughout the agency's 27-year history; (c) the agency has had difficulty achieving agreement among external stakeholders in a number of its reinvention efforts, particularly when stakeholders perceive that unanimous agreement is required before progress can be made; and (d) EPA has an uneven record in evaluating the success of many of its initiatives; (8) in addition, today's environmental laws impose requirements that have led to, and tend to reinforce, many of the existing regulatory and behavioral practices that EPA is seeking to change; and (9) as a consequence, the agency will be limited in its ability to reinvent environmental regulation within this existing legislative framework.

You are an expert at summarizing long articles. Proceed to summarize the following text: Acquisition planning activities should integrate the efforts of all personnel responsible for significant aspects of the acquisition. Generally, program and contracting officials share responsibility for the majority of acquisition planning activities. Although there is variation among agency processes, acquisition planning for individual contracts typically occurs in three phases (see figure 1): 1. Pre-solicitation: Acquisition planning activities generally begin when the program office identifies a need. The program office contacts its contracting office for guidance on how to develop and prepare key acquisition documents. The program office is primarily responsible for conducting market research, defining requirements in a document such as a statement of work, developing cost estimates, and developing a written acquisition plan, if required. The program office also obtains reviews and approvals as necessary from program leadership for the documents prepared. 2. Procurement request: The program office submits a formal request to acquire services, generally known as the request for contract package which can include a requirements document, a cost estimate, and an acquisition plan, if required. At this point, contracting and program officials work together to revise and refine these key planning documents as necessary, until the request for contract package is complete. The contracting officer, using the information submitted by the program office, considers the appropriate contract type and determines how competition requirements will be met. For awards that are expected to have limited or no competition, depending on the proposed cost, the agency or component competition advocate reviews and approves the key documents. 3. Solicitation: The contracting officer develops the solicitation, a document to request bids or proposals from contractors. The agency’s legal team and other stakeholders identified in agency or component policies may review the solicitation. Once appropriate reviews have been completed, the contracting officer publishes the solicitation, ending the acquisition planning process. Written acquisition plans, requirements development, cost estimating, incorporating lessons learned, and allowing sufficient time to conduct acquisition planning are several important elements of successful acquisition planning. The FAR directs agency heads to establish acquisition planning procedures, including those related to the selected elements described in table 1. We have previously reported that agencies have faced challenges with many of these elements of acquisition planning—requirements development, cost estimating, incorporating lessons learned, and allowing sufficient time to conduct acquisition planning. Table 2 describes illustrative findings from some of our prior work in these areas. In addition, we have sustained bid protests in part because agencies did not conduct adequate acquisition planning before awarding contracts on a sole-source basis, as the following examples illustrate: In 2005, we found that the Air Force initially attempted to place its requirement under an environmental services contract that, on its face, did not include within its scope the agency’s bilingual-bicultural advisor requirement. This obvious error constituted a lack of advance planning, which compromised the agency’s ability to obtain any meaningful competition and directly resulted in the sole-source award. In 2005, we also found that DHS’s Customs and Border Protection did not properly justify an $11.5 million sole-source bridge contract and failed to engage in reasonable advanced acquisition planning by not taking any steps to seek out other available sources, in spite of knowing many months in advance about a likely need. HHS, DHS, NASA, and USAID established policies that set different requirements and levels of oversight for acquisition planning to balance oversight with time and administrative burden. In particular, HHS, DHS, and NASA each require written acquisition plans that align closely with the elements defined in the FAR. USAID requires some documentation of acquisition planning, but, unlike the other agencies we reviewed, it does not require written acquisition plans for individual contracts. Guidance at all four agencies state that cost estimates and requirements documents should be prepared during acquisition planning, and DHS and NASA guidance include the consideration of lessons learned from previous contracts as part of acquisition planning. In addition, agencies have set different requirements for oversight, including who must review and approve acquisition planning documents. HHS, DHS, and NASA have implemented—in different ways—FAR requirements related to written acquisition plans. Written acquisition plans, in general, discuss the acquisition process, identify the milestones at which decisions should be made, and serve as road maps for implementing these decisions. Plans must address all the technical, business, management, and other significant considerations that will control an acquisition. HHS, DHS, and NASA have set different dollar thresholds for when written acquisition plans are required and provided for exceptions to those requirements for certain contracts, such as utility services available from only one source. Despite the varying levels of contract award activity and the different dollar thresholds for written acquisition plans across the three agencies, more than 80 percent of the dollars awarded on services contracts in fiscal year 2010 were above the written acquisition plan thresholds. Procurement officials from these three agencies explained that they established these thresholds to balance oversight with time and administrative burden. USAID, on the other hand, has not established: a dollar threshold at which written acquisition plans for individual contracts are required; guidance on the contents and format of written acquisition plans; or procedures for review and approval of written acquisition plans. See table 3 for written acquisition plan requirements by agency. For the three agencies that require written acquisition plans, policies and guidance for the contents of those plans closely aligns with the elements described in the FAR. For instance, these agencies require written plans to include an acquisition background and objectives, which details a statement of need, cost goals, delivery requirements, trade-offs, and risks. Agencies also require acquisition plans to include a plan of action, which details prospective sources, source-selection procedures, and logistics and security considerations. Program and contracting offices generally share responsibility for preparation of written acquisition plans. Contracting officials told us they find written acquisition plans to be valuable roadmaps to help ensure thorough planning. In two of our selected contracts at DHS and NASA, written plans were prepared even though they were not required. A DHS program official told us that he completed a written acquisition plan because he was inexperienced in working with contracts. He reviewed the requirements in the FAR and developed a written plan on his own initiative to ensure he thoroughly completed planning, even though the contract was valued at $4.5 million—below the $10 million threshold. In addition, components at NASA and HHS told us they expanded the use of written acquisition plans beyond agency requirements. For example:  NASA requires written acquisition plans for contracts valued at $10 million and above, and its component, Johnson Space Center, requires a short form acquisition plan for contracts valued between $5 million and $10 million. Procurement officials explained that the short form improves documentation of acquisition planning and serves as a training aid for less experienced staff.  HHS requires written acquisition plans for contracts valued at $500,000 and above, and almost half of Centers for Disease Control and Prevention’s contract awards over the current simplified acquisition threshold of $150,000 fell below the HHS threshold of $500,000 in fiscal year 2010. As of this year, Centers for Disease Control and Prevention requires written plans for all contracts over $150,000, unless covered by a regulatory exception. A procurement official explained that contract team leaders initiated lowering the threshold, noting that reviewing these actions allows the procurement office a more comprehensive look at overall acquisition planning, as well as the ability to better plan for more small business participation, use existing Centers for Disease Control and Prevention contracts, and engage departmental strategic sourcing acquisition vehicles. USAID has not established a dollar threshold or content and format guidance for written acquisition plans for individual contracts. USAID does require some documentation of acquisition planning, including documents used for annual acquisition forecasting and program planning. USAID requires implementation plans for its programs and foreign assistance objectives that should describe plans for competition or waivers of competition and expected completion dates. Implementation plans are unlike written acquisition plans at the other agencies we reviewed; they are not required to include statements of need, cost goals, or source- selection procedures, among other things. Implementation plans are not prepared for individual contracts: rather, they include multiple types of obligations, including contracts, grants, cooperative agreements, and government-to-government agreements. USAID Office of Acquisition and Assistance officials told us these plans are required regardless of dollar value. However, the policies are not clear about what is required to be documented in implementation plans, the format of the documentation, or who is to perform these tasks. In addition, USAID programs develop activity approval documents that describe funded activities and may include multiple procurement instruments. USAID policy does not require contracting officers to use activity approval documents as part of planning for a specific contract. Lastly, USAID develops milestone plans for individual contracts using its procurement data system. None of the six contract files we reviewed at USAID—with award values between $1.5 million and $750 million—contained a written acquisition plan. USAID contracting and program officials told us that clearer guidance about requirements for written acquisition plans would be useful. For example, a contracting officer involved in a $3.2 million operational support contract told us it would be very helpful if USAID would implement more specific acquisition planning formats, similar to ones he provided to program officials when he worked at another federal agency. USAID officials said the agency plans to review the benefits of more consolidated guidance and documentation requirements for acquisition planning. The four agencies we reviewed have guidance that requirements documents and cost estimates be prepared during acquisition planning, and DHS and NASA guidance include incorporating lessons learned from previous contracts. Requirements documents are generally part of a request for contract at all four agencies or their components. Requirements documents should define requirements clearly and concisely, identifying specific work to be accomplished. They define the responsibilities of the government and the contractor and provide objective measures to monitor the work performed. They can be, for example, a statement of work, statement of objectives, or performance work statement. HHS and DHS generally require cost estimates before solicitation. NASA requires written acquisition plans to include cost estimates and one component we reviewed requires cost estimates whether or not a written acquisition plan is prepared. HHS, DHS, and NASA components we reviewed have guidance available to help program officials prepare cost estimates. USAID requires cost estimates for programs. Cost estimates record the government’s assessment of a contract’s most probable cost and can be used to make requirements trade-offs in the acquisition planning process. Following acquisition planning, the cost estimate can be used to check the reasonableness of potential contractors’ proposals and negotiate prices. DHS and NASA guidance include the consideration of lessons learned in acquisition planning but HHS and USAID have not established specific procedures or requirements that lessons learned be considered as part of acquisition planning. NASA encourages incorporation of lessons learned into directives, standards, and requirements, among other aspects of acquisitions. In particular, source evaluation boards are encouraged to document lessons learned, which may include aspects of acquisition planning, and provide them to procurement office leadership. NASA guidance further recommends discussions of these lessons learned at planning meetings for subsequent contracts. After we discussed our preliminary findings with DHS officials, DHS revised its acquisition planning guidance in June 2011 to require written acquisition plans to include a discussion of how lessons learned from previous acquisitions impact the current acquisition, or provide a rationale if historical information was not reviewed. HHS and the NASA components we reviewed require that written acquisition plans include an acquisition history. These histories may simply describe specific characteristics of previous related contracts, including contract type, total cost, and contractor. None of the agencies require that an acquisition history include knowledge gained from previous contracts or potential issues that should be addressed in a new contract. In addition, none of the agencies have procedures in place to assure that the contracting officer reviews the acquisition history when written plans are not required to be prepared. Agencies’ requirements for who must review and approve acquisition planning documents vary, particularly for written acquisition plans. For instance, written plans for contracts above certain dollar thresholds at DHS and NASA require headquarters-level review, and plans for contracts below those thresholds are reviewed at the component level. At HHS, DHS, and NASA, information on estimated costs is reviewed as part of the review of written acquisition plans. Table 4 describes the written acquisition plan review requirements at HHS, DHS, and NASA. Because USAID does not require written acquisition plans for individual contracts, there are no review and approval requirements. Agencies have different policies for reviewing requirements documents, specifically which stakeholders should be involved and whether program leadership should approve requirements. The agencies’ processes for stakeholder involvement and reviewing requirements follow:  HHS: The head of the sponsoring program office must conduct a thorough technical review of the requirements document that is attached to the written acquisition plan.  DHS: In developing requirements, acquisition planners should consult with appropriate representatives from contracting, legal, fiscal, small business, environmental, logistics, privacy, security, and other functional subject matter experts, as needed.  NASA: Program managers and technical authorities for Engineering, Safety, and Mission Assurance, and Health and Medical must review requirements documents.  USAID: The program official responsible for a specific activity drafts the requirements document as part of the request for contract. USAID procurement officials explained that requirements documents usually undergo multiple rounds of editing as the contracting office prepares the solicitation. In addition to the review and approval processes of specific acquisition planning documents, two agencies have processes to review selected proposed contracts before solicitations are published.  HHS: At National Institutes of Health, a Board of Contract Awards is to conduct pre-solicitation reviews of a sample of about 10 percent of each institute’s contracts. According to officials at Centers for Disease Control and Prevention, the Office of Policy, Oversight, and Evaluation is to conduct pre-solicitation reviews of all contracts valued at over $5 million. In addition, HHS procurement officials reported they are developing an acquisition oversight framework to conduct headquarters-level review of high-dollar and high-risk contracts at key decision points in the acquisition life cycle.  USAID: Contracts with estimated values above $10 million are required to go to a Contract Review Board before solicitation. However, this requirement is sometimes waived, although there are no clear criteria for when waivers are granted. One of our selected contracts at USAID, a multiple award contract valued at up to $750 million, received a “gold star” pre-solicitation review waiver based on the contracting officer’s reputation and experience and, according to officials, because the template used for the solicitation had been used before. According to documentation in the contract file, this contract was subject to a bid protest when the published evaluation criteria were not applied because vendors were confused by the requirements in the solicitation. While multiple factors affect when bid protests are filed and whether they are sustained, they are denied or the agency takes corrective action, several contracting officials told us they consider successful bid protests an indicator of inadequate acquisition planning. Agencies did not always use the acquisition planning process to the fullest extent possible to develop a strong foundation for the contracts we reviewed, but some have identified ways to encourage improved acquisition planning. We found that important planning steps were not performed at all, could have been used more fully to improve acquisition planning, or were not documented for future use. (See appendix V for detailed information on the 24 cases we reviewed.) In particular, we found that agencies faced challenges defining their needs, documented cost estimates to varying degrees, and documented lessons learned to a limited extent. We identified several practices agencies use to support program staff with acquisition planning activities, including hiring personnel who specialize in procurement business issues and cost and price analysis, and providing detailed templates to assist in preparing key documents. In five of our selected contracts at three agencies, programs faced challenges defining their needs in the acquisition planning phase, in some cases resulting in delays in awarding contracts. Four of these contracts were time-and-materials or cost-reimbursable, which are riskier contract types for the government. For the fifth contract, NASA incorporated into acquisition planning known challenges defining its needs, specifically the possibility of future requirements changes. Well-defined requirements are critical to ensuring clear communication about what the government needs from the contractor providing services. Program and contracting officials at the four agencies we reviewed noted that this can be a challenging part of acquisition planning and is a shared responsibility between program and contracting officials. Program officials must ensure that they have determined exactly what they need to acquire, have incorporated input from stakeholders, and have made trade-offs to ensure affordability. Contracting officials must ensure that the stated requirements are clear and consistent with law and regulation. In four of our selected contracts, agency requirements were difficult to define and, in some cases, changed after acquisition planning ended.  For a $13.6 million follow-on contract at DHS, the program manager responsible for developing requirements during acquisition planning overestimated the level of advertising services needed to support recruitment efforts without coordinating with program leadership. The assistant commissioner of human resources later determined that less advertising support was really needed and approved approximately half the requested funding. It took several months for the program to finalize the support required, resulting in amendments to the published solicitation after the acquisition planning phase ended, and delaying contract award by 3 months.  For an $18.7 million contract at USAID, the program official said that it was challenging to incorporate the needs of multiple stakeholders in areas outside her area of responsibility, and to forecast their demand for the services over a 5-year period. Sixteen months after the contract was awarded, the agency had to increase the contract’s ceiling by $10 million—an increase of over 50 percent—due to greater-than-anticipated demand for services.  For a set of follow-on contracts awarded in 2009 valued at $750 million, USAID had a 10-year history of difficulty predicting growth in demand for anticorruption program services. Beginning in 1999, three previous sets of contracts for these services reached their cost ceilings quickly and required new contracts before their planned expiration.  For a $3.2 million contract at USAID, the contracting officer told us the program had a difficult time determining program and operational support requirements because program staff members were turning over during a change in presidential administration. He noted that there were a number of unknowns during acquisition planning and it was not possible to estimate the level of support required, so the agency awarded a time-and-materials contract. According to the contracting officer, the agency did not prepare a justification to use this contract type, as required by the FAR. In one case, NASA incorporated the possibility of future changes to requirements into its acquisition planning, although the program decisions driving these changes would not be made until after planning was completed. The written acquisition plan for the $180 million contract for selected contract services related to the International Space Station notes in its risk assessment that the retirement of the space shuttle created a challenge to defining requirements specifically enough to use an entirely firm-fixed-price contract. NASA modified the contract 1 year after award to incorporate tasks being transferred from other programs, including the ending space shuttle program, as anticipated. For our selected contracts, agencies frequently did not fully use the cost estimating process to inform acquisition planning. We have previously reported that a well-documented cost estimate is supported by detailed documentation that describes how it was derived, capturing the source of the data used and the assumptions underlying the estimate. The 24 contract files we reviewed had varying levels of documentation for cost estimates prepared during acquisition planning. Specifically, 8 of the contracts fully documented cost estimates and the rationale behind them, 14 of the remaining contracts only partially documented the rationale for the cost estimates, and 2 contracts did not document cost estimates prepared during acquisition planning. (See figure 2.) In acquisition planning, documentation of estimated costs, typically prepared by the program office, ensures that contracting officials can understand the basis for the estimate and how to use the estimate in later steps of the acquisition process. It is unclear what information was available to USAID contracting officers during acquisition planning in the two contracts without documented cost estimates. In many cases at all four agencies, the program office did not document the rationale for estimated costs—including sources of underlying data and assumptions—limiting the ability of the contracting office to evaluate the reliability of estimates and reducing opportunities to improve estimates for future contracts. In addition, not fully documenting cost estimates limits information sharing. While contracting officials told us they have informal conversations with program officials about the rationales for estimated costs, if these conversations are not documented, the information cannot be carried forward to provide insights for any subsequent contract. This is particularly important given the frequent staff turnover in the acquisition workforce: In 8 of the 16 cases we reviewed for which a cost estimate was either not documented at all or not fully documented, either the program official or contracting official involved in acquisition planning could not be reached because they had left that office. For instance, DHS did not document the sources or assumptions for an $11 million public service campaign follow-on contract. Because the contracting officer involved in acquisition planning left the agency, DHS could not identify a contracting official who was familiar with the planning for that contract. As a result, a future contracting officer or program staff developing the cost estimate for this recurring need will not have this information. Documenting the rationale for cost estimates is particularly important to help ensure the information is available when planning for follow-on contracts. In 16 of the selected contracts we reviewed for which cost estimates were not fully documented, 11 were follow-on contracts. Program officials’ knowledge of how to develop a cost estimate varied. USAID does not have guidance on when and how to use cost estimates for individual contracts. For three of the six cases we reviewed at USAID, the program officials we spoke to had limited knowledge about how and when to complete cost estimates. As a result, contracting officials were not in a strong position to use one of the tools available to help make a determination of fair and reasonable costs or prices, as the following examples describe.  A USAID program official responsible for acquisition planning for one contract said that she did not feel knowledgeable enough to prepare a cost estimate on her own, she did not receive sufficient assistance from the contracting office, and she was not aware of any guides or resources to help her complete a cost estimate. Further, the program official said she communicated with and received inconsistent guidance from 12 to 15 different contracting personnel during the course of acquisition planning. This $18.7 million contract was later modified to increase its total value by more than 50 percent.  Another USAID program official, assigned to plan for a $1.5 million contract, described her efforts to prepare a cost estimate as “flying blind” because, at the time, she did not understand how the cost estimate related to the acquisition process, and she did not know that the cost estimate needed to be completed within certain time frames. Contracting officials’ views differed about the importance of developing accurate cost estimates during acquisition planning. Several contracting officials at HHS said they did not think cost estimates were as important during acquisition planning, noting that they rely heavily on market competition after solicitation to establish a fair and reasonable price. Although competition can aid in establishing fair and reasonable prices, the extent of competition varies in contracts. According to a procurement official at DHS, an accurate cost estimate developed during acquisition planning—before vendors propose prices—provides a more realistic basis for assessing whether any of the offers or bids received are within an acceptable range. Moreover, by delaying attention to cost estimating until after acquisition planning is completed, agencies may be limited in their use of estimates for planning purposes other than for establishing fair and reasonable costs or prices. By rigorously estimating costs during acquisition planning, agencies may be better positioned to assess whether they can afford the services proposed and make trade-offs to better distinguish between needs and wants. For instance, in one case we reviewed at HHS, a program official told us she used the cost estimating process to communicate what level of services the program could afford to purchase given its budget limitations. Because the program official responsible for planning had a clear understanding of estimated costs, she was able to work with her office to narrow requirements to only the highest priority elements. Agencies documented lessons learned in a quarter of the contracts we reviewed. However, in other cases where agencies did not document lessons learned, they may have missed opportunities to improve acquisition planning based on previously acquired knowledge and experience. Contracting officials from several agencies told us that while they address known major issues encountered in previous contracts, lessons learned are considered to the extent that time allows. Acquisition planning is required for all acquisitions, including follow-on acquisitions. Of our 24 selected contracts, 17 were follow-on awards to previous contracts for similar services, which could have informed acquisition planning. Contracting officials explained that follow-on contracts are frequently “cookie cutters” of the previous contract with very few changes, as the following examples show.  For a $29 million NASA follow-on contract for facility maintenance and operation, the program official involved did not consider the preparation for this contract to be acquisition planning because there were so few changes from the previous contract.  For a follow-on contract for advertising services to promote emergency preparedness at DHS, program officials told us that they did not identify or incorporate lessons learned from the previous contract during acquisition planning for the current contract. A written acquisition plan is one opportunity when program and contracting officials could document important lessons and other considerations for future use, though this was not required at the agencies that use written acquisition plans. Of the 12 follow-on contracts for which written acquisition plans were prepared, 6 of the written plans from HHS, DHS, and NASA included information about lessons learned from the previous contracts. For example, the written acquisition plan for a $375 million disaster response contract at DHS discussed that a new strategy would be employed in the current contract because the ordering process used under the previous contract hindered rapid response in an emergency. For the other six follow-on contracts, HHS, DHS, and NASA did not document lessons learned in written acquisition plans. However, program and contracting officials told us that knowledge gained in the previous contract was incorporated in some of these cases. For instance:  For a $2.5 million educational marketing follow-on contract at HHS program officials explained that they had experienced issues with obtaining invoices in a timely manner during the predecessor contra which led them to use an incentive fee arrangement in the current contract. This issue is not documented in the discussion of the acquisition history or the selection of cost type in the written acquisition plan for the contract. ct,  For a $125 million set of follow-on ordering agreements for background investigations at DHS, a program official said that key lessons learned included the type of contract vehicle used and consistency among multiple contractors’ requirements documents. These issues are not documented in the written acquisition plan. Due to staff turnover, this type of institutional knowledge is lost if not documented. In 11 of the 17 follow-on contracts we reviewed, either the program or contracting official involved in acquisition planning was no longer available to provide information about the process at the time of our review. In one case we reviewed at HHS, neither the contracting official nor program official involved in acquisition planning for the $210 million contract for management and technical consulting services were still at the agency. An HHS contracting official told us they maintained a running list of issues to address in follow-on contracts to ensure lessons learned are not lost. In addition, because the contract file contained significant documentation of the early planning process, we were able to readily understand the decisions they had made and the lessons they learned. We identified several practices agencies use to support program staff with acquisition planning activities, including hiring personnel who specialize in procurement business issues and cost and price analysis. For instance, both DHS components we reviewed have hired business specialists who focus on procurement issues to assist program offices with acquisition planning tasks, which alleviates the burden on contracting officials. For a $125 million contract at Customs and Border Protection, program officials obtained significant assistance from the business specialist group in developing the cost estimate and requirements document. In this instance, the cost estimate was well documented, the requirements document was clear, and the requirements have not changed since the contract was awarded. Procurement officials at Federal Emergency Management Agency said awareness of their acquisition business specialists has been raised by conducting “road shows” within the contracting organization and individual meetings with key decision makers on the program side. As a result, these specialists have been used increasingly in recent months, and some program offices have provided office space so they can work side-by-side with program staff. In addition to these business specialists, procurement officials said Federal Emergency Management Agency has also hired 10 full-time permanent employees to aid in planning, providing acquisition guidance and consulting support to program offices. A contracting official told us that some centers at HHS’s Centers for Disease Control and Prevention have similar support specialists in their business services units and that this support helps technically-minded scientists in the program offices with the procurement process. In addition, contracting and program officials at Customs and Border Protection, Johnson Space Center, and National Institutes of Health noted the value of having in-house cost and budget specialists to aid program officials in developing cost estimates. For example, a Customs and Border Protection contracting official noted that program staff for a $125 million background investigations contract had access to an in- house cost and price analysis group to obtain assistance with developing a cost estimate. Other advisory offices also assist program staff in developing acquisition planning documents. For example, NASA’s Johnson Space Center has a Source Evaluation Board Office, which officials said plays a support role for the program and contracting offices during acquisition planning in addition to the subsequent source evaluation process. Agencies have tools for program staff to use in developing cost estimates. The components we reviewed at HHS, DHS, and NASA have established guides for program staff that made clear when and how to complete a cost estimate. At HHS and USAID, contracting officials said they shared informal templates and sample cost estimates among themselves for use in assisting program officials. Several contracting officials we spoke to said they had either developed their own cost estimation templates or had templates they routinely provided to program officials as a clear model. USAID procurement executives noted that more training in developing cost estimates would be useful for their program officials. Contracting officials told us that they provide support when program officials do not have acquisition planning experience, but the contracting workforce has limited capacity to assist programs with planning activities given their workload demands and workforce constraints. At NASA’s Johnson Space Center, contracting officials are co-located with program offices to encourage frequent interactions throughout the acquisition lifecycle. However, contracting officials at all four agencies told us they have many competing demands, such as planning for higher priority contracts and awarding and administering contracts. In one case at HHS, program officials submitted their request for a follow-on contract for logistics and meeting support services to contracting officials nearly 3 months before the previous contract was to expire, but contracting officials did not respond due to workload. The contract was awarded under noncompetitive procedures for $4.1 million and 6 months later than planned, requiring an extension to the previous contract—which had been awarded under competitive procedures. In two other cases, one at USAID and one at DHS, program officials told us they had to substantially rework certain acquisition planning steps due to turnover in the contracting office. To incorporate lessons learned more broadly across organizations, procurement officials at HHS, DHS, and NASA components noted that they disseminate issues and best practices that arise across their organizations. For instance, at both HHS components we reviewed, procurement officials collect and post lists of substantive issues that arise from their contract review process and bid protest decisions via intranet or newsletter. According to one contracting official, this mechanism may help inform contracting officers of typical pitfalls in acquisition planning. Similarly, at NASA’s Goddard Space Flight Center and Johnson Space Center, procurement staff members document substantive issues that arise in the Source Evaluation Board process for use in future and related contracts. In addition, Federal Emergency Management Agency procurement officials told us they maintain guides for the most important hurricane-related contracts to ensure that lessons learned are tracked and continually applied to help ensure a quick response during a disaster. Some agency components have also taken steps to encourage early acquisition planning, including instituting annual consultations about anticipated contracts and reminder systems about expiring contracts. Officials at Centers for Disease Control and Prevention described processes linking the initiation of planning for individual contracts into annual processes for strategic organizational acquisition planning, including meetings between programs and contracting officials at the beginning of each fiscal year. Further, Federal Emergency Management Agency has recently implemented a policy that reserves the option for the Chief Financial Officer to set aside an acquisition’s approved funding for other requirements when programs do not meet deadlines intended to ensure timely contract award. Most agency components have established expected time frames for the last phase of acquisition planning—beginning when the program and contracting offices finalize a request for contract package. However, none of the agency components have measured and described in guidance the time needed for program offices to develop and obtain approvals of key acquisition planning documents—including statements of work, cost estimates, and written acquisition plans, if required—during the pre- solicitation phase, which serves as the foundation for the acquisition process. Agencies have also not measured the time needed during the procurement request phase to finalize these documents in collaboration with contracting offices. Most agency components in our review have measured and established guidance about expected time frames for the last phase of the acquisition planning process—the solicitation phase which starts when the request for contract package is complete—and the contract award phase. These expected time frames, known as contracting lead times, consider variability such as level of competition, estimated contract value, and commercial availability; serve as typical internal deadlines for contracting offices; and provide program offices with information about contract processing times (see table 5). Contracting lead times established in guidance varied greatly among the agency components in our review. For instance, contracting lead times in Federal Emergency Management Agency’s guidance varied from 30 days for orders under existing agreements and contracts to 210 days for new non-commercial contracts that have an estimated value of $50 million or more. Similarly, contracting lead times in Goddard Space Flight Center’s guidance ranged from 17 days for certain contract actions under $25,000 using simplified procedures to nearly 300 days for competitive contracts over $50 million. Johnson Space Center has not established contracting lead times, but officials have established general time frames for steps in the contract award phase. At Customs and Border Protection, officials noted that they have measured the time frames needed to establish contracting lead times and are currently working to implement them in guidance. According to agency component officials, contracting lead times were developed in a variety of ways, including compiling historical data of procurements, experience gained from past procurements, information gathered through acquisition working groups, and benchmarking with other agencies. Agency components in our review have not measured or incorporated into their guidance the time needed for activities performed in the pre- solicitation phase of acquisition planning—when program officials develop key acquisition planning documents—or the procurement request phase when these documents are revised and completed in collaboration with contracting officials. The time needed for pre-solicitation activities varies depending on the complexity and dollar value of the contract. The pre- solicitation phase of acquisition planning serves as the foundation of the acquisition process (see figure 3): It is when program offices establish the need for a contract; develop key acquisition documents such as the requirements document, the cost estimate, and, if required, the acquisition plan; and obtain the necessary review and approvals, before submitting a request for contract to the contracting office. Based on discussions with program officials and the contract documents we reviewed, the average pre-solicitation phase accounted for roughly half of the total time estimated for acquisition planning activities in our selected cases. Unlike the other agency components we reviewed, Johnson Space Center has measured the time needed for pre-solicitation activities as part of an effort to streamline their acquisition processes, but has yet to establish these time frames in guidance. We found that the time needed to complete pre-solicitation activities for our selected contracts varied widely from less than 1 month to more than 2 years and depended on factors such as complexity of the requirement, political sensitivity, and funding. This variability is similar to the variability agencies have measured for the last phases in establishing contracting lead times, as illustrated in these examples.  For an $18 million HHS contract to obtain information technology support, developing key acquisition documents and other pre- solicitation activities took about 27 months. Program officials noted that the pre-solicitation phase was lengthy because the requirements for this contract were complex and the requirements document had to be refined several times by agency stakeholders.  For a $125 million DHS agreement to provide background investigation services, agency officials said that pre-solicitation activities took about 8 months to complete. According to agency officials and acquisition planning documents, the contract was politically sensitive because the contract supported increased hiring of personnel who require security clearances to meet congressional mandates. Additionally, given the cost, complexity, and sensitivity of the contract, program officials were required to obtain additional review and approvals from their agency’s chief counsel and head of the procurement activity.  Pre-solicitation activities for a $421,435 HHS contract to provide biosafety laboratory support took about 1 month to complete. A program official explained that she received funding late in the fiscal year and had limited time to conduct pre-solicitation activities. The program official noted that the requirements for this contract were complex and she would have wanted at least twice as long to complete the process. We have previously reported that contracting officials stated that program officials were often insufficiently aware of the amount of time needed to complete acquisition planning, including properly defining requirements, which may have hindered opportunities to increase competition. For a DHS contract we reviewed valued at up to $375 million to provide disaster relief, the program manager noted that he had not known how long reviews of the written acquisition plan by DHS headquarters would take. Because the program office did not factor in enough time for this review process, among other steps, award of the contract was delayed by about 2 months. To avoid a gap in services, DHS awarded a bridge contract that extended the length of the original contract. Sound acquisition planning is important to establishing a strong foundation for successful outcomes for the billions of dollars civilian agencies spend annually acquiring services. Key acquisition planning elements—including written acquisition plans, requirements development, cost estimating, and incorporating lessons learned—are critical to the process, as is allowing sufficient time to conduct acquisition planning. Other than USAID, the agencies we reviewed currently require written acquisition plans that align closely with the elements described in the FAR, and agency policy and contracting officials acknowledge the benefits such plans provide, including helping to clearly define requirements, understand costs, and carry forward any lessons learned. Still, agencies did not always take full advantage of the acquisition planning process to develop a strong foundation for the acquisitions we reviewed. In particular, cost estimating and incorporating lessons learned from previous contracts are not always viewed as important elements of the acquisition planning process. Moreover, agencies varied in how they documented rationales for cost estimates prepared during acquisition planning and any lessons learned, which limits the availability of such information for future use. In addition, agencies have acknowledged the value of developing contracting lead times—how long acquisition planning activities leading up to a complete procurement request take to move from a complete procurement request to contract award—that recognize the variability of time required for different types of contracts. However, how long the acquisition planning activities leading up to a complete procurement request take is not as well defined. Without a clear understanding of the time frames needed for the acquisition planning process, program officials may not know when to start planning or how long the planning will take, increasing the likelihood of poorly prepared documents and contract delays. Better insights into when acquisition planning should begin would help allow sufficient time to carry out the important acquisition planning activities that are designed to facilitate more successful outcomes. To promote improved acquisition planning, we recommend that the Administrator of USAID direct the Office of Acquisition and Assistance to  establish requirements specifying dollar thresholds for when written plans should be developed, documented, and approved;  establish standard acquisition plan formats that align with the FAR;  develop templates and guidance to help program officials prepare reliable cost estimates. To take fuller advantage of important acquisition planning elements and to ensure that information is available for future use, we recommend that the Secretaries of HHS and DHS and the Administrators of NASA and USAID direct their procurement offices to ensure that agency and component guidance clearly define the role of cost estimating and incorporating lessons learned in acquisition planning, as well as specific requirements for what should be included in documenting these elements in the contract file. To allow sufficient time for acquisition planning, we recommend that the Secretaries of HHS and DHS and the Administrators of NASA and USAID direct their components’ procurement offices to collect information about the time frames needed for pre-solicitation acquisition planning activities to establish time frames for when program officials should begin acquisition planning. We provided a draft of this report to DHS, HHS, NASA, and USAID. DHS, NASA, and USAID provided written comments stating that they concurred with our recommendations to promote improved acquisition planning by taking fuller advantage of important acquisition planning elements, including clearly defining the role of cost estimating and incorporating lessons learned. The agencies’ views differed on our recommendation to collect information about time frames needed for the acquisition planning process. The agency comments are discussed below and included in appendixes VI, VII, and VIII, respectively. HHS had no comments on the draft of this report. DHS also provided technical comments, which we incorporated as appropriate. USAID concurred with our recommendation to promote improved acquisition planning. USAID noted in its comments that the agency needs to develop more formal, comprehensive policy and procedures for acquisition planning by specifying dollar thresholds for written acquisition plans and establishing standard acquisition plan formats to fully meet FAR requirements for acquisition planning. USAID also stated that it plans to develop templates and guidance to help program officials prepare reliable cost estimates. DHS, NASA, and USAID all concurred with our recommendation to ensure that agency and component guidance clearly define the role of cost estimating and incorporation of lessons learned in acquisition planning and the associated documentation requirements. USAID did not indicate specific actions the agency will take to implement this recommendation. NASA noted that it plans to require acquisition plans to fully document the rationale for cost estimates. In its comments, DHS described existing guidance and training related to independent government cost estimates and stated its intention to review its regulations and guidance in accordance with our recommendation. In doing so, it is important that guidance define the role of cost estimates specifically for acquisition planning purposes, which could include making affordability and requirements tradeoffs. This role may differ from the purpose of an independent government cost estimate developed later in the acquisition process. In addition, DHS, NASA, and USAID agreed that they should define the role of lessons learned in the acquisition planning process, as well as establish documentation requirements. In June 2011, DHS updated its acquisition planning guidance to specifically include the incorporation of lessons learned in acquisition planning discussions. In its comments, NASA stated that it intends to require acquisition plans to include lessons learned from earlier contract actions and steps to mitigate these issues. DHS, NASA, and USAID responses to our recommendation to collect information about the time frames needed for the acquisition planning process to establish time frames for program officials varied. USAID concurred with our recommendation but, in its comments, did not describe specific actions the agency plans to take in response. NASA partially concurred, but did not agree that the procurement offices should establish time frames for program officials’ planning, because the time frames will differ across programs. However, we found that, in 2009, NASA’s Johnson Space Center procurement office was able to analyze the time taken for steps of the pre-solicitation phase, recognizing that this phase historically had the greatest effect on acquisition schedules at the component. DHS did not concur, commenting that it did not believe it is necessary or an efficient use of resources to address the recommendation because existing regulations and policy already state that acquisition planning should begin as soon as the need is identified. DHS noted that it recently updated acquisition planning guidance to emphasize the need to begin acquisition planning early, including paying close attention to procurement administrative lead times and early formation of integrated product teams. We found that program officials need more guidance to have a better understanding of how much time to allow for completing fundamental acquisition planning steps in a high- quality manner. Agencies’ procurement administrative lead times begin when a procurement request package has been completed, but agencies have not measured and established in guidance the time frames for the acquisition planning activities that lead up to a complete procurement request package. These early activities include conducting market research; defining requirements; developing the statement of work, cost estimate, procurement request, and written acquisition plan, if required; and obtaining approvals for these documents as necessary. We believe that component procurement offices are best positioned to aggregate information about historical planning time frames, particularly given the variation across contract actions, and provide programs with guidance on how long aspects of the planning process may take. Agency components have been successful in capturing variation in contract characteristics such as type of contract action, level of competition, and estimated value in the contracting lead times they have set for the last phase of acquisition planning, and we believe they can accomplish similar analysis for the variation in the early phases. In response to DHS and NASA comments, we clarified this recommendation to emphasize the importance of establishing time frames for pre-solicitation activities. We are sending copies of this report to interested congressional committees and the Secretaries of HHS and DHS, and the Administrators of NASA and USAID. In addition, this report will be available at no charge on GAO’s Web site at http://www.gao.gov. Should you or your staff have any questions on the matters covered in this report, please contact me at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IX. The objectives of this review were to assess (1) the extent to which agencies have developed policies and procedures related to acquisition planning; (2) how agencies have carried out acquisition planning in the areas of requirements definition, cost estimates, and lesson learned in selected cases; and (3) the extent to which agencies’ guidance provides time frames for when to begin and how long acquisition planning activities should take. We focused our work on: selected elements of acquisition planning including: written acquisition plans, requirements development, cost estimating, incorporation of lessons learned, and guidance for acquisition planning time frames.We chose these elements because they are critical to the successful planning of a contract.  acquisition planning for professional, administrative, and management support services contracts because these types of services had the highest obligations by civilian agencies in fiscal year 2009 as reported in the government’s procurement database—the Federal Procurement Data System-Next Generation (FPDS-NG). four civilian agencies that obligated the most on these types of services in fiscal year 2009: the Department of Health and Human Services (HHS), the Department of Homeland Security (DHS), National Aeronautics and Space Administration (NASA), and the U.S. Agency for International Development (USAID). We chose to focus on civilian agencies and exclude the Department of Defense agencies because GAO had issued a number of reports in recent years that addressed elements of acquisition planning at the Department of Defense. To determine the extent to which agencies have developed policies related to selected elements of acquisition planning, we reviewed FAR provisions in effect in fiscal year 2009 pertaining to acquisition planning and agency regulations and guidance. In particular, we compared the agencies’ current policies to the FAR, which prescribes responsibilities of agency heads, or their designees, related to acquisition planning. We also interviewed agency procurement executives and policy officials, component-level procurement policy officials, and the competition advocate at the agency or component levels to determine the agency rationale for establishing agency policy and procedures and obtain agency opinion on whether current policy meets acquisition planning requirements in the FAR. To determine how agencies have carried out acquisition planning in the areas of requirements definition, cost estimating, and lessons learned in selected cases, we reviewed a selection of contracts at each agency and interviewed cognizant contracting officials, and program officials as mentioned above. We specifically inquired about effective practices with regard to the selected elements of acquisition planning. To identify contracts, we selected two components with the highest obligations on professional, administrative, and management support services during fiscal year 2009 from each of the four selected agencies. Our selection of contracts included 24 contracts, 6 from each agency. The specif agency component locations in our review were as follows:  HHS’s Centers for Disease Control and Prevention and National  DHS’s Customs and Border Protection and Federal Emergency  NASA’s Goddard Space Flight Center and Johnson Space Center; and  USAID’s Washington D.C. Office of Acquisition and Assistance, including services provided for the Democracy, Conflict, and Humanitarian Assistance Division, as well as agencywide. Within each selected component we selected three contracts awarded by that component’s contracting office in fiscal year 2008 and fiscal year 2009.Our criteria for contract selection included three tiers based on dollar value and review thresholds set at the time of award by the agencies: (1) one contract with a written acquisition plan that required agency headquarters level review; (2) one contract that required a written acquisition plan but did not require agency headquarters review; and (3) one contract that did not meet the threshold for written acquisition plan but was above the simplified acquisition threshold at the time of this review of $100,000. We also included a mix of new and follow-on requirements as well as competed and noncompeted contracts. The reliability of the FPDS-NG data retrieved for our contract selection was assessed and validated using source information (contract identification numbers, contract value, the extent of competition, and the award date) from the selected contract documents. Our results from the analysis of these contracts are not generalizable because we did not use a representative, random sample, though they do illustrate examples of impediments to effective acquisition planning and factors contributing to successful acquisition planning. Because of the limited number of professional, administrative, and management support services contracts in each of our tiers of selection, we were not able to use random sampling for selection. To determine the extent to which agencies’ guidance provides time frames for when to begin and how long acquisition planning activities should take, we reviewed policies and procedures on timing at each agency and its components. To determine the time needed for acquisition planning for the selected contracts, we interviewed cognizant contracting officials and program officials, when available, involved when planning began, reviewed contract files documents for key acquisition planning milestones, and calculated the time between these dates. We conducted this performance audit from May 2010 to August 2011 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. INSTRUCTIONS: click here to return to figure 1. INSTRUCTIONS: click here to return to figure 1. INSTRUCTIONS: click here to return to figure 1. No (none required) No (none required) Yes (none required) No (none required) Yes (none required) No (none required) No (none required) No (none required) No (none required) No (none required) No (none required) cri whether or not the ction used competitive procedre. Appendix VIII: Comments from the U.S. Agency for International Development John P. Hutton Director, Acquisition and Sourcing Management U.S. Government Accountability Office Washington, DC 20548 I am pleased to provide the U.S. Agency for International Development’s formal response to the GAO draft report entitled: “Acquisition Planning: Opportunities to Build Strong Foundations for Better Services Contracts” (GAO-11-672). The enclosed USAID comments are provided for incorporation with this letter as an appendix to the final report. Thank you for the opportunity to respond to the GAO draft report and for the courtesies extended by your staff in the conduct of this audit review. “Acquisition Planning: Opportunities to Build Strong Foundations for Better Services Contracts” (GAO-11-672) Recommendation 1: We recommend that the Administrator of USAID direct the Office of Acquisition and Assistance to establish requirements specifying dollar thresholds for when written plans should be developed, documented, and approved. Management Comments: USAID concurs with GAO’s recommendation to specify thresholds and clarify procedures for written acquisition plans. USAID has historically captured some elements of acquisition planning in the development of program/project planning and approval documents, but the different policy sections in the Automated Directive System (ADS) and the USAID Acquisition Regulation (AIDAR) are not fully adequate to meet Federal Acquisition Regulations (FAR) requirements for acquisition planning. We recognize that the Agency would benefit from more formal, comprehensive policy and procedures that address these FAR requirements. Recommendation 2: We recommend that the Administrator of USAID direct the Office of Acquisition and Assistance to establish standard acquisition plan formats that align with the FAR. Management Comments: USAID concurs. USAID is currently in the process of developing a consistent format that will be utilized in FY2012. Recommendation 3: We recommend that the Administrator of USAID direct the Office of Acquisition and Assistance to develop templates and guidance to help program officials prepare reliable cost estimates. Management Comments: USAID concurs. USAID includes as part of its training of Contracting Officer’s Technical Representatives (COTRs) the requirements of undertaking independent cost estimates. USAID has established a number of areas for enhancements under USAID Forward and Implementation and Procurement Reform, and will ensure that enhanced templates and guidance on cost estimates are undertaken to have a consistent source of information for program officials. Recommendation 4: We recommend that the Administrator of USAID direct the Office of Acquisition and Assistance to take fuller advantage of important acquisition planning elements and to ensure that information is available for future use. Management Comments: USAID concurs. As a part of Implementation and Procurement Reform, as mentioned above, and as a result of an internal USAID Business Process Review in 2010, USAID has identified several important elements of acquisition planning on which we plan to place further emphasis in Agency guidance. USAID is pursuing implementation of recommendations in these areas for incorporation in acquisition planning for FY 2012. Recommendation 5: We recommend that the Administrator of USAID direct the Office of Acquisition and Assistance to ensure that agency and component guidance clearly define the role of cost estimating and the incorporation of lessons learned in acquisition planning, as well as specific requirements for what should be included in documentation of these elements in the contract file. Management Comments: USAID concurs with GAO’s recommendation to clearly define roles, incorporate lessons learned, and document acquisition planning elements. USAID views effective acquisition planning as critical to timely and successful launching of development assistance programs throughout the world. Some elements of acquisition planning are part of USAID’s activity authorization policies, some other elements are contained within different Agency policy references, and there are remaining aspects that need to be clarified as part of our policies to reflect all required elements. USAID will also ensure that its guidance addresses requirements for file documentation. Recommendation 6: We recommend that the Administrator of USAID direct the Office of Acquisition and Assistance to allow sufficient time for acquisition planning and direct their components’ procurement offices to collect information about the timeframes needed for the acquisition planning process—including the pre-solicitation phase—and use the information to establish timeframes for when program officials should begin acquisition planning. Management Comments: USAID concurs with GAO’s recommendation to direct timeframes needed for acquisition planning, include the pre-solicitation phase, and establish timeframes for program officials. As noted above, USAID undertook a Business Process Review in 2010 to gather specific timeframes experienced in USAID/Washington and field Missions for competitive acquisition and assistance. USAID recognizes that effective procurement planning also includes the pre-solicitation phase. A key element within Implementation and Procurement Reform is to enhance competitive processes which include the ability to undertake more robust competitions within reduced timelines while concurrently ensuring compliance with applicable regulations. In addition to the contact named above, the following individuals made key contributions to this report: Penny Berrier (Assistant Director); Morgan Delaney Ramaker; Alexandra Dew Silva; Meghan Hardy; Julia Kennon; Anne McDonough-Hughes; Amy Moran Lowe; Ramzi Nemo; Kenneth Patton; Guisseli Reyes-Turnell; Roxanna Sun; Ann Marie Udale; and Alyssa Weir.

Civilian agencies obligated over $135 billion in fiscal year 2010 for services --80 percent of total civilian spending on contracts. Services acquisitions have suffered from inadequate planning, which can put budget, schedule, and quality at risk. GAO was asked to examine how civilian agencies conduct acquisition planning for services contracts and assessed (1) the extent to which agencies have developed policies and procedures for acquisition planning, (2) how agencies have carried out acquisition planning, and (3) the extent to which agencies' guidance identifies when to begin and how long acquisition planning should take. GAO reviewed acquisition planning at the four civilian agencies with the most spending on professional, administrative, and management support services. GAO also reviewed Federal Acquisition Regulation (FAR) provisions; agency regulations and guidance; and 24 selected contracts; and interviewed agency officials. The Departments of Health and Human Services (HHS) and Homeland Security (DHS), the National Aeronautics and Space Administration (NASA), and the U.S. Agency for International Development (USAID) have established policies that set different requirements and levels of oversight for acquisition planning. Acquisition planning elements--including written acquisition plans, requirements development, cost estimation, and incorporation of lessons learned--are critical to the process. HHS, DHS, and NASA require written acquisition plans that align closely with elements defined in the FAR--USAID does not. All four agencies' guidance include preparing cost estimates and requirements documents during acquisition planning, and DHS and NASA guidance include the consideration of lessons learned from previous contracts in acquisition planning. Agencies' requirements for oversight vary, including who reviews and approves acquisition planning documents. Agencies did not always take full advantage of acquisition planning to develop a strong foundation for the contracts GAO reviewed, but some have identified ways to encourage improved acquisition planning. Key planning steps were not performed, could have been better used to improve acquisition planning, or were not documented for future use. In particular, GAO found that agencies faced challenges defining their needs, documented cost estimates to varying degrees, and documented lessons learned to a limited extent. GAO identified several practices agencies use to support program staff with acquisition planning, including hiring personnel who specialize in procurement business issues and cost and price analysis and providing templates to assist in preparing key documents. Most agency components have established time frames for the last phase of acquisition planning--beginning when the program and contracting offices finalize a request for contract package. None of the agency components, however, have measured and provided guidance on the time frames needed for program offices to develop and obtain approvals of key acquisition planning documents during the pre-solicitation phase--which serves as the foundation for the acquisition process--or to finalize these documents in collaboration with contracting offices during the procurement request phase. GAO recommends that USAID establish requirements for written acquisition plans and that each agency enhance guidance for cost estimating and lessons learned; DHS, NASA, and USAID concurred. GAO also recommends that each agency establish time frames for pre-solicitation activities. NASA and USAID generally concurred but DHS did not, noting that existing policy states that planning should begin as soon as a need is identified. GAO clarified its recommendation to emphasize pre-solicitation planning activities. HHS had no comments.

You are an expert at summarizing long articles. Proceed to summarize the following text: GPRA is intended to shift the focus of government decisionmaking, management, and accountability from activities and processes to the results and outcomes achieved by federal programs. New and valuable information on the plans, goals, and strategies of federal agencies has been provided since federal agencies began implementing GPRA. The fiscal year 2002 performance plan is the fourth of these annual plans under GPRA. The fiscal year 2000 performance report is the second of these annual reports under GPRA. The issuance of the agencies’ performance reports, due by March 31, 2001, represents a new and potentially more substantive phase in the implementation of GPRA—the opportunity to assess federal agencies’ actual performance for the prior fiscal year and to consider what steps are needed to improve performance and reduce costs in the future. USDA is one of the nation’s largest federal agencies, employing over 110,000 people and managing a budget of over $78 billion. Its agencies and offices are responsible for operating more than 200 programs. These programs support the profitability of farming, promote domestic agricultural markets and the export of food and farm products, provide food assistance for the needy, ensure the safety of the nation’s food supply, manage the national forests, protect the environment, conduct biotechnological and other agricultural research, and improve the well being of rural America. This section discusses our analysis of USDA’s performance in achieving the selected key outcomes and the strategies the agency has in place to achieve these outcomes, particularly for strategic human capital management and information technology. In discussing these outcomes, we have also provided information drawn from our prior work on the extent to which the department provided assurance that its reported performance information is credible. USDA’s fiscal year 2000 performance report, which was issued in March 2001, indicated that the department continued to make some progress toward achieving this outcome. For example, USDA reported that it met its goals for stabilizing peanut and tobacco prices and maintaining the economic viability of peanut and tobacco producers. However, it is difficult to assess USDA’s progress because the department did not provide an overall evaluation of this outcome in its report. According to the performance report, USDA met about 72 percent of the performance goals related to this outcome, less than last year when USDA reported it met over 80 percent of its goals. USDA did not select the outcome of providing an adequate and reasonably priced food supply as a key departmental strategic goal in its fiscal year 2002 performance plan, which was issued in June 2001. Some of USDA’s efforts to achieve this outcome are discussed under the top ranked departmental strategic goal of expanding economic and trade opportunities for U.S. agricultural producers and a USDA official stated that this outcome continues to be important for the department. USDA’s discussion of this strategic goal stated that farming and ranching is being transformed by changes in biological and information technology, environmental and conservation concerns, greater threats from pests and diseases spreading across continents, natural disasters and the industrialization of agriculture, and globalization of markets. Under this goal, USDA chose as its first objective to provide an effective safety net and to promote a strong, sustainable U.S. farm economy. USDA explained that if it is to achieve its goal of promoting a strong farm economy that is less dependent of government support, then it must also place a heavy emphasis on helping farmers proactively manage the risks inherent in agriculture and improve farmers income. USDA’s second objective under this strategic goal is to expand export markets—USDA illustrated the opportunity for exports by estimating that 96 percent of American agriculture’s potential customers reside outside the United States. Some of the performance goals presented for this strategic goal are to improve farmers’ incomes, reduce pest and disease outbreaks, and expand international sales opportunities. USDA reported progress in fiscal year 2000 that was similar to its performance last year in that it met some of its goals and indicators for this outcome. USDA stated that it exceeded its targets for two key goals. The gross trade value of markets created, expanded, or retained annually due to market access activities reached $4.35 billion, significantly higher than its $2 billion target. USDA attributed $2 billion of this gain to negotiations on China’s accession to the World Trade Organization in fiscal year 2000. Similarly, annual sales, which were reported by U.S. exporters from on-site sales at international trade shows, reached $367 million in fiscal year 2000, compared to USDA’s target of $250 million. Despite these successes, USDA fell short in meeting other goals. The department reported $837 million in U.S. agricultural exports resulted from the implementation of trade agreements under the World Trade Organization, below its target of $2 billion. It also reported that the total value of U.S. agricultural exports supported by its export credit guarantee programs reached $3.1 billion, falling short of its $3.8 billion target. USDA uses a questionable methodology for measuring the success of its efforts to expand and maintain global markets for U.S. agricultural products. USDA’s goals and indicators emphasize growth in the U.S. share of the global agricultural market—measured by changes in the dollar value of exports resulting from the implementation of trade agreements, market access enhancements, sales from annual trade shows, and agricultural exports. Yet, the dollar value of exports is subject to powerful external variables that transcend USDA’s authority and ability to affect change in international trade. These variables include exchange rates, government policies, global and national economic conditions, climactic changes, and numerous other factors over which USDA has no control or strategies to address. For example, the decrease in the value and volume of U.S. agricultural exports over the last several years is generally recognized by economists, government officials, and private sector representatives to be the result of deteriorating economic conditions, particularly in the Asian market, over which USDA has no control. USDA’s Economic Research Service has consistently held that U.S. agricultural export performance results more from market forces, which include multiple variables beyond the control of USDA, than from the actions of the U.S. government to expand international market opportunities. Along with other research institutions, it has confirmed that the decline in the value of U.S. agricultural exports from $60 billion in fiscal year 1996 to $50.9 billion in fiscal year 2000 was not attributable to U.S. government trade policies, programs, and activities. It further observed that USDA programs typically have a limited effect on the dollar value of U.S. exports and market share. We have previously raised questions about the extent of the relationship between USDA’s export policies and programs and increased exports. USDA’s fiscal year 2002 plan is based on the assumption that government policies, programs, and activities have a significant influence on the U.S. share of the global agricultural market. USDA has set a goal to increase exports by $14 billion by fiscal year 2010, or about 22 percent of the global market. This level would return the United States to the same global market share it held in the early 1990s. USDA’s plan is consistent with the assumption that the government’s impact is enhanced when the government works with the private sector to create a facilitative environment to expand sales of agricultural products abroad. USDA’s strategies are to include a long-range integrated marketing plan, which would provide a generalized framework that goes beyond the traditional narrow and short-term programmatic and reactive export oriented approaches. Among its goals are those for (1) developing a long-range marketing plan that enlists USDA’s network of domestic and foreign field offices in an effort to assist U.S. producers in capturing new market opportunities, (2) partnering with private U.S. market development groups to leverage resources aimed at expanding market opportunities abroad for U.S. food and agricultural products, (3) expanding U.S. access to foreign markets through active participation in the World Trade Organization and international trade forums, and (4) continuing to monitor international trade agreements and negotiating new agreements to open overseas markets to U.S. food and agricultural products. However, what is not yet spelled out are the key elements of the integrated marketing plan that will move beyond a generalized concept to the reality of specific actions that will lead to success. Among the elements that could be further addressed would be the organizational structure, the human capital and technological resources, and the operational concepts and methods that will actually enable USDA to meet its global marketing objectives. USDA’s Foreign Agricultural Service said that its plans are necessarily generalized at this point in time and should be considered as their first steps in developing an integrated marketing plan. The Service also said that it would be instituting quarterly reporting to track progress. In addition, the Service disagreed with our views about its departmental level strategic performance goal to affect U.S. market share, and said that it believed it had selected the ultimate measure of change for international agricultural markets. However, as previously discussed, we disagree with the selection of this goal because USDA’s activities have little influence on the overall level of international market shares. Since the GPRA was designed to lead to better insights into the performance of government, USDA will need to adopt a realistic departmental performance goal to meet this purpose. According to its performance report, USDA reported continued progress toward this outcome and met about 80 percent of its goals. USDA’s performance exceeded that of fiscal year 1999. For example, the department reported meeting its goals for distributing food nutrition education information to low-income Americans, for increasing the number of schools that meet USDA’s dietary guidelines, and for improving the effectiveness and efficiency of commodity acquisition and distribution to support domestic and international food assistance programs. Some of the goals do not have specific performance targets, so it is not always clear what USDA is actually accomplishing. For example, USDA determined that it is meeting its goal of improving the nutritional status of Americans by such actions as distributing revised dietary guidelines and by promoting media coverage, and observing seminar attendance and web-page usage related to improved nutrition and diet. These measures of performance do not tell us whether USDA’s actions are improving Americans’ nutritional status. USDA’s fiscal year 2002 departmental performance plan contains many general strategies for achieving its goals and measures. For example, one general strategy called for reallocating funds from areas with excess funds to areas with high demand for the Special Supplemental Nutrition Program for Women, Infants, and Children. However, some of the general strategies make it difficult to assess USDA’s progress. For example, USDA’s goal to improve food security for children and low-income individuals calls for expanding program access to the needy—and the plan’s strategies for doing this involves “effectively delivering assistance” and “continuing efforts” to ensure that the Food Stamp Program is accessible. Such strategies provide little insight into the specific actions USDA intends to take to achieve its goals. In addition, at the time of our review, USDA’s Food and Nutrition Service, the agency primarily responsible for this outcome, had yet to draft a performance plan for fiscal year 2002. The detailed goals and strategies that the agency level plan would contain are needed to support USDA’s departmental plan. The Acting Administrator of the Food and Nutrition Service reported that the agency is assembling a policy team and will issue a draft performance plan after the team is selected. According to its performance report, USDA met or exceeded nearly all of its fiscal year 2000 performance goals for ensuring a safe and wholesome food supply. USDA stated that it met its goals for key areas, such as the percentage of federally inspected meat and poultry slaughter and/or processing plants that had implemented the basic hazard analysis and critical control points (HACCP) requirements. GAO issued a report on this subject in 1997. USDA also reported that it exceeded its goal for the number of reviews it conducted of foreign meat and poultry food safety programs to ensure their compliance with U.S. safety standards. GAO also issued a report on this subject in 1998. When performance goals were not met, USDA generally provided specific explanations, including describing external factors when applicable, for not achieving the performance goals. For example, USDA reported that it fell short of meeting its goal for deploying 607 computers to state inspection programs because 4 states did not have the funding available to meet their 50-percent share of the computers’ costs. In another example, USDA did not meet its goal to perform 68,000 laboratory tests, falling short of its target by 8,000 tests. USDA did not provide any additional strategies for achieving this goal in the following fiscal year, but it stated that it believed many of the difficulties in meeting the goal have been alleviated by the implementation of the new HACCP system. USDA’s fiscal year 2002 performance plan describes several strategies to ensure a safe and wholesome food supply. Such strategies include (1) strengthening laboratory and risk assessment capabilities, (2) implementing a HACCP system for eggs, and (3) strengthening its foreign food safety program efforts. These strategies generally provided a clear description of USDA’s approach for reaching its performance goals. For example, USDA described a strategy that seeks to improve its foreign food safety program review efforts by intensifying reviews of animal feeds, animal identification, and process control systems in countries exporting meat and poultry products to the United States. However, the strategies did not show how USDA plans to address and overcome the fundamental problem it faces in this area—the current food safety system is fragmented with as many as 12 different federal agencies administering over 35 laws regarding food safety. USDA’s plan states that the creation of a single federal food safety agency, as previously recommended by us, extends beyond the legal scope of any one federal agency. We have maintained that until this fragmented system is replaced with a risk-based single food agency, the U.S. food safety system will continue to under perform. USDA pointed out that it does not have the authority to merge with other federal agencies and form a single food safety agency. (See app. I.) According to its performance report, USDA met or exceeded many of its fiscal year 2000 goals and made progress toward reducing food stamp fraud and error. The department, for example, reported exceeding its goal for payment accuracy rate in the delivery of Food Stamp Program benefits and stated that it would support continued improvements by seeking opportunities to simplify program rules—a recommendation made by us in a recent report on reducing payment errors. It also reported collecting about $219 million in overpayments to recipients in fiscal year 2000, which exceeded its original target of collecting about $194 million. In some instances, USDA fell short of meeting its goals for this outcome. For example, USDA did not meet its goal for increasing the percentage of debt owed by retailers who were delinquent on their food stamp payments that was referred to Treasury, and it narrowly missed its goal for the number of retailers sanctioned for not meeting regulatory requirements. In those instances when goals were not met, USDA generally provided specific explanations for not achieving them. For example, the department reported that it did not meet its goal for referring to the Treasury Department cases of food stamp retailers with delinquent debts for collection because it did not submit cases in a timely manner and because of shortcomings in the processing of such referrals. USDA did not base its fiscal year 2000 performance report assessments on actual performance data in some cases. For example, for two performance goals—maintain payment accuracy in the delivery of Food Stamp Program benefits and the number of states qualifying for enhanced funding based on high payment accuracy—the department reported progress from fiscal year 1999, and it stated that it would meet its fiscal year 2000 performance goals based on “early indications” and planned activities. USDA also recognized that actual data would be available 3 months after the performance report was issued, which represents an improvement in data reporting. Nevertheless, the absence of timely performance data makes it difficult for USDA and others to annually assess performance and determine if changes in strategies are needed. USDA’s fiscal year 2002 departmental performance plan contained several strategies for reducing food stamp fraud and error. USDA stated that it intended to continue to improve the accuracy and consistency of its quality control system and support state efforts to improve food stamp benefit accuracy through technical assistance and by using the best practices for information-sharing. However, the departmental plan did not have specific strategies to demonstrate how USDA would achieve its strategic goals and objectives. In some instances, a discussion of goals, objectives, and strategies directly related to this key outcome were not included. For example, the plan did not include a discussion of how it would deal with retail stores that violate program requirements. A recent Food and Nutrition Service study estimated that stores each year illegally provided cash for benefits (trafficking of benefits) totaling about $660 million. USDA’s departmental plan also did not specifically discuss the Food and Nutrition Service’s targets or measures for reducing trafficking in food stamps, and it does not contain details on the strategies to be used to reduce fraud and error in the Food Stamp Program. The details of these strategies may be included in the Food and Nutrition Service’s agency level performance plan for fiscal year 2002, which has not yet been prepared. Additionally, we have identified efforts to reduce fraud and error in the food stamp program as a major management challenge. (See app. I.) For the selected key outcomes, this section describes major improvements or remaining weaknesses in USDA’s (1) fiscal year 2000 performance report in comparison with its fiscal year 1999 report, and (2) fiscal year 2002 performance plan in comparison with its fiscal year 2001 plan. It also discusses the degree to which the agency’s fiscal year 2000 report and fiscal year 2002 plan addresses concerns and recommendations by the Congress, GAO, USDA’s OIG and others. USDA’s fiscal year 2000 performance report presentation has remained largely unchanged compared with the prior year’s report. Specifically, the report continued to be an agency-by-agency discussion of its progress without an overview presenting a picture of the department’s overall performance. As discussed previously, the fiscal year 2000 performance report has limitations such as its reliance on narrative measures that track agency actions but that do not provide information about the impacts of the agency’s performance. There are also areas where the data is limited and of questionable reliability—USDA has reported that the vast scale and complexity of its programs present major management challenges in terms of the availability of accurate, credible, and timely performance data. For example: (1) the Foreign Agricultural Service reported that it has limited resources for tracking issues related to the World Trade Organization and barriers in foreign markets leading to errors and limitations in data verification; (2) USDA’s estimates of the populations that are participating in food stamp and other nutrition assistance programs are generally not available in time for preparing its annual performance reports; (3) USDA has relied on data about school food services that is collected informally and without standardized procedures because of opposition to the collection of this data; and (4) USDA reported that its data on agricultural producers’ awareness of risk management alternatives had not been collected consistently from state to state. In addition, the fiscal year 2000 performance report varied from providing a detailed discussion of USDA’s data verification and validation efforts, to little or no information about its data accuracy. In many cases, USDA did not provide information on the steps that were taken to verify and validate the data. For example, concerning the performance goal to eradicate a common animal disease, the report simply stated that staff members are responsible for ensuring the reliability and accuracy of the data. Also, UDSA did not report on the reliability of the information reported by the Cooperative State Research, Education, and Extension Service, which relies on the accomplishments and results reported by the universities receiving its research funds. USDA developed a new departmental plan for fiscal year 2002 that is significantly different than its 2001 plan. The fiscal year 2002 plan provided, for the first time, a departmentwide approach to performance management. This streamlined presentation consolidated the more than 1,700 agency specific performance goals and measures it presented in 2001 into 5 departmental strategic goals, 56 annual performance goals, and 79 measures for fiscal year 2002. The departmental strategic goals USDA selected were as follows: (1) expand economic and trade opportunities for U.S. agricultural producers; (2) promote health by providing access to safe, affordable, and nutritious food; (3) maintain and enhance the nation’s natural resources and environment; (4) enhance the capacity of all rural residents, communities, and businesses to prosper; and (5) operate an efficient, effective, and discrimination-free organization. The new departmental plan is supported by agency-level annual performance plans that offer more detailed information on evolving strategies, priorities, and resource needs. We found USDA’s new plan to be a work-in-progress, as discussed throughout this report. USDA did not consistently provide the detailed strategies that were needed for achieving its departmental goals. Of the 56 annual performance goals in the departmental plan, 33 goals do not contain overall performance targets against which to measure overall progress. For each of these 33 goals, USDA provided various performance indicators, some of which contain performance targets that are representative measures of progress. Also, there were goals that were substantially affected by external factors beyond the scope of USDA’s activities. Examples include the goals to (1) grow the U.S share of the global agriculture market, even though USDA’s programs have a limited effect on the total dollar value of U.S. exports, and (2) enhance the capacity of all rural residents, communities, and businesses to prosper, when the scope of USDA’s rural assistance programs is not designed to provide for a comprehensive federal effort in this area. Moreover, in the Secretary’s message transmitting the fiscal year 2002 plan, the Secretary stated that she had not thoroughly reviewed the new strategic plan, did not have a full leadership team in place, and recognized that more needed to be done. The Secretary also stated that once USDA’s full leadership team is in place, it will be working to conduct a top-to-bottom review of the department’s programs, and will develop new strategic and annual performance goals to carry out this administration’s priorities. Additionally, in response to our prior GPRA reviews, USDA included two new sections in its 2002 performance plan—one that includes a discussion of data verification and validation by each performance goal and one that recognizes major management challenges identified by GAO. The discussion of USDA’s data and its sources is a valuable addition to USDA’s plan because it provides a more consistent picture of the data USDA uses, the steps USDA takes to verify its data, and the limitations that need to be taken into account. GAO has identified two governmentwide high-risk management challenges: strategic human capital management and information security. Regarding human capital management, USDA’s plan contains a key outcome—to ensure USDA has a skilled, satisfied workforce and strong prospects for retention of its best employees. The plan recognized emerging skill gaps, high retirement eligibility rates, and the need for staff to shift to a greater use of technology as departmental strategic issues. However, USDA has identified only one human capital performance measure—an employee satisfaction survey—which would not measure the closing of skill gaps, the retention of critical employees, or changes related to the use of new technology. Furthermore, the extent of the discussion of human capital strategies in USDA’s individual agency plans varies. For example, the plans of the Farm Service Agency and the Food Safety and Inspection Service did not discuss human capital issues, and the Food and Nutrition Service has not completed a plan. With respect to information security, we found that the Chief Information Officer’s performance report did not explain its progress in implementing its August 1999 action plan for improving departmentwide information security, or time frames and milestones for doing so. In addition, USDA’s performance plan did not have departmental goals and measures related to this important area. In commenting on a draft of this report, USDA officials stated that progress had been made in implementing their August 1999 action plan to strengthen information security and agreed that USDA’s annual performance plan could be improved by including information security performance goals and measures. GAO has also identified 10 major management challenges facing USDA. USDA’s performance report discussed the agency’s progress in resolving many of its challenges, and its performance plan had (1) goals and measures that were directly related to seven of the challenges, (2) goals and measures that were indirectly applicable to two of the challenges, and (3) no goals and measures related to one of the challenges. Appendix I provides detailed information on how USDA addressed these challenges and high-risk areas as identified by both GAO and the agency’s Inspector General. However, USDA did not recognize or address some of the management challenges identified by its own Inspector General because according to USDA officials, the Office of the Inspector General did not send a copy of its letter to the affected USDA agencies. USDA’s fiscal year 2000 performance report and fiscal year 2002 performance plan have the potential for focusing the department’s missions, but these efforts are compromised in a number of areas. USDA’s goals and measures are too general to give insight into the actual achievements that USDA is striving to make. In particular, it is difficult to assess USDA’s progress when it uses unrealistic goals to achieve strategic outcomes and when it uses untimely data that has not been consistently verified. In two particular areas—strategic human capital management and information security—the process of measuring USDA’s performance could be improved by including goals and measures in USDA’s annual performance plan. Finally, USDA missed the opportunity to develop strategies and plans to respond to the major management challenges identified by the OIG. To improve USDA’s performance reporting and planning, we recommend that the Secretary of Agriculture (1) set priorities for improving the timeliness of the data that USDA is using for measuring its performance; (2) improve USDA’s performance report by including more consistent discussions of data verification and validation; (3) better match the department’s goals and outcomes with its capabilities for expanding and maintaining global market opportunities; (4) include performance goals and measures for strategic human capital management issues and information security issues in the departmental performance plan; (5) make reducing food stamp trafficking an annual performance goal in USDA’s plan; and (6) address and include the Office of Inspector General’s major management challenges in future performance plans. To facilitate our last recommendation, we also recommend that the Inspector General work with the Chief Financial Officer and USDA agency officials in identifying and including major management challenges in USDA’s performance plans. We provided USDA with a draft of this report for its review and comment. USDA chose to meet with us to provide oral comments, and we met with the Acting Chief Financial Officer and other officials from the department on August 13, 2001, to discuss these comments. The Acting Chief Financial Officer said that the department generally agreed with the information presented in the draft report. USDA officials also provided the following comments. Regarding major management challenges, USDA agency officials questioned whether there is a requirement for USDA to report on major management challenges as part of its performance plan and to include related performance goals. Our review, as requested, included an assessment of USDA’s progress in addressing its major management challenges. In addition, OMB Circular A-11 states that federal agencies should include a discussion of major management challenges in their annual performance plans and present performance goals for these challenges. USDA’s OIG disagreed with our recommendation calling for the OIG to distribute future OIG letters on major management challenges to affected USDA agencies. The OIG commented that its audit reports already identify management challenges and that these are discussed with the affected agencies. The OIG also stated that its letter to congressional requesters identifying major management challenges was provided informally to the department and that the OIG is required by Public Law 106-531 to report on the most serious management challenges in USDA’s annual report to the president and the Congress. We are well aware that the OIG identifies management challenges in audit reports and reports separately on these challenges. Nevertheless, as stated in our draft report, our recommendation is directed at facilitating the inclusion and discussion of the OIG identified major management challenges in USDA’s annual performance plan. The OIG’s reporting of the management challenges to congressional requesters in December 2000 appeared to us to be a document that could have served as a timely starting point for the major management challenge section of USDA’s departmental annual performance plan. We continue to believe that the OIG should play a role in facilitating the major management challenge section of the departmental performance plan, and have modified our recommendation to directly call for the OIG to participate in the development of this section of USDA’s plan. The Foreign Agricultural Service disagreed with our recommendation to better match the department’s goals and outcomes with its capabilities for expanding global market opportunities. It stated that the measure it is using—global market share—is the ultimate performance measure for describing overall changes in international markets and that the Congress is interested in U.S. international market share. However, in discussing this concern, the Service itself acknowledged that market forces are the principal cause of changes in exports rather than its activities. Therefore, we continue to believe that it would be appropriate to use more realistic goals for performance that are more closely related to the outcomes that USDA activities can achieve. The Service’s agency level performance plan contains some performance indicators that are more limited and better reflect the government’s role in changing export values and market share. The Foreign Agricultural Service also expressed concern that if it were to make detailed information on its strategies available to the public, it could be used by foreign competitors to offset U.S. efforts. Because of the limited federal role in affecting international market share, we believe that more specific information on U.S. role and activities would not compromise U.S. efforts. USDA officials stated that that they had made progress in improving information security and strategic human capital management. Specifically, USDA officials said that progress had been made in implementing their August 1999 action plan to strengthen information security. However, USDA officials recognized that this information, along with information security goals and measures, was generally not included in the department’s performance plan or report and that the process of measuring USDA’s performance would be improved by including it. Also, concerning strategic human capital management, USDA’s performance report and plan did not summarize key actions that USDA officials said have been taken on workforce planning, recruitment, and the retention of employees. USDA will have the opportunity to summarize its progress in these areas in its future performance reports and plans. Department officials also provided technical clarifications, which we made as appropriate. As agreed, our evaluation was generally based on a review of the fiscal year 2000 performance report and the fiscal year 2002 performance plan and the requirements of GPRA, the Reports Consolidation Act of 2000, guidance to agencies from the Office of Management and Budget (OMB) for developing performance plans and reports (OMB Circular A-11, Part 2), previous reports and evaluations by us and others, our knowledge of USDA’s operations and programs, GAO identification of best practices concerning performance planning and reporting, and our observations on USDA’s other GPRA-related efforts. We also discussed our review with agency officials in the Office of the Chief Financial Officer and with the USDA Office of Inspector General. The agency outcomes that were used as the basis for our review were identified by the Ranking Minority Member of the Senate Governmental Affairs Committee as important mission areas for the agency and generally reflect the outcomes for key USDA programs or activities. The major management challenges confronting USDA, including the governmentwide high-risk areas of strategic human capital management and information security, were identified by us in our January 2001 performance and accountability series and high-risk update or were identified by USDA’s Office of Inspector General in December 2000. We did not independently verify the information contained in the performance report and plan, although we did draw from our other work in assessing the validity, reliability, and timeliness of USDA’s performance data. We conducted our review from April 2001 through August 2001 in accordance with generally accepted government auditing standards. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to appropriate congressional committees; the Secretary of Agriculture; and the Director of the Office of Management and Budget. Copies will also be made available at to others on request. If you or your staff have any questions, please call me at (202) 512-9692. Key contributors to this report are listed in appendix II. The following table identifies the major management challenges confronting the U.S. Department of Agriculture (USDA), which includes the government-wide high-risk areas of strategic human capital management and information security. USDA has one performance report and a departmentwide plan with supporting plans from the department’s individual agencies. The first column lists the challenges identified by our office and USDA’s Office of Inspector General. The second column discusses what progress, as discussed in its fiscal year 2000 performance report, USDA made in resolving its challenges. The third column discusses the extent to which USDA’s fiscal year 2002 performance plan includes performance goals and measures to address the challenges that we and the USDA’s OIG identified. While USDA’s fiscal year 2000 performance report addressed progress in resolving some of the 17 management challenges, the department did not have goals for the following: strategic human capital management, information security, Forest Service land exchange program, grant agreement administration, grant competitiveness, research funding accountability, and Rural Business Cooperative Service and therefore did not discuss progress in resolving these challenges. USDA’s fiscal year 2002 performance plans provided some goals and measures or strategies for all but five of its management challenges. USDA did not have goals for the management challenges involving the Forest Service land exchange program, grant agreement administration, grant competitiveness, research funding accountability, and Rural Business Cooperative Services. For the remaining 12 major management challenges, its performance plan had (1) goals and measures that were directly related to 8 of the challenges, (2) goals and measures that were indirectly applicable to 3 of the challenges, or (3) had no goals and measures related to 1 of the challenges, but discussed strategies to address it. In commenting on a draft of this report, USDA stated that it made additional progress in resolving its management challenges that had not been reflected in its fiscal year 2000 performance report and fiscal year 2002 performance plan. Erin Barlow, Andrea Brown, Jacqueline Cook, Thomas Cook, Charles Cotton, Angela Davis, Andrew Finkel, Judy Hoovler, Erin Lansburgh, Carla Lewis, Sue Naiberk, Stephen Schwartz, Richard Shargots, Mark Shaw, Ray Smith, Alana Stanfield, Phillip Thomas, and Ronnie Wood.

The Department of Agriculture's (USDA) fiscal year 2000 performance report and fiscal year 2002 performance plan have the potential for focusing the department's missions, but these efforts are compromised in several areas. USDA's goals and measures are too general to give insight into what USDA is actually trying to achieve. It is difficult to assess USDA's progress when it uses unrealistic goals to achieve strategic outcomes and when it uses untimely data that has not been consistently verified. In two areas--strategic human capital management and information security--progress in measuring USDA's performance has been frustrated by the lack of goals and measures for identified issues. Finally, by not sharing information about the major management challenges identified by its own Inspector General, USDA's agencies miss the opportunity to develop strategies and plans to respond to these issues.

You are an expert at summarizing long articles. Proceed to summarize the following text: Emerging infectious diseases pose a growing health threat to people in this country and around the world. The causes of this increase are complex and often difficult to anticipate. For example, increased development, deforestation, and other environmental changes have brought people into contact with animals or insects that harbor diseases only rarely encountered before. Not all emerging infections are unfamiliar diseases, however. Some pathogens have developed resistance to the antibiotics that brought them under control just a generation ago. Moreover, the threefold increase in international travel during the past 20 years and greater importation of fresh foods across national borders allow infectious diseases to spread rapidly. As these diseases travel, they interact with growing numbers of people who have weakened immunity, such as transplant recipients, elderly persons, patients treated with radiation, and those infected with HIV/AIDS. With the introduction of antibiotics in the 1940s and the development of vaccines for diseases like polio, there was widespread optimism that infectious diseases could be eliminated completely. As a result, public health officials shifted some monitoring efforts to other health problems, such as chronic diseases. By 1986, CDC had discontinued surveillance of drug-resistance trends in tuberculosis. The resurgence of tuberculosis and the appearance of HIV/AIDS thus caught the nation’s public health system off guard. Today, infectious diseases account for considerable health care costs and lost productivity. In the United States, an estimated one-fourth of all doctor visits are for infectious diseases. Foodborne illnesses, some of which were unrecognized 20 years ago, are estimated to cause up to 33 million cases and 9,000 deaths annually and to cost as much as $22 billion a year. The number of pathogens resistant to one or more previously effective antibiotics is increasing rapidly, adding to health care costs and threatening to return the nation to the pre-antibiotic era. Antibiotic resistance limits effective treatment options, with potentially fatal results. Resistant infections that people acquire during hospitalizations are estimated to cost as much as $4 billion and cause 19,000 deaths a year. Surveillance is public health officials’ most important tool for detecting and monitoring both existing and emerging infectious diseases. Without an adequate surveillance system, local, state, and federal officials cannot know the true scope of existing health problems and may not recognize new diseases until many people have been affected. They rely on surveillance data to focus their staff and dollar resources on preventing and controlling the diseases that most threaten populations within their jurisdictions. Health officials also use surveillance data to monitor and evaluate the effectiveness of prevention and control programs. Because known diseases can become emerging infections by changing in unanticipated ways, the methods for detecting emerging infections are the same ones used to monitor infectious diseases generally. These methods can be characterized as passive or active. When using passive surveillance methods, public health officials notify laboratory and hospital staff, physicians, and other relevant sources about disease data they should report. These sources in turn must take the initiative to provide data to the health department, where officials analyze and interpret the information as it comes in. Under active surveillance, public health officials contact people directly to gather data. For example, state or local health department staff could call commercial laboratories each week to ask if any tests conducted for cryptosporidiosis yielded positive results. Active surveillance produces more complete information than passive surveillance, but it takes more time and costs more. Infectious diseases surveillance in the United States depends largely on passive methods of collecting disease reports and laboratory test results. Consequently, the surveillance network relies on the participation of health care providers, private laboratories, and state and local health departments across the nation. States have principal responsibility for protecting the public’s health and, therefore, take the lead role in conducting surveillance. Each state decides for itself which diseases will be reported to its health department, where reports should be submitted, and which information it will then pass on to CDC. The surveillance process usually begins when a person with a reportable disease seeks care. To help determine the cause of the patient’s illness, a physician may rely on a laboratory test, which could be performed in the physician’s own office, a hospital, an independent clinical laboratory, or a public health laboratory. State and local health departments that provide clinical services also generate laboratory test results for infectious diseases surveillance. Local health departments are often the first to receive the reports of infectious diseases generated by physicians, hospitals, and others. Health department staff collect these reports, check them for completeness, contact health care professionals to obtain missing information or clarify unclear responses, and forward them to state health agencies. Staff resources devoted to disease reporting vary with the overall size and mission of the health department. Since nearly half of local health agencies have jurisdiction over a population of fewer than 25,000, many cannot support a large, specialized staff to work on disease reporting. In state health departments, epidemiologists analyze data collected through the disease reporting network, decide when and how to supplement passive reporting with active surveillance methods, conduct outbreak and other disease investigations, and design and evaluate disease prevention and control efforts. They also transmit state data to CDC, providing routine reporting on selected diseases. Many state epidemiologists and laboratory directors provide the medical community with information obtained through surveillance, such as rates of disease incidence and prevailing patterns of antimicrobial resistance. Federal participation in the infectious diseases surveillance network focuses on CDC activities—particularly those of the National Center for Infectious Diseases (NCID), which operates CDC’s infectious diseases laboratories. CDC analyzes the data furnished by states to (1) monitor national health trends, (2) formulate and implement prevention strategies, and (3) evaluate state and federal disease prevention efforts. CDC routinely provides public health officials, medical personnel, and others information on disease trends and analyses of outbreaks. Through NCID and other units—such as the National Immunization Program and the National Center for HIV, Sexually Transmitted Diseases, and Tuberculosis Prevention (NCHSTP)—CDC offers an array of scientific and financial support for state infectious diseases surveillance, prevention, and control programs. NCID officials said that most of their 1,100 staff and $186 million budget in fiscal year 1998 were devoted to assisting state infectious diseases efforts. For example, CDC provides testing services and consultation not available at the state level; training on infectious diseases and laboratory topics, such as testing methods and outbreak investigations; and grants to help states conduct diseases surveillance.The Epidemiology Program Office provides training and technical assistance related to software for disease reporting and oversees data integration efforts. Public health and private laboratories are a vital part of the surveillance network because only laboratory results can definitively identify pathogens. In addition, they often are an essential complement to a physician’s clinical impressions. According to public health officials, the nation’s 158,000 laboratories are consistent sources of passively reported information for infectious diseases surveillance. Independent commercial and hospital laboratories may also share with public health agencies information gathered through their private surveillance efforts, such as studies of patterns of antibiotic resistance or the spread of diseases within a hospital. Every state has at least one state public health laboratory to support its infectious diseases surveillance activities and other public health programs. Some states operate one or more regional laboratories to serve different parts of the state. In five states—Iowa, Nebraska, Nevada, Ohio, and Wisconsin—academic institutions, such as university medical schools, provide public health laboratory testing. State laboratories conduct testing for routine surveillance or as part of special clinical or epidemiologic studies. These laboratories provide diagnostic tests for rare or unusual pathogens that are not always available in commercial laboratories or tests for more common pathogens that use new technology still needing controlled evaluation. State public health laboratories provide specialized testing for low-incidence, high-risk diseases, such as tuberculosis and botulism. Testing they provide during an outbreak contributes greatly to tracing the spread of the outbreak, identifying the source, and developing appropriate control measures. Epidemiologists rely on state public health laboratories to document trends and identify events that may indicate an emerging problem. Many state laboratories also provide licensing and quality assurance oversight of commercial laboratories. State public health laboratories are increasingly able to use new advanced molecular technology to identify pathogens at the molecular level. Often, these tests provide information that is used not to diagnose and treat individual patients but to tell epidemiologists whether cases of illness are caused by the same strain of pathogen—information that is not available from clinical records or other conventional epidemiologic methods. Public health officials have already used this type of laboratory information to identify the movement of diseases through a community in ways that would not have been possible 5 years ago. For example, staff in Minnesota’s laboratory use a molecular technology called pulsed field gel electrophoresis (PFGE) to test “isolates” (isolated quantities of a pathogen) of E. coli O157:H7 that laboratories in the state must submit. From 1994 to 1995, the resulting DNA fingerprint patterns identified 10 outbreaks—almost half of which would not have been identified by traditional surveillance methods. Using the laboratory results, epidemiologists were able to find the sources of contamination and eliminate them, thus preventing additional infections. CDC laboratories provide highly specialized tests not always available in state public health or commercial laboratories and assist states with testing during outbreaks. The staff at CDC’s laboratories also have a broad range of expertise identifying pathogens. These laboratories help diagnose life-threatening, unusual, or exotic infectious diseases; provide information on cases of infectious diseases for which satisfactory tests are not widely or commercially available; and confirm public or private laboratory test results that were atypical or difficult to interpret. According to NCID officials, CDC laboratories provide testing services and consultations on conducting tests or interpreting results to every state. CDC also conducts research to develop improved diagnostic methods and trains state laboratory staff to use them. While state surveillance and laboratory testing programs are extensive, not all include every significant emerging infectious disease, leaving gaps in the nation’s surveillance network. Each state decides which diseases it includes in its surveillance program and which diseases it routinely reports to CDC. Many state epidemiologists believe their surveillance programs need to add or focus more attention on important infectious diseases, including hepatitis C and antibiotic-resistant diseases. Our survey found that almost all states conduct surveillance of E. coli O157:H7, tuberculosis, pertussis, and hepatitis C, but fewer collect information on cryptosporidiosis and penicillin-resistant S. pneumoniae. State public health laboratories commonly perform tests to support state surveillance programs for E. coli O157:H7, tuberculosis, pertussis, and cryptosporidiosis. Most, however, do not test for hepatitis C and penicillin-resistant S. pneumoniae. Slightly more than half the state laboratories use PFGE, which state and CDC officials believe could be valuable to most or all states’ diseases surveillance efforts. Few states have followed CDC’s suggestion to improve surveillance by requiring medical providers and laboratories to routinely submit specimens for testing in state public health laboratories. Each year, the Council of State and Territorial Epidemiologists (CSTE), in consultation with CDC, reviews the list of infectious diseases that are “nationally notifiable”—that is, important enough for the nation as a whole to merit routine reporting to CDC. The list currently includes 52 infectious diseases. States are under no obligation to adopt the nationally notifiable diseases for their own surveillance programs, and state reporting to CDC is voluntary. A 1997 CSTE survey of state health departments found that 87 percent of states included at least 80 percent of the 52 nationally notifiable diseases in their surveillance programs, and about one-third of states included over 90 percent. Lists of state reportable diseases vary considerably, partly because of differences in the extent to which diseases occur in different regions of the country. Of the six diseases covered by our survey, nearly all the states include at least four in their diseases surveillance—most commonly tuberculosis, E. coli O157:H7, pertussis, and hepatitis C. A slightly smaller number of states include cryptosporidiosis in their surveillance programs. Penicillin-resistant S. pneumoniae was covered least often, with about two-thirds of the states including it. For all of the diseases except penicillin-resistant S. pneumoniae, most states require health care providers, laboratories, and others to submit disease reports to public health officials. These reports contain information such as demographic characteristics of the ill person, the date disease symptoms appeared, and the suspected or confirmed diagnosis. (See fig. 1.) Over three-quarters (44) of the responding epidemiologists told us that their surveillance programs either leave out or do not focus sufficient attention on important infectious diseases. Antibiotic-resistant diseases, including penicillin-resistant S. pneumoniae, and hepatitis C were among the diseases they cited most often as deserving greater attention. State laboratory testing to support state surveillance of the six emerging infections in our survey varies across the nation. Testing is most common for four of the six: tuberculosis, E. coli O157:H7, pertussis, and cryptosporidiosis (see fig. 1). In 43 of the 54 state responses we analyzed,the state public health laboratory conducts testing for four or more of the diseases included in its state’s surveillance program. Testing to support state surveillance of hepatitis C and penicillin-resistant S. pneumoniae occurs in fewer than half of the states. State and CDC officials believe that most, and possibly all, states should have PFGE technology, which can be used to study many diseases and greatly improves the ability to detect outbreaks. However, for the diseases we asked about in our survey, state public health laboratories are less likely to use advanced molecular technology than more conventional techniques. For example, slightly more than half the state laboratories reported using PFGE technology to support state surveillance efforts. Twenty-nine of the 54 laboratory directors responding to our survey reported using PFGE to support E. coli O157:H7 surveillance, and nine of these laboratories also use it for pertussis surveillance. If a state laboratory provided testing in support of state-level surveillance of a specific disease, we asked directors to assess the adequacy of their testing equipment for that disease. Laboratory directors’ views about the adequacy of the testing equipment they use varied somewhat by disease but were generally positive. Eighty percent or more of the laboratory directors rated their equipment as generally or very adequate for four diseases—tuberculosis, E. coli O157:H7, cryptosporidiosis, and hepatitis C. Percentages were slightly lower for pertussis (69 percent) and penicillin-resistant S. pneumoniae (68 percent). State epidemiologists’ views about the adequacy of the testing information provided by state laboratories vary considerably by disease. More than 94 percent rated their state laboratory as very or generally adequate to provide testing information for tuberculosis and E. coli O157:H7. More than 70 percent said their state laboratory is generally or very adequate for generating information on pertussis and cryptosporidiosis. In contrast, only about one-third of epidemiologists said the information generated by their state laboratory for hepatitis C (32 percent) and penicillin-resistant S. pneumoniae (37 percent) is generally or very adequate. We also found that many states do not require other public and private laboratories or medical providers to submit to the state public health laboratory specimens or isolates from persons with certain diseases. CDC has urged states to consider developing such laws because gathering specimens from across the state helps ensure that the state’s surveillance data include a diverse sample of the state’s population. Such action by states also contributes to more comprehensive national data. In all, 29 states require specimens for one or more of the six diseases in our survey: 5 states require specimens for four diseases, 4 states require specimens for three diseases, 9 states for two, and 11 for one disease. Specimens of tuberculosis and E. coli O157:H7 are required most frequently. As part of our survey and field interviews, we asked state officials to identify the problems they considered most significant in conducting surveillance of emerging infectious diseases. The problems they cited fall principally into two categories: staffing and information sharing. State epidemiologists reported that staffing constraints prevent them from undertaking surveillance of diseases they consider important. Laboratory directors told us they do not always have enough staff to conduct tests needed for surveillance; furthermore, their staff need training to remain current with technological advances. Epidemiologists and laboratory officials both said that public health officials often lack either basic computer equipment or integrated data systems that would allow them to rapidly share surveillance-related information with public and private partners. Public health officials reported that the nation’s infectious diseases surveillance system is basically sound but could improve its ability to detect emerging threats. Most state officials believe they need to expand their infectious diseases surveillance programs. However, both state laboratory directors and epidemiologists said that such expansion has been constrained by staffing and training limitations. Most of the 44 epidemiologists who reported that they need to expand coverage of important infectious diseases said insufficient staff and funding resources prevent them from taking this action. Some noted that they need more and better trained staff just to do a better job on diseases already included in their programs. We found considerable variability among states in laboratory and epidemiology staffing per 1 million population. In total, we found that during fiscal year 1997, states devoted a median of 8 staff years per 1 million population to laboratory testing of infectious diseases. Laboratory staff year medians for individual types of testing ranged from 0.4 for foodborne pathogens to 2.4 for all other infectious diseases not specifically listed in table 1. The median for total epidemiology staff years per 1 million population was 14; the range was from 0.1 for foodborne pathogens to 5 for HIV/AIDS. (See table 1.) The majority of state laboratory directors indicated that their staffing resources are generally adequate to generate test results for the diseases in our study. For each of the four diseases that state laboratories most commonly support, more than 75 percent of directors rated their staff as generally or very adequate to perform the tests. Among the smaller number of state laboratories that conduct tests to support surveillance of hepatitis C and penicillin-resistant S. pneumoniae, a smaller percentage of laboratory directors considered their staff resources at least adequate (68 percent and 58 percent, respectively). Some state laboratory and epidemiology officials told us that staffing constraints prevent them from making full use of testing capacity. For example, the laboratory director in a state that had acquired PFGE technology cited lack of staff time as one reason for not routinely using PFGE in surveillance of E. coli O157:H7. As a result, he said, the incidence of E. coli O157:H7 in his state is probably understated. If resources were available, he would also like laboratory staff to test pertussis specimens collected during a recent outbreak to determine whether the increase in reported cases was a true outbreak or the result of increased awareness—and reporting—of the disease following the death of a child. Thirty-six state laboratory directors reported having vacancies during the past year and said the vacancies had negatively affected their laboratory’s ability to support their state’s infectious diseases surveillance activities. Nine rated the impact as great or significant. Administrative and financial constraints, such as hiring freezes or budget reductions, were most often responsible for the vacancies. Laboratory officials noted that advances in scientific knowledge and the proliferation of molecular testing methods have created a need for training to update the skills of current staff. They reported that such training is often either unavailable or inaccessible because of funding or administrative constraints. For example, several state officials said that in reducing costs, training budgets are often cut first. In other states, staff are subject to per capita limits on training or travel expenses. Therefore, if CDC or another source provided additional funding, these funds could not be used. For health crises that need an immediate response—as when a serious and highly contagious disease appears in a school or among restaurant staff—rapid sharing of surveillance information is critical. Public health officials told us, however, that many state and local health departments do not have the basic equipment to efficiently share information across the surveillance network. Computers and other equipment, such as answering or fax machines, that can shorten the process of sharing surveillance information from weeks to a day or less are not always available. Our survey responses indicate that state laboratory directors use electronic communication systems much less often than state epidemiologists use them. Although about three-quarters of responding state laboratory directors use electronic systems to communicate within their laboratories, they do not frequently use electronic systems to communicate with others. Almost 40 percent of laboratory directors reported using computerized systems to little or no extent for receiving surveillance-related data, and 21 percent use them very little for transmitting data. While state epidemiologists use electronic systems more than laboratory directors, they also use them less commonly to receive information (42 percent) than to report it (62 percent). One reason for the limited use of electronic systems may be the lack of equipment. A 1996 CDC survey found that, on average, about 20 percent of staff in most state health agencies did not have access to desktop computers that were adequate for sharing information rapidly. Forty percent of local health officials responding to a 1996 survey conducted by the National Association of City and County Health Officials said they lacked such equipment. State and local health officials most often attributed the lack of computer equipment and integrated data processing and management systems to insufficient funding. The absence of equipment means some tasks that could be automated must be done by hand—and in some cases must be done by hand even after data have already been processed in electronic form. For example, representatives from two large, multistate private clinical laboratories told us that data stored electronically in their information systems had to be converted to paper so that it could be reported to local health departments. In one state we visited, a local health department mails data stored on disk to the state health agency because it lacks the equipment to transfer the data electronically. Even with adequate computer equipment, the difficulty of creating integrated information systems can be formidable. Not only does technology change rapidly, but public health data are currently stored in thousands of places, including the record and information systems of public health agencies and health care institutions, individual case files, and data files of surveys and surveillance systems. These data are in isolated locations that have differing hardware and software structures and considerable variation in how the data are coded, particularly for laboratory test results. CDC operates over 100 data systems to monitor over 200 health events, such as specific infectious diseases. Many of these systems collect data from state surveillance programs. This patchwork of data systems arose, in part, to meet CDC and state needs for more detailed information for particular diseases than was usually reported. For example, while information collected to determine incidence rates of many nationally notifiable diseases consists of minimal geographic and demographic data, the information collected to determine incidence rates of tuberculosis includes information on personal behavior, the presence of other diseases, and stays in institutional settings, as well as geographic and demographic data. The additional information collected on tuberculosis also helps guide prevention and control strategies. Public health officials told us that the multitude of databases and data systems, software, and reporting mechanisms burdens staff at state and local health agencies and leads to duplication of effort when staff must enter the same data into multiple systems that do not communicate with one another. Furthermore, the lack of integrated data management systems can hinder laboratory and epidemiologic efforts to control outbreaks. For example, in 1993 the lack of integrated systems impeded efforts to control the hantavirus outbreak in the Southwest. Data were locked into separate databases that could not be analyzed or merged with others, requiring public health investigators to analyze individual paper printouts. State officials also raised concerns about a lack of complete data for surveillance and the increased reliance on fees to fund state laboratories, which they believe undermine their infectious diseases surveillance efforts. Public health officials and experts acknowledge that, even when states require reporting, the completeness of data reported varies by disease and type of provider. As might be expected, reporting of severe and life-threatening diseases is more complete than reporting of mild diseases. However, when mild diseases are not reported, outbreaks affecting a large number of people may go unnoticed until deaths occur among people at higher than normal risk. In addition, reporting by practitioners in frequent contact with infectious diseases, such as family practitioners, is more complete than reporting by those who are not, such as surgeons. Although surveillance need not be complete to be useful, underreporting can adversely affect public health efforts by leading to erroneous conclusions about trends in incidence, risk factors for contracting a disease, appropriate prevention and control measures, and treatment effectiveness. Completeness of reporting is a concern for the surveillance of illnesses that can produce mild symptoms, such as diarrheal illnesses, which include many foodborne and waterborne conditions. Reported cases of some illnesses represent the tip of the iceberg, at best. A recent CDC-sponsored study estimated that 340 million annual episodes of acute diarrheal illness occurred in the United States, but only 7 percent of people who were ill sought treatment. The study further estimated that physicians requested laboratory testing of a stool culture for 22 percent of those patients who sought treatment, which produced about 6 million test results that could be reported. In cases of mild diarrheal illness, physicians may not request laboratory tests to identify the pathogen because patients with these diseases can get better without treatment or effective treatments do not exist. Public health officials expressed varying views about how managed care growth and the consolidation of the laboratory industry might affect the completeness of surveillance data. Some public health officials and physicians believe that managed care—with its emphasis on controlling costs—could lead doctors to order fewer diagnostic tests, particularly those not needed for treatment decisions. Also, to the extent that managed care organizations less frequently use specialists, results from specialized tests they employ would not be generated. Concerns about laboratory consolidation—particularly when specimens are shipped to central testing facilities in other states—stem from fears that out-of-state testing centers will not report test results needed for surveillance, possibly because they might not be aware of state reporting requirements regarding what information should be reported and where to direct it. In two states we visited, representatives of large multistate independent laboratories said their policy is to report test results in accordance with state requirements. One representative provided us with documentation showing the various reporting requirements of states in one region served by the laboratory. Each of these laboratories is participating in electronic laboratory reporting pilot programs in different states. Other CDC and state public health officials believe that managed care organizations and concentrated ownership of laboratories could provide information that is potentially more consistent, complete, and reliable than what public health officials now routinely obtain through passive reporting. They argue that because information on a large number of patients is concentrated in a small number of organizations, the number of contacts for active surveillance projects is smaller and more manageable and information can be analyzed from large databases. Moreover, they add, these organizations are likely to collect and store laboratory data electronically, which could speed disease reporting. Our survey asked epidemiologists whether they or other agencies in their states had evaluated the impacts of managed care and laboratory consolidation on surveillance data; we could identify no systematic evaluations on this issue. Similarly, researchers who conducted a survey for HHS did not find data that address concerns about the impact of managed care. Another concern state officials frequently mentioned is an increasing reliance on fees to fund the operations of state public health laboratories. Over 30 laboratory directors responding to our survey said their budgets were partly supported by fees for genetic screening and tests for regulatory and licensure programs. State officials told us that an imbalance of fees in relation to appropriated funding shifts the focus of laboratory operations away from testing services beneficial to the entire community and toward services that can be successfully marketed—a shift that they believe could jeopardize fulfilling their public health mission. One state laboratory director said that over the past 15 years, state funding has declined by more than half and fees are expected to cover the difference. He believes that if the laboratory loses contracts for genetic or blood lead-level testing, he will have to reduce other testing, such as for sexually transmitted diseases or CDC’s influenza surveillance. Although many state officials are concerned about their staffing and technology resources, public health officials have not developed a consensus definition of the minimum capabilities that state and local health departments need to conduct infectious diseases surveillance. For example, according to CDC and state health officials, there are no standards for the types of tests state public health laboratories should be able to perform; nor are there widely accepted standards for the epidemiological capabilities state public health departments need. Public health officials have identified a number of elements that might be included in a consensus definition, such as the number and qualifications of laboratory and epidemiology staff; the pathogens that each state laboratory should be able to identify and, where relevant, test for antibiotic resistance; specialized laboratory and epidemiology capability that should be available regionally; laboratory and information-sharing technology each state should have; and support services that CDC should provide. Recognizing this lack of guidance, CSTE, the Association of Public Health Laboratories (APHL), and CDC have begun collaborating to define the staff and equipment components of a national surveillance system for infectious diseases and other conditions. Their work is to include agreements about the laboratory and epidemiology resources needed to conduct surveillance, diseases that should be under surveillance, and the information systems needed to share surveillance data. One goal of reaching this consensus would be to give state and local health agencies the basis for setting priorities for their surveillance efforts and determining the resources needed to implement them. CDC provides state and local health departments with a wide range of technical, financial, and staff resources to help maintain or improve their ability to detect and respond to disease threats. Many state laboratory directors and epidemiologists said this assistance has been essential to their ability to conduct infectious diseases surveillance and to take advantage of new laboratory technology. However, a small number of laboratory directors and epidemiologists believe CDC’s assistance has not added much to their ability to conduct surveillance of emerging infections, and many state officials indicated that further improvements are needed, particularly in the area of information-sharing systems. CDC’s various units, particularly NCID, provide an array of technical and financial support for state infectious diseases surveillance programs. In general, this support falls into the following six areas: testing and consulting, training, grant assistance, funding for regional laboratories, staffing assistance, and information-sharing systems. Laboratory testing and consultation. CDC staff and laboratories support state infectious diseases surveillance efforts with technical assistance and testing services that may not be available at the state level. CDC staff provide consultation services on such matters as epidemiological methods and analysis, laboratory techniques, and interpretation of laboratory results. Almost all of the state laboratory directors and epidemiologists responding to our survey said they use CDC’s laboratory testing services and frequently consult with CDC staff. Training. CDC provides public health and medical personnel with training on a wide range of topics. The training is offered through such means as interactive audio- or video-conferences, computer-assisted instruction, seminars, and hands-on workshops. Since 1989, CDC has offered laboratory training through a collaboration with APHL. An APHL and CDC assessment identified the need for training on current advances in food microbiology, fungal and viral infections, rabies, tuberculosis, and new and emerging pathogens. To meet these needs, CDC developed a series of courses incorporating hands-on experience, offered in various locations around the country. State laboratory directors and epidemiologists indicated they use CDC training extensively, and most said they participated in CDC-sponsored training in 1997. Grant programs. CDC’s various grant and staffing assistance programs provide at least some support to the infectious diseases surveillance programs of all states. In fiscal year 1998, NCID distributed $31.2 million of its $185.7 million budget to state and local health agencies for infectious diseases programs. NCID supports three major grant programs that aid state surveillance programs for emerging infectious diseases (see table 2).Together these three grant programs provided about $20 million to state and local health departments in fiscal year 1997. EIP and ELC grants, designed to strengthen and enhance state surveillance abilities, are components of CDC’s overall plan to address emerging infectious diseases. Funding for regional laboratory networks. To help with both state-specific and nationwide control and prevention efforts, CDC has sponsored development of regional laboratory networks that give states access to molecular testing services that may not be available in their own state laboratory. The two main laboratory networks are PulseNet, which currently focuses on E. coli O157:H7, and the Tuberculosis Genotyping Network (see table 3). Staffing assistance. CDC provides a small number of staff resources to assist state infectious diseases programs through 2-year Epidemic Intelligence Service (EIS) placements and fellowships in state or local health departments or laboratories. About one-fourth of the 60 to 80 EIS participants selected each year work in state and local health departments. Additionally, by February 1998, CDC had trained 18 laboratory fellows to work in state, local, and federal public health laboratories through its Emerging Infectious Diseases Laboratory Fellow Program, a collaborative effort with APHL; CDC plans to make 9 emerging diseases laboratory fellowships available through APHL and the CDC Foundation. One goal of the fellowships is to strengthen the relationship of public health laboratories to infectious diseases and drug-resistance surveillance, prevention, and control efforts. Information sharing. Over the past several decades, CDC has developed and made available to states several general and disease-specific information management and reporting programs. Virtually all states use two of these programs to report data on some infectious diseases to CDC—the Public Health Laboratory Information System (PHLIS) and the National Electronic Telecommunications System for Surveillance (NETSS). PHLIS is used primarily by laboratories; NETSS is used primarily by epidemiology programs. Our surveys showed that overall state laboratory directors and epidemiologists highly value the support CDC provides for their surveillance efforts. Usage and satisfaction levels were highest in the areas of testing and consultation, training, and grant support. The area most often identified as needing improvement was the development of information-sharing systems. Many state laboratory directors and epidemiologists told us that CDC’s testing, consultation, and training services are critical to their surveillance efforts. In all three areas of assistance, more than half of those responding to our survey indicated that the services greatly or significantly improved their state’s ability to conduct surveillance (see fig. 2). According to officials who spoke with us, CDC’s testing for unusual or exotic pathogens and the ability to consult with experienced CDC staff are important, particularly for investigating cases of unusual diseases. However, about 15 percent of survey respondents said CDC’s testing services made only modest improvements in their state’s surveillance capacity. Over 70 percent of epidemiologists responding to our survey said that knowledgeable staff at CDC are easy to locate when they need assistance, but many noted that help with matters involving more than one CDC unit is very difficult to obtain. Many state officials who spoke with us thought that this problem arose because staff in different units do not seem to communicate well with each other. One official described CDC’s units as separate towers that do not interact. A number of state officials commented that CDC provides tests and consultation very promptly when people are at risk—for example during outbreaks of life-threatening diseases—but less quickly in other circumstances. To provide more timely consultation, CDC has developed an on-line image-sharing ability that allows CDC staff and health professionals in remote locations to view an organism under a microscope at the same time. In one state, staff at CDC and a surgeon in another state used this capacity during an operation to identify a parasite as the cause of the patient’s eye problem, allowing the surgeon to rule out cancer as a diagnosis and eliminating the need to remove the patient’s eye. Some state officials and survey respondents said that in less urgent circumstances, CDC’s test results were often not returned quickly enough to be useful to physicians or, in some cases, to epidemiologists. For example, state officials have waited up to a year for CDC to return test results on unusual organisms, making it difficult—if not impossible—to recognize any subsequent encounters with these organisms. Some of these officials suggested that competing priorities at CDC often prevented the timely return of test results in the absence of immediate need. Training is another CDC service that state officials believe is important. As figure 2 shows, the percentage of respondents indicating that training greatly or significantly improved their ability to conduct surveillance of emerging infections was even higher than for testing and consultation. Participant evaluations of recent courses offered in collaboration with APHL were generally consistent with our survey results. These evaluations indicated that the courses provided information the participants needed on the most current technologies available. However, about 11 percent of our survey respondents did not believe that the training they received appreciably improved their surveillance ability. Although state officials generally valued the training CDC provides, they also said more training is needed, especially hands-on, skill-based training in new laboratory techniques. Laboratory officials in particular said that the use of distance learning through audio- or video-conferences—as opposed to hands-on workshops in CDC laboratories—diminished opportunities to develop close collaboration between state and CDC laboratory staff. According to CDC officials, the use of distance learning became desirable when downsizing of staff in state public health laboratories and the costs of sending staff to Atlanta led to declining attendance at courses at CDC headquarters. State officials also cited a need for training and technical assistance in information-sharing systems. Most state officials responding to our survey reported that funding through CDC’s disease-specific grants and epidemiology and laboratory capacity grants had made great or significant improvements in their ability to conduct surveillance for emerging infectious diseases (see fig. 3). Over 70 percent of responding laboratory directors and 80 percent of responding epidemiologists—comprising more than three-quarters of all survey respondents—said disease-specific funding had greatly or significantly enhanced their state’s capacity to conduct infectious diseases surveillance. With one exception, epidemiology, laboratory, and combined capacity grants were similarly valued, with at least 68 percent of recipients saying the enhancement was great or significant. Laboratory directors reported benefitting more from grants specifically directed to laboratory or combined laboratory and epidemiology capacity than from grants specifically designed to enhance epidemiology capacity. Officials cited several examples in which CDC assistance was instrumental in helping states improve their surveillance and laboratory testing efforts for high-priority conditions, such as antibiotic-resistant diseases. After state laboratories began receiving funds from CDC’s tuberculosis grant program, they markedly improved their ability to rapidly identify the disease and indicate which, if any, antibiotics could be used effectively in treatment. State laboratory officials attributed this improvement to the funding and training they received from CDC. In addition to supporting such core activities as active surveillance of antibiotic-resistant conditions, four states use EIP funds to conduct active surveillance of unexplained deaths and severe illnesses in previously healthy people under age 50—a potentially critical source of information to detect new or newly emerging diseases. This project will also provide information on known infectious diseases that health care professionals are not recognizing in their patients. The epidemiologist in one of these states said that although reporting of such cases had been required for a long time, efforts to improve the completeness of the reporting and analyze the data began only after the state received CDC funds. Our survey provided one other possible indication of the effect of CDC’s assistance on state surveillance and testing for antibiotic-resistant conditions. In comparison to its funding for tuberculosis, which goes to programs in all states and selected localities, CDC funds active surveillance and testing for penicillin-resistant S. pneumoniae in only eight states. This pattern of funding parallels the pattern of testing reported by our survey respondents. Of the 54 states that reported conducting surveillance for tuberculosis, 49 have laboratories that test for antibiotic-resistance. In contrast, of the 37 states that reported conducting surveillance for penicillin-resistant S. pneumoniae, only about half have laboratories that provide testing support. Moreover, while all but one of the states require health care providers to submit tuberculosis reports to public health officials, fewer than half require reporting of penicillin-resistant S. pneumoniae. Although CDC-sponsored regional laboratory networks are intended to expand states’ access to advanced testing services, our survey responses indicate that only about half of the states have used these laboratories during the past 3 years. Among those state officials who did use the networks, views on their usefulness are generally favorable, although networks were not valued as highly as other types of assistance (see fig. 4). Of the 19 laboratory directors who used the services of regional laboratories, 10 reported great improvement in their surveillance capacity as a result, 6 reported moderate improvement, and the remaining 3 said improvement was minimal. Of the 21 epidemiologists who used regional laboratory services, 11 reported the services made great improvement, 5 said the improvement was moderate, and 5 said the improvement was slight. Almost two-thirds of the 33 epidemiologists and about half of the 13 laboratory directors who had hosted CDC field placements reported that their staff had greatly or significantly improved their program’s capacity to conduct surveillance. State officials we spoke with generally highly praised field placement programs because participants—who might continue their careers in federal or state government—gained hands-on experience working in state programs. An epidemiologist commented that these placements, which spanned most of the past 20 years, had been invaluable as they provided staff to supplement his state’s surveillance program. One state official, however, said that the benefits of such placements are limited because it takes almost 2 years of training for new staff to effectively assist in state programs. According to officials who spoke with us, CDC’s information-sharing systems have limited flexibility for adapting to state program needs—one reason many states have developed their own information management systems to capture more or different data, they said. State and federal officials told us that NETSS and PHLIS often cannot share data for reporting or analysis with each other or with state- or other CDC-developed systems. CDC officials responsible for these programs said that the most recent versions can share data more readily with other systems but that the lack of training in how to use the programs and high staff turnover at state agencies may limit the number of state staff and officials able to use the full range of program capabilities. NETSS supports the collection and management of information such as patient demographics and residence, the suspected or confirmed diagnosis, and the date of disease onset. PHLIS contains more definitive information on the pathogen provided by the laboratory test. Both programs also offer optional disease-specific reporting modules states may use to gather additional data. When epidemiologists cannot electronically merge data from different sources, they must manually match the records to analyze disease trends and determine the relevant risk factors needed for effective prevention and control efforts. Sharing data between systems also identifies multiple records on the same case and can help epidemiologists take steps to improve reporting. Epidemiologists responding to our survey rated NETSS more highly for flexibility and overall helpfulness than laboratory directors rated PHLIS. About half (48 percent) of responding epidemiologists said NETSS was highly flexible for meeting their needs while only one-quarter (27 percent) of laboratory directors said the same for PHLIS. Fifty-eight percent of epidemiologists said NETSS greatly helped them conduct surveillance, while 22 percent said it was moderately helpful and the remaining 20 percent said it was minimally helpful. In contrast, 76 percent of laboratory directors said PHLIS was of little help, 13 percent said it was very helpful, and 11 percent said it was moderately helpful. Many epidemiologists and laboratory directors thought the system they use does not share data well with other systems. About two-thirds of the laboratory directors who use PHLIS and one-quarter of the epidemiologists who use NETSS said the systems have little to no ability to share data. Many officials we spoke with complained about a substantial drain on scarce staff time to enter and reconcile data into multiple systems, such as their own system plus one or more CDC-developed systems. One large local health department has one person working full time to enter and reconcile data for a single disease. As some of CDC’s disease-specific electronic reporting and information management systems become outdated and need to be replaced, CDC has responded to state and local requests for greater integration of reporting systems and for flexibility in the use of grant funds to build information systems. In late 1995, CDC established the Health Information and Surveillance System (HISS) Board to formulate and enact policy for integrating public health information and surveillance systems. Subcommittees of the HISS Board bring together federal and state public health officials to focus on issues such as data standards and coding schemes, legislation for data security, assessing hardware and software used by states, and identifying gaps in CDC databases. As of August 1998, the HISS Board or its subcommittees had identified barriers to implementing effective laboratory reporting standards and some solutions, established mechanisms to assess information needs and gaps in state and local data systems, and begun to assess ways to integrate NETSS and PHLIS. CDC provides some training and technical assistance related to NETSS and PHLIS, although state officials we interviewed said such training and assistance are in short supply. Responses to our survey suggest that CDC’s training for these two systems was less widely used and less highly valued than its technical assistance. Nearly all respondents used CDC’s technical assistance for these two programs, while two-thirds of laboratory directors and 82 percent of epidemiologists used the training. Almost half of the epidemiologists and 40 percent of the laboratory directors found the technical assistance highly valuable, but less than 30 percent of either group found the training highly valuable. Staff at two local health departments told us that no training was offered to them by state or CDC staff and the wait for technical assistance could last a month or more. State and local officials appreciated the help CDC offered but said CDC had few staff or other resources devoted to helping them use these reporting systems. CDC and the states have made progress in developing more efficient information-sharing systems through one of CDC’s grant programs. The Information Network for Public Health Officials (INPHO) is designed to foster communication between public and private partners, make information more accessible, and allow for rapid and secure exchange of data. By 1997, 14 states had begun INPHO projects. Some had combined these funds with other CDC grant moneys to build statewide networks linking state and local health departments and, in some cases, private laboratories. In New York, state officials developed a network that will link all local health agencies with the state health department and over 4,500 health care facilities and diagnostic laboratories. The network provides electronic mail service and access to surveillance data collected by the state. In Washington, systems for submitting information electronically reduced passive reporting time from 35 days to 1 day and gave local authorities access to health data for analysis. In addition to funding specific projects through INPHO grants, in April 1998 CDC adopted a policy that allows states to submit proposals to use disease grant funds to build integrated information systems. As of November, no states had submitted proposals, although several indicated they planned to do so. This initiative involves no new funding but allows states to use money from existing grants in more flexible ways. While state officials were supportive of additional CDC efforts in this area, they also recognized that progress in developing effective networks could be affected by the actions—or lack of action—of others in the surveillance network. For example, officials in some states said autonomous local health departments may elect not to adopt or link with state-developed systems, thereby continuing some level of fragmentation among data systems regardless of efforts undertaken by CDC or others. Public health officials agree that the importance of infectious diseases surveillance cannot be overemphasized. The nation’s surveillance network is considered the first line of defense in detecting and identifying emerging infectious diseases and providing essential information for developing and assessing prevention and control efforts. Laboratories play an increasingly vital role in infectious diseases surveillance, as advances in technology continually enhance the specificity of laboratory data and give public health officials new techniques for monitoring emerging infections. Public health officials who spoke with us said that the nation’s surveillance system is essentially sound but in need of improvement. They point to outbreaks rapidly identified and contained as visible indications of the system’s strength. Our survey results tend to support this view: surveillance of five of the six emerging infectious diseases we asked about is widespread among states, and surveillance of four of the six is supported by testing in state public health laboratories. Officials also view CDC’s support as essential and are generally very satisfied with both the types and levels of assistance CDC provides. However, our survey also revealed gaps in the infectious diseases surveillance network. Just over half of the state public health laboratories have access to molecular technology that many experts believe all states could use, and few states require the routine submission of specimens to their state laboratories for testing—a step urged by CDC. In addition, many state epidemiologists believe their surveillance programs do not sufficiently study all infectious diseases they consider important, including antibiotic-resistant conditions and hepatitis C. Both laboratory directors and epidemiologists expressed concerns about the staffing and technology resources they have for surveillance and information sharing. They were particularly frustrated by the lack of integrated information systems within CDC and the lack of integrated systems linking them with other public and private surveillance partners. CDC’s continued commitment to integrating its own data systems and to helping states and localities build integrated electronic data and communication systems could give state and local public health agencies vital assistance in carrying out their infectious diseases surveillance and reporting responsibilities. The lack of a consensus definition of what constitutes an adequate infectious diseases surveillance system may contribute to some of the shortcomings in the surveillance network. For example, state public health officials assert that they lack sufficient trained epidemiologic and laboratory staff to adequately study infectious diseases, as well as sufficient resources to take full advantage of advances in laboratory and information-sharing technology. Without agreement on the basic surveillance capabilities state and local health departments should have, however, it is difficult for policymakers to assess the adequacy of existing resources or to identify what new resources are needed to carry out state and local surveillance responsibilities. Moreover, public health officials make decisions about how to spend federal dollars to enhance state surveillance activities without such criteria to evaluate where investments are needed most. To improve the nation’s public health surveillance of infectious diseases and help ensure adequate public protection, we recommend that the Director of CDC lead an effort to help federal, state, and local public health officials create consensus on the core capacities needed at each level of government. The consensus should address such matters as the number and qualifications of laboratory and epidemiologic staff, laboratory and information technology, and CDC’s support of the nation’s infectious diseases surveillance system. CDC officials reviewed a draft of this report. They generally concurred with our findings and recommendation and provided technical or clarifying comments, which we incorporated as appropriate. Specifically, CDC agreed that a clearer definition of the needed core epidemiologic and laboratory capacities at the federal, state, and local levels would be useful and that integrated surveillance systems are important to comprehensive prevention programs. CDC noted that it is working with other HHS agencies to address these critical areas. We also provided the draft report to APHL and CSTE. APHL officials said the report was comprehensive and articulated the gaps in the current diseases surveillance system well. They also provided technical comments, which we incorporated as appropriate. CSTE officials did not provide comments. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this letter. At that time, we will send copies to the Secretary of HHS, the Director of CDC, the directors of the state epidemiology programs and public health laboratories included in our survey, and other interested parties. We will make copies available to others upon request. If you or your staff have any questions, please contact me or Helene Toiv, Assistant Director, at (202) 512-7119. Other major contributors are included in appendix V. The Chairman of the Subcommittee on Public Health of the Senate Committee on Health, Education, Labor, and Pensions asked us to study the nation’s public health surveillance of emerging infectious diseases, focusing on the contribution of laboratories. This report discusses (1) the extent to which states conduct public health surveillance and laboratory testing of selected emerging infectious diseases, (2) the problems state public health officials face in gathering and using laboratory-related data in the surveillance of emerging infectious diseases, and (3) the assistance CDC provides to states for laboratory-related surveillance and the extent to which state officials consider it valuable. Although laboratories are only one part of the surveillance network, they merit attention because newly developed laboratory technology is an increasingly important means to more quickly identify pathogens and the source of outbreaks. We could describe laboratories’ contributions in more detail only by focusing on a small sample of diseases because the specific contribution of laboratory testing to surveillance varies with each disease. Due to the lack of a consensus definition of the types of public health laboratory testing that should occur and the lack of explicit, widely accepted standards to assess epidemiologic capacity, we were not able to assess the overall adequacy of the nation’s emerging infectious diseases surveillance efforts. We selected—with the assistance of officials from CDC, APHL, CSTE, and the American Society for Microbiology—a sample of six bacterial, viral, and parasitic pathogens that can be identified using laboratory tests and pose nationwide health threats (see table I.1). Our sample includes diseases transmitted by food and water as well as ones that had previously been controlled by the use of antibiotics and vaccines. These diseases affected up to 1.5 million people in the United States in 1996 and caused an unknown number of deaths. The appearance of strains resistant to one or more commonly used antibiotics threatens U.S. efforts to control the spread of tuberculosis. This deadly—often foodborne—group of E. coli first appeared in 1982. No effective treatment exists and infection can result in death or long-term disability. Pertussis is one of the nation’s most commonly reported vaccine-preventable childhood diseases. Incidence is increasing despite high rates of immunization. Cryptosporidium parvum (Cryptosporidiosis) This parasite is frequently found in the nation’s surface and treated water supplies and the risks of low-level exposure from its presence are unknown. The disease it causes has no effective treatment. Identified only in 1988, hepatitis C is a leading cause of chronic liver disease and is the nation’s most common bloodborne infection. Chronic liver disease related to hepatitis C is also the most frequent indication for liver transplantation. S. pneumoniae, a leading cause of death and illness, is rapidly becoming resistant to penicillin, with resistance rates as high as 30 percent of cases in some areas. These six emerging infectious diseases or pathogens are described in more detail in appendix IV. To gather nationwide data on state public health surveillance efforts for the sample of six emerging infections, we surveyed the directors of all state public health laboratories and infectious diseases epidemiology programs that report disease-related information directly to CDC. These include programs in each of the 50 states, the District of Columbia, New York City, and 5 U.S. territories (American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, and the Virgin Islands). To develop questions used in our surveys, we reviewed documentation on surveillance and emerging infectious diseases prepared by CDC, professional organizations representing state public health laboratorians and epidemiologists, professional laboratorians, and public health experts. We also spoke with officials and representatives from each of these groups. We worked with officials from professional organizations of public and private laboratories and CDC to judgmentally select a sample of six emerging infections with nationwide significance and to identify appropriate laboratory tests used to generate data for state public health surveillance efforts. We pretested our surveys in person with both laboratory directors and epidemiologists in each of four states and asked knowledgeable people at CDC and in the laboratory and public health fields to review the instruments. We refined the questionnaire in response to their comments to help ensure that potential respondents could provide the information requested and that our questions were fair, relevant, answerable with readily available information, and relatively free of design flaws that could introduce bias or error into our study results. We mailed 57 questionnaires to laboratory directors in April 1998 and 57 questionnaires to epidemiologists in May 1998. We sent at least one follow-up mailing and conducted telephone follow-ups to nonrespondents. We ended data collection in July 1998. At that time, we had received responses from all 57 laboratory directors and from 55 epidemiologists, for response rates of 100 percent and 97 percent, respectively. In preparing for our analysis, we reviewed and edited the completed questionnaires and checked the data for consistency. We tested the validity of the respondents’ answers and comments by comparing them with data we gathered through interviews with public health experts and other public health officials in a total of 30 states and with documentation obtained at CDC and in case study states. We combined responses from epidemiologists and laboratory directors, by state, to analyze for each of our six specific diseases the extent to which state public health laboratories supported state surveillance efforts and the views of epidemiologists and laboratory directors on the adequacy of testing equipment, staff, and the resulting surveillance information. To analyze the extent to which state public health laboratories supported state surveillance efforts, we selected only those states that met the following conditions: for each disease, (1) the state public health laboratory director indicated the laboratory performed tests that generated results used in state surveillance and (2) state epidemiologists indicated that the state conducted surveillance. Using these criteria, we analyzed responses from 54 states. We also conducted on-site work at CDC and in three states—New York, Kentucky, and Oregon. These three states were selected as a nonrandom judgmental sample representing diverse geographic areas and public health surveillance programs. In the three states, we interviewed state and local public health officials as well as other interested groups, including representatives from hospitals, large private clinical laboratories, managed care organizations, and medical associations. At CDC, we interviewed officials responsible for infectious diseases surveillance and laboratories, information systems development, and support services for states. We interviewed officials and obtained documentation to determine how these various programs were organized and how they interacted with other public health and private parties to obtain, analyze, and share disease-related data for surveillance. In addition, we reviewed the general literature on public health surveillance and emerging infectious diseases and interviewed officials from organizations representing state public health laboratory directors, state epidemiologists, state and local public health officials, laboratory professionals, and public health experts. Our work was conducted from December 1997 through December 1998 in accordance with generally accepted government auditing standards. Given the multitude of infectious diseases and varying state surveillance programs, we consulted experts to select a sample of emerging disease threats of nationwide significance. These six conditions are described in greater detail below. E. coli are normal bacterial inhabitants of the intestines of most animals, including humans, where they suppress the growth of harmful bacteria and synthesize vitamins. For reasons not completely understood, a minority of strains cause illness in humans. Shiga-like toxin-producing E. coli are one of five recognized classes of E. coli that cause gastroenteritis in humans. The group derives its name from producing potent toxins, closely related to those produced by Shigella dysenteriae, which cause severe damage to the lining of the intestine. E. coli O157:H7, first identified as a human pathogen in 1982, causes severe abdominal cramping and diarrhea that can become heavily bloody. Although people usually get well without treatment, the illness can be fatal. E. coli O157:H7 is easily killed by heat used in pasteurization and cooking. However, it can live in acid environments. The amount of bacteria needed to cause illness is thought to be low. Three to 5 percent of victims develop hemolytic uremic syndrome (HUS), which is characterized by kidney failure and anemia. Some elderly victims develop thrombotic thromobocytopenic purpura (TTP), consisting of HUS plus fever and neurologic symptoms. Approximately 1 percent of HUS victims die, though many more develop long-term complications. Death rates from TTP can be as high as 50 percent. The disease is often associated with consumption of undercooked ground beef, but sources of contamination are diverse. Recent outbreaks of E. coli O157:H7 have been linked to consumption of contaminated apple juice and cider, raw vegetables such as lettuce, raw milk, and processed foods such as salami. Illness can also be caused by ingesting contaminated water at recreational sites such as swimming pools or spread from child to child in day care settings. For E. coli O157:H7, the estimated annual cost in the United States from the acute and long-term effects of illness and from lost productivity is $302 to $726 million, most of which is due to lost productivity. The number of reported cases fluctuates seasonally, peaking in June though September. Northern states report more cases than southern states. In the Pacific Northwest, E. coli O157:H7 may be second only to Salmonella as a cause of bacterial diarrhea. The true prevalence is unknown and the disease has only recently been added to the list of nationally notifiable diseases. CDC received reports of over 2,741 cases from 47 states in 1996. Despite the high visibility of E. coli O157:H7 due to recent outbreaks, clinicians often do not consider it when diagnosing patients or collect appropriate specimens. Although laboratory testing to detect E. coli O157:H7 is relatively straightforward and inexpensive, a recent study showed that at the end of 1994 only about half of the clinical laboratories in the United States were screening stool samples for it. Tuberculosis, caused by Mycobacterium tuberculosis, was the leading cause of death from infectious diseases in the United States at the turn of the century; it remained the second leading cause of death until the development of antibiotics in the 1950s. Worldwide, about one-third of all people are infected. Tuberculosis kills over 2.9 million people a year—making it a leading cause of death. Tuberculosis of the lungs destroys lung tissue and, if left untreated, half of victims die within 2 years. The risk of contracting the disease is highest in the first year after infection and then drops sharply, although reactivation can occur years later. Only about 10 percent of healthy people infected with the pathogen develop clinical disease. Tuberculosis is difficult to treat, requiring a 6-month regimen of multiple antibiotics to effect a cure and prevent the emergence of antibiotic-resistant strains. When health care is adequate and compliance with treatment is maintained, cure rates should exceed 90 percent, even in those whose immune systems have been compromised by HIV/AIDS. The emergence of strains resistant to one or more antibiotics puts not only tuberculosis patients at risk, but also health care workers, social workers, and any other people in frequent contact with them. For cases of multidrug-resistant tuberculosis, fatality rates can exceed 80 percent for immuno-compromised and 50 percent for previously healthy individuals. Multidrug-resistant cases are extraordinarily difficult to treat, and most patients do not respond to therapy. Tuberculosis is spread primarily by the respiratory route from patients with active disease. Shouting, sneezing, and coughing can easily spread the pathogens in the environment. The risk of transmission varies with the length of exposure, degree of crowding and ventilation, virulence of the strain, and health of the person exposed. From the 1950s through the early 1980s, the incidence of tuberculosis declined in the United States, then began to increase in 1988, reaching a peak in 1992. The HIV/AIDS epidemic, immigration from countries with high rates of tuberculosis, and outbreaks in facilities such as correctional institutions and nursing homes have contributed to the resurgence. Treatment costs for an individual with multidrug-resistant tuberculosis can be as much as $150,000, 10 times the cost of treating a nonresistant case. In 1996, 54 states reported 21,337 cases to CDC. Pertussis, caused by the bacterium Bordetella pertussis, is characterized by uncontrollable spells of coughing in which one cough follows another too quickly to allow a breath in between. An intake of breath that produces a high-pitched “whooping” sound follows each coughing spell, hence the name whooping cough. The illness lasts about 2 weeks and responds to antibiotic therapy. In the early to mid-1900s, pertussis was a common childhood disease and a leading cause of death among children in the United States. Today, pertussis is one of the nation’s most commonly reported childhood vaccine-preventable diseases. Complications associated with pertussis may be severe, especially among infants. Secondary bacterial pneumonia causes most pertussis-related deaths. Other complications include seizures, encephalopathy, and ear infections. About 1 percent of affected infants died in 1993. The risk of complications is highest among infants and under-vaccinated preschool aged children. In 1994, a strain resistant to the antibiotic preferred for treatment appeared in the United States. Immunity to pertussis can decrease with age. Consequently, young adults and adolescents who contract the disease can be an important source in transmitting it to unimmunized infants. Pertussis among adults and adolescents is often not diagnosed by physicians—despite the presence of a persistent cough—because they do not expect to see the disease in this age group. Pertussis is endemic in the United States. Pertussis incidence is cyclical, with peaks every 3 to 4 years. Incidence has decreased from 150 cases per 100,000 population prior to 1940 to about 1.2 cases per 100,000 by 1991. In 1996, 7,796 cases were reported to CDC, an estimated 10 percent of the true number. Although the total number of reported cases remains well below the annual number reported during the pre-vaccine era, the total number of cases has increased steadily in each peak year since 1977. The reasons for the increase in reported cases are unclear but appear unrelated to decreased vaccination rates or reduced vaccine efficacy. Because few pertussis specimens are tested for resistance, the prevalence of antibiotic-resistant strains is unknown. Worldwide, S. pneumoniae infections are among the leading causes of illness and death for young children, individuals with underlying medical conditions, and elderly people. S. pneumoniae is the most common cause of bacterial pneumonia and is implicated in infections of the ears, sinuses, lungs, abdominal cavity, bloodstream, and tissues that envelop the brain and spinal column. A vaccine that controls the 23 most common strains has been available since the 1980s, but it is largely underutilized. In the past, S. pneumoniae uniformly responded to treatment with penicillin, allowing physicians to treat even severely ill patients without testing for antibiotic resistance. During the 1990s, however, resistance to penicillin spread rapidly in the United States, and strains resistant to multiple antibiotics account for a small, but growing, proportion of cases. Case fatality rates—which vary by age, type of infection, and underlying medical condition—can be as high as 40 percent among some high-risk patients, despite appropriate antibiotic therapy. Transmission occurs through contact with infected saliva. In the United States, S. pneumoniae causes up to 3,000 cases of meningitis, 135,000 cases of hospitalized pneumonia, and as many as 7 million ear infections each year. Resistance to penicillin varies widely by region and age group but accounts for 30 percent of cases in some communities. The prevalence of resistance for most areas of the United States is unknown, possibly because the condition was not nationally reportable until 1996. Limited knowledge of local patterns of resistance and the lack of a rapid diagnostic test often result in therapy that uses either unnecessary or overly broad antibiotics, thereby contributing to the development of resistant strains. Cryptosporidiosis, caused by the parasite Cryptosporidium parvum, can affect human intestinal and, rarely, respiratory tracts. The disease has long been known to veterinarians but was first recognized as a human pathogen in 1976. The intestinal disease is generally characterized by severe watery diarrhea and can include abdominal cramps, nausea, vomiting, and low-grade fever. Most healthy individuals recover after 7 to 10 days. Infection of the respiratory tract is associated with coughing and a low-grade fever, often accompanied by severe intestinal distress. Unlike many bacterial infections, the infective dose of cryptosporidiosis is thought to be small, perhaps as few as 10 organisms, each about half the size of a red blood cell. An infected person or animal can shed millions of organisms per milliliter of feces. Once in the environment, the organisms can remain infective for many months. No safe and effective treatment for cryptosporidiosis has been identified. Among persons with weakened immune systems, the disease can lead to dehydration and death. The infectious stage of the parasite is passed in the feces of infected humans and animals. Infection can be transmitted from person to person, from animal to person, through ingesting contaminated food or water, or through contact with fecally contaminated environmental surfaces. The parasite is common among herd animals and is present in virtually all the surface—and much of the treated—waters of the United States. The parasite, small enough to slip through most water filters, is resistant to chlorine treatment. The public health risk of contracting the disease from tap water is unknown. Tests on body fluids indicate as many as 80 percent of the United States population have had cryptosporidiosis. Throughout the world, the organism has been found wherever it was sought. In 1996, 42 states reported 2,426 cases to CDC. The virus that causes hepatitis C was discovered in 1988 and is the major cause of chronic liver disease worldwide. Since 1990, molecular-based laboratory tests have allowed detection of specific antibodies in the blood of infected people. Prior to 1990, diagnosis of hepatitis C was made by excluding both hepatitis A and hepatitis B. The incubation period for acute hepatitis C averages 6 to 7 weeks. Typically, adults and children with acute hepatitis C are either asymptomatic or have a mild clinical illness. More severe symptoms of hepatitis C are similar to those of other types of viral hepatitis and include anorexia, nausea, vomiting, and jaundice. Most patients do not achieve a sustained response to treatment. At least 85 percent of persons infected with hepatitis C develop persistent infection. Chronic disease develops in 60 to 70 percent of infected individuals, and up to 20 percent may develop cirrhosis over a 30-year period. Hepatitis C is a leading cause of chronic liver disease in the United State and a major reason for liver transplants. An estimated 8,000 to 10,000 people die annually from hepatitis C and its related chronic disease. Hepatitis C is most efficiently transmitted through large or repeated contact through the skin with infected blood. Intravenous drug use is the most common risk factor for acquiring hepatitis C. Currently, transfusion-associated hepatitis rarely occurs due to donor screening policies instituted at blood banks and to routine testing of blood donors for evidence of infection. In the United States, the annual number of newly acquired acute hepatitis C infections has ranged from an estimated 180,000 cases in 1984 to an estimated 28,000 in 1995. The prevalence of hepatitis C in the general population is about 1.8 percent, which corresponds to approximately 3.9 million people with chronic infection. Hepatitis C and related chronic diseases cost about $600 million annually (in 1991 dollars). In addition to those named above, the following individuals made important contributions to this report: Linda Bade, Senior Health Policy Analyst; Nila Garces-Osorio, Health Policy Analyst; Julian Klazkin, Attorney; Susan Lawes, Senior Social Science Analyst; and Stan Stenersen, Reports Analyst. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. 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Pursuant to a congressional request, GAO reviewed the nation's infectious diseases surveillance network, focusing on the: (1) extent to which states conduct public health surveillance and laboratory testing of selected emerging infectious diseases; (2) problems state public health officials face in gathering and using laboratory-related data in the surveillance of emerging infectious diseases; and (3) assistance that the Department of Health and Human Services' Centers for Disease Control and Prevention (CDC) provides to states for laboratory-related surveillance and the value of this assistance to state officials. GAO noted that: (1) surveillance and testing for important emerging infectious diseases are not comprehensive in all states, leaving gaps in the nation's infectious diseases surveillance network; (2) GAO's survey found that most states conduct surveillance of five of the six emerging infectious diseases GAO asked about, and state public health laboratories conduct tests to support state surveillance of four of the six; (3) over half of the state laboratories do not conduct tests for surveillance of hepatitis C and penicillin-resistant S. pneumoniae; (4) many state epidemiologists believe that their infectious diseases surveillance programs should expand, and they cited a need to gather more information on antibiotic-resistant diseases; (5) just over half of the state public health laboratories have access to advanced molecular technology, which could be valuable to all states' diseases surveillance efforts; (6) few states require the routine submission of specimens or isolated quantities of a pathogen from patients with certain diseases for testing in state laboratories--a step CDC has urged them to adopt to improve the quality of surveillance information; (7) many state laboratory directors and epidemiologists reported that inadequate staffing and information-sharing problems hinder their ability to generate and use laboratory data to conduct infectious diseases surveillance; (8) participants in the surveillance network often lack basic computer hardware or integrated systems to allow them to rapidly share information; (9) many state officials told GAO that they did not have sufficient staffing and technology resources, and public health officials have not agreed on a consensus definition of the minimum capabilities that state and local health departments need to conduct infectious diseases surveillance; (10) this lack of consensus makes it difficult to assess resource needs; (11) most state laboratory directors and epidemiologists placed high value on CDC's testing and consulting services, training, and grant funding and said these services were critical to their ability to use laboratory data to detect and monitor emerging infections; (12) state officials said CDC needs to better integrate its data systems and help states build systems that link them to local and private surveillance partners; and (13) state officials would like CDC to provide more hands-on training experience.

You are an expert at summarizing long articles. Proceed to summarize the following text: According to March 2015 CPS data, an estimated 526,000 workers were employed in the animal slaughtering and processing industry. There were about 5,350 meat and poultry plants in the United States as of September 2015, of which around 1,100 were slaughter and processing plants, according to the USDA (see fig. 1). In 2014, more than 30 million beef cattle, 100 million hogs, 200 million turkeys, and 8 billion chickens were slaughtered in the United States, according to USDA’s National Agricultural Statistics Service data. Meat and poultry plants are generally designed for an orderly flow from point of entry of the living animal to the finished food product. Typically, the animal is brought to the meat or poultry plant and taken to the kill floor area, where the slaughter occurs. Workers and machines behead and eviscerate the animal, among other things, after which it is chilled for several hours. FSIS inspectors ensure that the carcass meets federal food safety standards. Workers and machines next process the carcass and may break it into small portions that can be transported directly to supermarkets. Slaughter and processing of meat and poultry require workers to perform a high number of repetitive motions. Although plants have increased automation, much of the work is still done by hand through the use of saws, knives, and other tools (see fig. 2). Workers may sustain many different types of injuries at meat and poultry plants (see fig. 3). To carry out its responsibilities under the Occupational Safety and Health Act of 1970 (OSH Act), OSHA establishes workplace safety and health standards, conducts inspections, investigates complaints from workers and reports of fatalities and serious injuries at worksites, and provides training and outreach, among other activities. To supplement its enforcement efforts, OSHA offers cooperative programs to help employers prevent injuries, illnesses, and fatalities in the workplace. OSHA conducts inspections in response to imminent danger, fatalities, catastrophic events such as hospitalizations, and worker complaints, and also selects worksites for programmed inspections based on injury incidence rates, previous citation history, or random selection. OSHA is directly responsible for setting and enforcing these standards for private sector employers, including meat and poultry plants, in 29 states, the District of Columbia, and 4 U.S. territories. The remaining 21 states and 1 territory have assumed responsibility for workplace safety and health under an OSHA-approved state plan. These “state-plan states” adopt and enforce their own standards (which must be “at least as effective” in providing safe and healthful employment as the federal standards). The OSH Act and OSHA’s regulations require covered employers to prepare and maintain records of certain injuries and illnesses sustained by their workers. Specifically, non-exempt employers are required to record information about every work-related death and each new work- related injury or illness that results in loss of consciousness, days away from work, restricted work or transfer to another job, or medical treatment beyond first aid. OSHA has established three different forms for employers to record injuries and illnesses: the Form 300 Log of Work- Related Injuries and Illnesses (log), the Form 301 Injury and Illness Incident Report (incident report), and the Form 300-A Summary of Work- Related Injuries and Illnesses. For each recordable injury or illness, the employer must record specified information on the log, including the worker’s name, job title, date of injury or illness, a brief description of the injury or illness, and, if applicable, the number of days the worker was away from work, assigned to restricted duties, or assigned to another job as a result of the injury or illness. Employers must also classify the injury or illness according to categories provided on the OSHA log. These categories include injury, skin disorder, respiratory condition, poisoning, hearing loss, and “all other illnesses.” In addition to the log, for each case employers must prepare an incident report, which includes descriptive information about the case, including details about the injury or illness, how it occurred, and the treatment provided. Finally, employers are also required to prepare a summary of all injuries and illnesses annually, which is to be posted at the workplace. Although these three forms are not routinely provided to OSHA, they must be kept for 5 years and provided upon request in certain circumstances, such as during an OSHA inspection or in response to BLS’s SOII. In addition, all covered employers, including those exempt from the routine recordkeeping requirements, must report all work-related fatalities to OSHA within 8 hours and all work-related in-patient hospitalizations, amputations, or losses of an eye within 24 hours. With respect to federal employers, such as USDA, each federal agency is generally required to establish and maintain a comprehensive and effective occupational safety and health program that is consistent with OSHA’s standards. The mission of USDA’s Safety and Health Management Division is to develop department-wide policies and promote and assist the development of USDA safety programs. USDA’s FSIS occupational safety and health program has safety and health committees that may analyze injury and illness data to identify the cause of an injury and develop preventative measures, among other things. FSIS safety and health specialists investigate safety concerns of FSIS inspectors in meat and poultry plants. BLS is responsible for collecting and distributing statistical information on issues related to labor, and one of the studies it conducts is the SOII. Employers’ OSHA logs are the main source of data for the annual SOII. In addition to collecting information on all recorded injuries and illnesses, the survey, which draws from a sample of about 230,000 employers, requests detailed case data from employers for injuries or illnesses that resulted in at least 1 day away from work. This detailed case data includes information on the type, or nature, of the injury or illness and the exposure, or event, that caused it. OSHA officials told us that they use these data to help them develop national and regional emphasis programs that focus on specific industries or worksite hazards, and to select high hazard workplaces to receive OSHA support and assistance. Within the Department of Health and Human Services (HHS), CDC’s NIOSH is the federal agency that conducts occupational safety and health research and workplace evaluations, and makes recommendations to prevent worker injuries and illnesses. At the request of employees, employee representatives, or employers, NIOSH may conduct a health hazard evaluation at a work site, such as a poultry plant, to determine if health hazards—such as chemical exposure or ergonomic hazards—are present. NIOSH provides assistance and information by phone and in writing to the requester and may visit the workplace to assess exposure and employee health. USDA, under the Federal Meat Inspection Act and the Poultry Products Inspection Act, is responsible for ensuring the safety and wholesomeness of meat and poultry products that enter interstate commerce. In 2013, over 3,700 USDA FSIS inspectors worked in meat and poultry plants to provide continuous inspection of each meat and poultry carcass and its parts. Among other regulations, USDA sets maximum line speeds for slaughter plants in order to allow FSIS inspectors sufficient time to perform proper inspection procedures. Injury and illness rates of total recordable cases in the meat and poultry industry declined from an estimated 9.8 cases per 100 full-time workers in calendar year 2004 to 5.7 cases in 2013, according to BLS data (see fig. 4). The decline is comparable to all U.S. manufacturing, which dropped from an estimated 8.2 cases to 5 cases per 100 full-time workers. However, the rates in the meat and poultry industry remained higher than those of manufacturing from 2004 through 2013. While injury and illness rates have declined in the meat and poultry industry, meat workers sustained a higher estimated rate of injuries and illnesses than poultry workers from calendar years 2004 through 2013, according to BLS data (see fig. 5). For example, in calendar year 2013 there were an estimated 7.8 cases per 100 full-time workers in meat slaughter and 5.4 cases for meat processing, compared to an estimated 4.5 cases for poultry slaughter and processing. The highest rates of injuries that resulted in days away from work in 2013 fell under the category of traumatic injuries—defined by BLS as injuries occurring from a single event over the course of a work shift—and included sprains, strains, and tears (see table 1). BLS collects data for injuries and illnesses that resulted in days away from work in order to understand the types of injuries and illnesses occurring and the events leading to them. BLS reports these data per 10,000 full-time workers— versus the rate per 100 full-time workers that is used for all injuries and illnesses. We are unable to show rates for these types of injuries over the past 10 years because BLS’s changes to some injury classifications in 2011 prevent direct comparisons over time. (Additional information on injury and illness rate estimates is contained in appendix I.) The events that led to injuries or illnesses that resulted in days away from work also varied (see table 2). In calendar year 2013, “overexertion and bodily reaction,” a term BLS uses to capture injuries and illnesses resulting from activities such as overexertion when lifting and repetitive motion, was cited most frequently as the event that led to an injury (estimated 40.1 per 10,000 full-time workers). This is consistent with the findings in our 2005 report that back sprains and strains among meat and poultry workers can be caused from lifting heavy objects or repetitive lifting of lighter objects. Some injuries have resulted in fatalities. According to BLS fatality data, 151 meat and poultry workers sustained fatal injuries in calendar years 2004 through 2013. Over that time, transportation incidents were the most frequent cause of death. For example, in calendar years 2011 through 2013, 46 meat and poultry workers sustained fatal injuries and 19 of these fatalities were caused by transportation incidents, such as being struck by a vehicle. Other causes of fatalities included violence from a person or animal, contact with objects or equipment, and exposure to harmful substances or environments. Meat and poultry workers experienced higher illness rates than other manufacturing workers (see fig. 6). In calendar year 2013, there were an estimated 159.3 cases per 10,000 full-time meat and poultry workers, compared to an estimated 35.9 cases for manufacturing overall. To better understand illness rates, OSHA classifies total recordable cases of illnesses into five categories, such as skin diseases and respiratory conditions, which BLS reports per 10,000 workers. In the meat and poultry industry, illnesses accounted for over one-fourth of all reported injury and illness cases in calendar year 2013. According to BLS’s website, working conditions can be difficult in the meat and poultry industry because workers are exposed to hazards that may lead to an injury or an illness. In 2013, BLS categorized the poultry industry (104.2 cases per 10,000) and part of the meat industry—animal (except poultry) slaughtering—(319.7 cases per 10,000) as high-rate industries for illnesses because these industries had the highest incidence rate of total illness cases, compared to other industries with at least 500 cases. USDA data show that its inspectors experience injuries and illnesses similar to those experienced by other meat and poultry workers. According to USDA’s 2014 workers’ compensation claims data, falls, slips, and trips were the most frequent causes of injuries among meat and poultry inspectors. USDA inspectors at plants we visited told us injuries and illnesses among inspectors vary, depending on whether they work in a meat or poultry plant. Specifically, inspectors told us that compared to inspectors in poultry plants, inspectors in meat plants sustain more cuts or lacerations because they make several cuts during hog and cattle inspections, while poultry inspections generally do not require any cuts to animal carcasses. Additionally, they said inspectors in poultry plants sustain more repetitive motion injuries due to faster line speeds. Some inspectors experience respiratory ailment symptoms due to chlorine used in poultry plants, according to USDA inspectors. Since our findings in 2005 on meat and poultry workers facing hazardous work conditions, NIOSH health hazard evaluations and academic studies have found that meat and poultry workers continue to face the types of hazards we cited, including hazards associated with musculoskeletal disorders, chemical hazards, biological hazards from pathogens and animals, and traumatic injury hazards from machines and tools. NIOSH’s findings are generally supported by OSHA documents and academic literature we reviewed, as well as by statements from workers and worker advocacy groups. (See appendix II for more information on NIOSH’s findings the from eight health hazard evaluations in poultry plants we reviewed.) In addition, other factors, such as employer emphasis on safety, worker training, and line speeds, may affect hazards and the risk of injuries and illnesses, according to literature we reviewed and the workers and officials we interviewed from federal agencies, the meat and poultry industry, and worker advocacy groups. Assessing hand activity and force used by Reviewing lab testing conducted by other causes of eye and respiratory irritation After NIOSH completes an evaluation, the agency typically makes recommendations to the employer on how to reduce or eliminate identified hazards and prevent related injuries and illnesses. According to officials, NIOSH disseminates the results of its evaluations as broadly as possible to help make industry- wide improvements even though evaluations focus on individual plants. According to NIOSH’s 2014 annual report, NIOSH received 209 requests and completed 33 field investigation reports and 118 consultation letters. Meat and poultry work continues to require forceful exertions, awkward postures, and repetitive motions for many job tasks, which can lead to injuries. In a 2015 health hazard evaluation of a poultry plant, NIOSH reported 59 percent of the 32 job tasks evaluated—from receiving to deboning—had average levels of hand activity and force above the American Conference of Governmental Industrial Hygienists threshold limit value, and carpal tunnel syndrome among workers likely resulted from repetitive motion and the forceful nature of these job tasks. Similarly, in a 2014 health hazard evaluation of a poultry plant, NIOSH found 41 percent of participants worked in jobs that had levels of hand activity and force above the American Conference of Governmental Industrial Hygienists threshold limit values. In a 2008 NIOSH health hazard evaluation of a turkey plant, NIOSH found that hanging and unloading racks of turkey franks (hot dogs) during processing increased the risk of musculoskeletal disorders due to awkward postures, repetitive motions, and heavy lifting. According to the evaluation, in raw and cooked production, workers hung and removed franks from racks on 50- inch metal rods weighing up to 38 pounds, and reported discomfort in their backs and shoulders. NIOSH’s recommendations included job redesign and job rotation from lifting to non-lifting tasks to alleviate these hazards. Workers we interviewed also said that the repetitive nature of meat and poultry work leads to injuries. For example, one meat worker with more than 20 years of experience told us he almost constantly experiences discomfort and pain in his hands and that he only gets relief when he is not working. Chemicals are a hazard in meat and poultry plants because they can create a harmful environment if they accumulate within an enclosed space. Findings from two NIOSH health hazard evaluations suggested that exposure to chlorine may be associated with self-reported symptoms of respiratory illness or eye irritation. In its 2012 evaluation, NIOSH found that employees in an exposed group were more likely to report certain work-related symptoms than employees in an unexposed group, including chest tightness; sneezing; blurry vision; and burning, itchy, or dry eyes. NIOSH also found that while chlorine levels met USDA requirements, chlorine-related by-products called chloramines were often implicated as a more likely cause of irritation. According to NIOSH, there is no valid air sampling method to consistently detect levels of this by-product in plants. Hazardous chemicals in meat and poultry plants also include ammonia, which is used as a refrigerant. For example, a state OSHA official told us process safety management related to ammonia handling is among the top three violations in the meat and poultry industry. An OSHA regional official said common injuries in the meat and poultry industry stem from chemicals such as chlorine and ammonia, among other things. Peracetic acid, an antimicrobial agent used to kill bacteria on poultry carcasses, may be harmful to workers. In November 2011 and January 2012, OSHA inspected a poultry plant after the death of a USDA inspector who worked there, including conducting chemical sampling at the plant. A regional OSHA official told us that OSHA suspected chemical exposure as the cause of death for the USDA inspector. According to OSHA and USDA officials, OSHA was unable to attribute the cause of death to any work-related conditions. In a June 2014 USDA letter to OSHA, USDA stated that it conducted additional air sampling at the poultry plant and did not detect any antimicrobial chemicals. However, according to an OSHA 2014 news release, OSHA cited the plant for, among other violations, failure to provide employees with information and training about the hazards of products that contain peracetic acid and bleach, as required by OSHA’s hazard communication standard. This citation was upheld by the Occupational Safety and Health Review Commission. The administrative law judge who upheld the hazard communication citation noted that employees told the OSHA compliance officer they had experienced respiratory ailment symptoms and rashes consistent with the exposure symptoms described in the chemical manufacturer’s safety data sheets, but the employer failed to train workers on chemical hazards, according to OSHA. Meat and poultry workers continue to be exposed to biological hazards associated with handling live animals, including contact with feces, blood, and bacteria, which can increase their risk for many diseases, according to a NIOSH evaluation and investigations we reviewed. In a 2012 health hazard evaluation, NIOSH investigated exposure to the pathogen Campylobacter in a poultry plant and found gastrointestinal illness appeared to be common, yet underreported, based on interviews with workers. In the live hang area at poultry plants, workers lift live poultry from the supply conveyer belt and hang the birds by their feet from a shackle conveyor belt. In doing so, workers can be covered with poultry feces and dust that can carry pathogens and other diseases, according to OSHA. NIOSH observed that the 20 air vents above the heads of the live hang area employees could spread contamination, and it advised the plant to modify the supply vents. NIOSH also observed inconsistent hand hygiene and use of personal protective equipment in the area and recommended the plant provide training to all employees. In response, the plant instituted a monthly safety training meeting; offered computerized training in English and Spanish, including a competency test; and provided required personal protective equipment at no cost to employees, including smocks and safety glasses, as well as optional respirators and face shields in the live hang area. According to NIOSH, the number of plant employees with confirmed cases of Campylobacter infection dropped from 21 in 2011 to 6 in 2013 once these preventative measures were implemented. In 2007, NIOSH assisted CDC and the Indiana, Minnesota, and Nebraska departments of health in their investigations of a progressive neurological disorder among workers in three hog slaughter plants, and in 2008 NIOSH conducted a health hazard evaluation at the hog slaughter plant in Minnesota. These plants had replaced saws with compressed air devices to reduce the risk of amputation, but the devices increased brain tissue splatter, causing a neurological disorder in several workers when they inhaled the animal matter, according to state officials. According to state and NIOSH investigators, workers at two of the plants also said line speed was a factor because the faster speeds meant they were unable to place the skulls completely on the device before triggering the compressed air, causing greater splatter. According to state officials, no new cases emerged after the three plants discontinued use of compressed air devices and the brain removal job task. Dangerous machines and tools remain a hazard within the meat and poultry industry, according to OSHA officials, workers we interviewed, and an academic study we reviewed. According to OSHA, moving machine parts can cause severe workplace injuries, such as crushed fingers or hands, amputations, burns, or blindness. OSHA officials we spoke with cited a lack of machine guarding—safety features on manufacturing equipment to prevent contact with the body or to control hazards from the machine—as a top safety violation at meat and poultry plants. Workers we spoke with experienced injuries from this hazard. For example, one meat worker showed us his scarred hand and said it had been caught in a machine, which crushed his finger and removed skin, necessitating a skin graft. Another worker’s apron was caught in a machine, which pulled her arm in before the machine could be turned off. As a result, she told us she can no longer work or perform daily activities with that arm. In addition to machinery, meat and poultry workers frequently use tools such as sharp knives, hooks, and saws. An academic study we reviewed examining the incidence of injuries, lacerations, and infections among poultry and pork processing workers employed by 10 companies found sharp tools were most frequently reported as sources of lacerations. A former meat worker we interviewed said he was injured twice by a neighboring worker’s hook when the other worker moved too close to him while trying to perform his task (see fig. 7). Emphasis on worker safety, training, and line speeds may affect the risk of injuries and illnesses in the meat and poultry industry, but the underlying conditions remain, according to literature we reviewed, NIOSH health hazard evaluations, and interviews with federal officials, workers, and representatives of worker advocacy and industry groups. Emphasis on worker safety: Emphasis placed on worker safety is a factor affecting workplace hazards, according to workers we interviewed and representatives from worker advocacy and industry groups. Some workers told us plants do not emphasize safety even when workers complain about hazardous conditions, but workers from two plants we visited said their company has a strong emphasis on worker safety. In at least half of the NIOSH health hazard evaluations we reviewed, NIOSH recommended or encouraged implementing worker safety programs or OSHA’s safety guidelines to help resolve identified hazards. Industry officials and a worker advocacy group told us plants should emphasize safety because it is in their best interest. Representatives from a worker advocacy group and industry officials told us that larger employers in the meat and poultry industry tend to have better worker safety practices than smaller ones. Representatives of meat and poultry industry associations also highlighted the implementation of worker safety programs in some plants over the last 20 years. In one study we reviewed, the authors suggested that workplace safety practices—such as the importance of safety to management, worker training, and proper use of safety equipment—can be modified to improve hazardous conditions in poultry plants. Training: Worker training is critical to mitigating hazards and ensuring safety in the meat and poultry industry, but it remains a challenge, according to industry officials and workers with whom we spoke. In at least half of the NIOSH health hazard evaluations we reviewed, NIOSH recommended implementing proper training of workers. However, industry officials said providing proper training can be a challenge because of different languages spoken by workers. For example, staff at two plants we visited said there are at least 20 languages spoken in their plants. At most of the plants we visited, managers told us that workers receive training during orientation and additional training may include annual training and working side-by- side with an experienced worker on the production line. Workers told us new hires receive video training on hazards and personal protective equipment, and acknowledge receipt of this training by signing an attestation document. Some meat and poultry workers told us the training is not always adequate. A hog plant worker said supplementary training should be provided on the job and at slower line speeds to ensure workers know how to do their jobs properly. One study we reviewed found that when workers in Nebraska and Iowa hog plants used an alternative method to accomplish a task, such as using different equipment, or performed a task in a different location within the plant, it was associated with increased risk of lacerations. The authors recommended expanded training and evaluation of tool sharpening procedures. Line speed: High line speeds resulting from increased automation and other factors may exacerbate hazards, according to plant workers and worker advocacy groups. In 2013, 15 stakeholder groups petitioned OSHA and USDA, asking OSHA to establish a “work-speed” workplace safety and health standard—a regulation that would set the number of animals or products processed per minute on a production line in relation to staffing levels—to protect workers in the meat and poultry industry. The petition also requested that USDA and OSHA ensure that worker safety be protected in any rulemaking related to line and work speeds in this industry. USDA acknowledged receipt of the petition in 2013 and officials told us the agency made several changes to the poultry inspection final rule that addressed some of the issues in the petition, namely not increasing the maximum evisceration line speed in young chicken plants. In 2015, OSHA denied the petition and cited limited resources as its reason for not conducting a comprehensive analysis and rulemaking. Plant workers told us that meat and poultry plants are primarily concerned with production, and employers do not want the line to slow down even when the plant is understaffed. Industry officials we met with disagreed. According to representatives of a meat industry trade association, staffing is typically increased when line speed increases, and it is important to staff the line so that plant workers and USDA inspectors can accomplish all work tasks effectively. According to NIOSH officials, increasing line speed and workers may increase the risk of “neighbor cuts” due to workers’ close proximity. OSHA and NIOSH officials told us line speed—in conjunction with hand activity, forceful exertions, awkward postures, cold temperatures, and other factors such as rotation participation and pattern—affects the risk of both musculoskeletal disorders and injuries among workers. NIOSH examined the effect of increased evisceration line speed on worker safety at one plant in a 2014 health hazard evaluation, but the agency could not draw conclusions about its impact. Specifically, NIOSH stated in a 2014 letter to USDA that it could not draw conclusions on line speed and safety because the amount of time between the first and second visits (10 months) was not sufficient for a change in workers’ health to appear and the manner in which the plant modified the production lines resulted in no change in exposure to risk factors for musculoskeletal disorders for any individual worker, among other things. NIOSH stated that the plant’s consolidated evisceration lines resulted in a reduction of the number of birds processed because the plant combined two separate lines at 90 birds per minute into one line operating at approximately 170 birds per minute. In a 2015 health hazard evaluation, NIOSH found hand activity and force above recommended levels, as noted above, and after the evaluation the plant automated several jobs; however, the agency concluded that musculoskeletal disorder risks remain for many workers. Workers and employers may underreport injuries and illnesses in the meat and poultry industry because of worker concerns over potential loss of employment, and employer concerns over potential costs associated with injuries and illnesses, according to federal officials, worker advocacy groups, and studies. As a result, the injury and illness rates discussed in the previous section may not reflect complete data. In 2009, we reported on concerns about underreporting across all industries, including discrepancies between BLS’s annual survey used to calculate injury and illness rates and other data such as medical records. Due to concerns about reporting and also in response to findings and recommendations from our work in 2005 and 2009, OSHA undertook its Injury and Illness Recordkeeping National Emphasis Program. For this program, OSHA inspected recordkeeping and reporting accuracy in a nongeneralizable sample of over 300 establishments, primarily in industries with high average rates of injuries and illnesses. A 2013 analysis of data from this program indicates that OSHA identified reporting errors at establishments it inspected, but the prevalence of underreporting cannot be determined based on these data. While OSHA and BLS recognize that underreporting exists, the extent is unknown. Underreporting continues to occur in the meat and poultry industry, according to worker advocacy groups and selected OSHA hazard alert letters we reviewed. Some meat and poultry workers may be less likely to report injuries and illnesses because of their vulnerable status as undocumented or foreign-born workers, according to federal officials and representatives of worker advocacy groups we interviewed. About 28.7 percent of meat and poultry workers were foreign-born noncitizens in 2015 compared to about 9.5 percent of all manufacturing workers, according to CPS data. The meat and poultry industry has been a starting point for new immigrants, as many jobs require little formal education or prior experience, according to a meat industry trade association. According to an OSHA official, worker advocacy groups, and plant managers at one plant we visited, some employers in the meat and poultry industry recruit refugees—in part, to replace undocumented workers—and some companies hire prison labor. Further, according to data from BLS, the meat and poultry industry had an hourly mean wage of $12.50 per hour in 2014 and an annual mean wage of $26,010. While above the federal minimum wage of $7.25 per hour, these wages are just above the 2014 federal poverty guidelines for a family of four. Workers who face economic pressures or have a tenuous immigration status may fear job loss or deportation if they report or seek treatment for work- related injuries and illnesses, according to federal officials and worker advocacy groups. For example, a community-based doctor told us that soon after he approved some injured meat workers’ work restriction requests, they returned and asked him to send a note to their workplace to end their work restriction because their employer had threatened to fire them if they could not do their jobs. Language barriers can also make it difficult for some of these workers to communicate about and report injuries, according to a worker advocacy group. In addition, NIOSH officials told us that in some cultures someone who reports an injury or illness is considered weak. Some meat and poultry industry employers may not record worker injuries and illnesses because of certain disincentives, according to federal officials and representatives of worker advocacy groups we interviewed. We previously found that generally, employers may not record workers’ injuries and illnesses because of disincentives such as fear of increasing their workers’ compensation costs or jeopardizing their chances of being awarded contracts for new work. Federal officials and representatives of worker advocacy groups we interviewed told us that some employers in the meat and poultry industry may underreport workplace injuries to keep workers’ compensation insurance premiums low. In addition, some employers may underreport to avoid triggering OSHA inspections or promote the image of a safe workplace, according to a worker advocacy group and managers at one plant we visited. At one meat plant we visited, workers recalled incidents in which supervisors told injured workers they were not hurt and to go back to work rather than report their injury. NIOSH officials and a worker advocacy group attribute some underreporting in the meat and poultry industry to lack of paid sick leave, which may cause injured or ill workers to stay on the job so they can get paid. For example, some poultry plants use point systems to track sick days and may penalize workers for taking too many, according to worker advocacy groups. A former meat worker who was injured on the job told us he was suspended for three days after taking time off from work to recover and was later terminated. Workers and representatives of worker advocacy groups told us these systems discourage workers from reporting their injuries and illnesses. OSHA officials also expressed concerns that employer-sponsored safety programs with incentives— such as those that offer rewards for no injuries over time—may pressure meat and poultry workers to not report work-related injuries and illnesses. Plant health units, which provide certain types of medical assistance to workers with injuries and illnesses at some plants, may also discourage reporting of injuries and illnesses, according to OSHA and worker advocacy groups. In an effort to maintain a clean safety record and avoid recording injuries in their OSHA logs, some plant health units may repeatedly offer first aid treatments—for example, compresses and over- the-counter painkillers and ointments—rather than refer workers to a doctor, according to two OSHA hazard alert letters, worker advocacy groups, and workers we interviewed. We were told about multiple incidents in which meat and poultry workers were punished for visiting the health unit too often or ignored by heath unit staff when they sought further medical care. For example: In 2014, OSHA sent a hazard alert letter to a poultry plant, recommending that the plant voluntarily take steps to improve its medical management practices. In the letter, OSHA identified practices that were contrary to good medical practice for managing work-related MSDs, including prolonged treatment by nursing station staff without referral to a physician. The letter included one example in which a worker made over 90 visits to the nursing station before referral to a physician. In 2015, OSHA sent a hazard alert letter to another poultry plant, also recommending voluntary improvements to the plant’s medical management practices. The letter noted that based on OSHA’s investigation, it appeared that the plant used its first aid station to prevent injuries from appearing on the plant’s OSHA log, such as by not referring workers to a physician for evaluation or treatment when appropriate. One worker told us that after he fell off a platform, the health unit provided ice and denied his request to be referred to a physician for x- rays. When he received an x-ray several days later, it confirmed that he had a fracture. A representative of a worker advocacy group told us about an incident in which a nurse gave a worker with an injured wrist some cream and sent him home. The worker sought medical treatment on his own, which confirmed that he had a fractured wrist. Meat and poultry industry representatives said underreporting is not a major issue, although some employers may not understand all of the reporting requirements. A meat industry trade association we interviewed noted that they organize seminars on reporting requirements and encourage employers to record all incidents in order to document improvement and avoid OSHA citations. Industry group representatives also stated that the decline in injury and illness rates discussed above is due in part to increased automation and industry efforts to enhance plant safety. OSHA officials concurred that increased automation in the industry has positively affected safety in limited areas of meat and poultry plants. DOL lacks key information about MSDs in the meat and poultry industry because of the way it gathers information on these conditions. It is particularly challenging to gather data on MSDs because the gradual nature of these injuries makes it harder for workers to recognize and report them, according to experts and worker advocacy groups. As discussed earlier, existing federal data and health hazard evaluations suggest that MSDs in the meat and poultry industry are common and can be disabling. In 2013, the incidence rate of MSDs that resulted in at least 1 day away from work was an estimated 39.2 cases per 10,000 workers in the meat and poultry industry overall and 25.2 cases per 10,000 workers in the poultry industry, according to BLS’s SOII. The 2013 incidence of carpal tunnel syndrome—an MSD—for cases that resulted in days away from work in the meat and poultry industry was an estimated 4.1 cases per 10,000, compared to 2.1 cases per 10,000 for manufacturing overall. A 2015 health hazard evaluation of a poultry plant by NIOSH found that over one-third of the workers who participated in the study had evidence of carpal tunnel syndrome. A 2014 NIOSH health hazard evaluation of poultry plant workers found that over two- thirds of workers interviewed reported experiencing pain, burning, numbness, or tingling in their hands over the preceding 12 months and that over half reported pain, aching, or stiffness in their backs during the same timeframe (see fig. 8). OSHA and worker advocacy groups have also documented the debilitating effects of MSDs. OSHA reports, for example, that MSDs can be painful and disabling, and may cause permanent damage to musculoskeletal tissues. Despite these concerns, DOL lacks information about MSDs in the meat and poultry industry because of how the data are collected. Specifically, BLS’s annual SOII only collects injury and illness details—such as the type of injury or illness—on cases that result in workers having to take days off from work. For example, the survey does not collect detailed information on MSDs that resulted in a worker being placed on work restriction, transferred to a different job, or continuing in the same job after medical treatment, making it more difficult to identify and track these MSDs. From 2011 to 2013, BLS conducted a pilot study, for which the SOII was modified to collect data for six selected industries (including food manufacturing) on the case circumstances and worker characteristics for cases where the worker was placed on work restriction or transferred to a different job. This pilot study found many of the MSDs occurring in the food manufacturing industry—which includes the meat and poultry industry—result in the worker being transferred to other jobs or restricted from activity in a current job without days away from work. For each calendar year from 2011 through 2013, the BLS study found that far more MSD cases in the food manufacturing industry resulted in job transfer or restricted work than in days away from work. For example, in 2013, the most recent data available, there were about 13,000 cases with job transfer or restricted work in this industry, compared to about 6,000 with days away from work. The OSHA log, which employers use to respond to BLS’s SOII, also does not specifically classify recorded injuries or illnesses as MSDs. For each injury or illness recorded on the log, OSHA requires employers to check off a column indicating whether it is an injury or one of four specified types of illnesses: skin disorder, hearing loss, poisoning, or respiratory condition. Otherwise, the employer is to check “all other illnesses” (see fig. 9). However, the OSHA log does not include a place where employers can check off whether a recorded injury or illness is an MSD. Such information would only be included in the incident report, which is maintained by the employer and generally not sent to OSHA or BLS. Attempting to compile MSD data using individual incident reports would be difficult. A former OSHA official said the agency added these columns to the log because OSHA determined that tracking these particular conditions was important to overseeing worker safety and health. Having these columns enables OSHA to more easily distinguish specific illnesses and conditions from other recorded cases. Before 2001 the OSHA log included a column for “repeated trauma” cases, which included some, but not all, MSDs, as well as some non- MSD cases such as hearing loss. OSHA revised its recordkeeping regulations in 2001 and replaced this column with two, one column for MSDs and another for hearing loss. However, the MSD column never went into effect, and in 2003, the agency deleted the MSD column after determining the column was not necessary or supported by the record. Some public commenters had also expressed concern that the column was not necessary, did not clearly define MSDs, and imposed a paperwork burden. Because the column was deleted, the current OSHA log does not specifically classify MSDs, although MSDs must be recorded as injuries or illnesses on the log if they meet the criteria in OSHA’s recordkeeping regulations. In 2010, OSHA again proposed a rule that would have required employers to check off in a separate column on the OSHA log whether an already-recorded injury or illness was an MSD, stating that information generated from the column would improve the accuracy and completeness of national occupational injury and illness statistics, provide valuable industry-specific information to assist the agency in its activities, inform workers and employers, and would not be cost-prohibitive. However, the Department of Labor Appropriations Act, 2012 prohibited any funds from being used for the MSD column proposed rule. The prohibition was extended by the 2013 appropriations act, but was not included in subsequent appropriations. Since then, OSHA has not attempted to add an MSD column to the OSHA logs. OSHA officials told us that it is vital to have accurate data on MSDs in the meat and poultry industry, and OSHA stated in its 2010 proposed rule to add a column to track MSDs that data from the column would assist the agency in targeting its inspections, outreach, guidance, and enforcement, among other things. BLS officials told us it would be a significant improvement if there were data that would quantify the extent of MSDs, as current data collection methods fall short. Although they stated they did not see a need for a column, representatives of trade associations for the meat and poultry industry we interviewed agreed that tracking MSDs at the plant level helps employers prevent and respond to these injuries. More MSD data would be helpful to OSHA and researchers, and a column on the OSHA injury log dedicated to MSDs could also make it simpler for employers to calculate their MSD rates, according to representatives of worker advocacy groups. Currently, employers must examine numerous entries in their OSHA injury log to calculate these rates. According to CDC, the first step in addressing health issues such as injuries is obtaining a full understanding of the extent of the problem. Federal internal control standards also call for accurate and timely recording to accomplish agency objectives. Without improving data on MSDs, BLS’s statistics on these conditions will remain limited and OSHA’s efforts to oversee employers and ensure workplace safety and health will continue to be hindered. DOL does not know the extent to which injuries and illnesses occur among meat and poultry sanitation workers—who may be employed directly by a plant or work for a separate contract sanitation company— because of how data on these workers are collected. Although they labor in the same plants and under working conditions that can be as hazardous as those of production workers, in 2005 we found sanitation workers employed by contract sanitation companies were not classified by BLS in the SOII as working in the meat and poultry industry. We concluded that OSHA, as a result, was not considering all injuries and illnesses at a plant when selecting plants to be inspected because some worker injuries and illnesses were not included in OSHA logs at those sites. We recommended that DOL require certain plants to provide OSHA with worksite-specific data of injuries and illnesses of workers employed by contract cleaning and sanitation companies so these data could be included in the rates OSHA uses to select plants for inspection. DOL did not implement this recommendation, citing a decision it had already made against requiring employers in the construction industry to collect contract worker data because of the burden to that industry, among other things. DOL has not taken action to improve data on sanitation workers, despite continued concerns expressed by OSHA about how sanitation work by both plant employees and contracted workers is one of the most hazardous occupations in the industry. Many sanitation workers work overnight during a plant’s “third shift” and are responsible for cleaning floors, machinery, and all product contact surfaces throughout the plant to comply with USDA requirements. Workplace hazards for sanitation workers employed directly by plants and those employed by contract sanitation companies include potential exposure to electrical, mechanical, hydraulic, and other sources of energy and potentially harmful chemicals. In 2013, for example, a 41-year-old sanitation worker was killed when he fell into an industrial blender at a meat plant, according to a fatality investigation report by the Oregon Fatality Assessment and Control Evaluation program of the Oregon Institute of Occupational Health Sciences. In 2015, according to an OSHA citation, a sanitation worker at a poultry plant lost two of his fingertips when a machine he was cleaning was mistakenly turned on. Two weeks later at the same plant, according to the same citation, a 17-year-old sanitation worker lost part of his leg when he was caught in a machine that lacked safety mechanisms. Another challenge in tracking injury and illness rates among sanitation workers is that even for those workers directly employed by meat and poultry plants (as opposed to those working for a contractor), the plants use different occupational titles for these workers on their OSHA logs. Employers record the injured workers’ job titles on their OSHA log, then, in its SOII, BLS codes these data using a standardized system. BLS officials told us that under this system these workers’ occupations may be listed as “janitors and cleaners,” “cleaners of vehicles or equipment,” or other occupational categories such as “production workers-all other” or “food processing workers-all other.” As a result of using these various occupational titles, which may cover regular production workers as well, DOL is not able to determine which injuries and illnesses pertain to meat and poultry sanitation workers. According to BLS, it also may not be possible to gather separate injury and illness data on those meat and poultry sanitation workers who are employed by contract sanitation companies. Under OSHA’s recordkeeping requirements, either the contract sanitation company or the plant may be required to track these workers’ injuries, depending on which entity is providing day-to-day supervision. As a result, injury and illness data for these workers in BLS’s SOII may be coded according to their employer’s industry—janitorial services, for example—and would therefore not be captured in injury and illness rates for the meat and poultry industry. Officials at four of the six plants we visited told us that the contract sanitation company they work with maintains the injury log for these workers. Officials at one contract sanitation company told us that both they and the plants with which they contract keep OSHA logs, and that the data the company sends to BLS from its OSHA log are coded under the “janitorial services” industry. BLS officials told us that it may not be possible to require contract sanitation companies to identify the industry of the companies they contract with because many of these companies provide services to a wide variety of businesses. As a result of how DOL gathers information on meat and poultry sanitation workers’ injuries and illnesses, OSHA has little data to work with when determining how to oversee these workers’ safety and health. Federal internal control standards call for agencies to track data to help them make decisions and meet their goals. According to OSHA, inaccurate data can lead to misleading conclusions regarding incidence, trends, causation, and effectiveness of abatement strategies. Because of limitations in the BLS data on injuries and illnesses of workers in meat and poultry plants, OSHA cannot fully assess the extent to which it is fulfilling its worker safety mission or successfully carrying out its enforcement and other activities. In addition, the agency may not be doing all it can to ensure sanitation workers are protected from workplace hazards. Several new developments may make it easier for OSHA to obtain more data on sanitation workers at meat and poultry plants. As of January 2015, employers covered by federal OSHA are required to report all work- related in-patient hospitalizations, amputations, and losses of an eye directly to OSHA within 24 hours. Previously, OSHA received more limited information on amputations and hospitalizations through direct employer reports. Reports on such cases involving meat and poultry sanitation workers may provide OSHA with additional details on injuries to this population. In addition, in October 2015, OSHA initiated two regional emphasis programs for the poultry industry in the southern United States. These programs—along with an ongoing regional emphasis program on poultry industry sanitation workers in the same region—mean OSHA will conduct more poultry plant inspections and gather more data on risks to sanitation and other workers, a former OSHA official told us. OSHA may also be able to work with NIOSH to gather information about sanitation worker injuries and illnesses. NIOSH officials told us that they recently were able to conduct studies in other industries because OSHA had negotiated their access after issuing citations. OSHA officials agreed that NIOSH reports could be useful to their inspections. NIOSH’s last health hazard evaluation of meat and poultry sanitation workers was conducted in 2002. At that time, NIOSH examined the use of sanitizing agents, such as bleach, in a meat processing plant, and analyzed their connection to respiratory disorders among five sanitation workers in that plant. All five sanitation workers reported symptoms consistent with known irritant effects of bleach, such as throat irritation and burning or stinging eyes, and the symptoms disappeared when the use of bleach was discontinued. Since then, NIOSH has not conducted any additional health hazard evaluations on meat and poultry sanitation workers, since they must rely on plant management, workers, or worker representatives to request a health hazard evaluation. However, NIOSH can also self- initiate studies on occupational safety and health issues and may conduct studies in response to requests from federal, state, or local agencies. In the absence of additional studies on meat and poultry sanitation workers, both OSHA and NIOSH may be missing an opportunity to learn more about the nature and extent of sanitation worker injuries and illnesses. While overall injury and illness rates have decreased since our last report, meat and poultry workers continue to face worksite hazards that put them at risk of severe and lasting injury. Obtaining complete information about injuries and illnesses in the meat and poultry industry continues to be a challenge that affects DOL’s ability to calculate accurate rates and ensure safe and healthy workplaces. Recent OSHA inspections suggest that more injuries occur than are reported, although the extent of underreporting is not known, and vulnerable workers such as immigrants and noncitizens may fear for their livelihoods and feel pressured not to report injuries. Our findings raise questions about whether the federal government is doing all it can to ensure it collects the data it needs to support worker protection and workplace safety. Strengthening DOL’s data collection on worker injuries and illnesses is the first step towards achieving that goal. Collecting accurate and complete data on MSDs is particularly important, because these disorders are common among this workforce and can be severe and debilitating. However, OSHA does not have a cost-effective method for distinguishing MSDs from other recorded cases, hindering OSHA’s efforts to ensure workplace safety and health. In addition, OSHA and BLS continue to face challenges determining the rates of injury and illness among meat and poultry sanitation workers. Until DOL is able to gather more complete data on sanitation workers in these plants, it does not have an accurate picture of total injuries and illnesses in the meat and poultry industry, and it cannot know how to best protect these sanitation workers. New developments provide an opportunity for DOL to learn more about the injuries and illnesses suffered by these workers and to develop ways to better track them. NIOSH, the federal agency responsible for researching workplace safety and health, may be well-placed to conduct an in-depth study on the injuries and illnesses experienced by this population. We are making the following three recommendations: To strengthen DOL’s efforts to ensure employers protect the safety and health of workers at meat and poultry plants, the Secretary of Labor should direct the Assistant Secretary for Occupational Safety and Health, working together with the Commissioner of Labor Statistics as appropriate, to develop and implement a cost-effective method for gathering more complete data on MSDs. To develop a better understanding of meat and poultry sanitation workers’ injuries and illnesses: The Secretary of Labor should direct the Assistant Secretary for Occupational Safety and Health and the Commissioner of Labor Statistics to study how they could regularly gather data on injury and illness rates among sanitation workers in the meat and poultry industry. The Secretary of Health and Human Services should direct the Director of the Centers for Disease Control and Prevention to have NIOSH conduct a study of the injuries and illnesses these workers experience, including their causes and how they are reported. Given the challenges to gaining access to this population, NIOSH may want to coordinate with OSHA to develop ways to initiate this study. We provided a draft of this report to the Secretary of Labor, the Secretary of Agriculture, and the Secretary of Health and Human Services for their review and comment. DOL and HHS provided comments, reproduced in appendixes IV and V, respectively. DOL generally agreed with our recommendations and stated that their implementation would make a difference in working conditions in the meat and poultry industry. DOL also noted that it may not be easy to implement our recommendations due to resource constraints. We are pleased that DOL agreed with our recommendations. HHS concurred with our recommendation to have NIOSH conduct a study of the injuries and illnesses of sanitation workers in the meat and poultry industry. HHS noted the previous difficulties NIOSH has had gaining access to these workplaces and the potential resource commitment involved in conducting such a study. In the report we acknowledged the access challenge and noted that OSHA has negotiated access for NIOSH in other industries, which is why we suggested in the recommendation that NIOSH may want to coordinate with OSHA. USDA generally agreed with our findings and recommendations, and provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the comments of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Labor, the Secretary of Agriculture, and the Secretary of Health and Human Services. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact us at (202) 512-7215 or [email protected] or at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. This report (1) describes what is known about injuries, illnesses, and hazards in the meat and poultry industry since we last reported, and (2) examines what, if any, challenges the Department of Labor (DOL) faces in gathering data on injury and illness rates in this industry. To describe what is known about injuries, illnesses, and hazards in the meat and poultry industry since we last reported, we analyzed and reported survey data from DOL’s Bureau of Labor Statistics’ (BLS) Survey of Occupational Injuries and Illnesses (SOII) for calendar years 2004 through 2013 (the most recent year for which data were available). The SOII provides estimates of the number and frequency (incidence rates) of workplace injuries and illnesses by industry and also by detailed case circumstances, such as injury type and event, and worker characteristics for cases that result in days away from work, based on data from logs kept by employers (survey respondents)—private industry and state and local governments. Survey respondents provide counts for all recordable injuries and illnesses under Occupational Safety and Health Administration (OSHA) recordkeeping regulations. Survey respondents also provide additional information for a subset of cases, specifically those that involved at least 1 day away from work. In 2011, the BLS Occupational Injury and Illness Classification System and definitions of some injuries changed, thereby preventing direct comparison of case characteristics over time. We report estimates of detailed case characteristics from various injuries and illnesses, such as carpal tunnel syndrome, that resulted in days away from work in the most recent calendar year available, 2013. To report SOII data from the meat and poultry industry (using North American Industry Classification System (NAICS) code 31161 for the animal slaughtering and processing industry) and manufacturing overall (NAICS codes 31-33), BLS provided estimates of each industry’s injury and illness incidence rates and their associated relative standard errors. All estimates produced from the analysis of the SOII data are subject to sampling errors. We express our confidence in the precision of the results as a 95 percent confidence interval. This is the interval that would contain the actual population value for 95 percent of the samples the respective agency could have drawn. For estimates derived from BLS’s SOII data, we used the agency-provided relative standard errors to estimate the associated confidence intervals. All estimates we report have the associated 95 percent confidence interval provided. We also reviewed BLS’s Census of Fatal Occupational Injuries (CFOI) data for calendar years 2004 through 2013, the most recently available data, to better understand the number of fatalities and their circumstances, including causes in the meat and poultry industry. The CFOI is a federal-state cooperative program that has been implemented in all 50 states and the District of Columbia since 1992. According to BLS, the CFOI program uses diverse state, federal, and independent data sources to identify, verify, and describe fatal work injuries to ensure counts are as complete and accurate as possible. CFOI compiles a count of all fatal work injuries occurring in the United States during the calendar year. Fatal injury counts exclude illness-related deaths unless precipitated by an injury event. As previously stated, in 2011 the classification systems and definitions of some data elements changed, and this change may not allow comparing CFOI data within specific fatality categories to previous years. Therefore, we reported total fatalities over a 10-year period rather than annual totals within each major fatality category. To assess the reliability of BLS SOII and CFOI data, we reviewed documents related to the data sources, such as BLS’s Handbook of Methods, and we interviewed agency officials knowledgeable about these data. We found that SOII and CFOI data were sufficiently reliable for our purposes in generally reporting estimated incidence rates of injuries and illnesses in the meat and poultry industry and manufacturing overall, describing injuries and illnesses, and reporting total fatalities in the meat and poultry industry. We also obtained and reviewed fiscal year 2014 workers’ compensation data from USDA’s Food Safety and Inspection Service (FSIS) to describe the injuries, illnesses, and hazards experienced by inspectors in meat and poultry plants. USDA’s workers’ compensation data includes injuries and illnesses from workers who filed a workers’ compensation form. A limitation of this data source is that workers’ compensation data likely undercounts injuries and illnesses. To assess the data’s reliability, we interviewed agency officials, reviewed documentation on FSIS’s workers’ compensation program, and checked the data for discrepancies. We found the data were sufficiently reliable for our purposes. We reviewed literature from peer-reviewed journals, Centers for Disease Control and Prevention’s (CDC) National Institute for Occupational Safety and Health (NIOSH) health hazard evaluations, and OSHA guidance documents on factors that affected injury and illness rates and hazards in the meat and poultry industry since we last reported. We conducted a literature search for studies that examined factors affecting injury and illness rates, as well as hazards in the meat and poultry industry. Based on our literature review, we reported information from four peer-reviewed studies. To identify studies from peer-reviewed journals, we conducted searches of various databases, such as Web of Science, Scopus, and ProQuest and requested suggestions from officials we interviewed. We further limited our review to studies on meat and poultry workers only; therefore, we excluded any studies that made comparisons between workers in the meat and poultry industry and other industries. From this review, we identified 19 studies that appeared in peer-reviewed journals between 2005 and 2015. Of the 19 studies, we excluded two studies that summarized findings from two NIOSH health hazard evaluations that we had previously obtained and reviewed. We noted that 8 of the 17 studies relied on a community-based approach to obtain participants rather than recruiting them directly from plants. These studies focused exclusively on a subset of the worker population within the meat and poultry industry, namely women and Hispanic or Latino poultry workers in North Carolina. We included observations from 1 of the 8 studies, which focused on Hispanic poultry workers, but we noted study limitations in the report. We included findings from 3 of the other 9 studies: (1) a study on a neurological disorder experienced by workers in three hog plants that illustrated hazards related to animals, (2) a study on lacerations in meatpacking describing hazards related to machines and tools, and (3) a study on laceration injuries experienced by meat and poultry workers employed by 10 companies representing 22 poultry plants and 8 pork plants to illustrate factors that may affect injury and illness rates in the meat and poultry industry. We identified and reviewed eight NIOSH health hazard evaluations published from 2007 to 2015 that describe various hazards in poultry plants, as well as factors that may affect injury and illness rates in this industry. NIOSH officials told us the agency has not conducted similar evaluations in meat plants to those it conducted in poultry plants because the agency has not received any requests to do so. Findings from NIOSH evaluations we reviewed are not generalizable to illustrate hazards in all poultry processing plants in the United States. We reviewed OSHA guidance documents on hazards in meat and poultry plants, including OSHA’s e-Tool for poultry processing which details workplace hazards by job task in the poultry industry. To examine the challenges DOL may face in gathering data on injury and illness rates in this industry, we reviewed relevant federal laws and regulations, as well as OSHA documentation. We also reported BLS data and reviewed documentation on musculoskeletal disorders (MSD), including a pilot study on cases involving job transfer and work restriction from data collected from 2011 through 2013. We obtained and analyzed data on worker demographics from the Current Population Survey (CPS), jointly sponsored by BLS and the Census Bureau, from March 2015, the most recent data available. We assessed the reliability of CPS data by reviewing documentation, interviewing knowledgeable agency officials, and performing electronic data testing, and determined the data were sufficiently reliable for our purposes. Because the CPS estimates are based on probability samples, they are subject to sampling error. For the CPS estimates in this report, we estimated sampling error and produced confidence intervals using the methods provided in the technical documentation of CPS’s March 2015 supplement. To report wages of meat and poultry workers, we used estimates of average annual and monthly wages for slaughterers and meat packers (Standard Occupational Classification code 513023) in the animal slaughtering and processing industry (NAICS 31161) and their associated relative-standard errors from BLS’s Occupational Employment Statistics (OES) survey data from May 2014. We used the relative-standard errors to calculate 95 percent confidence intervals for estimates derived from BLS’s OES survey data. We found the BLS and CPS data were sufficiently reliable for our purposes. We interviewed OSHA officials—including officials from all 10 regional OSHA offices—and FSIS and NIOSH officials. We also interviewed Georgia Tech Research Institute staff who conducted research on sanitation workers in the poultry industry to learn about hazards faced by sanitation workers in the meat and poultry industry. Moreover, to describe challenges in gathering data on sanitation workers, we reviewed a 2002 NIOSH evaluation on sanitation workers and interviewed one sanitation company that provides cleaning services in the meat and poultry industry. Of the two other sanitation companies we approached, one declined to meet with us and other company did not respond to our request. To respond to both objectives, we interviewed representatives from stakeholder groups and visited several meat and poultry plants. We identified and interviewed 13 stakeholder groups (unions, worker advocacy groups, and industry trade organizations) with sufficient knowledge about worker safety in the meat and poultry industry, in part based on previous work as well as referrals from other stakeholder groups. We also reviewed information obtained from these groups. These stakeholder groups were the American Federation of Government Employees/National Joint Council of Food Inspection Locals, the Government Accountability Project, Legal Aid of North Carolina, the National Chicken Council, the National Council for Occupational Safety and Health, the National Turkey Federation, Nebraska Appleseed, the North American Meat Institute, Oxfam America, the Southern Poverty Law Center, Student Action with Farmworkers, the United Food and Commercial Workers International Union, and the U.S. Poultry and Egg Association. We attended a meat industry conference on worker safety, as well as a worker safety conference organized by the National Council for Occupational Safety and Health. Finally, we visited six meat and poultry plants—selected to cover a mix of species (chicken, turkey, hog, and cattle) and states (Missouri, Nebraska, North Carolina, and Virginia), as well as union and non-union plants and two plants that were part of the FSIS pilot project—where we met with plant management, USDA’s FSIS management and inspectors, and plant safety and health staff. We also met with current and former workers, who were selected either by unions, worker advocacy groups, or plant managers. The information gathered in these interviews is not generalizable to all plants or workers. To assess DOL’s efforts based on the information gathered in interviews and site visits, we used federal internal control standards that call for agencies to track data and to undertake accurate and timely recording to accomplish agency objectives. We conducted this performance audit from December 2014 to April 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The National Institute for Occupational Safety and Health (NIOSH) conducted eight health hazard evaluations published from 2007 to 2015 that describe various hazards in poultry plants. Table 3 presents a summary of selected findings and recommendations from these health hazard evaluations. Selected findings on hazards are not generalizable to all poultry processing plants in the United States. This table is not intended to be a complete list of NIOSH’s findings and recommendations; for more complete information, refer directly to the cited NIOSH health hazard evaluation. In addition to the contacts named above, Blake Ainsworth, (Assistant Director), Mary Denigan-Macauley (Assistant Director), Eve Weisberg (Analyst-in-Charge), Nkenge Gibson (Analyst-in-Charge), Leah English, Monika Gomez, Susan Aschoff, James Bennett, Sarah Cornetto, and Lorraine Ettaro made significant contributions to this report. Also contributing to this report were Diann Baker, Carl Barden, Carol Bray, Angela Clowers, Marcia Crosse, Grant Mallie, Sheila McCoy, John Mingus, and Michelle Sager. Food Safety: USDA Needs to Strengthen Its Approach to Protecting Human Health from Pathogens in Poultry Products. GAO-14-744. Washington, D.C.: September 30, 2014. Food Safety: More Disclosure and Data Needed to Clarify Impact of Changes to Poultry and Hog Inspections. GAO-13-775. Washington, D.C.: August 22, 2013. Workplace Safety and Health: OSHA Can Better Respond to State-Run Programs Facing Challenges. GAO-13-320. Washington, D.C.: April 16, 2013. Workplace Safety and Health: Further Steps by OSHA Would Enhance Monitoring of Enforcement and Effectiveness. GAO-13-61. Washington, D.C.: January 24, 2013. Workplace Safety and Health: Multiple Challenges Lengthen OSHA’s Standard Setting. GAO-12-330. Washington, D.C.: April 2, 2012. Workplace Safety and Health: Enhancing OSHA’s Records Audit Process Could Improve the Accuracy of Worker Injury and Illness Data. GAO-10-10. Washington, D.C.: October 15, 2009. Workplace Safety and Health: Safety in the Meat and Poultry Industry, While Improving, Could Be Further Strengthened. GAO-05-96. Washington, D.C.: January 12, 2005. Food Safety: Weaknesses in Meat and Poultry Inspection Pilot Should Be Addressed Before Implementation. GAO-02-59. Washington, D.C.: December 17, 2001. Community Development: Changes in Nebraska’s and Iowa’s Counties with Large Meatpacking Plant Workforces. GAO/RCED-98-62. Washington, D.C.: February 27, 1998.

DOL is responsible for gathering data on workplace injuries and illnesses, including those in the meat and poultry industry, where workers may experience injuries and illnesses such as sprains, cuts, burns, amputations, repetitive motion injuries, and skin disorders. GAO was asked to examine developments since its 2005 report, which found this industry was one of the most hazardous in the United States and that DOL data on worker injuries and illnesses may not be accurate, and recommended that DOL improve its data collection. This report (1) describes what is known about injuries, illnesses, and hazards in the meat and poultry industry since GAO last reported, and (2) examines DOL's challenges gathering injury and illness data in this industry. GAO analyzed DOL data from 2004 through 2015, including injury and illness data through 2013, the most recent data available, and examined academic and government studies and evaluations on injuries and illnesses. GAO interviewed DOL and other federal officials, worker advocates, industry officials, and workers, and visited six meat and poultry plants selected for a mix of species and states. The information gathered in these visits is not generalizable to all plants or workers. Injury and illness rates in the meat and poultry slaughtering and processing industry declined from 2004 through 2013, similar to rates in all U.S. manufacturing, according to Department of Labor (DOL) data (see figure), yet hazardous conditions remain. The rates declined from an estimated 9.8 cases per 100 full-time workers in 2004 to 5.7 in 2013. However, these rates continued to be higher than rates for manufacturing overall. Meat workers sustained a higher estimated rate of injuries and illnesses than poultry workers, according to DOL data. Centers for Disease Control and Prevention (CDC) evaluations and academic studies have found that workers continue to face the hazardous conditions GAO cited in 2005, including tasks associated with musculoskeletal disorders, exposure to chemicals and pathogens, and traumatic injuries from machines and tools. DOL faces challenges gathering data on injury and illness rates for meat and poultry workers because of underreporting and inadequate data collection. For example, workers may underreport injuries and illnesses because they fear losing their jobs, and employers may underreport because of concerns about potential costs. Another data gathering challenge is that DOL only collects detailed data for those injuries and illnesses that result in a worker having to take days away from work. These detailed data do not include injuries and illnesses such as musculoskeletal disorders that result in a worker being placed on work restriction or transferred to another job. Further, DOL does not have complete injury and illness data on meat and poultry sanitation workers because they may not be classified in the meat and poultry industry if they work for contractors. Federal internal control standards require agencies to track data to help them make decisions and meet their goals. These limitations in DOL's data collection raise questions about whether the federal government is doing all it can to collect the data it needs to support worker protection and workplace safety. GAO is making three recommendations, including that DOL improve its data on musculoskeletal disorders and sanitation workers in the meat and poultry industry. DOL, USDA, and CDC concurred with GAO's recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: The definition of collateral consequences can vary. For example, definitions may include the penalties and disadvantages contained in laws and regulations of the federal and state governments; ordinances established by local governments; and policies maintained by non- government organizations, such as private employers, schools, and churches. Some researchers consider additional effects of convictions to be collateral consequences, such as the social stigma associated with a conviction. For the purposes of this report, we focus on collateral consequences contained in federal laws and regulations, which we will refer to as federal collateral consequences. Federal collateral consequences can serve various functions, such as enhancing public safety or protecting government interests. For example, collateral consequences may prohibit people who committed crimes involving a sex offense or offense involving a child victim from working in a child care facility. Importantly, federal collateral consequences can be triggered by federal as well as state convictions. Thus, if an individual is convicted in state court, then the individual can be subject to federal collateral consequences. For example, according to federal law, in general, individuals may be denied a merchant seamen license if within 10 years before applying for the license they were convicted of violating a dangerous drug law of the United States or of a state. The Court Security Improvement Act of 2007 required the director of NIJ to conduct a study to determine and compile the collateral consequences of convictions for criminal offenses in the United States, each of the 50 states, each territory of the United States, and the District of Columbia. In 2009, NIJ awarded a grant to the ABA to catalogue and publicize this information on a publically searchable website, which eventually became the NICCC. According to NIJ officials, by June 2014, the ABA had compiled collateral consequence information for the federal and state governments and publicized the information in the NICCC. In addition, recognizing that laws and regulations can change, the ABA developed a schedule to continuously update the NICCC. As of December 31, 2016, the NICCC included roughly 46,000 collateral consequences from laws and regulations at the federal and state level, which included the 50 U.S. states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. See Appendix II for information on the number of collateral consequences in each jurisdiction. As discussed in greater detail later in this report, the NICCC provides certain characteristics of collateral consequences, such as the type of triggering offense (e.g., controlled substance offenses, sex offenses, and public corruption offenses); the duration; and the type of collateral consequence (i.e., mandatory vs. discretionary). According to DOJ officials, in January 2017, NIJ transferred control of the NICCC from the ABA to the Council of State Governments. There is no standard definition of NVDC in federal laws and regulations. Further, according to DOJ officials, DOJ does not use a standardized definition of the term. For the purposes of our report, we defined NVDC as violations of laws prohibiting or regulating the possession, use, distribution, or manufacture of illegal drugs, which do not include: offenses that have as an element the use, attempted use, or threatened use of physical force against the person or property of another; or any other offense that by its nature, involves a substantial risk that physical force against the person or property of another may be used in the course of committing the offense. The NICCC identified 1,171 federal collateral consequences that existed as of December 31, 2016. The NICCC also identified which types of criminal offense(s) can trigger these 1,171 collateral consequences, and based on our review of these data, 641 (55 percent) may be imposed on individuals with NVDC. In addition, the NICCC data that we reviewed identified that these 641 collateral consequences can limit numerous aspects of an individual’s life. For example, as a result of NVDC, individuals may be terminated from their current jobs, no longer qualify for certain jobs, and lose eligibility for some professional licenses. In addition, individuals may no longer qualify for federal housing or food assistance, lose gun ownership rights, and no longer be eligible for certain federal healthcare programs, among many other consequences. The text boxes included in this section identify some of the statements made by stakeholders during our interviews regarding federal collateral consequences for NVDC. Stakeholder Perspectives on Federal Collateral Consequences for Nonviolent Drug Convictions “The breadth of federal collateral consequences for nonviolent drug convictions is so massive and affects so many aspects of a person’s life, such as family life, immigration, jury service, housing, employment, and voting, that they contribute to an underclass of people.” “Many instances wherein the federal collateral consequences for nonviolent drug convictions end up making it hard for people to live a law abiding life. For example, they may not be able to live in public housing or may be barred from getting an occupational license or doing a particular job. This may push them to turn back to committing crimes to make some money.” “…some federal collateral consequences for nonviolent drug convictions are sensible and appropriate. If we abolish exist you could imperil public safety…” “We can’t just say we’re going to err on the side of public safety and implement a wide range of collateral consequences strictly across the board. The problem is that public safety is undermined by making it impossible for individuals to move on from the criminal offense.” “It is important not to assume that nonviolent means that there is no victim.” The NICCC uses consequence categories to categorize the aspects of an individual’s life that a collateral consequence can affect. Figure 1 below shows the number of federal collateral consequences for NVDC, by NICCC consequence category. Our review found the NICCC identified most of the 641 federal collateral consequences for NVDC as relating to employment. For example, the figure shows that the largest category was Employment (341), and Business licensure and other property rights was the second largest category (161). See Appendix III for the ABA’s descriptions of the NICCC consequence categories. Importantly, although there are 641 federal collateral consequences for NVDC, a number of factors will determine which of these collateral consequences apply to any one individual. For example, some of these collateral consequences are triggered by felony convictions but not misdemeanor convictions, and some are triggered by convictions for the sale of drugs but not possession of drugs. Table 1 below includes examples of federal collateral consequences that can be imposed on individuals with NVDC, including the NICCC consequence category and the specific type of NVDC that can trigger the collateral consequences. According to our review of the 641 federal collateral consequences for NVDC that the NICCC identified, 497 (78 percent) were classified as permanent, meaning that they could potentially last a lifetime. The NICCC classifies the duration of collateral consequences as follows: Permanent: Laws or regulations express that the collateral consequence is permanent, or do not express when the collateral consequence would expire, and thus, the collateral consequence could last indefinitely; Specific term: Laws or regulations express a specific time frame when the collateral consequence could expire; and Conditional: Laws or regulations express that the collateral consequence could expire after a specified event “under the affected individual’s control.” For example, a collateral consequence may expire after an individual completes a drug rehabilitation program. Figure 2 shows the percentage of federal collateral consequences for NVDC, by NICCC duration category, of which 78 percent were classified as permanent in the NICCC. In addition, the NICCC classifies collateral consequences as discretionary or mandatory. Discretionary means that a federal entity, such as a federal agency or court, is authorized but not required to impose the collateral consequence. For example, a collateral consequence would be considered discretionary if the federal entity can decide whether imposing the collateral consequence on an individual is necessary to protect public safety. In contrast, mandatory means that a federal entity has no discretion and must impose the collateral consequence. For example, a law may require that a collateral consequence be imposed on all individuals with drug possession convictions, and thus, the federal entity must impose the collateral consequence on these individuals. According to our review of the 641 collateral consequences, nearly half were classified as mandatory in the NICCC. Figure 3 shows the percentage of federal collateral consequences for NVDC, by consequence type. Of the 641 federal collateral consequences for NVDC, we found that the NICCC identified 131 (20 percent) as having a relief mechanism, as of December 31, 2016. Thus, the NICCC showed these collateral consequences as having a related law or regulation that prescribed how a person could potentially obtain relief from the collateral consequence. For example, by law, generally individuals convicted of a state or federal drug possession offense, while receiving federal education loans, lose eligibility for federal education loans for a specified period of time. However, the law also includes a relief mechanism for this collateral consequence, stating that individuals may resume eligibility for federal education loans if they successfully complete a drug rehabilitation program. Examples of other types of relief mechanisms include: presidential or gubernatorial pardon; expungement or sealing of conviction; appeal or review; and certificate of recovery. Although we found that the NICCC identified these 131 collateral consequences as having a mechanism to obtain relief, individuals wanting relief may not actually be relieved of the collateral consequences for a variety of reasons. Below are some of these reasons, based on our review of the NICCC: Years since Conviction: Individuals may not be able to obtain relief until a certain amount of time has passed since their conviction. For example, a federal collateral consequence may require that individuals wait 10 years after their conviction to be eligible for relief. Thus, if it has only been five years since an individual’s conviction, then the individual would have to wait an additional five years to be eligible for relief. Type of Offense: Individuals may not be eligible for a relief mechanism due to the type of drug offense for which they were convicted. For example, a relief mechanism may be available to individuals convicted of a drug possession offense but not a drug trafficking offense, or may be available to individuals after their first offense but not their second offense. Thus, in this example, individuals with drug trafficking offenses or individuals who received second convictions would not be eligible for relief. Denied Request: Some requests for relief can be denied. For example, one relief condition is that individuals request an appeal or review. However, the appeal or review may result in an unfavorable outcome, and thus, the collateral consequence may continue to be imposed on individuals seeking relief. Of the 641 federal collateral consequences for NVDC, we found that the NICCC identified 510 (80 percent) that did not have a related law or regulation that prescribed how a person could potentially obtain relief from the collateral consequence, as of December 31, 2016. However, there may be circumstances whereby a person could still obtain relief. For example, from January 1993 through January 2017, presidents granted, on average, 33 pardons per year. According to officials from DOJ’s Office of the Pardon Attorney, a presidential pardon may relieve an individual of a collateral consequence even if related federal laws or regulations do not specifically prescribe that the consequence can be relieved by a pardon. In addition, the officials said that federal collateral consequences would have to be reviewed on a case-by-case basis to determine what effect, if any, a presidential pardon may have on the collateral consequences. Specifically, an individual would have to review related case law and agency policies to determine the potential effect of a pardon, according to Office of the Pardon Attorney officials. In January 2011, the U.S. Attorney General convened the Reentry Council, a group of about 20 federal entities whose mission is to make communities safer, assist those who return from prison and jail in becoming productive citizens, and save taxpayer dollars by lowering the direct and collateral costs of incarceration. According to a 2016 Reentry Council report, some Reentry Council agencies have issued guidance or directives on federal collateral consequences. A primary focus of the Reentry Council is to reduce “the policy barriers to successful reentry, so that motivated individuals—who have served their time and paid their dues—are able to compete for jobs, attain stable housing, support their children and their families, and contribute to their communities.” In 2012, the Attorney General requested that federal agencies participating in the Reentry Council review their regulations and consider eliminating those collateral consequences that lessen the likelihood of successful reentry without improving public safety. In addition, the Attorney General requested that these agencies determine whether unnecessary collateral consequences exist that could be amended without new legislation. The review requested by the Attorney General did not target federal collateral consequences triggered by specific types of convictions, such as NVDC. According to Reentry Council leadership, a takeaway from the review was that many federal collateral consequences are written into law, and thus, Reentry Council agencies were limited in their ability to modify the related regulations. Another takeaway was that some federal collateral consequences included in the review are appropriately tailored and should not be changed. Further, according to the 2016 Reentry Council report, some Reentry Council agencies issued guidance or directives intended to mitigate federal collateral consequences. The following are examples of actions taken by Reentry Council agencies, according to the 2016 Reentry Council report: The Office of Personnel Management issued a proposed rule (sometimes referred to as the ban the box rule) regarding the federal government’s hiring practices. Specifically, for certain jobs, federal agencies must withhold questions about an applicant’s criminal background until the agency has made a conditional offer of employment. In December 2016, subsequent to the release of the 2016 Reentry Council report, the Office of Personnel Management finalized the rule. Reentry Council agencies developed Reentry Myth Busters, which are fact sheets that seek to clarify certain federal collateral consequences, such as those related to housing, employment, and parental rights. For example, according to a Reentry Myth Buster, a common myth is that veterans with a criminal record or a history of incarceration are not eligible for health care from the Department of Veterans Affairs. The Reentry Myth Buster clarifies that “an eligible Veteran, who is not currently incarcerated, can use care regardless of any criminal history, including incarceration.” The Department of Housing and Urban Development issued guidance to housing providers intended to clarify when the use of criminal history records may constitute discrimination, and thus, violate the Fair Housing Act. In 2013, the Attorney General issued a memorandum to DOJ components and U.S. Attorneys directing them to take collateral consequences into consideration when proposing new or revising existing regulations or policy guidance. Most of the stakeholders that we interviewed said it was important for the federal government to take action to mitigate federal collateral consequences for NVDC. Specifically, 11 of the 14 stakeholders we interviewed said that it was either “very important” or “moderately important” for the federal government to take action to mitigate federal collateral consequences for NVDC. In addition, 1 of the 2 stakeholders who responded “somewhat important” said that it is only somewhat important to reduce the severity specifically for individuals with NVDC, whereas it would be very important to reduce the severity for individuals with all types of convictions. Only 1 stakeholder we interviewed said that federal action was “not important” and, moreover, that these collateral consequences are, at times, inadequate. Figure 4 below shows the stakeholder responses to our question on the degree of importance, if any, of federal action to mitigate federal collateral consequences for NVDC. Thirteen stakeholders highlighted benefits of mitigating federal collateral consequences for NVDC. Benefits identified by stakeholders included greater workforce participation (7 stakeholders), more individuals with housing (7 stakeholders), and the removal of barriers to education (4 stakeholders). For example, 1 stakeholder highlighted that individuals may lose their driver’s license as a result of a drug conviction, which can create a barrier to attending school and work. The stakeholder further highlighted that if mitigation removes this barrier, then a person is more likely to obtain a job and attend school. In addition, 8 stakeholders said that mitigating federal collateral consequences can have a positive effect on families, including children, of individuals with NVDC. For example, 1 stakeholder highlighted that mitigation may allow individuals to maintain their jobs, and thus support themselves and their families, and contribute as taxpayers. One stakeholder said that mitigation was not important and did not offer any potential benefit of mitigation. Thirteen stakeholders said that mitigating federal collateral consequences could potentially reduce the likelihood that individuals with NVDC reoffend. For example, 1 stakeholder said that federal collateral consequences for NVDC create barriers for individuals that are willing and able to reform and could potentially lead these individuals back into criminal activity. Another stakeholder said “we can’t just say we’re going to err on the side of public safety and implement a wide range of collateral consequences strictly across the board. The problem is that public safety is undermined by making it impossible for individuals to move on from the criminal offense.” In addition, 11 stakeholders said that mitigation could potentially increase the likelihood that individuals with NVDC successfully reenter the community after jail or prison. For example, 1 stakeholder said “minimizing collateral consequences for someone who has paid their debt to society for committing a particular crime only brings good benefits employment and education, and all of this is for the benefit of public safety by rebuilding families, communities, and the tax base.” Stakeholders also identified risks of taking federal action to mitigate federal collateral consequences for NVDC. Specifically, 13 stakeholders we spoke to highlighted at least 1 risk. Nine stakeholders said that mitigating collateral consequences could create conditions for individuals to commit crimes that they otherwise might not have had the opportunity to commit. For example, 1 stakeholder said that mitigation may allow individuals to get a job (e.g., air traffic controller, or operator of heavy machinery) they otherwise could not have obtained, and that if the individuals are under the influence of drugs, then their actions may injure or kill other people. However, some of the 9 stakeholders said this risk could be mitigated. For example, 1 stakeholder said the federal government could provide discretion to officials responsible for determining whether to impose a collateral consequence, allowing these decision makers an opportunity to determine whether the individual poses a threat to public safety. One stakeholder said that the amount of time that has passed without a re-offense is a potential consideration when determining whether to relieve an individual of a collateral consequence. Nevertheless, 3 stakeholders were concerned that there is a risk that mitigation will remove federal collateral consequences that serve an important function for the federal government. For example, 1 stakeholder said that “…some federal collateral consequences for NVDC are sensible and appropriate. If we abolish exist you could imperil public safety…” One stakeholder noted that this risk could be mitigated by reviewing federal collateral consequences—for example, understanding whether they serve a valuable purpose. In addition, 1 stakeholder highlighted that determining whether an individual committed a violent or non-violent crime is difficult—for example, not everyone has the same definition of NVDC—and therefore, the federal government may inadvertently mitigate collateral consequences for an individual that committed a violent crime. According to the stakeholder, allowing violent behavior to continue means that the harm to victims could continue. Stakeholders recommended a range of actions the federal government could consider taking to help mitigate federal collateral consequences for NVDC. Specifically, 13 of the 14 stakeholders we interviewed recommended at least 1 action. Some stakeholders cautioned that federal action should strike the appropriate balance between preserving collateral consequences that provide a public safety benefit, and addressing consequences that can cause unnecessary burdens and potentially increase the likelihood that individuals with NVDC reoffend. Each of the following actions was recommended by several stakeholders, as we note below: Comprehensive Review: Eight stakeholders recommended that the federal government conduct a review of federal collateral consequences for NVDC to identify opportunities for mitigation. Stakeholders offered some potential goals of the review, including the following: Reduce the types of offenses that can trigger a collateral consequence. For example, 1 stakeholder said that some collateral consequences are imposed after an individual violates any type of controlled substance offense. However, it may be appropriate to limit the collateral consequence to a smaller group of controlled substance offenses. Change the nature of a collateral consequence from mandatory to discretionary. For example, 1 stakeholder said that giving decision makers more discretion will allow them to impose collateral consequences when beneficial instead of across-the-board for everyone with a particular conviction. Change the duration of a collateral consequence from permanent to time limited. For example, 1 stakeholder said it is important to impose a collateral consequence when an individual poses a risk, but it is hard to justify imposing a collateral consequence after an individual has had a long period of stability. Eliminate certain collateral consequences. For example, 1 stakeholder recommended that a review examine each consequence to determine whether it continues to be essential to government policy and primarily focuses on public safety, and if not, to eliminate the collateral consequence. Stakeholders identified benefits of a comprehensive review, such as: A review can result in the elimination of collateral consequences that do not provide a public safety-related benefit. A review can lead to a reduction in the number of affected individuals, and a decrease to the length of time that the collateral consequences can be imposed on individuals, if such actions are determined beneficial. Stakeholders also identified risks and disadvantages of a comprehensive review, such as: A review would require considerable time to conduct. A review could result in the removal or modification of a collateral consequence that could create conditions for a person to potentially commit crimes that they otherwise might not have had the opportunity to commit. Broad Relief Mechanism: Seven stakeholders recommended a new federal relief mechanism that allows individuals to petition federal entities or officials to obtain relief from federal collateral consequences for NVDC that have been imposed on them. Some stakeholders highlighted that, currently, an individual can petition a federal entity or official for relief from some federal collateral consequences for NVDC; however, they recommended that this relief mechanism be available for all federal collateral consequences for NVDC. In addition, some stakeholders said that models for this type of mechanism can be found in the Model Penal Code by the American Law Institute and the Uniform Collateral Consequences of Conviction Act by the Uniform Law Commission, and that some states have implemented such a mechanism. Stakeholders identified benefits of a broad relief mechanism, such as: Expands opportunities for relief for people with state and federal convictions, if deemed beneficial by the reviewing federal entity or official. Gives people with a conviction hope that they can overcome problems associated with a collateral consequence. For example, they can be relieved of a collateral consequence that serves as a barrier to obtaining employment or education. Judge or agency official can review the facts and circumstances of the petitioner to determine whether there is a need for relief and whether relief would create a risk to public safety. Can potentially promote reentry, reintegration, and law abiding behavior. Stakeholders also identified risks and disadvantages of a broad relief mechanism, such as: A person may be relieved of a collateral consequence and potentially commit crimes that they otherwise might not have had the opportunity to commit. The mechanism would allow federal officials to use discretion, which is less efficient than automatically imposing a collateral consequence. Individuals may not have resources to obtain legal assistance when petitioning a federal entity or official. Avoidance Mechanism: Six stakeholders recommended a new mechanism that allows individuals to petition a federal court before or during sentencing to avoid a federal collateral consequence for NVDC. Some stakeholders said that models for this type of mechanism can be found in the Model Penal Code and the Uniform Collateral Consequences of Conviction Act. Stakeholders identified benefits of an avoidance mechanism, such as: Expands opportunities for people to avoid collateral consequences, if deemed beneficial by a federal court. Judges or prosecutors can review the facts and circumstances of the petitioner to determine whether there is a need to approve the petitioner’s request and whether granting approval would create a risk to public safety. Can potentially promote reentry, reintegration, and law abiding behavior. Stakeholders also identified risks and disadvantages of an avoidance mechanism, such as: A person may avoid a collateral consequence and potentially commit crimes that they otherwise might not have had the opportunity to commit. The mechanism would allow federal officials to use discretion, which is less efficient than automatically imposing a collateral consequence. Eliminate certain federal collateral consequences for NVDC: Three stakeholders recommended that the federal government eliminate the requirements that states deny the Supplemental Nutrition Assistance Program and the Temporary Assistance for Needy Families for individuals with certain drug convictions. All 3 stakeholders acknowledged that states can currently opt out of these requirements; however, they recommended that the federal government eliminate the requirements altogether. Stakeholders identified benefits of eliminating these federal collateral consequences for NVDC, including those listed below. Stakeholders did not mention any risks or disadvantages of this action. Expand the number of people eligible for the Supplemental Nutrition Assistance Program and the Temporary Assistance for Needy Families program. Family members, including children, of individuals with a NVDC could potentially benefit from expanded program participation. As discussed earlier, 13 stakeholders recommended at least 1 action to mitigate federal collateral consequences for NVDC. During our interviews, we asked these 13 stakeholders whether their recommended action(s) could also be applied to convictions other than NVDC (e.g., convictions related to theft). Eleven of the 13 stakeholders said yes, their recommended actions could be applied to other types of convictions. For example, 1 stakeholder said that actions to expand relief and to evaluate whether collateral consequences should be mandatory or discretionary could be applied to all convictions. In addition, 1 stakeholder said that, “if we solve the problem of collateral consequences for people with nonviolent drug convictions, we would have left a much larger problem untouched.” Stakeholders also recommended actions for individuals with NVDC who participate in a drug rehabilitation program. Specifically, 11 of the 14 stakeholders said that they did not recommend any actions beyond what they recommended for all individuals with NVDC. Two stakeholders offered specific actions the federal government could take. For example, 1 stakeholder recommended that the federal government review federal collateral consequences for NVDC to identify opportunities to mitigate employment-related consequences for individuals that participate in a drug rehabilitation program. One stakeholder did not believe that mitigation was necessary, and did not offer any recommended actions. In addition, 4 stakeholders highlighted that completion of, or participation in, a drug rehabilitation program could be considered by federal officials or agencies when determining whether to grant relief from federal collateral consequences for NVDC. For example, 1 stakeholder said that participating in a drug rehabilitation program could be the “price of admission” for relief. However, some stakeholders highlighted risks of requiring the completion of a drug rehabilitation program. One stakeholder said that not all people with NVDC have access to a drug rehabilitation program. Another stakeholder said that this requirement should not be imposed for housing-related collateral consequences, as a lack of housing could make it less likely that an individual stop using drugs. We identified two studies that described actions states took to mitigate collateral consequences from 2009 through 2016. Specifically, these two studies examined legislative or policy changes in all 50 states to mitigate collateral consequences, and found that most states took at least one action. The two studies did not target collateral consequences triggered by specific types of convictions, such as NVDC. According to the studies, the mitigation actions taken by states generally fell into the following categories. For each category below, an example of an action is provided: Created or expanded expungement or sealing opportunities—some states granted more individuals the opportunity to expunge or seal their criminal records. Issued, or expanded effects of, certificates of recovery—some states started to issue certificates of recovery that, according to one study we reviewed, can assist third parties (e.g., prospective employers) in making more informed decisions about applicants with a conviction. Expanded opportunities for offense downgrades—some states expanded opportunities for individuals with a felony conviction to downgrade the conviction to a misdemeanor after meeting certain requirements, such as the successful completion of probation. Expanded opportunities for people to avoid collateral consequences— some states expanded opportunities for individuals to participate in deferred adjudication. Addressed employment-related collateral consequences—some states enacted laws or policies that may prohibit employers from asking about criminal histories during the early stages of the hiring process. These are sometimes referred to as ban the box laws and policies. Improved access to collateral consequence information—some states took steps to provide convicted individuals with information on collateral consequences that could potentially be imposed on them or potential ways to obtain relief. Mitigated certain state collateral consequences—some states mitigated collateral consequences, such as those related to housing, education, public assistance, and driving privileges. Expanded effects of pardons—some states expanded the number of collateral consequences that can be relieved by a gubernatorial pardon. We provided a draft of this report to the DOJ, Department of Housing and Urban Development, Department of Health and Human Services, Department of Labor, and ABA, for their review and comment. In emails, officials from the DOJ, Department of Housing and Urban Development, Department of Health and Human Services, and Department of Labor, stated that these agencies did not have any comments on our draft report. The ABA provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Attorney General, the Secretary of the Department of Housing and Urban Development, the Secretary of Labor, and the Secretary of the Department of Health and Human Services. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8777 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in Appendix IV. This report addresses the following objectives: (1) What federal collateral consequences can be imposed upon individuals with nonviolent drug convictions (NVDC), (2) What mechanisms exist to relieve individuals from federal collateral consequences for nonviolent drug convictions, and (3) According to selected stakeholders, what actions, if any, could the federal government consider to mitigate federal collateral consequences for nonviolent drug convictions. To address our first objective, we obtained data on state and federal collateral consequences from the American Bar Association’s (ABA) National Inventory of the Collateral Consequences of Conviction (NICCC). The data included variables, such as a description of the collateral consequence and the duration (e.g., permanent or specific term). We obtained the data from the NICCC as of December 31, 2016; however, according to ABA officials, the data may not have been current as of that date. According to ABA officials, collateral consequences in the NICCC were not updated on a real-time basis for changes in jurisdictions’ laws and regulations. Collateral consequences for each jurisdiction were updated periodically based on a schedule developed by NICCC project management, and based on the schedule, some changes to laws or regulations may have taken a year or longer to be reflected in the NICCC. Therefore, even though the NICCC data were obtained as of December 31, 2016, the data may include some laws and regulations that were removed or modified by a jurisdiction on or before December 31, 2016. In addition, the NICCC data may not include some laws or regulations that were added on or before December 31, 2016. According to the ABA, the NICCC was developed using the definition of collateral consequences in the Court Security Improvement Act of 2007. According to the act: “The term ‘collateral consequence’ means a collateral sanction or a disqualification….The term ‘collateral sanction’ means a penalty, disability, or disadvantage, however denominated, that is imposed by law as a result of an individual’s conviction for a felony, misdemeanor, or other offense, but not as part of the judgment of the court; and does not include a term of imprisonment, probation, parole, supervised release, fine, assessment, forfeiture, restitution, or the costs of prosecution….The term ‘disqualification’ means a penalty, disability, or disadvantage, however denominated, that an administrative agency, official, or a court in a civil proceeding is authorized, but not required, to impose on an individual convicted of a felony, misdemeanor, or other offense on grounds relating to the conviction.” Although some differences exist between the definition of collateral consequences in the Comprehensive Addiction and Recovery Act of 2016 and the definition used by the NICCC, we determined that the definition used by the ABA’s NICCC was appropriate for the purposes of describing federal collateral consequences for NVDC and their characteristics. According to ABA officials, the NICCC was designed to provide a comprehensive inventory of collateral consequences contained in federal and state laws or regulations. For example, if a collateral consequence was established in a federal law and also included in a federal regulation, the NICCC would count this occurrence as two separate collateral consequences. In addition, in instances that federal law requires the imposition of a collateral consequence by state law or regulation to receive certain federal funding, the NICCC would include the federal law and each state law or regulation as a separate collateral consequence. To determine the number of federal collateral consequences that can be imposed on individuals with NVDC, we analyzed NICCC data. According to ABA officials, the NICCC does not identify whether a federal collateral consequence is triggered by NVDC; however, an estimate could be calculated using the NICCC’s 16 triggering offense categories, among other available data. Specifically, we determined that federal collateral consequences included in the following triggering offense categories may be imposed for NVDC: (1) Any offense, (2) Any felony, (3) Any misdemeanor, and (4) Controlled substances. For example, if a federal collateral consequence was included in the Any offense category, then it could be triggered by any offense, including nonviolent drug offenses. Similarly, if a federal collateral consequence was included in the Any felony category, then it could be triggered by a felony nonviolent drug offense. According to ABA officials, the following 11 triggering offense categories generally do not contain drug offenses: Crime of moral turpitude; Crimes involving fraud, dishonesty, misrepresentation or money-laundering; Crimes of violence, including “person offenses”; Weapons offenses; Sex offenses; Public corruption offenses; Election- related offenses; Recreational license offenses; Motor vehicle offenses; Child Support offenses; and Other. As such, we excluded these 11 categories from our analysis. In addition, N/A, the final triggering offense category, includes general background checks that are not triggered by a specific offense or a type of offense, and may be conducted whether an applicant or employee does or does not have a conviction. In addition, the N/A category includes laws and regulations that provide relief from collateral consequences. As such, we excluded the N/A triggering offense category from our analysis. Based on our analysis, we found that the Controlled substances triggering offense category included some collateral consequences that did not relate to drugs. As such, we reviewed each collateral consequence in the Controlled substances category that included specific words, such as alcohol and tobacco. If a federal collateral consequence only related to alcohol or tobacco, we excluded it from our population of federal collateral consequences for NVDC. Once we identified the population of federal collateral consequences for NVDC, we analyzed the data by selected characteristics, such as consequence type (i.e., mandatory, or discretionary) and duration (i.e., permanent, specific term, or conditional). Of the roughly 46,000 federal and state collateral consequences identified in the NICCC, our review found that some of the consequences (less than one percent of the total number of collateral consequences) had duplicate legal citations and collateral consequence titles. We did not further examine these collateral consequences. In addition, we did not remove these potential duplicates from the data presented in Appendix II, as there are reasons why these collateral consequences may be unique and not duplicative. However, we examined the potentially duplicative federal collateral consequences that could be triggered by NVDC, and determined that two were duplicates. We removed these two collateral consequences from our count of federal collateral consequences for NVDC. We assessed the reliability of the NICCC data by obtaining information from ABA officials responsible for managing the database on how the data are collected and used, and what internal controls the data are subject to. We examined the data and related controls and interviewed ABA officials, and we concluded that these data were sufficiently reliable for the purposes of describing federal collateral consequences for NVDC and their characteristics. To address our second objective, we analyzed NICCC data; reviewed relevant laws, regulations, and federal agency directives and guidance; and interviewed selected federal officials and ABA staff. To determine the number of federal collateral consequences for NVDC that had a related law or regulation that prescribed how a person could potentially obtain relief from the collateral consequence, we analyzed NICCC data as of December 31, 2016. Specifically, we analyzed each federal collateral consequence for NVDC to determine whether the NICCC identified it as having relief available. Our analysis was limited to the NICCC’s Relief variable, which only includes relief mechanisms in laws and regulations related to a specific collateral consequence. Therefore, our review did not include federal relief mechanisms that may be available in laws or regulations that were not specific to a federal collateral consequence for NVDC, and mechanisms in sources other than laws or regulations, such as federal agency policies. To identify examples of relief mechanisms, we analyzed the NICCC description of the relief and the related laws and regulations. As discussed above, we determined that the NICCC data were sufficiently reliable for the purposes of describing federal collateral consequences for NVDC and their characteristics. To identify actions the Federal Interagency Reentry Council (Reentry Council) and its participating federal agencies took to mitigate federal collateral consequences, we analyzed Reentry Council reports and interviewed Reentry Council leadership. In addition, we selected four federal agencies—the Department of Justice, Department of Housing and Urban Development, Department of Health and Human Services, and Department of Labor. We selected these agencies because they participated on the Reentry Council, and reviewed at least some regulations or policies in an effort to mitigate federal collateral consequences. We also asked Reentry Council leadership for recommended agencies to include in our selections. Further, we sought to select a group of agencies that oversee policy areas that often affect individuals with NVDC, including employment and government assistance (e.g., housing and education assistance). For selected agencies, we reviewed relevant agency directives and guidance and interviewed agency officials to better understand their actions to mitigate federal collateral consequences. The information obtained from selected federal agencies cannot be generalized across all federal agencies; however, the information provided examples of recent actions the federal government took to mitigate federal collateral consequences. To address our third objective, we interviewed selected stakeholders to gather perspectives on mitigating federal collateral consequences for NVDC. We asked these stakeholders to provide their opinions and perspectives, and not those of the organization to which they were affiliated. To identify potential stakeholders, we conducted a literature search for studies, government reports, conference papers, and other materials, that related to federal collateral consequences. To identify existing literature, we conducted searches of various databases, such as ProQuest and Scopus. We performed these searches to identify potential stakeholders that authored relevant literature, presented at conferences, or held leadership positions in a workgroup from January 2006 to January 2017. In addition, we asked potential stakeholders to recommend other stakeholders to participate in our study (i.e., snowball sampling). From our list of potential stakeholders we selected 14 stakeholders, aiming to select stakeholders with a range of perspectives and experiences regarding federal collateral consequences. Table 2 below includes the list of stakeholders we selected for interviews. Next, we conducted semi-structured interviews with the 14 selected stakeholders and asked questions regarding federal collateral consequences for NVDC—for example, we asked what, if any, actions the federal government should take to mitigate these collateral consequences. In addition, we asked about potential benefits and risks of taking actions to mitigate these collateral consequences. The information obtained from stakeholders cannot be generalized across all stakeholders; however, these stakeholders provided insights into potential actions the federal government could consider taking to mitigate federal collateral consequences for NVDC. To identify types of actions that have been taken by states that could inform the types of actions the federal government could consider to mitigate federal collateral consequences for NVDC, we identified two studies that examined actions taken by states to mitigate collateral consequences, and summarized the types of actions. Specifically, we identified and reviewed two studies that examined legislative or policy changes in all 50 states to mitigate collateral consequences. The studies did not focus on collateral consequences triggered by a specific type of conviction, such as NVDC. One study examined actions taken during the years 2009 through 2014, and the other study examined the years 2013 through 2016. We conducted this performance audit from September 2016 to September 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix III: Descriptions of Consequence Categories in the National Inventory of the Collateral Consequences of Conviction Description This category includes public employment, appointive office (not elective office), military service, volunteering, publicly regulated private employment, employment by licensed business entities, and employment as a manager or officer of a business. Volunteering and eligibility for appointive office are also included in the Political and civic participation category. This category includes liquor licenses; livestock, agriculture, and wildlife licenses; lottery and gambling licenses; licenses to operate care-giving or educational facilities; and, licenses to engage in specific industries. It also includes consequences affecting property rights, such as fines and administrative forfeitures, and corporate ownership interests. This category includes commercial drivers’ licenses, pilots’ and mariners’ licenses, commercial hunting and fishing licenses, and most professional licensure requirements. Endorsements to operate school buses, multiple-person vehicles, and any other commercial vehicles on an ordinary driver’s license are also included in this category. This category includes Medicaid and Medicare program participation and general government contracting. This category includes benefits in the form of welfare, health (e.g., Medicaid and Medicare), retirement, workers compensation, veterans, employee benefits, etc. It also includes immigration and travel restrictions. This category includes business loans and educational financial aid. This category includes two primary types of mandatory disclosure requirements: Registration and mandatory supervision requirements usually applicable to sex offenders, and public notification requirements that involve disclosing criminal history information to the general public or to particular third parties, including victims and employers and schools. It also includes restrictions on residency in licensed community care facilities. This category includes voting rights, eligibility for jury service, public office (both elective and appointive office, but not public employment generally), and volunteer activities. This category includes guardianships, executorships, and trusteeships; eligibility to inherit from crime victims; and limitations in subsequent civil proceedings (e.g., collateral estoppels and res judicata). Jury service is coded in the Political and civic participation category only. This includes occupancy in any form of housing, vouchers, housing subsidies, and subsidized housing, which are also included in the Government benefits category. Restrictions on residency in licensed facilities are coded in this category, and the Registration, notification, and residency restrictions category. This category includes educational program eligibility and financial aid, which are also included in the Government benefits category. Description This category includes parental rights (e.g., custody or visitation), foster care, adoption, and name changes. This category includes all non-commercial hunting and fishing licenses, firearms licenses, and recreational motor vehicle licenses. This category includes all classes of drivers’ licenses not issued for commercial purposes. Recreational vehicle licenses and commercial drivers’ licenses are not coded in this category. In addition to the contact named above, Brett Fallavollita (Assistant Director) and Jeffrey Fiore (Analyst in Charge) managed the work. Also, Enyinnaya David Aja, Kathryn Bassion, Willie Commons III, Dominick Dale, Leia Dickerson, Elizabeth Dretsch, Lorraine Ettaro, Eric Hauswirth, Jeffrey Daniel Paulk, Janay Sam, and Nina Thomas-Diggs, made significant contributions to this report.

In 2015, certain federal, state, and other law enforcement agencies made about 11 million arrests, according to the Department of Justice's Federal Bureau of Investigation. Individuals ultimately convicted of a crime may face federal or state collateral consequences. According to the ABA's NICCC, roughly 46,000 collateral consequences existed in federal and state laws and regulations, as of December 31, 2016. According to the ABA, collateral consequences have been a feature of the justice system since colonial times, but have become more pervasive in the past 20 years. The Comprehensive Addiction and Recovery Act of 2016 included a provision for GAO to review collateral consequences for individuals with NVDC. This report identifies (1) collateral consequences in federal laws and regulations that can be imposed upon individuals with NVDC, (2) mechanisms that exist to relieve individuals from these collateral consequences, and (3) selected stakeholders' views on actions the federal government could consider to mitigate these collateral consequences. GAO analyzed NICCC data as of December 31, 2016; reviewed relevant laws, regulations, and federal agency documents; and conducted interviews with ABA staff, selected federal officials, and 14 stakeholders. GAO selected stakeholders with relevant experience, among other factors. Selected stakeholders included leaders of organizations representing judges, victims of crime, and states, among others. Collateral consequences are the penalties and disadvantages that can be imposed upon an individual with a criminal conviction, in addition to those directly associated with a sentence (such as a fine, prison, or community service). GAO's review of the American Bar Association's (ABA) National Inventory of the Collateral Consequences of Conviction (NICCC) found that, in federal laws and regulations, there are 641 collateral consequences that can be triggered by nonviolent drug convictions (NVDC). For example, individuals with NVDC may be ineligible for certain professional licenses and federal housing assistance. The NICCC data that GAO reviewed indicate that these 641 collateral consequences can limit many aspects of an individual's life, such as employment, business licenses, education, and government benefits. In addition, GAO also found that the NICCC identified that 497 (78 percent) of the 641 collateral consequences can potentially last a lifetime. Of the 641 federal collateral consequences for NVDC, GAO found that the NICCC identified 131 (20 percent) as having a relief mechanism in a related law or regulation that prescribed how an individual could potentially obtain relief from the consequence. For example, individuals may be relieved if they successfully complete a drug rehabilitation program or receive a pardon. Thirteen of the 14 stakeholders GAO interviewed said the federal government should consider taking action to reduce the severity of (i.e., mitigate) federal collateral consequences for NVDC, such as conducting a comprehensive review of these collateral consequences and implementing a new relief mechanism. Additional mitigation could, according to some stakeholders, help individuals with NVDC obtain employment, housing, or education; and almost all the stakeholders said mitigation could potentially reduce the likelihood of reoffending. At the same time, federal collateral consequences can serve public safety functions and protect government interests. Some stakeholders cautioned that federal action should strike the appropriate balance between preserving collateral consequences that provide a public safety benefit, and addressing consequences that can cause unnecessary burdens and potentially increase the likelihood that individuals with NVDC reoffend.

You are an expert at summarizing long articles. Proceed to summarize the following text: The National Park Service Organic Act of 1916 established the Park Service within the Department of the Interior to promote and regulate the use of the National Park System with the purpose of conserving the scenery, natural and historic objects, and wildlife therein and to leave them unimpaired for the enjoyment of future generations. Yellowstone National Park in Wyoming was the first national park, established in 1872, and the most recent as of this report—Katahdin Woods and Waters National Monument in Maine—was established August 24, 2016. The Park Service manages its responsibilities through its headquarters office located in Washington, D.C., seven regional offices, and 413 individual park units that are part of the system. Figure 1 shows the geographic areas that make up the Park Service’s seven regions. Park unit types include national scenic parks, such as Yellowstone and Great Smoky Mountains; national historical parks, such as Valley Forge, in Pennsylvania, and Lewis and Clark, in Oregon; national battlefields, such as Wilson’s Creek, in Missouri, and Fort Donelson, in Tennessee; national historic sites, such as Fort Bowie, in Arizona, and Theodore Roosevelt’s birthplace, in New York; national monuments, such as Muir Woods, in California, and Tule Springs Fossil Beds, in Nevada; national preserves, such as the Yukon-Charley Rivers, in Alaska, and Big Cypress, in Florida; national recreation areas, such as Lake Meredith, in Texas, and Whiskeytown, in California; and national lakeshores, such as Sleeping Bear Dunes, in Michigan, and the Apostle Islands, in Wisconsin. Visitation levels reached an all-time high in 2015, when more than 307 million people visited park units. This is an increase of more than 14 million visitors from 2014. Park Service officials said that they expect visitation to rise again in 2016, with the celebration of the Park Service centennial. The Park Service generally receives funding through annual appropriations acts. These appropriated funds include base funding for the operation of park units and for Park Service-wide programs, such as funding for visitor services, park protection, and maintenance projects. It also includes funding for technical and financial assistance programs that support resource preservation and recreation outside of the national park system. The Park Service also collects and uses funds from fees, donations, and other funding sources. Total funding for the Park Service increased about $0.6 billion, or 22 percent, from $2.65 billion in fiscal year 2006 to nearly $3.25 billion in fiscal year 2015. However, when adjusted for inflation, total funding for the Park Service increased by only $160 million in fiscal year 2015 dollars, or 5 percent, during this 10-year period. During this time, the number of park units in the system has grown from 390 in 2006 to 413 as of October 2016. Some Park Service officials said that this increase in park units meant that the agency’s appropriations had to be divided among an increasing number of units. The Park Service defines deferred maintenance as maintenance that was not performed when it should have been or was scheduled to be and is delayed for a future period. Deferred maintenance includes maintenance within national park units as well as maintenance related to other properties under Park Service jurisdiction, such as Park Service regional offices. According to the Park Service, maintenance funding has not kept pace with agency needs for several years. In general, maintenance needs are almost double the annual funding, which leads to an annual increase in deferred maintenance. As maintenance work is identified and is not completed because of limited resources, deferred maintenance increases. The Park Service defines an asset as real property that the agency tracks and manages as a distinct identifiable entity. These entities may be physical structures or groupings of structures, landscapes, or other tangible properties that have a specific service or function, such as cemeteries, campgrounds, marinas, or sewage treatment plants. Maintenance can range from work needed for visible assets, such as buildings, roads, and trails, to less visible needs, such a water and sewage systems. Many of these assets were constructed decades or hundreds of years ago. For example, the walls lining Skyline Drive in Shenandoah National Park, in Virginia, and some of the park’s buildings were constructed by the Civilian Conservation Corps, a program created in 1933 by President Franklin Roosevelt to help generate jobs and improve the condition of the country’s natural resources. A number of Park Service facilities date back half a century to the Mission 66 program. From 1956 through 1966, Congress appropriated more than $1 billion for Mission 66 improvements, which included updated facilities for hundreds of visitor centers and employee residences, as well as employee training centers at Harpers Ferry, West Virginia, and the Grand Canyon, in Arizona. Many of the structures built through these programs as well as other efforts are coming to the end of their anticipated life spans and are in need of rehabilitation, repair, replacement, or disposal, according to various documents we reviewed. In 1998, we examined the Park Service’s deferred maintenance and found, among other things, that the agency did not have an accurate estimate of its total deferred maintenance and a means for tracking progress so that it can determine the extent to which its needs are being met. We also found that the Park Service was beginning a number of initiatives to better manage its maintenance and construction program, including developing a plan to prioritize projects. Specifically, in 1998, the Park Service began designing a new asset management process that among other things was to provide the agency with a systematic method for documenting deferred maintenance needs and tracking progress in reducing the amount of deferred maintenance. In 2003, we testified that the Park Service had made progress in developing its new asset management process. In February 2004, Executive Order 13327 recognized the need to promote the efficient and economical use of federal real property assets. The order directed federal agencies to develop and implement asset management planning processes and develop asset management plans. The order also created the Federal Real Property Council and directed the council to develop guidance for each agency’s asset management plan, among other things. In developing asset management plans, the agencies were directed to take several actions, including identifying and categorizing all of their assets and prioritizing actions to improve the operational and financial management of these assets. In fiscal years 2006 through 2015, the Park Service allocated $1.16 billion on average to operate and maintain the agency’s assets. Most recently, in fiscal year 2015, the Park Service allocated $1.08 billion to maintenance, which was about one-third of the total funding the agency received that year. As shown in figure 2, the Park Service’s annual maintenance allocations varied little during this period except in fiscal year 2009, when the agency also used American Recovery and Reinvestment Act funds to carry out maintenance work. The Park Service allocates funds for maintenance in four broad budget categories—operations, construction, recreation fees, and transportation—according to what the agency refers to as fund sources, which generally describe the type of maintenance work being done with those funds. Figure 3 shows that maintenance allocations to operations, recreation fees, and transportation have remained fairly stable in fiscal years 2006 through 2015, with the exception of 2009, when the agency also used American Recovery and Reinvestment Act funds to carry out maintenance work. As shown in table 1, the Park Service uses eight fund sources within these broad budget categories to track allocations for different types of maintenance. The types of projects eligible for different fund sources vary. For example, cyclic maintenance projects are preventive in nature, that is, projects intended to prevent growth of deferred maintenance. Officials at Manassas National Battlefield Park said that they received cyclic maintenance funds to do maintenance work on the roofs of several historic buildings, which helps prevent further damage to the interior walls, ceilings, and other parts of the buildings. Line item construction projects are generally larger in scope and expense. For example, an official at Yellowstone National Park said that in January 2016 park staff had proposed relocating a dormitory near the Old Faithful geyser to a safer location away from the release of harmful gases, at an estimated cost of $9.9 million. As shown in figure 4, the Park Service allocated the largest amounts of funds to facility operations ($328.9 million, or 30.3 percent) and transportation ($240 million, or 22.1 percent) in fiscal year 2015, and less than $100 million to the other types of maintenance work described by the remaining six fund sources. Table 2 shows that allocations have generally increased from fiscal year 2006 through 2015 for such fund sources as facility operations and recreation fees for routine maintenance. In contrast, allocations have generally decreased for other fund sources, such as line item construction, for the same time period. The Park Service’s deferred maintenance averaged about $11.3 billion from fiscal year 2009 through fiscal year 2015. In each of those years, deferred maintenance for paved roads made up the largest share of the agency’s deferred maintenance. The sum of deferred maintenance for assets in the other categories used by the Park Service generally declined from fiscal year 2009 through fiscal year 2015. Also, in fiscal year 2015, deferred maintenance varied broadly among other characteristics, such as asset priority, category of asset, when the park unit was established, and region. The Park Service’s deferred maintenance averaged about $11.3 billion in nominal dollars from fiscal year 2009 through fiscal year 2015. During that time, deferred maintenance in nominal dollars generally increased from about $10.2 billion in fiscal year 2009 to about $11.9 billion in fiscal year 2015, as shown in figure 5. Overall, the Park Service’s deferred maintenance in nominal dollars grew, on average, about 3 percent per year from fiscal year 2009 through fiscal year 2015. The Park Service reported that it had a portfolio of 75,526 assets at the end of fiscal year 2015, which the agency has organized into the following nine categories: Buildings, which includes structures such as visitor centers, offices, and comfort stations. Campgrounds. Housing, which includes Park Service and Department of the Interior employee housing and associated buildings, such as detached garages, shower and laundry facilities, and storage. Paved roads, which includes bridges, tunnels, paved parking areas, and paved roadways. Trails, which includes hiking trails. Unpaved roads, which includes unpaved parking areas and unpaved roadways. Water systems, which includes potable and nonpotable water systems. Waste water systems, which includes structures such as sanitary sewers and stormwater systems. All others, which includes other utility systems, dams, constructed waterways, marinas, aviation systems, railroads, ships, monuments, fortifications, towers, interpretive media, and amphitheaters, and other structures that did not fall into the other eight asset categories. Deferred maintenance for paved roads was consistently the largest category of the Park Service’s deferred maintenance from fiscal year 2009 through fiscal year 2015. On average, deferred maintenance for paved roads made up about 44 percent of the Park Service’s total deferred maintenance from fiscal year 2009 to fiscal year 2015 in both nominal and inflation-adjusted dollars, and it generally grew—from about $3.4 billion in fiscal year 2009 to about $6.0 billion in fiscal year 2015 (or, from $3.8 billion to $6.0 billion in fiscal year 2015 dollars). Overall, the sum of deferred maintenance for assets in the other eight categories generally declined—from about $6.8 billion to about $6.0 billion from fiscal year 2009 through fiscal year 2015 (or, from about $7.4 billion to about $6.0 billion in fiscal year 2015 dollars). However, within this group, deferred maintenance for some asset categories increased over the period. For example, deferred maintenance for water systems generally increased—from about $330 million in fiscal year 2009 to about $422 million in fiscal year 2015 (or, from about $361 million to $422 million in fiscal year 2015 dollars). Figure 6 shows the amount of deferred maintenance for each asset category over this period. The Park Service’s $11.9 billion in deferred maintenance in fiscal year 2015 varied by priority, asset category, park age, and region. About 20 percent ($2.4 billion) of the agency’s deferred maintenance in fiscal year 2015 was for what the Park Service identified as its highest priority, non-transportation assets. According to Park Service documents, the agency’s highest-priority assets are those that are critical to the operations and missions of their respective park units or have high visitor use. For example, the Park Service has identified a potable water distribution system at Grand Canyon National Park and a seawall at West Potomac Park located in the National Mall in Washington, D.C., as among the agency’s highest priority, non-transportation assets with some of the largest amounts of deferred maintenance—both with more than $50 million for fiscal year 2015. Nearly $6 billion (about 50 percent) of the Park Service’s deferred maintenance in fiscal year 2015 was associated with paved roads. As shown in figure 7, the all others category was the next largest in terms of the dollar amount of deferred maintenance, at about $2.4 billion (about 20 percent). In terms of the number of assets, buildings was the largest category in fiscal year 2015, accounting for about 25,000 of the Park Service’s more than 75,000 assets (about 33 percent), followed by all others with about 18,000 assets (about 24 percent) and paved roads with about 12,000 assets (about 16 percent), as shown in figure 8. The majority of the Park Service’s deferred maintenance in fiscal year 2015 was for assets in park units that were established more than 40 years ago. Specifically, about $10.5 billion in deferred maintenance was for park units established more than 40 years ago. Of these, park units established more than 100 years ago had the greatest amount of fiscal year 2015 deferred maintenance—more than $3.8 billion—as shown in figure 9. This includes parks such as the National Mall in Washington, D.C., with about $840 million; Yellowstone National Park, in Idaho, Montana, and Wyoming, with about $632 million; and Yosemite National Park, in California, with about $555 million. For assets in parks established in the last 40 years, deferred maintenance in fiscal year 2015 was about $1.0 billion. See appendix II for a listing of the top 100 park units in terms of deferred maintenance amounts. About $2.7 billion of the agency’s deferred maintenance is associated with parks located in the Pacific West Region. As shown in figure 10, four Park Service regions each had more than $1.8 billion in deferred maintenance, while the Midwest Region ($434 million) and the Alaska Region ($115 million) each had deferred maintenance well below $1 billion. The Park Service uses several tools to rate an asset’s importance and condition and assign maintenance priority to its assets. Park unit staff update asset condition information through periodic assessments and use that information to create work orders to address identified deficiencies, but they face some challenges in completing these tasks. Park unit staff combine these work orders each year to generate projects to address the deficiencies and identify fund sources for the various maintenance projects. Once projects are identified, park unit staff use the Park Service’s Capital Investment Strategy to rank maintenance projects for funding decisions. However, the Park Service has not evaluated its process for making asset maintenance decisions to determine if it is achieving intended outcomes. To assign maintenance priority to an asset, the Park Service uses two tools to rate an asset’s importance and condition—the asset priority index (API) and facility condition index (FCI)—both of which are consistent with asset management guidance from the Office of Management and Budget and the National Academies Federal Facilities Council. Park staff use the ratio of API to FCI to assign assets to a level of maintenance priority, called an optimizer band, and document how these calculations were made in Park Asset Management Plans. API identifies the relative importance of the various assets at a park. To do this, park unit staff use four weighted criteria to determine an asset’s API value on a scale from 1 to 100, in which assets that scored 100 are most important. The criteria follow: Resource preservation. This criterion identifies whether the asset directly contributes to a park’s ability to preserve natural resource processes, is a cultural asset, or enhances a park’s ability to preserve and protect its cultural resources. This criterion determines 35 percent of an asset’s API. Visitor use. This criterion identifies the extent to which the asset contributes to visitor accessibility, understanding, and enjoyment. Assets are rated as high, medium, low, or none, and the score contributes to 25 percent of an asset’s API. Park support. This criterion considers the extent to which an asset directly supports day-to-day operations of a park unit or employees’ ability to perform park operations. Assets are also rated as high, medium, low, or none under this criterion, and it contributes to 20 percent of an asset’s API. Asset substitutability. This criterion refers to the degree to which a comparable substitute asset exists to fulfill the functional requirements or purpose of that asset. To rate this criterion, park unit staff consider the question “if this asset is lost, what would be the impact,” and park unit staff are to answer high impact, low or no impact, or there is no substitute for the asset. This criterion determines 20 percent of an asset’s API. Park unit staff establish values for these criteria by answering a series of questions about each asset that are included in guidance provided by the Park Service. For example, one question used to establish an asset’s visitor use value is if the asset provides access to, houses, or delivers visitor understanding through education. The total API for each asset is recorded in the agency’s FMSS. Park Service officials said that an asset’s API should not change unless something substantial occurs, such as an asset being destroyed in a weather event or being taken out of service because it is no longer needed. If park unit staff determine that an asset’s API value should be changed, regional approval is needed to make the change. The Park Service’s use of API as part of its process for making asset maintenance decisions is consistent with the Office of Management and Budget’s Capital Programming Guide, which states that the use of tools such as API helps managers identify the most important assets and provides logical guidance for directing limited funding. In addition, the guide notes that API is important for planning for recurring maintenance and preventive maintenance. FCI is a method of measuring the current condition of an asset to assess how much work, if any, is recommended to maintain or change its condition to acceptable levels to support organizational missions. The Park Service uses FCI to rate the condition of an asset on a scale from 0 to 1. It is calculated by dividing the deferred maintenance associated with an asset by its current replacement value, and the lower the asset FCI value, the better the condition of the asset. For example, a new asset would likely have little or no deferred maintenance associated with it and therefore have a low FCI. Park unit staff record the projected cost of repairs and current replacement value for each asset in FMSS and update those values when appropriate. To calculate the projected cost of an asset’s repair, park unit staff use the Park Service’s cost estimating software system. The system bases calculations on industry standard tools, materials, and methods according to data from a North American supplier of construction cost information. In addition, the Park Service instructs staff to consider adjustments as needed, such as when requirements for historically accurate materials or construction methods are required. For example, according to a maintenance official at Independence National Historic Park in Philadelphia, repairs to a deteriorated rain gutter on Independence Hall were more complex and expensive than similar work on modern or nonhistoric buildings. A failed section of the gutter’s downspout had to be replaced with historically accurate materials in order to meet cultural resource preservation standards. To avoid damaging historic building fabric nearby, the new section of pipe was soldered into place with unique equipment that did not use a flame. Park unit staff calculate the current replacement value of an asset using the Park Service’s current replacement value calculator. According to Department of the Interior policy, current replacement value is defined as the standard industry cost and engineering estimate of materials, supplies, and labor required to replace an asset at its existing size and functional capability, and to meet applicable regulatory codes. The Park Service’s use of FCI as part of its process for making asset maintenance decisions is consistent with the Federal Real Property Council’s Guidance for Real Property Inventory Reporting, which identified this type of condition index as a performance measure. In addition, in 2005, the National Academies Federal Facilities Council found that many agencies use FCI to measure the current condition of assets to assess how much work, if any, is recommended to maintain or change their condition to acceptable levels to support organizational missions. The Park Service uses the ratio of an asset’s API and FCI to assign the asset to an optimizer band, which is used to determine the priority level for maintenance. The agency began using optimizer bands in 2012 to help determine which projects would obtain project funds and ensure that limited funds are allocated to the most important assets. According to Park Service guidance, optimizer bands act as a triage framework for allocating limited funds. For example, optimizer band 1 assets are the highest-priority assets. The agency defines them as critical to the operations and mission of a park unit or as having high visitor use. They are to be considered first for funding to keep them in good condition. In contrast, optimizer band 5 assets are the lowest-priority assets. The agency does not need them for the operations and mission of the park, and many of these assets may be candidates for disposal. To ensure that the highest-priority assets are maintained to the greatest extent possible, the Park Service established minimum levels of funding park units are to allocate for preventive maintenance. Specifically, park units are to use funds from the operations budget category to address a minimum of 55 percent of the preventive maintenance work needed to maintain optimizer band 1 assets in good condition. The minimum levels of funding for optimizer bands 2 and 3 are 50 and 25 percent, respectively, and there are no minimum levels of funding for bands 4 and 5. Park unit staff have some flexibility in assigning assets to optimizer bands. Park Service officials said that park units may reassign an asset to a different optimizer band, but that these changes are to be approved by regional officials. Officials we interviewed at some of the park units said that they had changed optimizer bands for some assets. For example, one park unit changed the optimizer band of the building where park unit staff work from optimizer band 3 to optimizer band 2. Officials at this park unit said that the building is vital to the park because it is the only building space in or near the park that staff can use to perform the administrative duties required for managing a park unit, including maintaining FMSS. However, the building had been assigned to optimizer band 3 because it has no visitor use, which meant that the asset was not a priority for maintenance funding and therefore difficult to keep in acceptable condition. Officials at other park units identified reasons to change the optimizer band levels. For example, officials at two park units noted that the quality of housing can be poor because of low maintenance priority, which can affect both the ability of staff to do their jobs well and the visitor experience. According to Park Service officials, housing can also deteriorate past the point of acceptable living conditions, at which point park units would no longer be able to use those assets to house employees. Park unit staff report asset optimizer bands, as well as API and FCI, in their Park Asset Management Plans. Many of the park unit officials we interviewed said that they had most recently established these values for their assets within the last 7 years, often as part of updating the park unit’s Park Asset Management Plan. According to Park Service asset management guidance, a Park Asset Management Plan is a strategic and operational plan that park units are to develop to articulate how the park unit intends to manage its asset portfolio over a 10-year period based on the analysis of asset data. Park Service officials said that park units use them to assess all of their assets and determine the amount of funds needed to maintain assets in good condition. The Office of Management and Budget’s 2015 Capital Planning Guide does not use the term optimizer band but notes that graphical representations of a distribution of assets graphed by their importance to mission and their condition can be a useful tool in segmenting and presenting asset portfolios. Specifically, by plotting an asset according to API and FCI, an agency can determine when an asset no longer supports the mission of the site or bureau or is a candidate for disposal because it has a low API and high FCI. The Park Service’s asset management plan instructs park units to determine the condition of park assets through annual condition assessments—high-level inspections that identify obvious and apparent deficiencies—and comprehensive condition assessments—more detailed assessments of assets performed every 5 years. The plan also instructs park unit staff to record condition assessment information in FMSS and update the projected cost of repairs of the asset. Officials we interviewed at several of the park units said that for annual assessments staff regularly visually inspect assets during the normal course of business, such as opening buildings for seasonal use or performing maintenance on nearby assets. Some officials also said that comprehensive assessments are either performed by park unit staff with expertise or contractors. For example, a regional official said that park units in the region hired contractors to inspect sewer lines as part of a comprehensive assessment, since they do not have in-house expertise to do so. The Park Service provides guidance to park unit staff on how to perform comprehensive assessments for each of the asset categories. Officials we interviewed at several park units said that they organize comprehensive condition assessments to account for 20 percent of park assets annually, so that they can complete a comprehensive condition assessment for all park assets within a 5-year period. Officials we interviewed at more than half of the park units said that they were unable to complete annual or comprehensive assessments of all assets on schedule because of other duties or scheduling challenges. Specifically, staff who are to conduct the assessments perform other duties, such as overseeing asset maintenance and entering and maintaining asset data in FMSS. Park unit officials also said that Park Service headquarters makes frequent data requests—for example, for electric utility metering data, or for verification of square footage values in FMSS—and that these data requests can interfere with park unit staff’s ability to complete tasks, including condition assessments, on time. In addition, some park units are located remotely or in challenging climates, making it difficult to inspect all assets on the recommended schedule. For example, officials we interviewed at three park units said that they had to hike or fly to certain assets because they are located remotely or the assets are inaccessible in the winter because of snow; however, winter might be the only time the park unit had staff available to conduct assessments. For Park Service paved roads and bridges, the Department of Transportation conducts condition assessments for the Park Service. According to Department of Transportation officials, they typically conducts condition assessments of major paved roads—thoroughfares in large parks with more than 10 miles of roadway—within each park unit once every 5 years and of secondary paved roads once every 10 years. In addition, the department conducts condition assessments of all bridges within each park unit once every 2 years in accordance with National Bridge Inspection Standards. Specifically, a team of six to eight Department of Transportation staff, working in teams of two, drive a vehicle with special equipment that can assess the condition of the pavement along park roads. Department of Transportation officials estimate that these teams have assessed about 5,900 road miles in the last 4 years; by comparison, the Park Service has 5,500 miles of paved roads. Once a road is assessed, the Department of Transportation provides the condition data to relevant park unit staff who enter the data into FMSS and determine if a work order is needed. Based upon the condition assessments, Park Unit staff create one or more work orders in FMSS that document an asset’s deficiencies. They, in turn, combine work orders to generate projects to conduct the maintenance work needed to address identified deficiencies. Specifically, according to Park Service officials, staff bundle a series of work orders to address multiple deficiencies—such as replace a door, paint a wall, or fix the roof—in one building as part of the same project. Work orders generally contain a basic description of the work needed and an estimate of the material and labor costs, among other things. Park units submit these maintenance projects annually to the regional offices as part of an agency-wide call for projects, which marks the beginning of the Park Service’s budget formulation cycle. Park Service headquarters officials provide guidance to help park units to identify which fund sources can be used for a project, among other things. The staff may also choose to address a deficiency directly, using the park unit’s facility operations funds rather than applying for project funds. Some park unit officials we interviewed said that they typically do this for maintenance work that is routine in nature, such as grounds keeping. The Park Service’s most recent agency-wide call for projects was for projects to be funded in fiscal year 2019, and it directed park units and regional offices to have projects ready for review by headquarters by April 3, 2017. As part of doing this, park unit staff identify which of the Park Service’s fund sources would be appropriate to use for the various maintenance projects. To identify the appropriate fund source, park unit staff use information about the nature of the maintenance work needed as identified in the project’s work orders, as well as the annual fund source guidance that the Park Service provides. The guidance for each fund source includes questions about the projects to help determine if the project is eligible for a particular fund source. For example, to obtain cyclic funds for a project, fund source guidance has directed park unit staff to explain how the project supports or extends the life cycle of the asset or how funding the project will positively affect visitor health and safety, among other things. Park unit staff also enter projects into the agency’s Project Management Information System. All projects entered into this system then compete for funds in the region, or nationwide, depending on the type of project and fund source. Since 2012, the Park Service has used its Capital Investment Strategy to evaluate and rank maintenance projects for funding. Agency officials stated that the Capital Investment Strategy was created to help ensure that park units do not allow assets to fall into a severe state of disrepair before repairing them. According to the Park Service’s Capital Investment Strategy Guidebook, the strategy is designed to promote several of the agency’s mission goals, including the repair and improvement of assets that parks commit to maintain in good condition and the disposition of nonessential facilities to reduce deferred maintenance. In addition, one of the strategy’s objectives is to enable the Park Service to demonstrate to Congress and others that the agency optimizes taxpayer dollars to preserve high-priority assets. To meet this objective, the Capital Investment Strategy uses a formula based on asset information to score projects and gives preference to projects that address assets in optimizer bands 1 or 2. As part of the agency-wide call for projects, park unit staff use the Capital Investment Strategy to score projects that will be funded by the cyclic maintenance, repair and rehabilitation, line item construction, Federal Lands Transportation Program, and recreation fees fund sources in the Project Management Information System. The formula used in the Capital Investment Strategy scores projects from 1 to 1,000 by, in part, individually evaluating each work order in a project according to FMSS data in four elements: financial sustainability, resource protection, visitor use, and health and safety. For example, the visitor use element considers investment in assets that directly enable outdoor recreation as well as interpretive media. The most points within this element are awarded to those projects that improve and sustain the experience of the greatest number of visitors. Projects are scored higher if they target optimizer band 1 or 2 assets for deferred maintenance reduction and optimizer band 5 assets for disposition. Park Service officials, either at the regional office or headquarters, review and approve projects for funding based on the fund source guidance provided as part of the agency-wide call for projects. For all fund sources except for line item construction, Park Service regional officials determine which maintenance projects are to receive funding by convening expert panels, which review the scored projects provided by the park units in their regions. For maintenance projects associated with the repair and rehabilitation fund source that are estimated to cost less than $1 million, the Park Service convenes a nationwide panel of experts to determine which will be funded. For line item construction projects estimated at more than $1 million, Park Service headquarters staff review and select which projects will receive funding. The Park Service identifies the line item construction projects the agency wants to fund by name, description, estimated cost, and project score in its annual budget justification submission to Congress. Fiscal year 2015 was the first budget year in which projects ranked using the strategy were funded, and as such some regional and park unit officials said that it is too soon to determine if the Capital Investment Strategy is meeting its objectives, such as maintaining the condition of its high-priority assets. Officials we interviewed at more than half of the park units said that the Capital Investment Strategy so far has helped them identify their park units’ most important maintenance needs. However, several regional and park unit officials said that the Capital Investment Strategy’s focus on optimizer band 1 and 2 assets could result in continued deterioration of assets in other optimizer bands, leading to increased deferred maintenance. The Park Service does not have a plan or time frame for evaluating whether the strategy has been successful. A senior official said that the agency had not determined what is needed to begin such an evaluation and that it would be beneficial to verify that the Capital Investment Strategy is achieving intended outcomes and if changes need to be made. According to the National Academies Federal Facilities Council, investments made in assets are not often immediately visible or measurable but are manifest over a period of years, and it is important that agencies track the outcomes of those investments to improve decision making about those investments and to improve asset management. Moreover, according to the council, to understand the outcomes of facilities investments, federal agencies need to establish facilities asset management performance goals that have a time frame for attainment, among other things. By evaluating the Capital Investment Strategy and its results after it has been in place for a few years, the Park Service may be able to determine if the strategy is achieving its intended outcomes or if changes need to be made. For example, the agency could consider evaluating the improvement or deterioration in the overall condition of assets in each optimizer band to determine whether the agency should continue to prioritize allocations to maintenance on optimizer band 1 and 2 assets. The Park Service is taking a variety of actions to help address asset maintenance needs and potentially reduce deferred maintenance. These actions include the following: Using philanthropic donations. The Park Service receives donations from several philanthropic sources to enhance park assets and, in some cases, address maintenance needs. For example, the National Park Foundation intends to raise up to $350 million to support the Park Service as part of its Centennial Campaign for America’s National Parks. The foundation reported in February 2016 that it had raised about $200 million toward this goal. Some of these funds are to be used to address asset maintenance, such as repairing trails at Jenny Lake in Grand Teton National Park in Wyoming and rehabilitating Constitution Gardens, part of the National Mall, in Washington, D.C. Stemming from the National Park Foundation’s efforts, in July of 2014 the Park Service announced a donation of about $12 million to restore and improve access to Arlington House, the Robert E. Lee Memorial, which is located in Arlington National Cemetery. In addition, philanthropic funds are available through the Centennial Challenge program. From fiscal years 2015 through 2016, Congress appropriated $25 million for this program. For projects funded by this program, at least 50 percent of the costs must come from nonfederal donations. According to Park Service documents, the agency has selected more than 150 projects to be funded by the program, which as of October 20, 2016, had received more than $45 million in matching funds from philanthropic donors. Some of the projects are to directly address deferred maintenance, such as a project at the Chesapeake and Ohio Canal National Historical Park that will rehabilitate the Conococheague Aqueduct in Maryland. Working with volunteers. Volunteer groups are providing assistance to several parks to help address asset maintenance needs. For example, at the Great Smoky Mountains National Park, in North Carolina and Tennessee, a local volunteer group maintains several of the park’s trails. Park unit officials said this arrangement has reduced the deferred maintenance for the park’s trails by about $1 million since 2009. Officials at some of park units we interviewed said volunteer groups perform a variety of maintenance duties that help address deferred maintenance, including grounds and facilities cleanup, clearing roadways of vegetation, and campground maintenance. Leasing properties. Several park units are leasing assets to other parties in exchange for the lessee rehabilitating or maintaining the assets. According to Park Service documents, all net income from such leases is to be reinvested to fund historic preservation, capital improvements of historic properties, park infrastructure, or any deferred maintenance needs. For example, the Park Service leases several buildings at the Golden Gate National Recreational Area in San Francisco. The Park Service also leases several historic buildings at Hot Springs National Park in Arkansas. Park unit officials said that the buildings at Hot Springs were in serious disrepair prior to being leased. The officials said that the lessees are to repair and rehabilitate the structures in lieu of rent for the first several years of their lease terms, thereby reducing the park’s deferred maintenance. Officials at some of the park units we interviewed said that they were considering implementing leasing programs, in part, to help reduce their deferred maintenance. To help facilitate leasing, the Park Service hired a national leasing manager in 2015 to formalize its leasing program, and some parks units and regions have developed active leasing programs. Engaging partners. The Park Service is engaged in partnerships where outside organizations are assuming some asset maintenance responsibilities. For example, the Park Service entered into a partnership with a nonprofit organization to operate and maintain the visitor center associated with Independence National Historical Park in Philadelphia. In this case, the Park Service owns the visitor center and contributes funds—about $800,000 annually—to cover some of its basic operating costs, but the nonprofit organization covers the majority of the facility’s operating and maintenance costs. Park unit officials said that the 30-year agreement with the nonprofit organization provides the park with a modern visitor center that maintenance staff do not have to physically maintain, and provides a location where rangers can be stationed to answer questions about the park. Entering into other arrangements. The Park Service is taking steps to reduce, or in some cases eliminate, the need to allocate maintenance funds to some park assets by entering into arrangements with other entities to manage those assets. For example, officials at two of the park units we interviewed said that they had turned over the some of their campgrounds to concessioners to operate and maintain. Partnering with states for transportation grants. The Park Service has worked with states to submit joint applications for a variety of Department of Transportation grants. For example, the Park Service, jointly with the District of Columbia’s Department of Transportation, received a $90 million grant from the Department of Transportation’s Fostering Advancements in Shipping and Transportation for the Long- Term Achievement of National Efficiencies (or FASTLANE) grant program to rehabilitate the Arlington Memorial Bridge, which links the District of Columbia to Arlington National Cemetery in Virginia. In addition, the Tennessee Department of Transportation received a $10 million Department of Transportation grant—Transportation Investment Generating Economic Recovery (or TIGER) grant—to complete a section of the Foothills Parkway that runs through Great Smoky Mountains National Park, in North Carolina and Tennessee. The Park Service contributed an additional $10 million and the state contributed an additional $15 million in funds toward the $35 million project. Park Service officials said that these actions have helped address deferred maintenance at some park units, but that not all of these activities are well-suited to all park units or all maintenance needs. For example, they said that not all park units have assets that would be desirable for leasing. In addition, officials at several park units we interviewed said that philanthropic donors generally prefer to donate funds to projects that enhance parks or add new features, as opposed to addressing existing maintenance needs. The Park Service has allocated $1.16 billion on average to maintain its assets in fiscal years 2006 through 2015, but its deferred maintenance has continued to increase. To address its maintenance needs, the agency uses tools that are consistent with asset management guidance from the Office of Management and Budget and the National Academies Federal Facilities Council. In addition, the Park Service has determined that its highest-priority assets should be considered first for funding to keep them in good condition, and park unit staff use the agency’s Capital Investment Strategy to rank and prioritize projects for funding. However, several of the regional and park unit officials we interviewed said that the focus on high-priority assets may result in continued deterioration of less-critical assets, thereby increasing deferred maintenance. The Park Service does not have a plan or time frame for evaluating whether the Capital Investment Strategy has been successful. We recognize that it may be too soon to determine if the strategy is meeting its objectives given that fiscal year 2015 was the first budget year in which projects ranked using the strategy were funded. However, evaluating the Capital Investment Strategy and its results in a few years may allow the Park Service to determine if the strategy is achieving its intended outcomes or if changes need to be made. To ensure that the elements of the agency’s process for making asset maintenance decisions are achieving desired outcomes, we recommend that the Secretary of the Interior direct the Director of the Park Service to evaluate the Capital Investment Strategy and its results to determine if it is achieving its intended outcomes or if changes need to be made. We provided a draft of this report to the Departments of the Interior and Transportation for review and comment. The GAO Audit Liaison from the Department of the Interior responded via e-mail on December 5, 2016, that the department agreed with our recommendation and also provided technical comments, which we incorporated as appropriate. The Department of Transportation had no comments. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretaries of the Interior and Transportation, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made major contributions to this report are listed in appendix III. Our objectives were to examine (1) how much the National Park Service (Park Service) has allocated to maintain assets in fiscal years 2006 through 2015, (2) the amount and composition of the Park Service’s deferred maintenance in fiscal years 2009 through 2015, (3) how the Park Service makes asset maintenance decisions, and (4) the actions the Park Service is taking to help address its maintenance needs. To examine how much the Park Service has allocated to maintain assets in fiscal years 2006 through 2015, we obtained and analyzed maintenance allocation data from the Park Service for that period. According to the Park Service, deferred maintenance data from the end of fiscal year 2015 were the most current data available when we began this review. We analyzed the data to determine the amount of funds the Park Service had allocated in each year to the eight fund sources the agency uses for maintenance work: cyclic maintenance, repair and rehabilitation, facility operations, line item construction, recreation fees for routine maintenance, recreation fees for capital improvements, recreation fees for deferred maintenance, and Federal Lands Transportation Program. We assessed the reliability of these data through interviews with Park Service officials who were familiar with these data and reviews of relevant documentation. We found these data to be sufficiently reliable for the purposes of our reporting objectives. We also examined Park Service budget documents, including several agency budget justifications, and interviewed relevant Park Service officials at headquarters, regional offices, and park units to better understand the fund sources used for maintenance work. In addition, we obtained and analyzed Park Service funding data for fiscal years 2006 through 2015 from the Office of Management and Budget MAX Information System to compare agency funding to maintenance allocations. To examine the amount and composition of Park Service’s deferred maintenance in fiscal years 2009 through 2015, we obtained and analyzed Park Service data on deferred maintenance for the agency’s assets. We obtained these data from the Facility Management Software System (FMSS), an agency-wide database that Department of the Interior agencies, including the Park Service, use to collect, track, and analyze asset management data. We also interviewed Park Service staff at the headquarters, regional, and park unit levels to better understand deferred maintenance. We began our data analysis with fiscal year 2009 because it is the first year the Park Service reported deferred maintenance for all of the assets under its management. From fiscal years 2006 through 2008, the Park Service reported deferred maintenance for eight major asset categories as agreed with the Office and Management and Budget—paved roads, buildings, campgrounds, housing, trails, unpaved roads, water systems, and waste water systems. In fiscal year 2009, the Park Service began reporting deferred maintenance for an additional category called all others to convey the deferred maintenance for assets that did not, by definition, fall into one of the other eight categories. The all others category used by the Park Service includes assets such as marinas, railroads, and interpretive media. We determined how the amount and composition of deferred maintenance had changed from fiscal year 2009 to fiscal year 2015 by obtaining Park Service reports generated from FMSS on the amount of deferred maintenance for each fiscal year by major asset category. According to the Park Service, deferred maintenance data from the end of fiscal year 2015 are the most current data available and include 409 park units as well as other properties under Park Service jurisdiction, such as regional offices. Park Service officials said that the data provided for each fiscal year were a snapshot in time that reflected the asset categorization methods in place at the time each report was generated. For example, officials said that some assets categorized as one type may have been treated as another type in a subsequent year. We analyzed these data over this period in both nominal and inflation-adjusted terms. We also obtained detailed data for fiscal year 2015 from FMSS for each of the Park Service’s more than 75,000 assets. We analyzed these data to identify how deferred maintenance varied according to certain key characteristics, such as asset priority, asset category, park unit age, and region. We assessed the reliability of the data by interviewing Park Service officials familiar with these data, observing those officials use FMSS, and reviewing relevant documentation. We found these data to be sufficiently reliable for the purposes of our reporting objectives. To determine how the Park Service makes asset maintenance decisions and to identify actions the Park Service is taking to help address maintenance needs, we interviewed relevant officials at the headquarters level. We also interviewed Department of Transportation officials who described the process the department uses to assess the condition of Park Service roads and bridges; park unit staff use these assessments to make maintenance decisions about those assets. In addition, we analyzed relevant documents, such as the Park Service’s Asset Management Plan, asset maintenance guidance documents, the Capital Investment Strategy Guidebook, and fact sheets, to obtain additional information about the process and tools. We compared information we learned about the Park Service’s process for making asset management decisions to the Office of Management and Budget’s Capital Programming Guide, the Federal Real Property Council’s Guidance for Real Property Inventory Reporting, and the National Academies Federal Facilities Council’s Key Performance Indicators of Federal Facilities Portfolios. We supplemented our analysis with information obtained from our prior reports. In addition, we interviewed the chief facility management official at each of the Park Service’s seven regions to understand the role they play in overseeing and managing maintenance needs at the park units within their regions. We also asked them to identify park units within their regions that had taken notable actions to help address deferred maintenance. We conducted semistructured interviews at 21 park units to learn about the process each follows to make asset maintenance decisions as well as actions the park units were taking to help address deferred maintenance. From the 409 park units in existence when we began this review, we selected 21 parks based on several criteria. Specifically, for each of the seven regions, we selected three parks: (1) the park with the greatest amount of deferred maintenance as of the end of fiscal year 2015, (2) a park that had a deferred maintenance amount in the lower half of all park units in that region, and (3) a park unit recommended by regional officials as taking additional or notable actions to help address deferred maintenance. We also ensured that these parks represented different types of park unit types, such as scenic, historical, military, recreational, and seashores. This sample is not generalizable to all park units. We visited 3 of these park units in person—(1) Independence National Historical Park, in Philadelphia; (2) George Washington Memorial Parkway, in Maryland, Virginia, and Washington, D.C.; and (3) Manassas National Battlefield Park, in Virginia—and interviewed officials with the remaining 18 park units by telephone or in person. See table 3 for a list of the parks we selected, along with selection criteria. We conducted this performance audit from July 2015 to December 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Table 4 shows the top 100 National Park Service park units ranked by the amount of deferred maintenance as of the end of fiscal year 2015. In addition to the contact named above, Elizabeth Erdmann (Assistant Director), Ying Long, Mick Ray, Anne Rhodes-Klein, and Michelle K. Treistman made key contributions to this report. Additional contributions were made by John Bauckman, Anna Brunner, Greg Campbell, Antoinette Capaccio, Scott Heacock, Carol Henn, Kim McGatlin, John Mingus, and Carmen Yeung.

The Park Service manages more than 75,000 assets, including buildings, roads, and water systems, at 413 park units across all 50 states. In 2015, the agency estimated that its deferred maintenance on these assets was $11.9 billion. GAO was asked to review how the Park Service manages its maintenance needs. This report examines, among other things, (1) agency allocations to maintain assets in fiscal years 2006 through 2015, (2) the amount and composition of the agency's deferred maintenance in fiscal years 2009 through 2015, and (3) how the agency makes maintenance decisions. To conduct this work, GAO analyzed Park Service allocation data for fiscal years 2006 through 2015 and deferred maintenance data in fiscal years 2009 (first year data for all assets was available) through 2015 (most current data available); reviewed planning and guidance documents and compared the process for making asset management decisions to guidance developed by the National Academies, among others; and interviewed Park Service officials at headquarters, all seven regions, and 21 park units selected to include those with large and small amounts of deferred maintenance, among other things. This sample is not generalizable to all park units. In fiscal years 2006 through 2015, the Department of the Interior's National Park Service (Park Service) allocated, on average, $1.16 billion annually to maintain assets. In fiscal year 2015, allocations to maintenance accounted for about one-third (or $1.08 billion) of the agency's total funding of $3.3 billion. The largest portion of maintenance funds in fiscal year 2015 was allocated to facility operations, which includes maintenance that is routine in nature, such as maintenance of trails. The Park Service's deferred maintenance—maintenance of its assets that was not performed when it should have been and is delayed for a future period—averaged $11.3 billion from fiscal years 2009 through 2015. Bridges, tunnels, and paved roadways consistently made up the largest share of the agency's deferred maintenance, accounting for half of all deferred maintenance in fiscal year 2015. Older park units have the most deferred maintenance, with $10.5 billion in fiscal year 2015 in park units established more than 40 years ago. The Park Service uses several tools to determine an asset's importance and condition and assign maintenance priority. Park unit staff assess the condition of the asset and identify maintenance projects. Once identified, park unit staff use the agency's Capital Investment Strategy to evaluate and rank projects. Projects score higher if they target critical assets with deferred maintenance. Fiscal year 2015 was the first budget year in which projects ranked using the strategy were funded, and regional and park unit officials said that it is too soon to determine if the strategy is meeting its objectives, such as maintaining the condition of its most important assets. However, the Park Service does not have a plan or timeframe for evaluating whether the strategy has been successful. A senior official said that the agency has not determined what is needed to begin such an evaluation and that it would be beneficial to verify that the Capital Investment Strategy is achieving intended outcomes. According to the National Academies Federal Facilities Council, it is important that agencies track the outcome of investments to improve decision making and asset management. Evaluating the strategy may help the Park Service determine if the strategy is achieving intended outcomes or if changes need to be made. GAO recommends that the Park Service evaluate the Capital Investment Strategy and results to assess whether it has achieved its intended outcomes. The Department of the Interior agreed with GAO's recommendation.

You are an expert at summarizing long articles. Proceed to summarize the following text: DFAS, as DOD’s central accounting agency, is responsible for recording and processing accounting transactions; paying vendors, contractors, and military and civilian employees; preparing reports used by DOD managers and by the Congress; and preparing DOD-wide and service-specific financial statements required by the Chief Financial Officers Act. Organizationally, DFAS is under the direction of the Under Secretary of Defense (Comptroller). Table 1 illustrates the enormous scope and importance of DFAS’s reported fiscal year 2002 financial operations. DFAS’s fiscal year 2003 IT budgetary request was approximately $494 million. Of that amount, $353 million relates to the operation and maintenance of existing DFAS systems and the remaining $141 million is for the modernization of systems. The purpose of each DFAS project we reviewed is highlighted below. DFAS Corporate Database/DFAS Corporate Warehouse (DCD/DCW). DCD and DCW were originally separate initiatives. DCD was initiated in October 1998, and was to be the single DFAS database, meaning it was to contain all DOD financial information required by DFAS systems and would be the central point for all shared data within DFAS. To accomplish this goal, DCD would crosswalk detailed transaction data from nonstandard finance and feeder systems into a standard format. Further, once the department implemented standard systems, the need to perform these crosswalks would be eliminated. In February 2001, the project’s scope was revised after DFAS realized that crosswalks of detail transaction data were cumbersome and cost prohibitive. DFAS is planning to crosswalk detailed transaction data only when information from multiple systems must be aggregated to satisfy a cross-service need such as the working capital fund activities. DCW was initiated in July 2000 to provide a historical database to store and manage official DFAS information for analysis and generation of operational reports and queries. In November 2000, the DFAS CIO combined DCD/DCW into one program. In March 2001, DCD/DCW was designated as a major automated information system. Defense Procurement Payment System (DPPS). DFAS determined the need for DPPS in April 1995. DPPS was intended to be the standard, automated information system for contract and vendor pay authorization and addressing deficiencies associated with overpayments, negative unliquidated obligations, and unmatched disbursements—all of which are long-standing problems in DOD. DPPS also was to incrementally replace eight contract and vendor systems. In October 1995, the DFAS Director approved proceeding with defining and evaluating the feasibility of alternative concepts and assessing the relative merits of these concepts. In November 1996, the Office of the Assistant Secretary of Defense (Command, Control, Communications, and Intelligence)—DOD’s CIO— designated DPPS a major automated information system. DFAS awarded a contract in June 1998 for the acquisition of a system that was intended to address DOD’s contract and vendor pay deficiencies. Defense Standard Disbursing System (DSDS). Disbursing activities for DOD are largely accomplished through systems that were designed 15-20 years ago. In 1997, DFAS launched DSDS to be the single, standard DFAS automated information system for collecting, processing, recording, and reporting disbursement data and transactions for the military services and defense agencies. These disbursing functions are currently being provided by multiple automated information systems and manual activities at various DFAS locations. Defense Departmental Reporting System (DDRS). In April 1997, DFAS initiated DDRS to be the standardized departmental reporting system. DDRS has two phases. The first phase—DDRS-AFS (Audited Financial Statements)—is intended to be a departmentwide financial reporting system. The second phase—DDRS-Budgetary—is intended to establish a departmentwide budgetary reporting system. Among other things, DDRS is intended to reduce the number of departmental reporting systems and standardize departmental general ledger processes. These four projects are part of the DFAS Corporate Information Infrastructure (DCII) program. According to DFAS, DCII is intended to facilitate cross-functional, integrated processes; promote standardized data and reporting; facilitate standardized business practices; reduce cost of operations; and provide timely information for decision making. Figure 1 depicts a high-level view of the interrelationships among these four system projects. DOD and DFAS have an established acquisition management and oversight process for acquiring, operating, and maintaining business systems. Among other things, this process requires project managers to provide cost, schedule, and performance data to the DFAS Chief Information Officers/Business Integration Executive (CIO/BIE) Council—DFAS’s IT investment board—prior to scheduled milestone reviews. These milestones are intended to be decision points for determining whether a project should continue in the current phase of the system life-cycle, proceed to the next phase, be modified, or be terminated. The results of these reviews are to be set forth in a system decision memorandum which is to be signed by the milestone decision authority. The milestone decision authority for DSDS and DDRS is the Director, DFAS. The DOD CIO is the milestone decision authority for DCD/DCW and DPPS. We and the DOD Inspector General have continued to report on a variety of long-standing management problems for modernizing DOD’s IT systems. Three recent system endeavors that have fallen short of their intended goals illustrate these problems. They are the Standard Procurement System, the Defense Travel System, and the Defense Joint Accounting System. These efforts were aimed at improving the department’s financial management and related business operations. Significant resources—in terms of dollars, time, and people—have been invested in these three efforts. Standard Procurement System (SPS). In November 1994, DOD began the SPS program to acquire and deploy a single automated system to perform all contract management-related functions within DOD’s procurement process for all DOD organizations and activities. The laudable goal of SPS was to replace 76 existing procurement systems with a single departmental system. DOD estimated that SPS had a life-cycle cost of approximately $3 billion over a 10-year period. According to DOD, SPS was to support about 43,000 users at over 1,000 sites worldwide and was to interface with key financial management functions, such as payment processing. Additionally, SPS was intended to replace the contract administration functions currently performed by the Mechanization of Contract Administration Services, a system implemented in 1968. Our July 2001 report and February 2002 testimony identified weaknesses in the department’s management of its investment in SPS. Specifically: The department had not economically justified its investment in the program because its latest (January 2000) analysis of costs and benefits was not credible. Further, this analysis showed that the system, as defined, was not a cost-beneficial investment. The department had not effectively addressed the inherent risks associated with investing in a program as large and lengthy as SPS because it had not divided the program into incremental investment decisions that coincided with incremental releases of system capabilities. Although the department committed to fully implementing the system by March 31, 2000, this target date had slipped by over 3 ½ years to September 30, 2003, and program officials have recently stated that this date will also not be met. Defense Travel System (DTS). In July 2002, the DOD Inspector General raised concerns that DTS remained a program at high risk of not being an effective solution in streamlining the DOD travel management process. The report stated that “The Defense Travel System was being substantially developed without the requisite requirements, cost, performance, and schedule documents and analyses needed as the foundation for assessing the effectiveness of the system and its return on investment.” The report further noted there was increased risk that the $114.8 million and 6 years of effort already invested will not fully realize all goals to reengineer temporary duty travel, make better use of IT, and provide an integrated travel system. Additionally, the DOD Inspector General reported that DTS was to cost approximately $491.9 million (approximately 87 percent more than the original contract cost of $263.7 million) and DOD estimates that deployment will not be completed until fiscal year 2006, approximately 4 years behind schedule. Defense Joint Accounting System (DJAS). In 1997, DOD selected DJAS to be one of three general fund accounting systems. The other two general fund systems were the Standard Accounting and Reporting System and the Standard Accounting and Budgetary Reporting System. As originally envisioned, DJAS would perform the accounting for the Army and the Air Force as well as the DOD transportation and security assistance areas. Subsequently, in February 1998, DFAS decided that the Air Force could withdraw from using DJAS, because either the Air Force processes or the DJAS processes would need significant reengineering to permit use of a joint accounting system. As a result, the Air Force started its own general fund accounting system—General Fund and Finance System—which resulted in the development of a fourth general fund accounting system. In June 2000, the DOD Inspector General reported that DFAS was developing DJAS at an estimated life-cycle cost of about $700 million without demonstrating that the program was the most cost-effective alternative for providing a portion of DOD’s general fund accounting. More specifically, the report stated that DFAS had not developed a complete or fully supportable feasibility study, analysis of alternatives, economic analysis, acquisition program baseline, or performance measures, and had not reengineered business processes. As part of its ongoing business systems modernization program, and consistent with our past recommendation, DOD is creating a repository of information about its existing systems environment. As of October 2002, DOD reported that its current business systems environment consisted of 1,731 systems and system acquisition projects. In particular, DOD reported that it had 374 systems to support civilian and military personnel matters, 335 systems to perform finance and accounting functions, and 310 systems that produce information for management decision making. Table 2 presents the composition of DOD business systems by functional area. As we have previously reported, these numerous systems have evolved into the overly complex and error prone operation that exists today, including (1) little standardization across DOD components, (2) multiple systems performing the same tasks, (3) the same data stored in multiple systems, (4) manual data entry into multiple systems, and (5) a large number of data translations and interfaces that combine to exacerbate problems with data integrity. The department has recognized the uncontrolled proliferation of systems and the need to eliminate as many systems as possible and integrate and standardize those that remain. In fact, three of the four DFAS projects we reviewed were intended to reduce the number of systems or eliminate a portion of different systems that perform the same function. For example, DPPS was intended to consolidate eight contract and vendor pay DDRS is intended to reduce the number of departmental reporting systems from seven to one; and DSDS is intended to eliminate four different disbursing systems. Similarly, DTS is intended to be the DOD-wide travel system. According to data reported by DOD, currently there are 32 travel systems operating within the department. For fiscal year 2003, DOD has requested approximately $26 billion in IT funding to support a wide range of military operations as well as DOD business system operations. As shown in figure 2, the $26 billion is spread across the military services and defense agencies. Each receives its own funding for IT investments. The $26 billion supports three categories of IT—business systems, business systems infrastructure, and national security systems (NSS)—the first two of which comprise the 1,731 business systems. DOD defines these three categories as follows: Business systems—used to record the events associated with DOD’s functional areas. Such areas include finance, logistics, personnel, and transportation. Business systems infrastructure—represents the costs associated with the operations of the department’s business systems. Such costs would include transmission lines, network management, and information security. National Security System (NSS)—intelligence systems, cryptologic activities related to national security, military command and control systems, and equipment that is an integral part of a weapon or weapons system, or is critical to the direct fulfillment of military or intelligence mission. As shown in table 3, approximately $18 billion—the nearly $5.2 billion for business systems and the $12.8 billion for business systems infrastructure—relates to the operation, maintenance, and modernization of DOD’s 1,731 business systems. As we have reported, while DOD plans to invest billions of dollars in modernizing its financial management and other business support systems, it does not yet have an overall blueprint—or enterprise architecture—in place to guide and direct these investments. Our review of practices at leading organizations showed they were able to provide reasonable assurance that their business systems addressed corporate—rather than individual business units—objectives by using enterprise architectures to guide and constrain investments. Consistent with our recommendation, DOD is now working to develop a financial management enterprise architecture, which is a positive step. Further, Section 1004 of the National Defense Authorization Act for Fiscal Year 2003 directs DOD to develop an enterprise architecture not later than May 1, 2003, and that a transition plan accompany the architecture that delineates how the architecture will be implemented. The act also directs that we provide an assessment to the congressional defense committees as to whether DOD has complied with the provisions of Section 1004. DOD management and oversight authorities for the four case study projects are DFAS, the DOD Comptroller, and the DOD CIO. They permitted each project to proceed despite the absence of the requisite analysis to demonstrate that the projects will produce value commensurate with the costs being incurred. For example, an economic analysis has yet to be prepared for DCD/DCW and the other three projects did not have economic analyses that reflected the fact that project costs, schedules, and/or expected benefits had changed materially. Table 4 highlights these cost increases and schedule delays. In the case of DPPS, the estimated costs had increased by $274 million and the schedule had slipped by almost 4 years. In December 2002, following our discussions with DOD Comptroller officials, the DOD Comptroller terminated DPPS after 7 years of effort and an investment of over $126 million. In making this decision, the DOD Comptroller noted that the project was being terminated due to poor program performance and increasing costs. The Clinger-Cohen Act of 1996 and Office of Management and Budget (OMB) guidance provide an effective framework for IT investment management. They emphasize the need to have investment management processes and information to help ensure that IT projects are being implemented at acceptable costs and within reasonable and expected time frames and that they are contributing to tangible, observable improvements in mission performance. DOD policy also reflects these investment principles by requiring that investments be justified by an economic analysis. More specifically, the policy states that the economic analysis is to reflect both the life-cycle cost and benefit estimates, including a return- on-investment calculation, to demonstrate that the proposed investment is economically justified before it is made. After 4 years of effort and an investment of approximately $93 million, DOD has yet to economically justify that its investment in DCD/DCW will result in tangible improvement in DOD financial management operations. Consistent with the Clinger-Cohen Act, DOD and DFAS systems acquisition guidance requires that certain documentation be prepared at each milestone within the system life-cycle. This documentation is intended to provide relevant information for management oversight and in making decisions as to whether the investment of resources is cost beneficial. A key piece of information—the economic analysis—was never completed for the DCD/DCW project. In May 2000, the Director, DFAS, granted approval to continue with development of DCD with a condition that a cost benefit analysis be completed by June 2000. DFAS completed a draft cost benefit analysis for DCD in October 2000. This document was not finalized and in November 2000, DCD/DCW were combined into one program. Since that time, DCD/DCW has continued without a valid, well-supported economic justification to support continued investment in DCD/DCW. DCD project management officials stated that the economic analysis has not been finalized because they were unable to agree on how to compute the return on investment and demonstrate that benefits exceeded costs. In March 2001, DCD/DCW was designated a Major Automated Information System, and as such, DOD’s Office of Program Analysis and Evaluation (PA&E) is required to assess the economic analysis and provide any recommendations to the DOD CIO. However, after approximately 2 years, the economic analysis still has not been developed and PA&E officials stated that it did not anticipate receiving the economic analysis until May 2003. At the same time, as highlighted in figure 3, the cost and schedule of this project have continued to increase over the years. Additionally, the planned functionality of DCD has been drastically reduced since the original concept was set forth. Originally, DCD was to contain all DOD financial information required by DFAS systems, making it the central point for all shared data within DFAS. To accomplish this goal, DCD was to crosswalk detailed transactions from nonstandard finance and feeder systems into a standard format, pending the acquisition and implementation of standard feeder systems. In February 2001, the scope of the DCD project was revised after DFAS realized, through testing of Air Force detailed transactions from feeder systems, that the planned crosswalks were cumbersome and cost prohibitive. Currently, DFAS is planning to crosswalk detailed transaction data only when information from multiple systems must be aggregated to satisfy a cross-service need such as the working capital fund activities. This will result in the originally envisioned capability not being provided. Additionally, DCD/DCW will continue to rely on the error-plagued data in the feeder systems and will not produce financial records that are traceable to transaction-level data. According to the DOD Inspector General, DCD was a high-risk effort because there was no assurance that DCD and other financial management systems would standardize DOD business processes; reduce the number of finance, accounting, and feeder systems; reduce costs; and produce accurate and auditable financial information. Until the economic analysis is finalized, DOD does not know if its investment in DCD/DCW is justified and the decision to move to the next milestone will continue to be delayed. Nevertheless, DOD continues to spend funds to perform tasks in anticipation of milestone approval being received. In fiscal year 2002, according to DFAS officials, approximately $36 million was spent on DCD/DCW. DOD had developed an economic analysis for each of the remaining three projects. However, these analyses had not been updated to reflect schedule delays, cost increases, and changes in scope that have occurred— each of which has an impact on the projected benefits that were originally justified. Nevertheless, as shown in table 5, investment in each project continues. The investment of resources in a system project should be conditional upon analytical justification that the proposed investment will produce commensurate value. As called for in OMB guidance, analyses of investment costs, benefits, and risks should be (1) updated throughout a project’s life cycle to reflect material changes in project scope and estimates and (2) used as a basis for ongoing investment selection and control decisions. To do less presents the risk of continued investment in projects on the basis of outdated and invalid economic justification. In the case of DPPS, PA&E questioned the validity of the economic analysis developed by DFAS. Since DPPS is classified as a major automated information system, the economic analysis is to be reviewed by PA&E. In its May 1998 assessment of the economic analysis, PA&E questioned areas such as the validity of the estimated savings and the ability to implement DPPS within the original estimated cost and schedule. According to DOD officials, these issues were resolved, but they could not provide any documentation to substantiate their position. The DOD CIO subsequently granted permission to continue the project. Over the years, as shown in figure 4, the DPPS effort has been marked by significant increases in cost and schedule delays. The original full operational capability date of April 2002 slipped to December 2005—a delay of almost 4 years—with the estimated cost almost doubling to $552 million. In December 2002, following our discussion with DOD Comptroller officials of DPPS cost increases and schedule slippages, the DOD Comptroller terminated DPPS. In making this decision, the DOD Comptroller noted that the project was being terminated due to poor program performance and increasing costs. With regard to DDRS, the economic analysis used to justify this initiative was developed in October 1998—over 4 years ago. At that time, it was estimated that DDRS would cost $111 million and be fully operational by April 2000. However, based upon information provided by DFAS, and as shown in figure 5, DDRS has experienced increased cost and schedule delays. However, the economic analysis has not been updated to reflect the known changes in the project’s costs and schedule. Moreover, the intended capability of DDRS as originally envisioned has been reduced. For example, DDRS is no longer intended to provide the capability to build an audit trail so that financial data can be tracked back to its transaction-based support, as originally planned. The Federal Financial Management Improvement Act of 1996 requires that agency financial management systems comply with federal financial management systems requirements, applicable federal accounting standards, and the U.S. Government Standard General Ledger at the transaction level. Systems meeting these requirements should be able to produce auditable financial statements and otherwise have audit trail capability. However, DDRS system users will have to rely on the audit trail capabilities of feeder systems in order to trace individual transactions to their source documents. As we have previously reported, the data from the feeder systems, which are outside the control of DFAS and provide approximately 80 percent of the data that DOD needs for financial reporting purposes, are not reliable. Additionally, until DCD is operational, DDRS will be receiving data from the feeder systems in order to prepare the department’s financial reports on the results of its operations. Therefore, DOD’s financial reports produced by DDRS will (1) continue to be incomplete and inaccurate and thus not useful for decision-making purposes and (2) remain unable to withstand the scrutiny of a financial audit. For DSDS, an economic analysis was prepared in September 2000. However, it has not been updated to reflect material changes in the project. For example, as shown in figure 6, the full operational capability (FOC) date at the time the economic analysis was prepared was February 2003. However, according to information provided by DFAS, the current FOC date is December 2005—a schedule slippage of almost 3 years. Such delays postpone the delivery of promised benefits. DFAS has stated that the cost information is being updated to support a Milestone C decision, which they anticipate will occur in early fiscal year 2004. Additionally, DSDS delivery of promised benefits depends upon the DCD/DCW being implemented on time. However, as previously discussed, DCD/DCW implementation has been fraught with difficulties, which has a corresponding adverse effect on DSDS schedule delays. For example, DCD/DCW project management officials are in the process of addressing 102 requests for requirement changes. According to the DCD/DCW program manager, the date for resolving these changes and approving the Operational Requirements Document is November 2003. Until this process is completed, affected systems integration testing for other DCD/DCW dependent systems, such as DSDS, cannot be finalized. Further, according to DFAS officials, the continued operation of existing legacy systems may result in an increase to the DSDS life-cycle cost estimate by approximately $14 million for each 6-month delay. This would quickly erode the savings of $171 million that DFAS estimated in September 2000, and reconfirmed in January 2003. Without an updated economic analysis to justify continued investment in DDRS and DSDS, DOD does not have reasonable assurance that continued investment will result in commensurate improvement in the financial management operations of the department. DOD’s oversight over the four DFAS projects we reviewed has been ineffective. Investment management responsibility for the four projects rests with DFAS, the DOD Comptroller, and the DOD CIO. In discharging this responsibility, each has allowed project investments to continue year after year, even though the projects have been marked by cost increases, schedule slippages, and capability changes. As a result, DOD has invested approximately $316 million in the four projects without adequately knowing if these efforts will resolve some of DOD’s financial management difficulties—the rationale upon which each initiative was undertaken. In fact, as previously noted, after an investment of over $126 million and 7 years of effort, the DOD Comptroller terminated DPPS in December 2002. GAO’s Information Technology Investment Management (ITIM) maturity framework defines critical processes pertaining to IT investment management and oversight. Among other things these processes provide for establishing investment decision-making bodies responsible for selecting and controlling IT investments by (1) understanding, for example, each project’s expected return on investment and associated costs, schedule, and performance commitments, (2) regularly determining each project’s progress toward these expectations and commitments, and (3) taking corrective actions to address deviations. Additionally, the Clinger- Cohen Act and OMB guidance similarly emphasize the need to have investment management processes and information to help ensure that IT projects are being implemented at acceptable costs and within reasonable and expected time frames and that they are contributing to tangible, observable improvements in mission performance (i.e., that projects are meeting the cost, schedule, and performance commitments upon which their approval was justified). Organizationally, within DOD, the Comptroller has overall management and oversight responsibility for DFAS’s activities—including system investments. However, DOD Comptroller officials told us that they were unaware of the cost increases and schedule slippages on the projects until we brought them to their attention. Further, these officials said that they do not review DFAS’s system investments to ensure that they are meeting cost, schedule, and performance commitments, stating that DFAS is responsible for ensuring that projects stay on target in terms of cost, schedule, and performance. Additionally, they told us that their review is limited to a review of budgetary information and budget exhibits, and that they compare the current year budget request to the previous year’s request to determine if any significant funding increases are being requested for the coming fiscal year. If the budget request is generally consistent from year to year, they said that they do not raise questions about the project. According to these officials, the review of DFAS’s fiscal year 2003 budget did not result in the identification of issues that warranted further review. While the DOD Comptroller is the responsible authority for DFAS activities, DFAS is also responsible for ensuring that its proposed investments will result in systems that are implemented at acceptable costs and within reasonable and expected time frames. To fulfill this responsibility, DFAS established the CIO/BIE Council to oversee system investments. As outlined in the CIO/BIE Council charter, members of the council are responsible for, among other things, advising the Leadership Council—DFAS’s senior decision-making body—on IT investment decisions. The CIO/BIE Council membership includes representatives of DFAS’s business lines, such as accounting services and commercial pay, as well as IT management. In order to assure that the roles, responsibilities, and authorities of the IT investment board are well defined and that board processes are clear, the ITIM Framework states that an IT investment process guide should be created to direct IT investment board operations. While DFAS has endeavored to give the CIO/BIE a role in the acquisition management and oversight process, it has not provided clear, consistent guidance to describe that role and the associated operating procedure. Though the council charter does mention the CIO/BIE Council’s responsibilities, it does not adequately describe them, address the council’s authority, or describe how the council is to fulfill its responsibilities. The DFAS 8000 series also addresses CIO/BIE responsibilities (DFAS 8000.1-R, Part C). However, the 8000 series does not describe how the CIO/BIE is expected to execute its responsibilities, including providing corporate oversight and reviewing capital budget proposals. The lack of clear definition of responsibilities and authority limits the council’s ability to effectively perform oversight- related activities. For the four IT investment projects we reviewed, we found no evidence that the CIO/BIE effectively monitored the cost, schedule, or performance goals of the four projects. As previously noted, the DOD CIO is responsible for overseeing major automated information systems. As such, this office is responsible for ensuring that the investments being made in DCD/DCW and DPPS are justified. However, the DOD CIO did not effectively exercise this authority. In regard to DPPS, the DOD CIO was designated the milestone decision authority in November 1996. While DOD CIO officials told us that they were aware of the problems with DPPS, they were unable to provide any documentation that indicated they had raised concerns with the DPPS effort. DCD/DCW was not brought under the purview of the DOD CIO until March 2001— approximately 2½ years after the project began. DOD CIO officials expressed concerns about the viability of DCD/DCW and questioned DFAS’s decision to move forward absent an economic analysis. However, they were unable to provide us with documentation that indicated they had carried out their oversight responsibilities and independently determined whether DCD/DCW was a viable investment. According to DOD CIO officials, despite being the milestone decision authority for major projects, they have little practical authority in influencing component agency IT projects. As such, they said they try to work with the program managers to ensure that all of the required documentation for passing the next milestone is prepared, but the department’s culture, which rests organizational authority and funding control with the components, precludes them from exercising effective IT investment oversight. The comments of the DOD CIO officials support the fact that the current stovepiped, parochial management of DOD’s IT investments has led to the previously discussed proliferation of business systems. As we previously reported, DOD’s organizational structure and embedded culture have made it difficult to implement departmentwide oversight or visibility over information resources. Similarly, we recently reported that DOD does not yet have the departmental investment governance structure and process controls needed to adequately align ongoing investments with DOD’s architectural goals and direction. Instead, DOD continues to allow its component organizations to make their own investment decisions, following different approaches and criteria. We reported that this stovepiped decision-making process has contributed to the department’s current complex, error prone environment of over 1,700 systems. In particular, DOD has not yet established and applied common investment criteria to its ongoing IT system projects using a hierarchy of investment review and funding decision-making bodies, each composed of representatives from across the department. DOD also has not yet conducted a comprehensive review of its ongoing IT investments to ensure that they are consistent with its architecture development efforts. Until it does these things, DOD will likely continue to lack effective control over the billions of dollars it is currently spending on IT projects. To address this problem we recommended that DOD establish a series of investment review boards, each responsible and accountable for selecting and controlling investments that meet defined threshold criteria, and each composed of the appropriate level of executive representatives, depending on the threshold criteria, from across the department. We also reiterated our open recommendations governing limitations in business system investments pending development of the architecture. DOD is investing billions of dollars annually in hundreds of systems that perform the same function spread across numerous DOD components. As we have previously reported, this proliferation of systems has resulted in part because DOD’s embedded culture and parochial operations have permitted each of the military services and DOD agencies to manage and oversee their IT investments apart from one another. It has also occurred because DOD has not effectively managed its investments in IT business systems, as our past work and the DOD Inspector General work have demonstrated. As a result, DOD runs a high risk that hundreds of millions of dollars will continue to be invested annually in modernization efforts that will not result in improvements in the department’s operations. In each of the four system projects we discuss in the report, DOD has invested millions of dollars without economically justifying its investments, in large part because those entities responsible for managing and overseeing these investments have not required such justification despite schedule slippages, cost overruns, and reductions in planned capability. Urgent need for effective investment control is exemplified by DPPS—$126 million for a terminated project. More vigorous oversight of DPPS could have precluded the substantial investment in this failed effort. Until it has effective investment management and oversight, DOD will not have reasonable assurance that its continued investment in the remaining three projects discussed in this report, as well as its other system projects, are justified. We recommend that the Secretary of Defense direct the Under Secretary of Defense (Comptroller) to limit funding in the DFAS Corporate Database/ Corporate Warehouse, the Defense Standard Disbursing System, and the Defense Departmental Reporting System until the DOD Comptroller, in collaboration with the Assistant Secretary of Defense (Command, Control, Communications & Intelligence), and the Director, Program Analysis and Evaluation, demonstrates on the basis of credible analysis and data that continued investment in these three projects will produce benefits that exceed costs. We further recommend that the Secretary of Defense, in light of the department’s ongoing efforts to modernize its business systems, direct the Under Secretary of Defense (Comptroller) to evaluate all remaining DFAS IT projects and ensure that each project is being implemented at acceptable costs, within reasonable time frames, and is contributing to tangible, observable improvements in mission performance. DOD provided written comments on a draft of this report. DOD concurred with our recommendations and identified actions it planned to take to ensure that future investments in DFAS’s systems are justified. For example, the Under Secretary of Defense (Comptroller) noted that the review of DCD/DCW, DDRS, and DSDS would be completed by June 15, 2003. Additionally, the Under Secretary of Defense (Comptroller) stated that all systems would be reviewed as part of the department’s effort to establish a financial management enterprise architecture governance structure. As discussed in our February 2003 report, the governance structure is intended to provide DOD the means to gain control over its IT investments. However, as noted in our report, we have not verified or evaluated the extent to which the planned governance structure will address our recommendation. DOD comments are reprinted in appendix II. As agreed with your office, unless you announce the contents of this report earlier, we will not distribute this report until 30 days from its date. At that time, we will send copies to the Chairman and Ranking Minority Member, Senate Committee on Armed Services; Chairman and Ranking Minority Member, Senate Appropriations Subcommittee on Defense; Chairman and Ranking Minority Member, House Armed Services Committee; Chairman and Ranking Minority Member, House Appropriations Subcommittee on Defense; Chairman and Ranking Minority Member, Senate Committee on Governmental Affairs; Chairman and Ranking Minority Member, House Committee on Government Reform; the Director, Office of Management and Budget; the Under Secretary of Defense (Comptroller); the Assistant Secretary of Defense (Command, Control, Communications & Intelligence); and the Director, Defense Finance and Accounting Service. Copies of this report will be made available to others upon request. The report will also be available on GAO's Web site at http://www.gao.gov. If you or your staff have any questions on matters discussed in this report, please contact Gregory D. Kutz at (202) 512-9505 or [email protected] or Randolph C. Hite at (202) 512-3439 or [email protected]. Major contributors to this report are acknowledged in appendix III. To obtain an overview of DOD’s current business systems environment we met with representatives of the then Financial Management Modernization Program Office to obtain information on the number of systems that are part of the current systems environment. We also reviewed DOD’s $26 billion fiscal year 2003 IT budget request to determine what portion of the budget relates to DOD business systems. Additionally, we reviewed the IT budget to determine the reported operations, maintenance, development, and infrastructure costs for DOD’s business systems. To determine if DOD was effectively managing and overseeing its IT investments, we focused on the four system projects previously noted. To assist us in our evaluation, we used our Information Technology Investment Management (ITIM) framework. The ITIM identifies critical processes for successful IT investment and organizes these processes into a framework of increasingly mature stages. We focused on the Stage 2 critical processes of IT project oversight and IT investment board practices based on DFAS’s self assessment that it was at Stage 2. Figure 7 shows ITIM’s five stages of maturity. In addition, we also evaluated DOD’s and DFAS’s guidance on systems acquisition, as it relates to life-cycle management and milestones for proceeding to the next phase of the system acquisition process. To verify application of the critical processes and practices, we selected projects that (1) were in different life-cycle phases of systems development (2) required oversight by a DOD authority outside of the DOD Comptroller, such as the Office of the Assistant Secretary of Defense (Command, Control, Communications & Intelligence)—DOD’s CIO, and (3) supported different DFAS business areas such as disbursements and departmental reporting. For these four projects we reviewed documentation, such as mission needs statements, acquisition program baseline updates, and project management plans. According to DOD, it provided estimates for DCD/DCW and DDRS in constant dollars and DPPS and DSDS in escalated dollars. We also reviewed and analyzed charters and meeting minutes of the DFAS investment oversight boards and working groups. To supplement our document reviews, we interviewed senior DFAS officials in the CIO and Systems Integration Offices, as well as the program managers for the four projects. We also met with officials in the offices of the DOD Comptroller and DOD CIO to obtain an understanding of their specific duties and responsibilities in approving, reviewing, and overseeing investments in the four DFAS systems modernization projects. We conducted our work at DFAS Headquarters; the Office of the Under Secretary of Defense (Comptroller); the Office of the Secretary of Defense Program Analysis and Evaluation; and the Office of the Assistant Secretary of Defense (Command, Control, Communications & Intelligence) from November 2001 through January 2003, in accordance with U.S. generally accepted government auditing standards. We did not verify the accuracy and completeness of the cost information provided by DFAS for the four projects we reviewed. We requested comments on a draft of this report from the Secretary of Defense or his designee. We received written comments on a draft of this report from the Under Secretary of Defense (Comptroller), which are reprinted in appendix II. In addition to the individuals named above, key contributors to this report included Beatrice Alff, Joseph Cruz, Francine DelVecchio, Lester Diamond, Jason Kelly, J. Christopher Martin, Stacey Smith, and Robert Wagner. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. 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The Department of Defense's (DOD) long-standing financial management and business systems modernization problems result in a lack of information needed to make sound decisions, hinder the efficiency of operations, and leave the department vulnerable to fraud, waste, and abuse. Such problems led us in 1995 to put financial management and business systems modernization at DOD on our list of high risk areas in the federal government, a designation that continues today. GAO was asked to (1) provide information on the number and cost of DOD's current business systems and (2) determine if DOD is effectively managing and overseeing selected accounting system investments. DOD estimated that it had 1,731 business systems for its day-to-day operations as of October 2002. As GAO previously reported, these systems have evolved over time into the overly complex, error prone, duplicative, stovepiped environment that exists today. To support the operation, maintenance, and modernization of its business systems, the department requested approximately $18 billion for fiscal year 2003. Funding is only part of the solution to improving DOD's current system environment. A key ingredient to success is effectively managing and overseeing these investments. DOD has invested approximately $316 million in four key Defense Finance and Accounting Service (DFAS) projects. However, DOD has not demonstrated that this substantial investment will markedly improve DOD financial management information needed for decision-making and financial reporting purposes. In fact, the DOD Comptroller terminated one project in December 2002, after an investment of over $126 million, citing poor program performance and increasing costs. Continued investment in the other three projects has not been justified because requisite analyses of the costs, benefits, and risks of each one do not reflect cost increases and/or schedule delays. DOD oversight of the four DFAS projects has not been effective. Collectively, DFAS, the DOD Comptroller, and the DOD Chief Information Officer share investment management responsibility for these four projects. However, these DOD oversight entities have not questioned the impact of the cost increases and schedule delays and allowed the projects to proceed absent the requisite analytical justification.

You are an expert at summarizing long articles. Proceed to summarize the following text: The FECA program covers over 2.7 million civilian federal and postal employees in more than 70 agencies, providing wage-loss compensation and payments for medical treatment to employees injured while performing their federal duties. FECA claims are initially received at the employing agency, then forwarded to Labor’s OWCP where eligibility and payment decisions are made. Every year, employing agencies reimburse OWCP for the amounts paid to their employees in FECA compensation during the previous year. Certain government corporations and USPS also make payments to Labor for program administrative fees. Figure 1 displays the standard process for FECA claims reviews and payments by OWCP. OWCP is the central point where FECA claims are processed and eligibility and benefit decisions are made. Claims examiners at OWCP’s 12 FECA district offices determine applicants’ eligibility for FECA benefits and process claims for wage-loss payments. FECA laws and regulations specify complex criteria for computing compensation payments. Using information provided by the employing agency and the claimant on a claims form, OWCP calculates compensation based on a number of factors, including the claimant’s rate of pay, the claimant’s marital status, and whether or not the claimant has dependents. In addition, claimants cannot receive FECA benefits at the same time they receive certain other federal disability or retirement benefits, or must have benefits reduced to eliminate duplicate payments. For example, Social Security Administration (SSA) disability benefits are reduced if an individual is also receiving FECA payments. According to OWCP officials, initial claims received from employing agencies are reviewed to assess the existence of key elements. The elements include evidence that the claim was filed within FECA’s statutory time requirements, that the employee was, at the time of injury disease, or death, an employee of the United States, and that the employee was injured while on duty, and that the condition resulted from the work-related injury. If the key elements are in place, OWCP will approve a claim and begin processing reimbursements for medical costs. After initial claim approval, additional reviews are done while a claim remains active if the claim exceeds certain dollar thresholds. Once a claim is approved, payments are sent directly to the claimant or provider. An employee can continue to receive compensation for as long as medical evidence shows that the employee is totally or partially disabled and that the disability is related to the accepted injury or condition. OWCP considers claimants who are not expected to return to work within 3 months to be on its periodic rolls for payment purposes. OWCP officials review medical evidence annually for claimants on total disability receiving long-term compensation who are on the program’s periodic rolls, and every 3 years for claimants on the periodic rolls who have been determined to not have any wage-earning capacity. Claimants are also required to submit an annual form (CA-1032) stating whether their income or dependent status has changed. The form must be signed to acknowledge evidence of benefit eligibility and to acknowledge that criminal prosecution may result if deliberate falsehood is provided. If questions arise about medical evidence submitted by the claimant, OWCP can request a second medical examination be performed by a physician of its choosing. Our preliminary observations indicate that employing agencies and Labor have instituted some promising practices that may help reduce fraudulent FECA claims, yet potential vulnerabilities continue to exist. We plan to determine the effect of these practices in our future work. GAO’s Framework for Fraud Prevention, Detection, and Prosecution, developed during previous program audits, emphasizes that comprehensive controls are necessary to minimize fraud, waste, and abuse within any federal program, including FECA. GAO’s Standards for Internal Control in the Federal Government also outlines key control practices that are integral parts of an effective control environment. The promising practices and potential vulnerabilities below relate to issues raised in these guidelines. We have identified several promising practices that employing agencies and Labor have implemented that may help to reduce fraudulent FECA claims. We are planning to look further into these practices as part of our ongoing work. Three employing agencies informed us that they employed dedicated, full-time FECA program staff including injury compensation specialists and other staff, which, according to officials, helps staff gain program knowledge and expertise. It also allows program staff to specialize in FECA claims and reviews without having to perform additional duties. Agencies with full time staff may be able to dedicate resources to training them in fraud prevention, which is a positive practice noted in GAO’s fraud-prevention framework. GAO’s Standards for Internal Control in the Federal Government also specifically mentions that appropriate, competent personnel are a key element to an effective control environment. Officials from one employing agency with this structure stated that having dedicated and experienced FECA staff allows them to conduct more aggressive monitoring of long-term workers’ compensation cases. Labor officials agreed that agencies that can devote dedicated full time resources are positioned better to manage the program. Examples include the following:  FECA staff in one Navy region reported having an average of 15 years of program experience, which they said helps them to identify specific indicators of potential fraud.  According to the Air Force, it has specific teams that specialize in reviewing FECA claims at different phases of the claims process.  USPS officials also stated they assign staff full time to manage FECA cases. In addition, in 2008, we recommended that the Secretary of Labor direct OWCP to take steps to focus attention on the recovery of FECA overpayments, such as determining whether having fiscal staff dedicated to recovering overpayments would increase its recovery. Labor stated that it carefully evaluated having fiscal staff dedicated to recovering overpayments. However, given the integral involvement of claims examiners in overpayment processing, the unavailability of fiscal staff to undertake this specialized activity, and expected continued budget constraints, Labor believes that keeping this function with claims examiners is the most cost-effective debt-collection strategy. Officials at five employing agencies and Labor have instituted periodic reviews of active FECA claims, which may improve overall program controls. Specifically, several agencies reported that annual reviews of FECA case files were used to help increase program officials’ awareness of potential fraudulent activities. These controls fall within the detection and monitoring component of GAO’s fraud-prevention framework and could help to validate claimants’ stated medical conditions, income information, and dependent information. GAO’s Standards for Internal Control in the Federal Government also states that monitoring activities, such as comparisons of different data sets to one another, can help to encourage continued compliance with applicable laws and regulations. Agency officials stated that these types of reviews assist with identifying claimants who are not eligible to continue to receive FECA benefits. According to agency staff:  Labor requires long-term claimants to submit updated claim documentation about wages earned and dependent status for annual reviews. While much of the information provided on the CA-1032 is self-reported, the requirement for annual submissions can help identify necessary changes to benefits. In addition, Labor officials stated they also perform regular medical-claim reviews depending on the status of a case.  Staff at one Navy regional office send annual questionnaires to claimants to determine if information, including income and dependent status, is consistent with annual documentation submitted to Labor.  A DHS component agency sends periodic letters to claimants asking about their current status. If DHS determines that action should be taken, DHS then sends a letter to Labor requesting the claim be closed.  Under DOD policies, Air Force, Army, and Navy staff are required to conduct an annual review of selected long-term claim files and medical documentation to determine whether claimants are receiving compensation benefits they are entitled to and identify claimants who are fit to return to work.  The Air Force has developed quarterly working groups to review all paid compensation benefits.  USPS performs periodic reviews of claimant data. USPS IG officials identified a claimant who fraudulently claimed $190,000 in mileage reimbursements for travel to therapy almost every day for 5 years, including weekends and holidays. Officials from employing agencies and Labor stated that their program staff conducted data analysis, such as comparisons of mileage claims to medical bills, to verify information submitted by claimants. Agencies also reported using available data sources to verify whether claimants should continue to receive FECA benefits. Similar to the periodic reviews previously discussed, these controls fall within the monitoring component of GAO’s fraud-prevention framework and could help to validate claimants’ self-reported income and medical-condition information. Data sources reviewed ranged from federal-agency data to other publicly available information. Agencies also conduct reviews of claimant physician and prescription-drug payments to identify fraud. Specifically, according to agency officials:  Labor gives each employing agency access to its Agency Query System (AQS), which allows agencies to electronically review information on FECA claims, including current claims status, wage- compensation payment details, and medical-reimbursement details.  Labor officials also stated they provide at least quarterly, and for some employing agencies weekly, extracts from their data system that give employing agencies information on wage compensation payments, medical-billing payments, and case-management data.  The Navy reviews pharmacy bills, medical-diagnosis codes, and mileage-reimbursement details from the AQS system on a case-by- case basis to determine whether physician claims are related to the injury sustained by the claimant and to identify whether mileage for physician visits was reimbursed on days when the claimant did not visit a physician.  Navy officials use publicly available state-government information to identify claimants who owned and received income from their own businesses. For example, one public-records search found that a FECA claimant was an active owner of a gentleman’s club while he was fraudulently receiving FECA wage-loss benefits.  Officials from employing agencies and Labor stated that they reviewed SSA’s Death Master File periodically to identify benefits erroneously dispersed to deceased individuals’ survivors. Specifically, Labor said it conducts monthly data matches with SSA’s Death Master File records and plans to revise the forms used in survivors’ claims to gather Social Security numbers for survivors and beneficiaries, enabling Labor to match all FECA payees with SSA death records.  VA has developed a process that allows the agency to track prescription-drug usage claims and identify anomalies. Four employing agencies reported that using investigative resources by investigating potential fraud cases helped to increase program controls. The Navy FECA component has assigned responsibilities to staff that investigate and help prosecute fraudulent FECA claims, while the Air Force has designated staff that refers allegations to its Office of Special Investigations. USPS program officials reported that they refer potential fraud cases internally to USPS IG officials for investigation and prosecution. The investigation and effective prosecution of claimants fraudulently receiving benefits is a key element in GAO’s fraud-prevention framework. While these activities are often the most-costly and least- effective means of reducing fraud in a program, the deterrent value of prosecuting those who commit fraud sends the message that fraudulent claims will not be tolerated. Examples of the effective integration of investigative resources provided by these employing agencies include the following:  The Air Force discussed its plan to hire staff in early fiscal year 2012 to conduct background investigations and surveillance of claimants to determine whether they are entitled to receive FECA benefits.  The USPS IG reported that since October 2008 it identified and facilitated terminating benefits for 476 claimants who were committing workers’ compensation fraud, and recovered over $83 million in medical and disability judgments.  Navy officials stated that their internal investigators’ work at one region led to 10 convictions from 2007 to 2011 and an $8.6 million cost-avoidance to the agency.  One individual received monthly workers’ compensation payments after falsely denying that he had outside employment and outside income while claiming total disability that prevented him from working. Interviews with former employers uncovered that this claimant had been employed and been paid over $100,000 per year while he was receiving benefits. This individual was sentenced to 18 months in prison, 3 years supervised probation, and $302,380 in restitution for making a false statement to obtain FECA benefits.  Another individual collected FECA benefits made out to his father for 4 years after his father was deceased. This individual was sentenced to 5 years of probation and full restitution in the amount of $53,410.  DHS officials within the Transportation Security Administration stated they have successfully used an internal affairs unit consisting of seven staff members to examine and respond to fraud, waste, and abuse cases and make referrals to investigators. The investigators then conduct video surveillance and examine data to find potential fraud.  A recent Labor IG testimony cited numerous Labor IG investigations that have been conducted over the years focusing on FECA claimants who work while continuing to receive benefits, and on medical or other service providers who bill the program for services not rendered. Our preliminary observations also identified potential vulnerabilities in the FECA program fraud-prevention controls that could increase the risk of claimants receiving benefits they are not entitled to. Again, we plan to examine these potential vulnerabilities as part of our ongoing work. We found that management of the FECA program could be affected by limited access to necessary data. Specifically, agency officials stated the program lacked proper coordination among federal agencies and that there was limited or no access to data sources that could help reduce duplicate payments. For example, Labor does not have authority to compare private or public wage data with FECA wage-loss compensation information to identify potential fraud. This prevents agencies from verifying key eligibility criteria submitted by claimants, such as income. GAO’s fraud-prevention framework emphasizes effective monitoring of continued compliance with program guidelines, and outlines how validating information with external data can assist with this process. Specific potential vulnerabilities identified in the area included the following:  Program officials at Labor and the employing agencies do not have access to payroll information included in the National Directory of New Hires (NDNH) and federal employee payroll data, which could help reduce duplicate payments by identifying unreported income. In a previous report, we recommended that Labor develop a proposal seeking legislative authority to enter into a data-matching agreement with the Department of Health and Human Services (HHS) to identify FECA claimants who have earnings reported in the NDNH. However, Labor officials stated that they investigated using NDNH and communicated with HHS, but determined that this would not be an effective solution due to cost issues, limited participation by employers in the NDNH, and the likelihood that illegitimate earnings would not be listed. As an alternative, Labor recently provided testimony proposing legislative reforms to FECA that would enhance its ability to assist FECA beneficiaries. As part of this reform, OWCP sought authority to match Social Security wage data with FECA files. OWCP currently is required to ask each individual recipient to sign a voluntary release to obtain such wage information. According to Labor, direct authority would allow automated screening to assess whether claimants are receiving salary, pay, or remuneration prohibited by the statute or receiving an inappropriately high level of benefits. It would be important to assess whether access to Social Security wage data is an effective alternative to access to NDNH data, and we plan to assess this as part of our ongoing work.  Navy and Air Force officials cited difficulty coordinating with VA to determine whether individuals are receiving disability benefits for the same conditions related to FECA claims. This information is key for employing agencies to assess whether claimants received duplicate benefits for the same injuries under both VA disability benefits and FECA benefits. VA commented that privacy concerns related to providing beneficiary data to external agencies has affected coordination.  An employing agency official stated that Labor does not provide them with remote access to the claimant’s annual certification form CA- 1032, which would be useful for their periodic review efforts. However, Labor does allow employing agency officials to view the CA-1032 forms if the officials come to a Labor district office. The CA-1032 form contains information on a claimant’s income and dependent status, which is useful when employing agencies review claims files for continued eligibility. We raise this issue because, as stated above, the Navy utilizes information submitted to Labor as part of its periodic review efforts.  A 2010 SSA IG audit found individuals receiving duplicate benefits for SSA and FECA. According to the SSA IG, development of a computer-matching agreement with Labor and its FECA payments database would allow SSA to reduce the number of duplicate SSA payments by verifying the accuracy of payment eligibility. According to the SSA IG report, the agreement has not been finalized with Labor due to changes in personnel at SSA. Our preliminary observations identified program processes that relied heavily on data self-reported by claimants that is not always verified by agency officials. Not verifying information concerning wages earned and dependent status reported by claimants creates potential vulnerabilities within the program. For example, individuals who are working can self- certify that they have no other income, and continue to remain on the program while their statements are not verified. Prior reports by GAO and Labor’s IG have shown that relying on claimant-reported data could lead to overpayments. For example:  A 2008 GAO report found that Labor relied on unverified, self-reported information from claimants that was not always timely or correct. Specifically, the annual CA-1032 forms submitted to Labor to determine whether a beneficiary is entitled to continue receiving benefits relies on statements made by the claimant that are not verified.  A 2007 Labor IG report also found that an OWCP district office did not consistently ensure that claimants returned their annual form CA-1032 or adjust benefits when the information reported by claimants indicated a change in their eligibility. Labor agreed with the findings of this report.  During fiscal year 2004, claimants and beneficiaries continued to receive compensation payments even though they had not provided required timely evidence of continuing eligibility. In one case, the claimant’s augmented payment rate was not reduced even though the claimant reported that his spouse was no longer a dependent. According to Labor officials, a new case-management system was deployed after the Labor IG audit field work was conducted, which addresses some of the issues raised in the Labor IG report. Our preliminary observations found that FECA program regulations allow claimants to select their own physician, and also requires examination by a physician employed or selected by the government only when a second opinion is deemed necessary by the government. We found this could result in essential processes within the FECA program operating without reviews by physicians selected by the government. This potential vulnerability affects key control processes outlined in GAO’s fraud- prevention framework in two areas: first, the lack of reviews when assessing validity of initial claims and second, the lack of the same when monitoring the duration of the injury. However, the addition of a government physician into the process does not necessarily mitigate all risks and costs associated with additional medical reviews would need to be considered. For example, there may be difficulties in successfully obtaining information from physicians representing the government’s interest. Specifically, a prior GAO report found challenges in obtaining sound or thorough evidence from physicians approved by Labor in Black Lung Benefits Program claims for miners. Our report also noted that physicians stated that guidance provided by Labor for effectively and completely documenting their medical opinions was not clear, which resulted in the challenges in providing useful information to Labor concerning Black Lung claims. Details of this potential vulnerability include the following:  Labor, not the claimant’s employing agency, determines if a second opinion is necessary. Employing-agency officials, including officials from DHS and USPS stated that there have been instances where Labor failed to respond to their requests to have a second-opinion examination performed at the employing agencies’ request even though the costs would be borne by their agencies. We did not verify these claims. Labor officials stated that its claims examiners are trained to review files and make the appropriate case-management decision on the need for a second opinion. In addition, they stated that resources associated with second opinions include significant time and effort for a claims examiner to review a file, document the need for a second opinion, and determine the specific issues to be reviewed by the physician. Finally, Labor officials noted that numerous requests by employing agencies for second opinions can put a strain on the limited number of physician staff it uses for these examinations. Officials at multiple employing agencies covered in our work to date stated that they faced difficulties successfully investigating and prosecuting fraud. GAO’s fraud-prevention framework states that targeted investigations and prosecutions, though costly and resource-intensive, can help deter future fraud and ultimately save money. We plan to follow up with agency IG and United States Attorney officials to gain their perspective on FECA fraud cases as part of our ongoing work. Details offered by employing-agency program officials included the following:  Officials at DOD stated that their investigative units do not normally invest resources in FECA fraud cases because national defense, antiterrorism, and violent-crimes cases are higher priorities.  USPS officials also stated that, in their experience, limited resources at United States Attorneys offices means that those attorneys will often not prosecute cases with an alleged fraud of less than $100,000. According to these officials, many of their strong allegations of fraud and abuse fall below this amount when estimating the cost of fraud that has already occurred. In addition to the challenges noted above related to fraud investigations, in 2008, we recommended that OWCP take steps to focus attention on recovering FECA overpayments. Specifically, we recommended considering reducing the dollar threshold for waiving overpayments as OWCP’s overpayment processing data system develops additional capabilities. With respect to reducing the waiver threshold, Labor disagreed to consider reducing the dollar threshold while their current processing data system was developing additional capabilities to recover overpayments. We plan to follow up on these promising practices and potential weaknesses as part of our ongoing review of FECA fraud-prevention controls. We will also attempt to develop case studies of specific examples of duplication of benefits and other problems within the FECA program to determine whether these and other potential program vulnerabilities may have contributed to specific cases of fraud and abuse. In addition to our fraud-prevention work in the FECA program, we are conducting two other program-related engagements. Those engagements focus largely on issues related to retirement-age FECA beneficiaries. The results of that work will also be reported at a later date. Chairman Lieberman, Ranking Member Collins, and Members of the Committee, this concludes my statement for the record. For additional information regarding this statement, please contact Gregory D. Kutz at (202) 512-6722 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. 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This testimony provides information on fraud-prevention controls for the Federal Employees' Compensation Act (FECA) program. According to the Department of Labor (Labor), in fiscal year 2010 about 251,000 federal and postal employees and their survivors received wage- loss compensation, medical and vocational rehabilitation services, and death benefits through FECA. Administered by Labor, the FECA program provides benefits to federal employees who sustained injuries or illnesses while performing their federal duties. Employees must submit claims to their employing agency, which are then reviewed by Labor. For those claims that are approved, employing agencies reimburse Labor for payments made to their employees, while Labor bears most of the program's administrative costs. Wage-loss benefits for eligible workers-- including those who are at, or older than, retirement age--with total disabilities are generally 66.67 percent of the worker's salary (with no spouse or dependent) or 75 percent for a worker with a spouse or dependent. FECA wage loss compensation benefits are tax free and not subject to time or age limits. Labor's Office of Workers' Compensation Programs (OWCP) estimated that future actuarial liabilities for governmentwide FECA compensation payments to those receiving benefits as of fiscal year 2011 would total nearly $30 billion (this amount does not include any costs for workers added to the FECA rolls in future years). In 2010, the United States Postal Service (USPS) Office of Inspector General reported that USPS alone had more than $12 billion of the $30 billion in estimated actuarial FECA liabilities. In April 2011, the USPS Inspector General (IG) testified that USPS had removed 476 claimants from the program based on disability fraud since October 2008 and recovered more than $83 million in judgments. Given the significant projected outlays of the governmentwide FECA program and prior USPS IG findings of fraud, this statement provides preliminary observations on our ongoing work examining FECA fraud-prevention controls and discusses related prior work conducted by us and other federal agencies. We will continue to review the identified issues and report on our findings at a later date... Our work to this point has identified several promising practices that could help to reduce the risk of fraud within the FECA program. The promising practices link back to fraud-prevention concepts contained in GAO's Fraud Prevention Framework and Standards for Internal Control in the Federal Government, and include agencies' use of full-time staff dedicated to the FECA program, periodic reviews of claimants' continued eligibility, data analysis for potential fraud indicators, and effective use of investigative resources. These promising practices have already resulted in successful investigations and prosecutions of FECA-related fraud at some agencies, and could help to further enhance the program's fraud- prevention controls. However, our preliminary work has also identified several potential vulnerabilities in the program's design and controls that could increase the risk for fraud. Specifically, we found that limited access to necessary data is potentially reducing agencies' ability to effectively monitor claims and wage-loss information. In addition, agencies' reliance on self-reported data related to wages and dependent status, lack of a physician selected by the government throughout the process, and difficulties associated with successful investigations and prosecutions all potentially reduce the program's ability to prevent and detect fraudulent activity. Labor and employing agencies generally agreed with the preliminary findings presented in this statement and provided technical comments, which were incorporated into this statement. We plan to follow up on the promising practices and potential vulnerabilities as part of our ongoing work.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Mineral Leasing Act of 1920 charges Interior with overseeing oil and gas leasing on federal lands and private lands where the federal government has retained mineral rights covering about 700 million onshore acres. Offshore, the Outer Continental Shelf Lands Act, as amended, gives Interior the responsibility for leasing and managing approximately 1.76 billion acres. BLM and BOEMRE are responsible for issuing permits for oil and gas drilling; establishing guidelines for measuring oil and gas production; conducting production inspections; and generally providing oversight for ensuring that oil and gas companies comply with applicable laws, regulations, and department policies. This oversight includes the authority to ensure that firms produce oil and gas in a manner that minimizes any waste of these resources. Together, BLM and BOEMRE are responsible for oversight of oil and gas operations on more than 28,000 producible leases. Interior’s MRM program, which is managed under BOEMRE, is charged with ensuring that the federal government receives royalties from the operators that produce oil and gas from both onshore and offshore federal leases. MRM is responsible for collecting royalties on all of the oil and gas produced, with some allowances for gas lost during production. Companies pay royalties to MRM based on a percentage of the cash value of the oil and gas produced and sold. Currently, royalty rates for onshore leases are generally 12.5 percent, while rates for offshore leases range from 12.5 percent to 18.75 percent. The production of oil and gas on these federal leases involves several stages, including the initial drilling of the well; clearing out liquid and mud from the wellbore; production of oil and gas from the well; separation of oil, gas, and other liquids; transfer of oil and gas to storage tanks; and distribution to central processing facilities. Throughout this process, operators typically vent or flare some natural gas, often intermittently in response to maintenance needs or equipment failures. This intermittent venting may take place when operators purge water or hydrocarbon liquids that collect in well bores (liquid unloading) to maintain proper well function or when they expel liquids and mud with pressurized natural gas after drilling during the well completion process. BLM and BOEMRE permit operators of wells to release routine amounts of gas during the course of production without notifying them or incurring royalties on this gas. In addition, production equipment often emits gas to maintain proper internal pressure, or in some cases, the release of pressurized gas itself is the power source for the equipment, particularly in remote areas that are not linked to an electrical grid. This “operational” venting may include the continuous releases of gas from pneumatic devices––valves that control gas flows, levels, temperatures, and pressures in the equipment and rely on pressurized gas for operation––as well as leaks, or “fugitive” emissions. It also includes natural gas that vaporizes from oi condensate storage tanks or during the normal operation of natur al gas l or dehydration equipment. Until recently, the industry considered these operational losses to be small, but recent infrared camera technology ha shed new light on these sources of vented gas, particularly from condensate storage tanks. According to oil and gas industry representatives, the cameras helped reveal that losses from storage tanks and fugitive emissions were much higher than they originally thought ( to video). In addition, recent calculations from EPA suggest that emissions from completions and liquid unloading make larger contributions to lost gas than previously thought possible. Operators can use a number of techniques to estimate emissions based on gas and oil characteristics and well operating conditions, such as temperature and pressure, without taking direct measurements of escaping gas. While venting and flaring of natural gas is often a necessary part of production, the lost gas has both economic and environmental implications. On federal oil and gas leases, natural gas that is vented or flared during production, instead of captured for sale, represents a loss of royalty revenue for the federal government. Venting and flaring natural gas also adds to greenhouse gases in the atmosphere. In general, flaring emits CO, while venting releases methane, both of which the scientific community agrees are contributing to global warming. Methane is considered particularly harmful in this respect, as it is roughly 25 times more potent by weight than CO Other hydrocarbons and compounds in vented and flared gas can also harm air quality by increasing ground-level ozone levels and contributing to regional haze. Volatile organic compounds, present in vented gas, are contributors to elevated ozone and haze, and ozone is a known carcinogen, according to EPA analysis. In some areas in the western United States, the oil and gas industry is a major source of volatile organic compounds. According to EPA, in many western states, including in many rural areas where there is substantial oil and gas production and limited population, there have been increases in ozone levels, often exceeding federal air quality limits. Interior is required to conduct environmental impact assessments in advance of oil and gas leasing and generally works with state environmental and air quality agencies to ensure that oil and gas producers will comply with environmental laws such as the Clean Air Act or Clean Water Act and the related implementing regulations. However, the state agencies may be charged with maintaining the standards established by the federal government in law and regulation, and often have primary responsibility in this regard. While much of the natural gas that is vented and flared is considered to be unavoidably lost, certain technologies and practices can be applied throughout the production process to capture some of this gas according to the oil and gas industry and EPA. The technologies’ technical and economic feasibility varies and sometimes depends on the characteristics of the production site. For example, some technologies require a substantial amount of electricity, which may be less feasible for remote production sites that are not on the electrical grid. However, certain technologies are generally considered technically and economically feasible at particular production stages, including the following: Drilling: Using “reduced emission” completion equipment when cleaning out a well before production, which separates mud and debris to capture gas or condensate that might otherwise be vented or flared. Production: Installing a plunger lift system to facilitate liquid unloading. Plunger-lift systems drop a plunger to the bottom of the well, and when the built-up gas pressure pushes the plunger to the surface, liquids come with it. Most of the accompanying gas goes into the gas line rather than being vented. Computerized timers adjust when the plunger is dropped according to the rate at which liquid collects in the well, further decreasing venting. Storage: Installing vapor recovery units that capture gas vapor from oil or condensate storage tanks and send it into the pipeline. Dehydration: Optimizing the circulation rate of the glycol and adding a flash tank separator that reduces the amount of gas that is vented into the atmosphere. Pneumatic devices: Replacing pneumatic devices at all stages of production that release, or “bleed,” gas at a high rate (high-bleed pneumatics) with devices that bleed gas at a lower rate (low-bleed pneumatics). In 2004, we reported that information on the extent to which venting and flaring occurs was limited. Although BLM and BOEMRE require operators to report data on venting and flaring on a monthly basis, our 2004 report found that these data did not distinguish between gas that is vented and gas that is flared, making it difficult to accurately identify the extent to which each occurs. In implementing our recommendations for offshore operators, BOEMRE now requires operators to report venting and flaring separately and to install meters to measure this gas on larger platforms. The Energy Information Administration (EIA) also collects data from oil and gas producing states on venting and flaring, but our 2004 work found that EIA did not consider these state-reported data to be consistent and, according to discussions with EIA officials, these data have not improved. Available estimates of vented and flared natural gas on federal leases vary considerably, and we found that estimates based on data from MRM’s OGOR data system likely underestimate these volumes because they include fewer sources of emissions than other estimates, including EPA’s and WRAP’s. For onshore federal leases, operators reported to OGOR that about 0.13 percent of the natural gas produced was vented and flared, while EPA estimates showed the volume to be about 4.2 percent, and estimates based on WRAP data showed it to be as high as 5 percent. Similarly, for offshore federal leases, operators reported to OGOR that 0.5 percent of the natural gas produced was vented and flared, while data in BOEMRE’s GOADS system––a database that focuses on the impacts of offshore oil and gas exploration, development, and production on air quality in the Gulf of Mexico region––showed that volume to be about 1.4 percent, and estimates from EPA showed it to be about 2.3 percent. Onshore leases. Onshore leases showed the largest variation between OGOR data and others’ estimates of natural gas venting and flaring. Operators reported to MRM’s OGOR system that about 0.13 percent of the natural gas produced on onshore federal leases was vented or flared each year between 2006 and 2008. BLM uses guidance from 1980, which sets limits on the amount of natural gas that may be vented and flared on onshore leases, requires operators to report vented and flared gas to OGOR, and in some cases to seek permission before releasing gas. Although the guidance states that onshore operators must report all volumes of lost gas to OGOR, it does not enumerate the sources that should be reported or specify how they should be estimated. Staff from BLM told us that the reported volumes were from intermittent events like completions, liquid unloading, or necessary releases after equipment failures; however, operators did not report operational sources such as venting from oil storage tanks, pneumatic valves, or glycol dehydrators. In general, BLM staff said that they thought that vented and flared gas did not represent a significant loss of gas on federal leases. In addition, we found a lack of consistency across BLM field offices regarding their understanding of which intermittent volumes of lost gas should to be reported to OGOR. For example, staff from some of the offices said that they thought that intermittent vented and flared gas was not to be reported if operators had advance permission or where volumes were under BLM’s permissible limits, while others said that they thought that operators still needed to report this gas. Our discussions with operators reflected this lack of consistency from BLM field office staff. Operators we spoke with said that they generally did not report operational sources, and in some cases did not report intermittent sources as long as they were under BLM’s permissible limits for venting and flaring. In contrast, EPA’s estimate of venting and flaring was approximately 4.2 percent of gas production on onshore federal leases for the same period and consistently included both intermittent and operational sources. EPA estimated these emissions using data on average nationwide oil and gas production equipment and their associated emissions (see table 1). As noted earlier, venting from operational sources had not previously been seen as a significant contributor to lost gas. With these additional sources, EPA’s estimates are around 30 times higher than the volumes operators reported to OGOR. According to EPA’s estimates, the amount of natural gas vented and flared on onshore leases totaled around 126 billion cubic feet (Bcf) of gas in 2008. This amount is roughly equivalent to the natural gas needed to heat about 1.7 million homes during a year, according to our calculations. See figure 2 for a comparison between EPA’s estimated gas emissions and the volumes reported to OGOR as a percentage of gas production on federal onshore leases. Similarly, analysis of WRAP data for five production basins in the mountain west in 2006 indicated as much as 5 percent of the total natural gas produced on federal leases was vented and flared. WRAP based its estimates, in part, on a survey of the types of equipment operators were using, and provided a detailed list of sources to be reported. WRAP’s data included similar sources as EPA’s data, as well as estimates of emissions from fugitive sources like leaking seals and valves. Although estimates based on WRAP data varied from basin to basin—between 0.3 and 5 percent—they were consistently much higher than the volumes operators reported to OGOR. The average vented and flared gas as a percentage of production was 2.2 percent across the five basins. See table 2 for a list of the key sources in one of the five basins. In figure 3, which compares estimates based on WRAP data with the volumes operators reported to OGOR for 2006, for the Uinta basin, the WRAP estimate was about 20 times higher than the volumes reported to OGOR, and for two other basins (i.e., Denver-Julesburg and N. San Juan) no volumes of vented and flared gas were reported to OGOR. Offshore leases. Offshore leases showed less variation between OGOR data and others’ estimates of natural gas venting and flaring than onshore leases, but the volumes that operators reported to MRM’s OGOR were still much lower than the volumes they reported to BOEMRE’s GOADS system and estimates from EPA. Operators reported to OGOR that between 0.3 and 0.5 percent of the natural gas produced on offshore leases was vented and flared each year from 2006 to 2008; however, they reported to GOADS that they vented and flared about 1.4 percent—about 32 Bcf––of the natural gas produced on federal leases in the Gulf of Mexico in 2008. Although regulations require offshore operators to report all sources of lost gas to OGOR, BOEMRE officials said that that this did not include fugitive emissions. Furthermore, these officials also said that operators likely reported volumes from some operational sources as “lease-use” gas instead of including it in the venting and flaring data, thus contributing to the differences between OGOR and GOADS. GOADS data included sources similar to those included in EPA’s and WRAP’s data for onshore production, including the same operational sources. Further, guidance to operators for reporting to GOADS explicitly outlines the sources to be reported and how they should be estimated, while guidance for OGOR does not. Table 3 outlines the emission sources for volumes operators reported to the GOADS system for 2008. In addition, EPA’s offshore estimates showed that around 2.3 percent of gas produced on offshore federal leases––as much as 50 Bcf––was vented and flared every year from 2006 to 2008. According to our analysis of EPA’s work, additional venting from natural gas compressors, used to maintain proper pressure in production equipment, accounted for the majority of the difference between the offshore EPA and GOADS volumes. On several occasions BOEMRE has made comparisons between data on vented and flared volumes in the OGOR and GOADS systems, according to BOEMRE officials. In 2004, BOEMRE compared data from the 2000 GOADS study with data from OGOR for a subset of offshore leases and found reported vented and flared volumes were not always in agreement— attributing this difference to different operator interpretations of GOADS and OGOR reporting requirements. BOEMRE officials said they revised reporting procedures for the 2005 GOADS study. More recently, BOEMRE made similar comparisons between data from the 2008 GOADS study and OGOR data for a subset of leases and found they were in closer agreement. BOEMRE officials told us they will continue to make such comparisons to try to ensure the accuracy of the data in each system. In reporting volumes of vented and flared gas to both systems, operators can choose from a broad array of software packages, models, and equations to estimate emissions, and these techniques can yield widely varied results. For example, one study found that various estimation techniques to determine emissions from oil storage tanks either consistently underestimated or overestimated vented volumes. OGOR reporting instructions for both onshore and offshore operators, as noted, do not specify how operators should estimate these volumes. As part of our review, we analyzed 2008 OGOR and GOADS data for the Gulf of Mexico and found that the OGOR data likely underestimated the volumes of vented and flared natural gas on federal offshore leases. To do this analysis, we compared 2008 data from GOADS’s vent and flare source categories with OGOR data for the same categories—looking at these source categories allowed us to directly compare the two data systems. In doing this analysis, we accounted for OGOR’s exclusion of fugitive emissions and the reporting of sources, like pneumatic valves, as lease-use gas. Our analysis found that the volumes operators reported to OGOR–– about 12 Bcf––were much lower than the volumes operators reported to GOADS—about 18 Bcf. Neither we nor MRM and BOEMRE officials could account for or explain these differences in the two data systems. BOEMRE officials said that they are still working to improve reporting to OGOR and GOADS and expect these two data systems to converge in the future. To improve reported data, BOEMRE recently released a final rule, in response to the recommendations in our 2004 report, that requires operators on larger offshore platforms to route vented and flared gas from a variety of sources through a meter to allow for more accurate measurement, among other things. BOEMRE officials said that these meters would help to improve the accuracy of data reported to both OGOR and GOADS. However, BOEMRE officials said they have had to address questions from some operators who were not sure which sources of vented gas should be routed through the newly required meters. In this regard, these officials said it may be useful to enumerate the required emission sources for reporting to OGOR in future guidance to offshore operators. They also noted that BOEMRE is planning a workshop in October 2011 to stress to operators the need for accurate reporting on their submissions to both GOADS and OGOR systems. In a similar way, EPA has taken action to improve the reporting of emissions from the oil and natural gas industry. EPA recently proposed a greenhouse gas reporting rule that would require oil and gas producers emitting over 25,000 metric tons of carbon dioxide equivalent to submit detailed data on vented and flared gas volumes to allow EPA to better understand the contribution of venting and flaring to national greenhouse gas emissions. For onshore leases, the proposed EPA rule provides details on the specific sources of vented and flared gas to be measured and proposes standardized methods for estimating volumes of greenhouse gas emissions where direct measurements are not possible. For offshore leases, operators would use the GOADS system to report venting and flaring. Data collection would begin in 2011 if the rule becomes finalized in 2010. Data from EPA, supported by information obtained from technology vendors and our analysis of WRAP data, suggest that about 40 percent of natural gas estimated to be vented and flared on federal onshore leases could be economically captured with currently available control technologies, although some barriers to their increased use exist. Such captures could increase federal royalty payments and reduce greenhouse gas emissions. Available technologies could reduce venting and flaring at many stages of the production process. However, there are some barriers to implementing these technologies. EPA analysis and our analysis of WRAP data identified opportunities for expanded use of technologies to reduce venting and flaring. Specifically: EPA’s 2008 analysis, the most recent data available, indicates that the increased use of available technologies, including technologies that capture emissions from sources such as well completions, liquid unloading, or venting from pneumatic devices, could have captured about 40 percent––around 50 Bcf––of the natural gas EPA estimated was lost from onshore federal leases nationwide. nd significant opportunities to add “smart” automation to existing plunger lifts, which tune plunger lifts to maximum efficiency and, in turn, minimize the amount of gas lost to venting. EPA estimated that using this technology where economically feasible could have resulted in the capture of more than 7 Bcf of vented and flared natural gas on federal leases in 2008––around 6 percent of the total volume estimated by EPA to be vented and flared on onshore federal leases. Similarly, EPA estimated that additional wells on onshore federal leases could have incorporated reduced emission completion technologies in 2008, which could have captured an additional 14.7 Bcf of vented and flared natural gas. Table 4 outlines EPA’s estimates of potential reductions in venting and flaring on onshore federal leases. Reductions in natural gas lost to venting and flaring from federal leases would increase the volume of natural gas produced and sold, thereby potentially increasing federal royalty payments. If, for instance, a total of 126 Bcf of natural gas was lost to venting and flaring on onshore federal leases in 2008, as EPA has estimated, that loss would equal approximately $58 million in federal royalty payments. If, as EPA estimates, 40 percent of this lost gas could have been economically captured and sold, federal royalty payments could increase by approximately $23 million annually, which represents about 1.8 percent of annual federal royalty payments on natural gas. Reducing natural gas lost to venting and flaring from federal leases could also reduce greenhouse gases to the atmosphere according to our calculations. Because methane is about 25 times more potent as a greenhouse gas over a 100-year period, and almost 72 times more potent over a 20-year period according to the Intergovernmental Panel on Climate Change, reducing direct venting of natural gas to the atmosphere has a significantly greater positive effect, in terms of global warming potential, than does reducing flaring. Again using EPA’s estimates, if a total of 98 Bcf of natural gas was vented and 28 Bcf was flared annually, those releases would account for about 41 million metric tons of carbon dioxide equivalent released to the atmosphere, which would be roughly equivalent to the emissions of almost 8 million passenger vehicles or about 10 average-sized coal-fired power plants. Capturing 40 percent of this volume would result in emissions reductions of about 50 Bcf, which is equivalent to the emissions of 3.1 million passenger vehicles or about 4 average-sized coal-fired power plants, according to our analysis. Some EPA officials also told us that they believed that federal efforts to reduce venting and flaring could also have a spillover effect––that is, it could lead operators to use these technologies on state and private leases as well. Data from EPA and WRAP included vented and flared gas from nonfederal leases, and the data showed that there were similar percentages of gas being lost, suggesting that the potential greenhouse gas reductions from the expanded use of these technologies could go well beyond those from federal oil and gas production. We did not find complete quantitative data on reduction opportunities offshore from Interior, EPA, or others that could be used to fully identify the potential to reduce emissions offshore. However, EPA officials told us that opportunities for reducing emissions from venting and flaring from offshore production platforms likely exist. For instance, EPA found that various production components, including valves and compressor seals, contribute significant volumes of fugitive emissions, but that these emissions could be mitigated through equipment repair or retrofitting. One estimate based on EPA analysis of 15 offshore platforms in 2008, suggests that most of the gas lost through compressor seals could be recovered economically—saving about 70 percent of the overall gas they estimated to be lost on those platforms. However, EPA’s analysis warns that some mitigation strategies may be less cost-effective in the offshore environment because capital costs and installation costs tend to be higher. Interior is responsible for ensuring that operators minimize natural gas venting and flaring on federal onshore and offshore leases; however, while both BLM and BOEMRE have taken steps to minimize venting and flaring on federal leases, their oversight of such leases has several limitations. Although EPA does not have a direct regulatory role with respect to managing federal oil and gas leases, its Natural Gas STAR program has helped to reduce vented gas on federal leases according to EPA and industry participants. As part of their oversight responsibilities, Interior’s BLM and BOEMRE are charged with minimizing the waste of federal resources, and, to that end, both agencies have issued regulations and guidance that limit venting and flaring of gas during routine procedures such as liquid unloading and well completions. However, their oversight has several limitations, namely (1) the regulations and guidance do not address new capture technologies or all sources of lost gas; (2) the agencies do not assess options for reducing venting and flaring in advance of oil and gas production for purposes other than addressing air quality; and (3) the agencies have not developed or do not use information regarding available technologies that could reduce venting and flaring. Onshore leases. BLM’s guidance limits venting and flaring from routine procedures and requires operators to request permission to vent and flare gas above these limits. If operators request permission to exceed these limits, BLM is to assess the economic and technical viability of capturing additional gas and require its capture when warranted. Although BLM guidance sets limits on venting and flaring of natural gas and allows flexibility to exceed them in certain cases, it does not address newer technologies or all sources of lost gas. Specifically, BLM guidance is 30 years old and therefore does not address venting and flaring reduction technologies that have advanced since it was issued. For example, since the guidance was written, technologies have been developed to economically reduce emissions from well completions and liquid unloading—namely the use of reduced emission completion and automated plunger lift technologies respectively. These two sources of emissions were important contributors to vented and flared volumes that we discussed earlier. Despite this fact, the use of such technologies where it is economic to do so is not covered in BLM’s current guidance. In general, BLM officials said that they thought the industry would use venting and flaring reduction technologies if they made economic sense. Similarly, new lower-emission devices could also reduce venting and flaring from other sources of emissions that are not covered by BLM’s guidance, such as pneumatic valves or gas dehydrators––two sources that contribute to significant lost gas. In discussions with BLM staff about their guidance, staff acknowledged that existing guidance was outdated given current technologies and said that they were planning to update it by the second quarter of 2012. Offshore leases. Like BLM, BOEMRE has regulations that limit the allowable volumes of vented and flared gas from offshore leases to minimize losses of gas from routine operations. Operators can also apply for permission to exceed these limits and, like BLM, BOEMRE would evaluate the economic and technical viability of capturing additional gas. Further, BOEMRE inspects offshore platform facilities each year and, as part of these inspections, reviews on-site daily natural gas venting records. BOEMRE officials told us that the agency requires operators to keep these venting records and that it uses them to, among other things, identify any economically viable opportunities for an operator to install control equipment. Overall BOEMRE officials said that operators were required to install venting and flaring reduction equipment where economic, even if they would make as little as $1 in net profit from the captured gas. According to agency officials, due to the type of production and operations offshore, reduction opportunities mostly consist of installing vapor recovery units, and these officials said that they generally believe that companies have installed such equipment where it is economic to do so. Although BOEMRE conducts regular inspections, the daily venting records do not include all sources of vented gas. For example, emission estimates from sources of gas such as pneumatic valves and glycol dehydrators are not included, and therefore inspectors are not able to make assessments of the potential to reduce emissions from these sources. Both of these sources were contributors to lost gas offshore from the 2008 GOADS study, suggesting potential reduction opportunities. BOEMRE officials said that the agency considers these sources lease-use gas, and as a result, believed that they could not legally consider the economic and technical viability of this gas and require its capture when warranted. However, based on our review of BOEMRE regulations and authorizing legislation, it appears that BOEMRE has the authority to require operators to minimize the loss of this gas, including requiring its capture where appropriate. BOEMRE officials agreed with our assessment. Onshore leases. While BLM regulations authorize and direct BLM officials to offer technical advice and issue orders for specific lease operations to minimize waste, BLM does not explicitly assess options to minimize waste from vented and flared gas before production. For example, we identified two phases in advance of production where BLM could assess venting and flaring reduction options—during the environmental review phase and when the operator applies to drill a new well. However, the agency does not explicitly assess these options, or discuss them with operators, during either phase. For example, during the environmental review phase, BLM works with states to assess emissions from oil and gas production, and that air quality assessment may include venting and flaring reduction requirements. According to BLM officials, since states generally have primary responsibility to implement and enforce air quality standards, the standards drive these requirements, and states focus only on the role venting and flaring plays in air pollution, rather than the minimization of waste. Therefore in production basins where air quality standards are being met, or where only minimal use of technology is required to meet them, BLM would not assess venting and flaring reduction technologies to the full extent that they could economically reduce vented and flared gas. One official noted that some BLM officials felt constrained in their ability to consider the use of venting and flaring reduction technologies because of this. Similarly, during the phase when operators apply to drill new wells, BLM assesses detailed technical and environmental aspects of the project, but BLM officials told us their assessment does not include a review of options to reduce venting and flaring. Offshore leases. Similar to BLM, BOEMRE assesses venting and flaring reduction options in advance of production to determine whether vented and flared gas from offshore platforms would harm coastal air quality, but again, the focus is on meeting air quality standards rather than assessing whether gas can be economically captured. Therefore, when BOEMRE does not anticipate harm to coastal air quality, as is often the case according to officials, the agency does not further consider venting and flaring reduction options at this phase. Further, while the application operators submit in advance of drilling must include a description of the technologies and recovery practices that the operator will use during production, venting and flaring reduction options are not included in that submission. Onshore leases. We found that BLM does not maintain a database regarding the extent to which available venting and flaring reduction technologies are used on federal oil and gas leases. As such, it could be difficult for BLM to identify opportunities to reduce venting and flaring or estimate the potential to increase the capture of gas that is currently vented or flared. For example, while BLM guidance provides that the natural gas vaporizing from storage tanks must be captured if BLM determines recovery is warranted, BLM does not collect data on the use of control technologies and available OGOR data do not contain the volumes of lost gas from storage tanks. Thus BLM may be overlooking circumstances where recovery could be warranted. In addition, according to BLM officials we spoke with, although infrared cameras can be used to identify sources of lost gas, BLM has not used them during inspections of production facilities. Although relatively expensive, infrared cameras allow users to rapidly scan and detect vented gas or leaks across wide production areas. BLM officials cited budgetary constraints and challenges in developing a policy and protocols for why the cameras have not been used regularly by the agency. Offshore leases. Although the GOADS data system contains some information on the types of equipment operators use, BOEMRE has not analyzed this information to identify emission-reduction opportunities according to officials. GOADS contains information about the use of equipment such as vapor recovery systems. These data have not been used by BOEMRE to identify venting and flaring reduction opportunities because the agency has not considered using these data for purposes other than addressing air quality, according to a BOEMRE official. Nonetheless, based on our review of the GOADS data system, by not analyzing such data, BOEMRE is not able to identify emission-reduction opportunities. As a case in point, we found that emissions from pneumatic valves in the 2008 GOADS study made noticeable contributions to overall lost gas, which might suggest the potential to expand the use of low-bleed pneumatics in some cases. BOEMRE officials also noted that, unlike BLM, its inspectors had used infrared cameras to look for obvious sources of vented and flared gas in a few sample locations close to shore. In this regard, they said expanded use of infrared cameras could be useful to help enforce their new rule that requires the use of meters for vented and flared gas. Specifically, they said that the cameras could identify sources of gas that operators may have not routed through the meter as required. They also noted that expanded use of the cameras could help to identify and potentially reduce fugitive gas emissions that currently go undetected. Although Interior has the primary role in federal oil and gas leasing, EPA’s Natural Gas STAR program has encouraged some operators to adopt technologies and practices that have helped to reduce methane emissions from the venting of natural gas, according to EPA and industry participants. Through this program, industry partners evaluate their emissions and consider ways to reduce them, although the reductions are voluntary. The program also maintains an online library of technologies and practices to reduce emissions that quantify the costs and benefits of each emission-reduction option. Natural Gas STAR also sponsors conferences to facilitate information exchange between operators regarding emissions reductions technologies. Partner companies report annually about their efforts to reduce emissions along with the volumes of the emission reductions. According to the Natural Gas STAR Web site, domestic oil and gas industry partners reported more than 114 Bcf of methane emission reductions in 2008, which amounts to about 0.4 percent of the total natural gas produced that year. However, one industry representative said that, while large and midsize operators were aware of the Natural Gas STAR program, smaller operators were not aware and, even if some smaller operators were aware of the program, they may not have the environmental staff to implement the technologies and practices. Despite the potential usefulness of information from the Natural Gas STAR program to oil and gas producers on federal leases, some of the BLM officials that we spoke with were unfamiliar with Natural Gas STAR. Fulfilling its responsibility to ensure that the country’s oil and natural gas assets are developed reasonably and result in fair compensation for the American people requires Interior to have accurate and complete information on all aspects of oil and natural gas leases. Interior has collected some information on vented and flared gas through MRM’s OGOR system, but without a full understanding of these losses Interior cannot fully account for the disposition of taxpayer resources or identify opportunities to prevent undue waste. MRM’s OGOR data system does not provide information on all sources of lost gas, which is the primary source of data that BLM uses to measure overall vented and flared gas onshore. Therefore, OGOR data present an incomplete picture of venting and flaring onshore, leading BLM officials to believe that vented and flared gas volumes do not represent a significant loss of gas on federal leases. Similarly, data in BOEMRE’s GOADS data system differ considerably from data in OGOR, and have not been reconciled—raising questions about the accuracy of offshore data sources. Regarding Interior’s oversight of operators venting and flaring gas, because current guidance and regulations from BLM and BOEMRE do not require the minimization of all sources of vented and flared gas––although legislation exists authorizing them to require that waste on federal leases be minimized––operators may be venting and flaring more gas than should otherwise be allowed. In fact, we found that operators are not using available technologies in all cases to economically reduce vented and flared gas. BLM guidance has not kept pace with the development of economically viable capture technologies for a number of sources of lost gas, and BOEMRE has been reluctant to consider the economic and technical viability of minimizing the waste of “lease-use” gas because officials had believed they were legally constrained from doing so. In addition to the limitations of these regulations, BLM and BOEMRE have not used their authority in two situations where they could potentially further reduce venting and flaring. First, neither agency has used its authority to minimize waste beyond relevant air quality standards by assessing the use of venting and flaring reduction technologies before production. Second, because BLM lacks data about the use of venting and flaring technologies for onshore leases and BOEMRE does not analyze its existing information for offshore leases in its GOADS data system, these agencies are not fully aware of potential opportunities to use available technologies. Further, neither agency takes full advantage of newer infrared camera technology that can help to identify sources of lost gas— as BOEMRE officials have acknowledged, this technology could help reveal additional sources of lost gas. Ultimately, a sharper focus by BOEMRE and BLM on the nature and extent of venting and flaring on federal leases could have multiple benefits. Specifically, increased implementation of available venting and flaring reduction technologies, to the extent possible, could increase sales volumes and revenues for operators, increase royalty payments to the federal government, and decrease emissions of greenhouse gases. In addition, our analysis of WRAP and EPA data showed as much or more vented and flared gas on nonfederal leases, and we share the observation with EPA officials that a spillover effect may occur, whereby oil and gas producers, seeing successes on their federal leases, take similar steps on state and private leases. To ensure that Interior has a complete picture of venting and flaring on federal leases and takes steps to reduce this lost gas where economic to do so, we are making five recommendations to the Secretary of the Interior. To ensure that Interior’s data are complete and accurate, we recommend that the Secretary of the Interior direct BLM and BOEMRE to take the following action: Take additional steps to ensure that each agency has a complete and accurate picture of vented and flared gas, for both onshore and offshore leases, by (1) BLM developing more complete data on lost gas by taking into consideration additional large onshore sources and ways to estimate them not currently addressed in regulations—sources that EPA’s newly proposed greenhouse gas reporting rule addresses—and (2) BOEMRE reconciling differences in reported offshore venting and flaring volumes in OGOR and GOADS data systems and making adjustments to ensure the accuracy of these systems. To help reduce venting and flaring of gas by addressing limitations in their regulations, we recommend that the Secretary of the Interior direct BLM and BOEMRE to take the following four actions: BLM should revise its guidance to operators to make it clear that technologies should be used where they can economically capture sources of vented and flared gas, including gas from liquid unloading, well completions, pneumatic valves, and glycol dehydrators. BOEMRE should consider extending its requirement that gas be captured where economical to “lease-use” sources of gas; BLM and BOEMRE should assess the potential use of venting and flaring reduction technologies to minimize the waste of natural gas in advance of production where applicable, and not solely for purposes of air quality; BLM and BOEMRE should consider the expanded use of infrared cameras, where economical, to improve reporting of emission sources and to identify opportunities to minimize lost gas; and BLM should collect information on the extent that larger operators use venting and flaring reduction technology and periodically review this information to identify potential opportunities for oil and gas operators to reduce their emissions, and BOEMRE should use existing information in its GOADS data system for this same purpose, to the extent possible. We provided a copy of our draft report to Interior and EPA for review and comment. Interior provided written comments that concurred with four of the five recommendations and partly concurred with the remaining recommendation. Its comments are reproduced in appendix II and key areas are discussed below. EPA did not provide formal comments on the report, but the agency’s Office of Air and Radiation provided written comments to GAO staff, which we summarize and discuss below. Interior and EPA also provided other clarifying or technical comments, which we incorporated as appropriate. Interior’s comments reflected the views of BLM and BOEMRE. BLM concurred with all five recommendations and noted that it plans to incorporate recommended actions into its new Onshore Order in order to improve the completeness and accuracy of its data and help address limitations in its current regulations. BOEMRE concurred with four of the recommendations and partly concurred with our second recommendation that they consider enforcing the economical capture of “lease-use” gas. It stated that we misapprehended the scope of the regulations governing “lease-use” sources of gas in that BOEMRE does not have current regulations to require the capture of “lease-use” gas. In response to this comment, we reworded our recommendation to clarify that BOEMRE should consider extending its existing requirements for the economical capture of gas to “lease-use” gas. In a related point, BOEMRE also noted that we were unable to quantify the potential volumes of additional gas that could be captured by holding operators to this same economic standard for “lease- use” gas. While current data have limitations, BOEMRE’s GOADS data suggest potential opportunities to capture additional gas from lease-use sources, namely glycol dehydrators and pneumatic devices. As such, we support BOEMRE’s efforts to further evaluate this issue and take action through new guidance or regulations, as it believes appropriate. EPA’s Office of Air and Radiation commented on three areas of the report: First, EPA emphasized the significant air quality impacts from the volatile organic compounds (VOC) associated with vented gas and provided us with estimates of the potential volumes of these emissions. While we recognize that the impacts of VOC emissions on air quality are important, these impacts were largely beyond the scope of our work. Nonetheless, we incorporated an estimate of these VOC emissions into supporting notes to table 1 that reflected EPA’s estimates of vented and flared gas. We also added additional information to the background regarding VOC emissions. Second, EPA suggested that we recommend to BLM and BOEMRE that they require the use of the best available venting and flaring control measures during leasing or drilling permitting. We continue to believe that BLM and BOEMRE should require the use of these technologies where economical, and recognize that requiring the use of such controls when the economics of capturing gas are unfavorable is not required by current EPA greenhouse gas regulations. Third, EPA provided us with its revised emission estimates for vented and flared gas based on updated analysis for its proposed rule on the reporting of greenhouse gases by industry. It also provided us with revised estimates for the use of additional control technologies to reduce the emissions of vented and flared gas. In both cases, we incorporated these revised estimates in our report where applicable. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, Secretary of the Interior, Administrator of the Environmental Protection Agency, and other interested parties. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. Our objectives were to (1) examine available estimates of vented and flared natural gas on federal leases; (2) estimate the potential to capture additional vented and flared natural gas with available technologies and the associated potential increases in royalty payments and reductions in greenhouse gas emissions and; (3) assess the federal role in reducing venting and flaring of natural gas. To examine available estimates of vented and flared natural gas on federal leases, we collected data from the Department of the Interior’s (Interior) Bureau of Land Management (BLM), Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), including BOEMRE’s Minerals Revenue Management (MRM) program; the Environmental Protection Agency (EPA); and the Western Regional Air Partnership (WRAP). We also interviewed staff from these agencies and oil and gas producers operating on federal leases regarding venting and flaring data collection, analysis, and reporting. We obtained data from four key sources: MRM’s Oil and Gas Operations Report (OGOR) database, BOEMRE’s Gulfwide Offshore Activity Data System (GOADS), EPA’s Natural Gas STAR Program, and WRAP’s analysis of air emissions for a number of western states. We assessed the quality of the data from each of these sources and determined that these data were sufficiently reliable for the purposes of our report. MRM provided OGOR data on vented and flared volumes and production for both onshore and offshore federal leases for calendar years 2006 to 2008. MRM uses the OGOR data, in part, to ensure accurate federal royalty payments. The OGOR data are operator-reported, and reported venting and flaring volumes are a mix of empirical measurements and estimates from operators. MRM was unable to provide complete estimates of vented and flared gas on all federal leases because a portion of federal leases are managed as part of lease agreements—collections of leases that draw from the same oil or gas reservoir, which may include federal and nonfederal leases. MRM was unable to determine the share of reported vented and flared gas from the federal portion of those lease agreements; it reported venting and flaring from (1) lease agreements that included only federal leases and (2) all lease agreements, which included some nonfederal leases. In this report, we discuss the vented and flared volumes from the agreements that contain only federal leases. As a result, we report vented and flared gas volumes from the OGOR data as a percentage of total production on these leases, rather than as absolute volumes, in order to compare the OGOR estimates to estimates from other data sources. A second source of venting and flaring data was BOEMRE’s 2008 GOADS data, which contained estimates of gas lost to venting and flaring on federal leases in the Gulf of Mexico—which accounted for 98 percent of federal offshore gas production in 2008. BOEMRE collects GOADS data every 3 years and uses these data to estimate the impacts of offshore oil and gas exploration, development, and production on onshore air quality in the Gulf of Mexico region. BOEMRE also uses GOADS as part of an impact analysis required by the National Environmental Policy Act. GOADS data capture specific information on a variety of sources of air pollutants and greenhouse gases resulting from offshore oil production. BOEMRE provided us with actual volumes of natural gas released from the vented and flared source categories. For the other sources, we used the emissions that were reported in GOADS in tons of methane per year, and we converted these to volumes of methane and then to natural gas, assuming a 78.8 percent methane content for natural gas. In the GOADS study, fugitive emissions are estimated by looking at the number of valves and other components on a given production platform and then assuming an average leak rate. BOEMRE’s data contractor performs a series of quality checks on the data after collection. A third source of data on vented and flared volumes was a nationwide analysis performed by officials from EPA’s Natural Gas STAR program, a national, voluntary program that encourages oil and gas companies, through outreach and education, to adopt cost-effective technologies and practices that improve operational efficiencies and reduce methane emissions. EPA’s nationwide venting and flaring volumes were based on publicly available empirical data on national oil and gas production for 2006, 2007, and 2008, combined with knowledge of current industry practices, including usage rates and effectiveness of venting and flaring reduction technologies. For example, EPA used data on the number of well completions per year and data on the average venting per completion to estimate a yearly nationwide total from that source, with similar approaches used for estimating total venting and flaring from other key sources. EPA adjusted its estimates to account for the industry’s efforts to control some venting and flaring emissions. EPA’s analysis was limited in some ways, however. For instance, lacking empirical data on actua l nationwide rates of use of certain control technologies, EPA based its analysis on anecdotal information in some cases. In order to be able to compare these data with the OGOR data, we scaled EPA’s national estimates to federal leases based on the proportion of natural gas production on federal leases over total U.S. natural gas production using data from MRM and the Department of Energy’s Energy Information Administration (EIA). flaring based on BOEMRE’s 2005 GOADS data. EPA officials adjusted volumes reported to GOADS based on publicly available information on current industry practices, including usage rates and effectiveness of venting and flaring reduction technologies. EPA’s initial estimates of venting and flaring were for the methane component of natural gas. These volumes were converted to reflect overall natural gas emissions by assuming, for most sources, an average 78.8 percent methane content for the gas. empirical data from operators in these basins, including drilling and production volume data, as well as data from a survey of operators. This survey asked operators to report actual vented and flared volumes, as well as to provide information on other aspects of their operations, including the emission control technologies they had in place. Similar to the EPA venting and flaring analysis, however, Environ did not have complete data from all operators in each basin and thus estimated some information based on survey data from a subset of operators. In addition, the original WRAP data did not distinguish between federal and nonfederal oil and gas operations, so we provided federal well numbers to Environ so that they well numbers to Environ so that they could identify the federal lease component of vented and flared gas. could identify the federal lease component of vented and flared gas. To estimate the magnitude of potential increases in royalty payments and reductions in greenhouse gas emissions resulting from capturing additional vented and flared gas with available technologies, we had EPA provide us with estimates of the onshore expansion potential of a number of key technologies and associated venting and flaring volume reductions. For simplicity, EPA developed these estimates by focusing on the expansion potential of a subset of technologies considered to provide the largest emission reductions. These estimates may be conservative, however, because they did not incorporate reductions from a number of other potential venting and flaring opportunities catalogued by the Natural Gas STAR program. These estimates were not based entirely on comprehensive usage data collected from the oil and gas industry, but were based, in part, on publicly available evidence collected through years of experience with the oil and gas industry. In addition, circumstances are constantly changing, and more technological innovations are potentially being used as time goes on, so there is some uncertainty in how much lost gas can be captured. We also compared venting and flaring volumes and the types of emission-reduction technologies used in each of the basins from the WRAP data, allowing us to draw conclusions about the impact of different levels of technology on venting and flaring volumes. We did not identify similar data on reduction opportunities offshore. We also interviewed officials from BLM, BOEMRE, EPA, and state agencies, as well as representatives from private industry, including technology vendors and an environmental consultant regarding the expanded use of available technologies to capture additional vented and flared gas. We conducted background research on venting and flaring reduction technologies, including from publicly available EPA Natural Gas STAR case studies. Finally, we obtained royalty information from MRM to calculate the royalty implications of the onshore venting and flaring reductions, and used conversion factors from EPA to calculate the greenhouse gas impacts of the vented and flared natural gas. To assess the federal role in reducing vented and flared gas, we conducted interviews with officials from Interior, EPA, the Department of Energy, state agencies, and members of the oil and gas industry. We also reviewed agency guidance and documentation, other studies related to federal management and oversight of the oil and gas industry, as well as prior GAO work that described limitations in the systems Interior has in place to track oil and gas production on federal leases. We conducted interviews with officials in six BLM field offices (Farmington and Carlsbad in New Mexico; Vernal, Utah; Glenwood Springs, Colorado; Pinedale, Wyoming; and Bakersfield, California) and staff from BLM headquarters. We also interviewed BOEMRE staff in Denver, Colorado, and New Orleans, Louisiana. We conducted this performance audit from July 2009 to October 2010 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Volume (Bcf) Volume (Bcf) In addition to the individuals named above, Daniel Haas (Assistant Director), Michael Kendix, Michael Krafve, Robert Marek, Alison O’Neill, David Reed, Rebecca Sandulli, and Barbara Timmerman made important contributions to this report.

The Department of the Interior (Interior) leases public lands for oil and natural gas development, which generated about $9 billion in royalties in 2009. Some gas produced on these leases cannot be easily captured and is released (vented) directly to the atmosphere or is burned (flared). This vented and flared gas represents potential lost royalties for Interior and contributes to greenhouse gas emissions. GAO was asked to (1) examine available estimates of the vented and flared natural gas on federal leases, (2) estimate the potential to capture additional gas with available technologies and associated potential increases in royalty payments and decreases in greenhouse gas emissions, and (3) assess the federal role in reducing venting and flaring. In addressing these objectives, GAO analyzed data from Interior, the Environmental Protection Agency (EPA), and others and interviewed agency and industry officials. Estimates of vented and flared natural gas for federal leases vary considerably, and GAO found that data collected by Interior to track venting and flaring on federal leases likely underestimate venting and flaring because they do not account for all sources of lost gas. For onshore federal leases, operators reported to Interior that about 0.13 percent of produced gas was vented or flared. Estimates from EPA and the Western Regional Air Partnership (WRAP) showed volumes as high as 30 times higher. Similarly, for offshore federal leases, operators reported that 0.5 percent of the natural gas produced was vented and flared, while data from an Interior offshore air quality study showed that volume to be about 1.4 percent, and estimates from EPA showed it to be about 2.3 percent. GAO found that the volumes operators reported to Interior do not fully account for some ongoing losses such as the emissions from gas dehydration equipment or from thousands of valves--key sources in the EPA, WRAP, and Interior offshore air quality studies. Data from EPA, supported by information obtained from technology vendors and GAO analysis, suggest that around 40 percent of natural gas estimated to be vented and flared on onshore federal leases could be economically captured with currently available control technologies. According to GAO analysis, such reductions could increase federal royalty payments by about $23 million annually and reduce greenhouse gas emissions by an amount equivalent to about 16.5 million metric tons of CO2--the annual emissions equivalent of 3.1 million cars. Venting and flaring reductions are also possible offshore, but data were not available for GAO to develop a complete estimate. As part of its oversight responsibilities, Interior is charged with minimizing vented and flared gas on federal leases. To minimize lost gas, Interior has issued regulations and guidance that limit venting and flaring during routine procedures. However, Interior's oversight efforts to minimize these losses have several limitations, including that its regulations and guidance do not address some significant sources of lost gas, despite available control technologies to potentially reduce them. Although EPA does not have a role in managing federal leases, it has voluntarily collaborated with the oil and gas industry through its Natural Gas STAR program, which encourages oil and gas producers to use gas saving technology, and through which operators reported venting reductions totaling about 0.4 percent of natural gas production in 2008. To reduce lost gas, increase royalties, and reduce greenhouse gas emissions, GAO recommends that Interior improve its venting and flaring data and address limitations in its regulations and guidance. Interior generally concurred with these recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: The JWST project continues to report that it remains on schedule and budget with its overall schedule reserve currently above its plan. However, the project is now entering a difficult phase of development— integration and testing—which is expected to take another 3.5 years to complete. Maintaining as much schedule reserve as possible is critical during this phase to resolve known risks and unknown problems that may be discovered. Being one of the most complex projects in NASA’s history, significant risks lie ahead for the project, as it is during integration and testing where problems are likely to be found and as a result, schedules tend to slip. As seen in figure 1, only two of five elements and major subsystems—ISIM and OTE—have entered the integration and testing phase. Integration and testing for the spacecraft and sunshield and for the ISIM and OTE when they are integrated together begins in 2016 and the entire observatory will begin this phase in late 2017. In December 2014, we reported that schedule risk was increasing for the project because it had lost schedule reserve across all elements and major subsystems. As a result, all were within weeks of becoming the critical path of the project and driving the project’s overall schedule. Figure 2 shows the different amounts of schedule reserve remaining on all elements and major subsystems, their proximity to the critical path, and the total schedule reserve for the critical path at the time of our review. The proximity of all the elements and major subsystem schedules to the critical path means that a delay on any of the elements or major subsystems may reduce the overall project schedule reserve further, which could put the overall project schedule at risk. As a result, the project has less flexibility to choose which issues to mitigate. While the project has been able to reorganize work when necessary to mitigate schedule slips thus far, with further progression into subsequent integration and testing periods, flexibility will be diminished because work during integration and testing tends to be more serial, as the initiation of work is often dependent on the successful and timely completion of the prior work. This is particularly the case with JWST given its complexity. Challenges with the development and manufacturing of the sunshield and the cryocooler were the most significant causes of the decline in schedule reserve that we reported on in December 2014. The sunshield experienced a significant manufacturing problem during the construction of the large composite panel that forms part of the sunshield’s primary support structure. The cryocooler compressor assembly—one component of the cryocooler—delivery is a top issue for the project and its development has required a disproportionate amount of cost reserves to fund additional work, caused in part, by issues such as a manufacturing error and manufacturing process mistake that caused delays to the schedule. The development of the cryocooler has been a concern for project officials as far back as 2006. Since that time, the cryocooler has faced a number of technical challenges, including valve leaks and cryocooler underperformance, which required two subcontract modifications and significant cost reserves to fund. The contractor and subcontractor were focused on addressing valve problems, which limited their attention to the cooling underperformance issue. This raised questions about the oversight of the cryocooler and why it did not get more attention sooner before significant delays occurred. In August 2013, the cryocooler subcontract was modified to reflect a 69 percent cost increase and that the workforce dedicated to the cryocooler effort at the subcontractor increased from 40 staff to approximately 110 staff. Since we issued our December 2014 report, JWST schedule reserve continued to decline: project schedule reserve decreased by 1 month, leaving 10 months of schedule reserve remaining, and the critical path switched from the cryocooler to the ISIM. The project is facing additional challenges with the testing of the ISIM and OTE and the manufacturing of the spacecraft in addition to continuing challenges with the cryocooler compressor assembly that further demonstrates continued schedule risk for the project. For example, after the second test for the ISIM—the element of JWST that contains the telescope’s four different scientific instruments—electronic, sensor, and heat strap problems were identified that impact two of the four instruments. Mitigating some of these issues led to a 1.5-month slip to the ISIM schedule and made ISIM the current critical path of the project to allow officials time to replace the unusable and damaged parts. As a result, ISIM’s third and final cryovacuum test scheduled to begin in August 2015 has slipped until September 2015. The OTE and spacecraft efforts are also experiencing challenges that may impact the schedules for those efforts. For example, it was discovered that over 70 harnesses on the OTE potentially had nicks on some wires and the majority will need to be repaired or rebuilt. The effects of these challenges on the project’s schedule are still being determined. Finally, the cryocooler compressor assembly has yet to be delivered and will be more than 16 months late if the current delivery date holds. Since our December 2014 report, the cryocooler compressor assembly’s delivery slipped almost an additional 2 months due to manufacturing and build issues and for an investigation of a leak to a joint with the pulse tube pre-cooler. Currently, the cryocooler compressor assembly is expected to be delivered in mid-June 2015 and is only 1 week off of the project’s critical path. Entering fiscal year 2015, the JWST project had limited short-term cost reserves to address technical challenges and maintain schedule. We reported the project had committed approximately 40 percent of the fiscal year 2015 cost reserves before the start of the fiscal year. As a result, one of the project’s top issues for fiscal year 2015 is its cost reserve posture, which the project reported is less than desired and will require close monitoring. At the end of February, project officials had committed approximately 60 percent of the fiscal year 2015 cost reserves and noted that maintaining fiscal year 2016 reserves needed close watching. The types of technical problems JWST is experiencing are not unusual for a project that is unique and complex. They are an inherent aspect of pushing technological, design, and engineering boundaries. What is important when managing such a project is having a good picture of risks, which can shift from day to day, and having effective tools for mitigating risks as they surface. Using up-to-date and thorough data on risks is also integral to estimating resources needed to complete the project. Given the cost of JWST, its previous problems with oversight, and the fact that the program is entering its most difficult phases of development, risk analysis and risk management have been a key focus of our work. JWST officials have taken an array of actions following the 2011 replan to enable the program to have better insight into risks and to mitigate them. For instance, we reported in 2012 that the project had implemented a new risk management system after it found the previous system lacked rigor and was ineffective for managing risks. The project instituted meetings at various levels throughout NASA and its contractors and subcontractors to facilitate communication about risks. The project also added personnel at contractor facilities, which allowed for more direct interaction and quicker resolution of issues. However, we reported in December 2014 that neither NASA nor the prime contractor had updated the cost risk analysis that underpinned the cost and schedule estimates for the 2011 replan. A cost risk analysis quantifies the cost impacts of risks and should be used to develop and update a credible estimate that accounts for all possible risks—technical, programmatic, and those associated with budget and funding. Moreover, conditions have changed significantly since the replan. For example, the delivery of the cryocooler compressor assembly is one of the project’s top issues and was not an evident risk when the cost risk analysis was conducted in 2011. On the prime contract, our analysis found that 67 percent of risks tracked by Northrop Grumman in April 2014 at the time of our analysis were not present in September 2011 at the time of the replan. We determined that a current and independent cost risk analysis was needed to provide Congress with insight into JWST’s remaining work on the Northrop Grumman prime contract—the largest (most expensive) portion of work remaining. A key reason for this determination was and continues to be the significant potential impact that any additional cost growth on JWST would have on NASA’s broader portfolio of science projects. To provide updated and current insight in to the project’s cost status, we took steps to conduct an independent, unbiased analysis.were, however, unable to conduct the analysis because Northrop Grumman did not allow us to conduct anonymous interviews of technical experts without a manager present. In order to collect unbiased data, interviewees must be assured that their opinions on risks and opportunities remain anonymous. Unbiased data would have allowed us to provide a credible assessment of risks for Northrop Grumman’s remaining work. NASA and the JWST project disagreed that an independent cost risk analysis conducted by an outside organization at this point in the project would be useful. Neither believed that an organization external to NASA could fully comprehend the project’s risks. Further, they noted that any such analysis would be overly conservative due to the complexities of the risks and not representative of the real risk posture of the project. GAO’s best practices call for cost estimates to be compared to independent cost estimates in addition to being regularly updated. Without an independent and updated analysis, both the committee members’ and NASA’s oversight and management of JWST will be constrained since the impact of newer risks have not been reflected in key tools, including the cost estimate. Moreover, our methodology would have provided both NASA and Northrop Grumman with several opportunities to address concerns with our findings, including concerns about conservatism. After we were unable to conduct the cost risk analysis, NASA decided to conduct its own cost risk analysis of the Northrop Grumman remaining work. However, a NASA project official said that they did not plan to use data from the cost risk analysis to manage the project. Instead, they indicated that they planned to use the information to inform committee members of the project’s cost risk and would continue to rely on other tools already in place to project the future costs of the project, such as earned value management (EVM) analysis. To maintain quality cost estimates over the life of a project, best practices state that cost risk analyses should be updated regularly to incorporate new risks and be used in conjunction with EVM analysis to validate cost estimates. While EVM is a very useful tool for tracking contractor costs and potential overruns, the analyses are based on past performance that do not reflect the potential impact of future risks. We reported that if the project did not follow best practices in conducting its cost risk analysis or use it to inform project management, the resulting information may be unreliable and may not substantively provide insight into JWST’s potential cost to allow either Congress or project officials to take any warranted action. To better ensure NASA’s efforts would produce a credible cost risk analysis, in December 2014, we recommended that officials follow best practices while conducting a cost risk analysis on the prime contract for the work remaining and update it as significant risks emerged. Doing so would ensure it provided information to effectively manage the program. NASA partially concurred with our recommendation, again noting that it has a range of tools in place to assess all contractors’ performance, the approach the project has in place is consistent with best practices, and officials will update the cost risk analysis again when required by NASA policy. We found that NASA best practices for cost estimating recommend updating the cost risk analysis while a project is being designed, developed, and tested, as changes can impact the estimate and the risk assessment. Since our report was published, NASA completed its analysis and provided the results to us. We are currently examining the analysis to assess its quality and reliability and the extent to which it was done in accordance with NASA and GAO best practices. Our initial examination indicates the JWST project took the cost risk analysis seriously and took into account best practices in the execution of the analysis. The project has also recently begun conducting a new analysis of EVM data which they term a secondary estimate at completion analysis for two of its largest contractors–Northrop Grumman and Exelis—on work to go. This analysis should provide the project additional insight on the probabilities of outcomes while incorporating current risks against the cost reserves that remain. The initial analysis we have reviewed indicates that both contracts are forecasted to generally cost more at completion than the information produced using EVM analysis alone, but within the JWST life- cycle cost. However, we still have work to do to understand how NASA is analyzing the information and what assumptions it is putting into its analysis. In conclusion, with approximately 3.5 years until launch, project officials have made much progress building and testing significant pieces of hardware and are currently on schedule—achieving important milestones—and on budget. They have also taken important steps to increase their insight and oversight into potential problems. What is important going forward is having good insight into risks and preserving as much schedule reserve as possible—particularly given the complexity of the project, the fact it is entering deeper into its integration and testing cycle, and the fact that it has limited funds available in the short term to preserve schedule. Any cost growth on JWST may have wider implications on NASA’s other major programs. While we are concerned about NASA’s reluctance to accept an independent cost risk assessment, particularly in light of past problems with oversight, we are also encouraged that NASA took steps to conduct an updated risk analysis of Northrop Grumman’s work and that NASA has sustained and enhanced its use of other tools to monitor and manage risk. As we undertake this year’s review of JWST, we will continue to focus on risk management, the use of cost reserves, progress with testing, as well as the extent to which its cost risk analysis followed best practices. We look forward to continuing to work with NASA on this important project and reporting to Congress on the results of our work. Chairman Palazzo, Ranking Member Edwards, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to answer questions related to our work on JWST and acquisition best practices at this time. For questions about this statement, please contact Cristina Chaplain at (202) 512-4841, or at [email protected]. Contact points for our Offices of Congressional Relationship and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony were Shelby Oakley, Assistant Director; Karen Richey, Assistant Director; Jason Lee, Assistant Director; Patrick Breiding; Laura Greifner; Silvia Porres; Carrie Rogers; Ozzy Trevino; and Sylvia Schatz. James Webb Space Telescope: Project Facing Increased Schedule Risk with Significant Work Remaining. GAO-15-100. Washington, D.C.: December 15, 2014. James Webb Space Telescope: Project Meeting Commitments but Current Technical, Cost, and Schedule Challenges Could Affect Continued Progress. GAO-14-72. Washington, D.C.: January 8, 2014. James Webb Space Telescope: Actions Needed to Improve Cost Estimate and Oversight of Test and Integration. GAO-13-4. Washington, D.C.: December 3, 2012. NASA’s James Webb Space Telescope: Knowledge-Based Acquisition Approach Key to Addressing Program Challenges. GAO-06-634. Washington, D.C.: July 14, 2006. NASA: Assessments of Selected Large-Scale Projects. GAO-15-320SP. Washington, D.C.: March 24, 2015. NASA: Assessments of Selected Large-Scale Projects. GAO-14-338SP. Washington, D.C.: April 15, 2014. NASA: Assessments of Selected Large-Scale Projects. GAO-13-276SP. Washington, D.C.: April 17, 2013. NASA: Assessments of Selected Large-Scale Projects. GAO-12-207SP. Washington, D.C.: March 1, 2012. NASA: Assessments of Selected Large-Scale Projects. GAO-11-239SP. Washington, D.C.: March 3, 2011. NASA: Assessments of Selected Large-Scale Projects. GAO-10-227SP. Washington, D.C.: February 1, 2010. NASA: Assessments of Selected Large-Scale Projects. GAO-09-306SP. Washington, D.C.: March 2, 2009. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

JWST is one of the National Aeronautics and Space Administration's (NASA) most complex and expensive projects. At an anticipated cost of $8.8 billion, JWST is intended to revolutionize understanding of star and planet formation, advance the search for the origins of the universe, and further the search for earth-like planets. Since entering development in 1999, JWST has experienced significant schedule delays and increases to project costs and was rebaselined in 2011. With significant integration and testing planned during the approximately 3.5 years until the launch date in October 2018, the JWST project will need to address many challenges before NASA can conduct the science the telescope is intended to produce. GAO has reviewed JWST for the last 3 years as part of an annual mandate and for the last 7 years as part of another annual mandate to review all of NASA's major projects. Prior to this, GAO also issued a report on JWST in 2006. This testimony is based on GAO's third annual report on JWST ( GAO-15-100 ), issued in December 2014, with limited updated information provided where applicable. That report assessed, among other issues, the extent to which (1) technical challenges were impacting the JWST project's ability to stay on schedule and budget, and (2) budget and cost estimates reflected current information about project risks. To conduct that work, GAO reviewed monthly JWST reports, interviewed NASA and contractor officials, reviewed relevant policies, and conducted independent analysis of NASA and contractor data. James Webb Space Telescope (JWST) project officials report that the effort remains on track toward the schedule and budget established in 2011. However, the project is now in the early stages of its extensive integration and testing period. Maintaining as much schedule reserve as possible during this phase is critical to resolve challenges that will likely surface and negatively impact the schedule. JWST has begun integration and testing for only two of five elements and major subsystems. While the project has been able to reorganize work when necessary to mitigate schedule slips thus far, this flexibility will diminish as work during integration and testing tends to be more serial, as initiating work is often dependent on the successful and timely completion of the prior work. a The cryocooler chills an infrared light detector on one of JWST's four scientific instruments. In December 2014, GAO reported that delays had occurred on every element and major subsystem schedule, each was at risk of driving the overall project schedule, and the project's schedule reserve had decreased from 14 to 11 months. As a result, further delays on any element or major subsystem would increase the overall schedule risk for the project. At the time of the report, challenges with manufacturing of the cryocooler had delayed that effort and it was the driver of the overall project schedule. Since the December report, the project's overall schedule reserve decreased to 10 months as a result of several problems that were identified following a test of the Integrated Science Instrument Module (ISIM), which contains the telescope's scientific instruments. ISIM is now driving the overall project schedule. Furthermore, additional schedule impacts associated with challenges on several other elements and major subsystems are still being assessed. At the time of the December 2014 report, the JWST project and prime contractor's cost risk analyses used to validate the JWST budget were outdated and did not account for many new risks identified since 2011. GAO best practices for cost estimating call for regularly updating cost risk analyses to validate that reserves are sufficient to account for new risks. GAO recommended, among other actions, that officials follow best practices while conducting a cost risk analysis on the prime contract and update the analysis as significant risks emerged. NASA partially concurred, noting that it has a range of tools in place to assess performance and would update the analysis as required by policy. Since then, officials completed the analysis and GAO is currently examining the results.

You are an expert at summarizing long articles. Proceed to summarize the following text: IDEA is the primary federal law that addresses the special education and related service needs of children with disabilities, including children with specific learning disabilities, sensory disabilities, such as hearing and visual impairments, and other disabilities, such as emotional disturbance and speech or language impairments. The law requires states to provide eligible children with disabilities a free appropriate public education in “the least restrictive environment,” that is, in an educational setting alongside nondisabled children to the maximum extent appropriate. School districts are responsible for identifying students who may have a disability and evaluating them in all areas related to the suspected disability. In addition, they must re-evaluate children at least once every 3 years, or sooner if conditions warrant a re-evaluation, or if the child’s parents or teacher requests a re-evaluation. Under IDEA, students receive special education and related services tailored to their needs through an IEP, which is a written statement developed by a team of educational professionals, parents, and interested parties at meetings regarding the child’s educational program. If the IEP team determines the child needs extended year services, schools are required by regulations governing IDEA to provide such services beyond the normal school year. Further, the act requires that states have in place a comprehensive system of personnel development designed to ensure an adequate supply of special education, regular education, and related services personnel to provide needed services. IDEA seeks to strengthen the role of parents and ensure they have meaningful opportunities to participate in the education of their children. In particular, IDEA regulations require that parents receive prior notification of IEP meetings and that the meetings be scheduled at a mutually agreed upon time and place. The act affords parents other procedural safeguard protections, such as the opportunity to examine their child’s records and to present complaints relating to the identification, evaluation, educational placement of the child, or the provision of a free appropriate public education. Under IDEA, disputes between families and school districts may be resolved through due process hearings, state complaint procedures, or mediation. The Department of Education’s Office of Special Education Programs (OSEP) is responsible for administering IDEA. Education authorizes grants to states, supports research and disseminates best practices, and provides technical assistance to states in implementing the law. Education is also responsible for monitoring states’ compliance with IDEA requirements and ensuring that the law is enforced when noncompliance occurs. Education reviews states’ systems for detecting and correcting noncompliance in the state, including noncompliance at the local level. In the event of noncompliance, Education has the specific authority to employ six sanctions: (1) imposing restrictions or “special conditions” on a state’s IDEA grant award; (2) negotiating a long-term compliance agreement with a state requiring corrective action within 3 years; (3) disapproving a state’s application for funds when the application does not meet IDEA eligibility requirements; (4) obtaining a “cease and desist” order to require a state to discontinue a practice or policy that violates IDEA; (5) withholding IDEA funds in whole or in part depending on the degree of the state’s noncompliance; and (6) referring a noncompliant state to the Department of Justice for appropriate enforcement action. Education’s system for monitoring state compliance with IDEA has been evolving for more than 5 years. This evolution is, in part, in response to the stronger accountability and enforcement provisions in the 1997 amendments to IDEA that emphasized the importance of improving educational outcomes for disabled children, including improving high school graduation rates, increasing placement in regular education settings, increasing participation in statewide and districtwide assessment programs, and improving the outcomes of services provided to students with emotional and behavioral disorders. In 1998, Education implemented the Continuous Improvement Monitoring Process, which focused its monitoring efforts on states with the greatest risk of noncompliance and placed increased responsibility on states for identifying areas of weakness. In 2003, Education implemented the Continuous Improvement and Focused Monitoring System (CIFMS), which, among other things, added new state performance reporting requirements to its monitoring system. Officials of some special education advocacy groups with whom we spoke, including the National Association of State Directors of Special Education, commented favorably on these changes. However, the National Council on Disability, which had published a 2000 study critical of Education’s enforcement of IDEA, continued to question whether Education has taken effective actions to remedy the problems reported. Education uses a risk-based system to focus its monitoring efforts, but some data it uses are weak. Education’s monitoring system relies upon states to collect information about their special education programs, assess their own performances, and report these findings to the department annually. In addition, the department selects a limited number of states for further inspection based on a subset of measures. Because this system relies heavily on state data, the department has taken steps in recent years to ensure that states have adequate data collection systems in place. However, some of the data are not uniformly measured or are difficult for states to collect. Education officials acknowledged that data variability limits the usefulness of the reported information. Some officials in states we visited attributed these variations in data in part to inadequate guidance from Education and expressed a desire for more direction on how to measure and report these data. To assess their own IDEA compliance, states conduct annual special education performance reviews and report their findings to Education. To conduct these reviews, states have undertaken a variety of activities. In particular, states collect data from local districts, including local graduation rates, student placement rates, and parental involvement information, and analyze these data to identify areas of noncompliance at the local level. Additionally, states obtain input from the public about local special education programs through hearings and surveys. States also review dispute resolution processes, including state complaint systems, to determine the type of problems generating complaints and ensure that complaints are being resolved in a timely fashion. In recent years, Education has required states to include groups of stakeholders in the review process, such as parents, advocates, teachers, and administrators from the special education community. State and local officials work with these stakeholders to identify areas in which they may be out of compliance and create detailed improvement plans to remedy these problems. Several state officials we interviewed said the inclusion of stakeholders has been an improvement in the self-evaluation process. For example, officials in Texas told us that working with stakeholders has helped them better understand the severity of particular problems and subsequently has helped position the state to respond to these problems more efficiently. Upon completing the review process, states are required to create detailed improvement plans to address identified deficiencies, which are submitted to Education annually along with the results of their self-reviews through a uniform reporting format. Education implemented this uniform reporting format in recent years to streamline its review process, thereby improving the department’s ability to identify data gaps. Education reviews state-reported data to assess states’ improvement efforts and identify those states most in need of further monitoring and assistance. In recent years, the department has required states to report on those requirements it considers most closely associated with student results, a narrower array of issues than the department previously monitored. These data are focused on performance in five general categories: (1) the provision of educational services in the least restrictive environment, (2) state supervision of IDEA programs, (3) facilitation of parental involvement, (4) student transitions from early childhood programs, and (5) student transitions into post-secondary programs. Education has required states to supply a variety of data for each of these categories. For example, under the state supervision category, states report information regarding the resolution of formal complaints, due process safeguards for students and parents, special education personnel requirements, as well as other supervision data. Officials in 4 of the 5 states we visited said that Education’s narrowed focus has improved the monitoring process by concentrating attention on those areas most likely to affect results for children. Education evaluates the collected data for each state in several ways, including assessing how the measures have changed over time and comparing data for special education students to those for general education students. Education has identified areas of IDEA noncompliance through these screens. For example, based on its data review Education can determine if states have been resolving complaints within IDEA-established guidelines or whether waiting lists have been preventing students from receiving IDEA-guaranteed services. Additionally, according to Education, the department uses selected measures, such as state-reported data on graduation rates, dropout rates and rates of placement in various educational environments to determine which states warrant further monitoring and intervention activities, including onsite visits. States that rank low relative to other states on these measures may be selected. In conducting site visits, Education reviews state records, makes visits to selected districts for on-site examination of student records, and assesses state special education systems, such as complaint systems and student assessment programs. Following these visits, Education issues a report of findings and, when noncompliance is found, requires states to produce a corrective action plan. Education policy tells states to implement a remedy and provide evidence of its effectiveness within 1 year of Education approving the state corrective action plan. As shown in figure 1, Education carried out monitoring visits in 31 different states between 1997 and 2002, visiting between 2 and 8 states per year. Because Education has relied heavily on state-reported data, it suspended its usual monitoring visits in 2003 in order to conduct visits to verify the reliability of state systems for collecting and reporting special education data. After reviewing selected data from all states, Education selected 24 states for onsite examination of their data collection procedures and protocols. Following the data verification visits, the department provided states with technical assistance to address any identified deficiencies. According to Education documents, most of the visited states had data collection systems in place, several of which were of high quality; however, some states needed to better monitor the accuracy of their data and train their data entry personnel. Education officials said that selected states will receive monitoring visits in the fall of 2004. While Education has facilitated improvements in state data collection systems, some of the data are weak. Education has allowed states flexibility in measuring and reporting some performance measures used for site visit selection, such as graduation rates and dropout rates; consequently these data have not been calculated in a uniform manner across states. For example, special education students in Arkansas may receive a standard diploma even if they have not met regular graduation requirements, while special education students in Delaware must meet regular graduation requirements to graduate with a standard diploma. State education officials we talked with said that comparisons of these rates might not be valid because of the wide disparity in how graduation rates are measured and, therefore, should not be used by Education to make judgments about the relative performance of states. Other types of information that Education has used to evaluate state’s performance, such as student transitions and parental involvement, are weak because they have been difficult to gather or because states have been unclear about how to measure them. States have used a variety of methods to report these data; consequently, Education has not compared states’ performance in these areas. Officials in all 5 states we visited noted that student transitions data were particularly difficult to collect because several different agencies were involved in the process and it was often difficult to track students once they left school. Officials in 4 of the 5 states we visited also expressed confusion about how to report parental involvement. For example, officials in one state were unclear about whether they should report the percent of parents notified of meetings or the percent of parents who attended meetings, while officials from another state believed that the measures they used to report parent involvement did not adequately describe parent involvement. Officials in 2 of the 5 states we visited attributed their difficulty in collecting and reporting these measures in part to inadequate guidance from Education, and officials in 3 of the 5 states we visited expressed a desire for greater guidance from the department on how to collect and measure these areas. In our review of Education guidance, we found the direction provided to states in terms of what to measure and report to Education in these areas was vague, as Education does not specify how states should demonstrate performance. For example, Education provides states with 17 potential sources for indicators to measure student transitions into postsecondary programs but does not specify which of these indicators should be reported to Education in annual reports. Education officials with whom we spoke acknowledged difficulties with student transition and parent involvement data and said that they are taking steps to improve data quality. To help address data deficiencies, Education has funded the National Center for Special Education Accountability Monitoring, which assists states, local agencies, and the department in the development of data collection systems. In working with state special education directors, special education advocates, Education officials, and others, the center has found that reliable data sources often do not exist for several of the data elements collected by Education. Our analysis of Education monitoring reports for states visited between 1997 and 2002 showed that failures directly affecting services to children were about as common as failures involving violations of procedural requirements. Education identified a total of 253 noncompliance findings in 30 of the 31 states visited during this period, with an average of approximately 8 findings per state. Our analysis showed that 52 percent of the findings involved state failures to directly ensure that students were receiving required special education services. As shown in table 1, the most common finding of service noncompliance was failure to adequately provide related services intended to assist learning, such as counseling, speech pathology, and assistive technology. Another common deficiency Education cited was failure to adequately outline the activities and training planned to prepare a student for life after exiting school. Of the 12 states that were cited for not having adequate special education or related services personnel, some acknowledged that a personnel shortage had prevented them from always making timely evaluations, which could have resulted in delayed services, late placement decisions, and limited provision of extra help that would be needed to teach special education students in regular education settings. The remaining 48 percent of Education’s findings were for compliance failures that we classified as procedural in nature, that is, activities that did not directly provide or immediately facilitate a service to students. According to our analysis, Education’s most common finding of procedural noncompliance with IDEA was failure to invite some of the appropriate parties to student transition meetings where parents, school personnel, department representatives, and the students themselves determined what educational and vocational training they would need before they left school. Other procedural failures, shown in table 2, often involved the completeness of paperwork or timeliness of meeting other IDEA requirements. For instance, the department found that in several states, notices sent to parents regarding upcoming IEP meetings related to student transition did not include required information such as the purpose of the meeting and the list of who was invited. Similarly, some states did not produce written complaint decisions in a timely manner that outlined how complaints were resolved. When Education has identified noncompliance, it typically has offered technical assistance to states and required them to create corrective action plans; however, states have generally not resolved the noncompliance in a timely manner. Most cases of noncompliance have remained open for several years before closure, and some cases dating back as far as 1997 have not yet been completely resolved. Education’s process for correcting deficiencies consisted of several phases, each of which took a considerable amount of time to complete. For example, on average, 1 year elapsed from Education’s monitoring visit to issuance of its report findings. The department has also made limited use of sanctions to address longstanding issues with noncompliance, but in these cases, too, resolution has been protracted. Further, we found that the 1-year compliance deadlines specified by Education were often missed. State officials commented, and Education officials confirmed, that this standard 1-year timeframe for correction may not, in some cases, provide an adequate period of time in which to implement a remedy and demonstrate its effectiveness. To address noncompliance situations that are expected to take more than 1 year to correct, 3-year compliance agreements may allow states to plan their remedial steps over a longer period. To resolve the deficiencies identified in 30 of the 31 states visited from 1997-2002, Education offered technical assistance to states and required them to develop corrective action plans and submit them to the department for approval. The department assisted states in achieving compliance through informal guidance and, in some cases, follow-up visits to confirm states’ actions. Education officials answered questions regarding policies and best practices as well as referred states to regional resource centers and other technical assistance providers if needed. Also, Education required states to create corrective action plans and submit them to the department for review and approval. The plans were expected to include strategies to remedy deficiencies and demonstrate the effectiveness of the remedy within a year of the approval date of the plan. For example, Maryland was cited for failure to ensure that students with disabilities were educated in regular education settings to the maximum extent possible. To address this violation, one of the steps in the state’s correction plan was to create professional development activities and training materials that emphasized inclusiveness and making appropriate placement determinations. During the 1-year period of correction, states were required to submit periodic updates to document evidence of improvement for Education’s review. Although corrective action plans have a 1-year timeframe for completion according to Education policy, our analysis showed that most cases of noncompliance addressed through this method remained open for years. We found that only 7 of 30 states with findings of noncompliance visited from 1997 to 2002 had completely resolved their deficiencies as of May 2004. Closure of these cases, that is resolution of all deficiencies, took from 2 to 7 years from the time the deficiencies were first identified during a monitoring visit. Of the remaining 23 cases, about half have been unresolved for 5-7 years. Education officials told us that for almost all of these outstanding cases, states have made progress toward correcting the noncompliance, and 11 states are close to completion. Table 3 lists the dates of Education’s monitoring visits, reports, and case closures for the 31 states monitored in the time period 1997 to 2002. In analyzing the time taken to correct noncompliance, we found that the correction process consisted of two phases, each of which frequently took a year or more to complete, as shown in figure 2. The first phase, Education’s issuance of a findings report following its monitoring visit, took a year on average, with a range of 4 to 21 months. Officials in the 3 states we visited that were monitored since 1997 expressed concern about the timeliness of Education’s monitoring reports. Officials from 2 of these states said that the reports contained out-dated information that did not reflect the current environment in the state. In addition, state officials in 1 state said that they delayed the development of their corrective action plans until they received Education’s findings report. Education officials told us that staffing constraints and multiple levels of report review contributed to the delays in issuing reports, but they did not provide a goal of reducing the time needed to issue reports. Second, the time from report issuance to approval of the corrective action plan generally took an additional 1 to 2 years. During this time period, states produced an initial corrective action plan that they revised, if needed, based on review and feedback from Education. Education officials acknowledged that this approval process can be lengthy, but have indicated they are working to reduce the period for corrective action plan approval to 6 months. Although most instances of noncompliance were addressed without more severe actions taken, occasionally Education took measures beyond technical assistance and corrective action plans by imposing sanctions on states. During the 10-year period from 1994 to 2003, Education used three types of sanctions–withholding of funds, special conditions, and compliance agreements. Withholding of all grant funds was attempted once by Education, but the state successfully challenged Education’s action in court and receipt of the grant was not interrupted. The most commonly used sanction was special conditions put on states’ annual grants stipulating that the problem must be resolved within 1 year. During the 1-year period of correction, the states continued to receive funds. In cases of noncompliance requiring longer-time periods to correct, an additional tool available to Education was a compliance agreement, which allowed a state 3 years in which to correct the noncompliance while also continuing to receive funds. Compliance agreements were used only for the Virgin Islands and the District of Columbia. Education officials told us that compliance agreements were used infrequently because they are voluntary and states must agree to the arrangement. States that entered into compliance agreements were also required to undergo a public hearing process to demonstrate that they could not completely address their violations within 1 year. In total, Education has taken enforcement action against 33 states for noncompliance from 1994 to 2003. An action was taken against multiple states for failing to publicly report on the performance of children with disabilities on alternate assessments, as required by the 1997 reauthorization of IDEA. As a result of other compliance issues, Education has imposed 15 sanctions against 11 states in this 10-year period. Appendix II contains more details on enforcement actions taken by Education from 1994 to 2003. Education considers a number of factors in deciding to impose a sanction, including the duration, extent, and severity of the noncompliance, as well as whether a state has made a good faith effort to correct the problem. We found that sanctions were imposed for a variety of specific deficiencies— commonly for failing to provide related services, place students in the least restrictive environment, or have an adequate state system in place for detecting and correcting noncompliance at the local level. In New Jersey, special conditions were imposed to address long-standing noncompliance involving state oversight of local special education programs. New Jersey officials told us that the enforcement action caught the attention of senior state officials and helped the special education department obtain the resources needed to correct the problem within 2 years of the imposition of the sanction. When considering the type of sanctions to impose, Education officials told us that their primary consideration is the expected time of resolution. In cases where officials believe the problem can be addressed in 1 year, special conditions may be used. In cases where resolution is expected to take longer, 3-year compliance agreements may be pursued. In cases involving sanctions, the resolution of compliance issues was often prolonged – generally ranging from 5 to 10 years from the time of problem identification to the imposition of the sanction to closure, as shown in figure 3. In most instances, 4 to 9 years elapsed before Education imposed sanctions, and an additional 1 to 3 years generally passed following the sanction before noncompliance was closed. For example, Massachusetts received special conditions on its grant award in 2000 for noncompliance that was first identified in 1991. Once the special conditions were imposed, Massachusetts remedied the noncompliance in 1 year. Education officials indicated that the reason why several years often elapsed before sanctions were used was that Education preferred to work with states instead of imposing sanctions if they demonstrated good faith efforts to correct deficiencies and followed the steps outlined in their corrective action plans. In addition to those cases that were closed, some ongoing cases have been even more protracted. Although states that receive special conditions attached to their grants are expected to correct problems before the next grant year, in many cases problems were not fully resolved and continued for years. In these cases, states received multiple special conditions for some of the same issues of noncompliance. For example, Pennsylvania received a special condition on its grant for 3 consecutive years beginning in 1998 before achieving compliance on all issues. At the beginning of the 1999 grant year, Pennsylvania had resolved two of the five original issues of noncompliance. Additionally, enforcement actions for California, the District of Columbia, and the U.S. Virgin Islands dating from 1997 and 1998 have not yet been completely resolved. States we reviewed often did not meet the 1-year compliance deadline prescribed by Education, and state officials said that some types of noncompliance could not be corrected within 1 year, a problem that Education officials also acknowledged. Our examination of Education’s records for a sample of 9 states with corrective action plans revealed that none had completely corrected their noncompliance within 1 year of approval of the plan, as required by Education. Likewise, states receiving special conditions on their grant usually did not completely resolve the noncompliance issue within 1 year, and some took numerous years to make the correction. For example, California received special conditions attached to its grant award in 2000 for various deficiencies. The state did not complete the correction of this deficiency within 1 year and as a result received an additional special conditions letter in 2001. Regarding the 1-year deadline, Education officials told us that some states may not be able to correct deficiencies and demonstrate the effectiveness of the changes within the year required of them. In addition, they said that in many cases, a state may take corrective steps within one year but that demonstrating the effectiveness of the remedy may extend beyond 1 year. Officials in 3 states we visited also raised concerns that some types of noncompliance could not be corrected within 1 year. For example, Kansas officials said the state could not demonstrate compliance with a requirement to change an IEP component because IEPs are written year- round and thus every IEP could not be changed within the 1-year deadline. Also, Education officials we interviewed emphasized that some deficiencies take longer to correct than others. They commented that states often could correct certain procedural deficiencies within a year, but entrenched problems, such as personnel shortages, generally take more than 1 year to remedy. In cases of noncompliance that require longer periods of time to correct, Education may pursue 3-year compliance agreements with states that allow the states to continue to receive funds while they are correcting noncompliance. This sanction requires states to establish interim goals and engage in longer-term planning, with specific compliance benchmarks and timelines. States that enter into compliance agreements must demonstrate at a public hearing they cannot achieve compliance within 1 year and that a 3-year time frame for correction is more appropriate. However, this option has been rarely used. One state we visited objected to a compliance agreement Education proposed. The department did not pursue the compliance agreement and, instead, imposed special conditions on the state’s grant approval each year for several years. Officials from this state said that they chose not to enter into a compliance agreement because they considered the additional reporting requirements and monitoring activities it would entail to be too burdensome. Education has taken steps in the right direction since 1997 in focusing its review of state support for children with disabilities on those factors that most affect educational outcomes for disabled students, such as increased parental involvement and placement in regular education settings. In recent years, Education has invested considerable effort to assist states in improving data reliability. Furthermore, by reviewing this information through the use of a uniform reporting format, Education is in a better position to make its local site visits yield improvements where they are most needed. Despite these efforts, some of the information states report about their special education programs are weak and not comparable, which limits Education’s ability to select states for on-site visits that have the most pressing problems. Education made 31 site visits between 1997 and 2002, visiting no more than 8 states in any 1 year. Given such finite opportunities for inspection, it may be easy to miss areas where children are not receiving educational and related services. Aside from targeting the right states for visits, the lengthy resolution process has been a problem in OSEP’s monitoring system. In many instances, noncompliance with the requirements of IDEA has persisted for many years before correction. One reason for the delay is that Education has allowed considerable time to elapse in the initial phases of the correction process; specifically, the time from the first identification of a problem to the imposition of the 1-year time frame for correction. This considerable delay—sometimes taking up to 21 months between problem identification and the issuance of department findings—could result in states postponing the implementation of corrective plans. Although the initial phases of the correction process can be lengthy, Education’s 1-year deadline for states to correct deficiencies is, at times, too short for states to achieve compliance. Unrealistic timeframes may both discourage states from focusing on achievable, albeit longer-term, plans for correction. These unrealistic timeframes may also lessen the impact of the enforcement action itself, as in the case where special conditions are imposed for infractions year after year with few consequences to the state, but potentially detrimental consequences to students with disabilities. The imposition of appropriate deadlines, including the more frequent use of compliance agreements that allow for better long-term planning and predictable consequences when these deadlines are not met, could motivate states to achieve compliance more quickly. The combined effect of such prolonged reviews—lengthy timeframes for the receipt of reports and the approval of corrective action plans—and failure to hold states more firmly to a rapid resolution could directly affect the progress of some of the nation’s most vulnerable children. Without some deliberate and specific improvements to its monitoring process, Education may face difficulties in helping the nation’s disabled students realize their full potential. We recommend that the Secretary of Education develop and provide states with additional guidance for collecting and reporting three measures that Education considers key to positive outcomes for students with disabilities: early childhood transitions, post-secondary transitions, and parental involvement; expedite the resolution of noncompliance by improving response times throughout the monitoring process, particularly in reporting noncompliance findings to states, and track changes in response times under the new monitoring process; impose firm and realistic deadlines for states to remedy findings of noncompliance; and when correction of noncompliance is expected to take more than 1 year, make greater use of Education’s authority to initiate compliance agreement proceedings rather than imposing special conditions on grants. We provided a draft of this report to the Department of Education for review and comment. Education’s written comments are reproduced in appendix III. Recommended technical changes have been incorporated in the text of the report as appropriate. The department discussed, but did not explicitly agree or disagree with two recommendations, disagreed with one recommendation, and did not directly respond to one recommendation, the recommendation regarding imposing firm and realistic deadlines. In response to our recommendation that Education provide states with additional guidance for collecting and reporting data on student transitions and parental involvement, the department was not explicit about its intended actions. While Education agreed with the need to provide states assistance in these areas, it did not clearly indicate whether it would develop the guidance we recommended. Education said that it is funding several centers that are assisting states in collecting data in these areas. We commend Education’s efforts to improve special education performance data. However, to maximize the usefulness of these efforts, the department should formalize the results of these activities in guidance. Therefore, we continue to recommend that Education develop and provide states with guidance on collecting and reporting student transitions and parental involvement data. Regarding our recommendation to improve the department’s response times throughout the monitoring process, Education acknowledged past problems with timeliness but indicated that it had made improvements in recent years. Education stressed that the reports we reviewed were based on its previous monitoring processes, rather than the current process, the Continuous Improvement and Focused Monitoring System (CIFMS). The department said that timeliness had improved in several areas. For instance, Education said that the time required to issue its data verification monitoring reports has been about 4 months and that this is a substantial improvement over the previous system. Education also said that the CIFMS is resulting in the timely receipt of and response to state improvement plans and that the department has a goal to issue responses to all plans by September 30, 2004. However, we could not determine whether, overall, Education’s new CIFMS monitoring process will result in improved timeliness. Education officials told us that the data verification visits primarily focused on accuracy of state data, not detecting noncompliance. Therefore, timeliness associated with these visits may not be an indication of overall improvement. In addition, the timeliness of the focused monitoring visits has not been established since they have not yet begun. We believe that Education’s response times should be improved, but we could not determine the extent to which changes already made might impact timeliness. Therefore, we modified our recommendation to suggest that Education track timeframes associated with various steps in the new monitoring process to substantiate possible improvements. In response to our recommendation that Education make greater use of its authority to initiate compliance agreement proceedings when appropriate, the department said that it cannot independently initiate these proceedings because the compliance agreement process is voluntary on the part of the states. We do not agree with this position. The relevant statute specifically authorizes the department to hold a hearing and directs it to invite certain parties, including the state. While the department cannot compel a state to enter into a compliance agreement, we think initiating proceedings to consider the merits of entering into such an agreement could likely result in beneficial corrective action discussions between the department and the state. It could also result in greater reliance on the 3-year compliance agreement or at least improve corrective action planning by the state. While Education may impose other remedies such as partial or full withholding of funding, issuing a cease and desist order, or referring a state’s noncompliance to the Department of Justice, we believe that in many instances of noncompliance, the 3-year compliance agreement could be the least onerous, and perhaps most helpful, tool to improve state compliance with IDEA. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution until 30 days after the date of this report. At that time, we will send copies of this report to the Secretary of Education and the House and Senate Committees with oversight responsibility for the department. We will also make copies available to other parties upon request. In addition, the report will be available at no charge on GAO's Website at http//:www.gao.gov. Please contact me on (202) 512-7215 if you or your staff have any questions about this report. Major contributors to this report are listed in appendix IV. As requested, our review focused on the Department of Education’s monitoring of the Individuals with Disabilities Education Act (IDEA), Part B, those aspects of the law that regulate the provision of services to disabled school-aged and preschool children. In conducting our review, we examined Education’s monitoring procedures and guidance since Congress last amended IDEA legislation in 1997. Additionally, we examined reports submitted to Education to document compliance, including self-assessments, Section 618 data reports, and improvement plans. We also reviewed compliance and enforcement documentation and Education monitoring reports for the 31 states visited for Part B monitoring since 1997 (see below for more information). Because Education infrequently used sanctions, we examined the previous 10-year period to capture a more comprehensive picture of enforcement actions. Additionally, we conducted site visits to 5 states, where we interviewed state officials and special education experts. We also interviewed Education officials; representatives from the National Council for Disability, an independent federal agency that makes recommendations to the President and Congress on disability-related issues; and representatives from national education organizations. We conducted our work between September 2003 and August 2004 in accordance with generally accepted government auditing standards. We conducted site visits to five states – California, Georgia, Kansas, New Jersey, and Texas. States were selected for variation in the number of special education students served, geographic location, the date of their last monitoring visit, whether they had received a data verification visit, and whether they had been placed under sanctions by Education for IDEA violations since 1993. Additionally, in selecting states, we considered how states ranked on various Education risk factors, including student placement rates, graduation rates, drop-out rates, and level of state complaints. We conducted our site visits between December 2003 and March 2004. While in each state, we analyzed state monitoring documents and met with officials at states’ Departments of Education, including the State Directors of Special Education and members of their staff responsible for monitoring efforts. We interviewed these officials about their experiences with Education’s monitoring processes and gathered information about the systems used by their states to monitor local compliance with IDEA. Additionally, in each state we spoke with members of the state stakeholder committees, which help state officials conduct their self- assessments and create improvement plans. Stakeholders we spoke with included parents of special education students, special education and school administrators, and special education advocates. To determine the nature of noncompliance in those states selected by Education for review, we analyzed the reports issued by Education for the 31 Part B monitoring visits Education made between 1997 and 2002. A 2002 cut-off date was selected because at the time of our analysis, Education had not yet issued a monitoring report for the one state it visited in 2003. To analyze these reports, we reviewed the noncompliance findings cited in these reports and divided the findings into two categories; those relating to infractions that were service-related and those relating to infractions that were procedural in nature. For our analysis, we defined a service compliance issue as an activity that directly provides the student with a basic service required by IDEA or is an activity that will immediately facilitate the provision of a basic service required by IDEA. A procedural compliance issue was defined as an activity that meets a process-oriented requirement of IDEA. While the implementation of these process-oriented requirements might improve the special education program immediately or over time, the activity or process does not directly provide or immediately facilitate a basic service to a student. To determine the results of Education’s efforts to remedy noncompliance, we reviewed Education documents and data pertaining to the 30 states visited between 1997 and 2002 that were cited for noncompliance in Education monitoring reports. Specifically, we analyzed the 30 monitoring reports; and available Education documents such as corrective action plans submitted by states in response to report findings; notification documents from Education approving state plans; state-submitted evidence of change in noncompliance; and, when applicable, notifications to states when noncompliance had been sufficiently addressed. To determine the length of time it took to resolve cases of noncompliance through monitoring visits and technical assistance, we analyzed these documents for dates and deadlines. We computed the length of time for resolution from the date of the monitoring visit until the date Education documented resolution of the problem. To obtain information about Education’s enforcement efforts, we reviewed all cases of enforcement action taken against states by Education from 1994 to 2003. For our review, we viewed enforcement actions as beginning at the time a sanction was first imposed, regardless of how many subsequent times a sanction was used to ultimately bring about compliance. That is, if a state received multiple sanctions for the same infraction, such as several special conditions letters in consecutive years, we viewed all of these individual enforcement actions as one action. Likewise, if a state received one 3-year compliance agreement, while another state received three consecutive special conditions letters for the same infractions, we treated both instances as one enforcement case. For all enforcement cases, we analyzed available Education documents, such as notifications of sanctions, including state grant award letters subject to special conditions and compliance agreements; state-submitted evidence of change to demonstrate compliance; and Education’s correspondence to states notifying them when noncompliance had been sufficiently addressed, thus closing the enforcement cases. Additionally, we examined past monitoring reports to determine when Education first identified noncompliance that ultimately resulted in an enforcement action. In those instances when noncompliance was not identified through a monitoring visit, we used the date of the enforcement action as the date that the noncompliance was first identified for the purposes of our analysis. In all cases, we analyzed documentation for dates and deadlines to determine the length of time it took to resolve cases of noncompliance through sanctions. Not yet resolved; year has not yet expired. Not yet resolved. Timely resolution of complaints. Resolved in 2000. General supervision; identification and correction of deficiencies, IEP violations, provision of related services and least restrictive environment. Resolved in 2002. Ensuring ability to request due process hearings. Resolved in 2003. Eleven areas of noncompliance, including general supervision; due process hearings; timeliness of evaluations and placements; and provision of free appropriate public education in the least restrictive environment. Not yet resolved. Three findings remain open in July 2003: timely implementation of hearing decisions, placement in the least restrictive environment, and timely evaluations. Fiscal management. Not yet resolved; year has not yet expired. Ensuring IEP components are determined at an IEP meeting with all required participants; placement of students in least restrictive environment. Resolved in 2001. General supervision; identification and correction of deficiencies. Resolved in 2001. Fiscal management. Not yet resolved; year has not yet expired. General supervision; identification of deficiencies; placement of students in least restrictive environment, provision of extended school year and speech services. Resolved in 2001. Outstanding issues from 1993 compliance agreement regarding timely evaluations and provision of services. Resolved in 1998. Fiscal management. Not yet resolved. Provision of services to students with disabilities who were expelled or suspended long-term. 1994–Attempt to withhold funds; action contingent on outcome of court case. 1995–Attempt to withhold funds; action contingent on outcome of ongoing court case. 1996–Attempt to withhold funds; action contingent on outcome of ongoing court case. Education was ultimately unsuccessful in court and funds were not withheld. However, subsequent changes in IDEA rendered the disputed issue moot, as all states were required by statute to provide services to disciplined students. Fiscal and program management; general supervision; qualified personnel; placement of students in least restrictive environment; provision of transportation services. Not yet resolved. Participation and reporting on alternate assessments. 2002–Special conditions imposed against 27 states. 2003–Special conditions imposed against 11 unresolved states, plus 1 additional state, Ky. Sixteen of 27 states resolved in 2003; 11 remaining states + Ky. not yet resolved. Alaska, Bureau of Indian Affairs, Colo., Commonwealth of the Northern Mariana Islands, Del., D.C., Guam, Ky., Maine, Mich., P.R., and Utah. The following people also made important contributions to this report: Ellen Soltow, Summer Pachman, Behn Kelly, Susan Bernstein, and Walter Vance. Special Education: Additional Assistance and Better Coordination Needed among Education Offices to Help States Meet the NCLBA Teacher Requirements. GAO-04-659. Washington, D.C.: July 15, 2004. Special Education: Clearer Guidance Would Enhance Implementation of Federal Disciplinary Provisions. GAO-03-550. Washington, D.C.: May 20, 2003. Special Education: Numbers of Formal Disputes Are Generally Low and States Using Mediation and Other Strategies to Resolve Conflicts. GAO-03-897. Washington, D.C.: September 9, 2003. School Dropouts: Education Could Play a Stronger Role in Identifying and Disseminating Promising Prevention Strategies. GAO-02-240. Washington, D.C.: February 1, 2002. Student Discipline: Individuals With Disabilities Education Act. GAO-01-210. Washington, D.C.: January 25, 2001.

The Individuals with Disabilities Education Act (IDEA) ensures the education of the nation's disabled children. As a condition of receiving IDEA funds, states must provide educational and related services that facilitate learning to students with disabilities based on their individual needs. The Department of Education (Education) is responsible for ensuring state compliance with the law. In recent years, questions have been raised about Education's oversight of IDEA. GAO agreed to determine how Education monitors state compliance with IDEA for children aged 3-21, the extent and nature of noncompliance found, and how Education has ensured that noncompliance is resolved once identified. GAO analyzed Education monitoring documents, interviewed state and federal officials, and visited 5 state special education offices. To monitor compliance with IDEA provisions that affect children aged 3-21, Education annually reviews special education data submitted by all states and uses a risk-based approach to identify those states in need of further inspection. This monitoring system relies upon collaboration with states, as each state is responsible for assessing and reporting its performance on the provision of special education services. However, some of the data used by Education, such as information about how parents are included in their children's education and students' experiences after they leave school, are weak in that they are not uniformly measured or are difficult for states to collect. In states Education visited for further inspection from 1997-2002, the department identified roughly equal amounts of noncompliance for failing to adequately provide services to students as noncompliance for not adhering to IDEA's procedural regulations, according to GAO analysis. Education found a total of 253 compliance failures in 30 of the 31 states visited during this period, with an average of approximately 8 across the 30 states. GAO found 52 percent of compliance failures to be directly related to providing student services, for instance counseling and speech therapy. The remaining 48 percent involved a failure to meet certain IDEA procedural requirements. Once deficiencies were identified, Education has sought resolution by providing states with technical assistance and requiring them to develop corrective action plans that would ensure compliance within 1 year. However, GAO found that most cases of noncompliance had remained open for 2 to 7 years before closure, and some cases still remain open. GAO's examination of Education documents showed that a considerable amount of time elapsed in each phase of the correction process, including Education's issuance of noncompliance findings and approval of correction plans. On occasion, Education has also made use of sanctions to address longstanding issues with noncompliance, but in these cases, too, resolution has been protracted. States expressed concerns about the standard 1-year timeframe Education imposes for correction, and Education officials acknowledged that it is sometimes not feasible for states to remedy noncompliance and demonstrate effectiveness in that length of time.

You are an expert at summarizing long articles. Proceed to summarize the following text: Historically, the mining of hardrock minerals, such as gold, lead, copper, silver, and uranium, was an economic incentive for exploring and settling the American West. However, when the ore was depleted, miners often left behind a legacy of abandoned mines, structures, safety hazards, and contaminated land and water. Even in more recent times, after cleanup became mandatory, many parties responsible for hardrock mining sites have been liquidated through bankruptcy or otherwise dissolved. Under these circumstances, some hardrock mining companies have left it to the taxpayer to clean up the mining site. BLM, the Forest Service, EPA, and OSM play a role in cleaning up these abandoned mining sites and ensuring that currently operating sites are reclaimed after operations have ceased. BLM and the Forest Service are responsible for managing more than 450 million acres of public lands in their care, including land disturbed and abandoned by past hardrock mining activities. BLM manages about 258 million acres in 12 western states, including Alaska. The Forest Service manages about 193 million acres across the nation. In 1997, BLM and the Forest Service each launched a national Abandoned Mine Lands Program to remedy the physical and environmental hazards at thousands of abandoned hardrock mines on the federal lands they manage. According to a September 2007 report by these two agencies, they had inventoried thousands of abandoned sites and, at many of them, had taken actions to clean up hazardous substances and mitigate safety hazards. BLM and the Forest Service are also responsible for managing and overseeing current hardrock operations on their lands, including the mining operators’ reclamation of the land disturbed by hardrock mining. Although reclamation can vary by location, it generally involves such activities as regrading and reshaping the disturbed land to conform with adjacent land forms and to minimize erosion; removing or stabilizing buildings and other structures to reduce safety risks; removing mining roads to prevent damage from future traffic; and establishing self- sustaining vegetation. One of the agencies’ key responsibilities is to ensure that adequate financial assurances, based on sound reclamation plans and cost estimates, are in place to guarantee reclamation costs. If a mining operator fails to complete required reclamation, BLM or the Forest Service can take steps to obtain funds from the financial assurance provider to complete the reclamation. BLM requires financial assurances for both notice-level hardrock mining operations—those disturbing 5 acres of land or less—and plan-level hardrock mining operations—those disturbing over 5 acres of land and those in certain designated areas, such as the national wild and scenic rivers system. For hardrock operations on Forest Service lands, agency regulations require reclamation of sites after operations cease, but do not require financial assurances for the reclamation. However, according to a Forest Service official, if the proposed hardrock operation is likely to cause a significant disturbance, the Forest Service requires financial assurances. Both agencies allow several types of financial assurances to guarantee estimated reclamation costs for hardrock operations on their lands. According to regulations and agency officials, BLM and the Forest Service allow cash, letters of credit, certificates of deposit or savings accounts, and negotiable U.S. securities and bonds in a trust account. BLM also allows surety bonds, state bond pools, trust funds, and property. Neither agency centrally tracks all the types of financial assurances in place for hardrock operations on its lands. BLM’s LR2000 tracks most of the types, and BLM is updating the database to include more types of financial assurances, but data are incomplete for the types of assurances currently in the system. The Forest Service does not have readily available information on the types of financial assurances in use, but it is developing a database to collect this and other information on hardrock operations by late summer 2008, according to Forest Service officials. EPA administers the Superfund program, which was established under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 to address the threats that contaminated waste sites, including those on nonfederal lands, pose to human health and the environment. The act also requires that the parties statutorily responsible for pollution bear the cost of cleaning up contaminated sites, including abandoned hardrock mining operations. Some contaminated hardrock mine sites have been listed on Superfund’s National Priorities List—a list of seriously contaminated sites. Typically, these sites are expensive to clean up and the cleanup can take many years. According to EPA’s Office of Inspector General in 2004, 63 hardrock mining sites were on the National Priorities List and another 93 sites had the potential to be added to the list. Regarding financial assurances, EPA has statutory authority under the Superfund program to require businesses handling hazardous substances on nonfederal lands to provide financial assurances, and according to agency officials, is currently exploring options for implementing this authority. OSM’s Abandoned Mine Land Program primarily focuses on cleaning up abandoned coal mine sites. However, OSM, under amendments to the Surface Mining Control and Reclamation Act (SMCRA) of 1977, can provide grants to fund the cleanup and reclamation of certain hardrock mining sites either (1) after a state certifies that it has cleaned up its abandoned coal mine sites and the Secretary of the Interior approves the certification, or (2) at the request of a state or Indian tribe to address problems that could endanger life and property, constitute a hazard to the public and safety, or degrade the environment, and the Secretary of the Interior grants the request. OSM has provided more than $3 billion to clean up dangerous abandoned mine sites. Its Abandoned Mine Land Program has eliminated safety and environmental hazards on 314,108 acres since 1977, including all high-priority coal problems and non-coal problems in 27 states and on the lands of three Indian tribes. Between fiscal years 1998 and 2007, the four federal agencies we examined—BLM, the Forest Service, EPA, and OSM—spent at least $2.6 billion to reclaim abandoned hardrock mines on federal, state, private, and Indian lands. EPA has spent the most—$2.2 billion. Although the amount each agency spent annually varied considerably, the median amount spent for the public lands by BLM and the Forest Service was about $5 million and about $21 million, respectively. EPA spent substantially more—a median of about $221 million annually—to clean up mines that are generally on nonfederal lands. Finally, OSM provided grants with an annual median value of about $18 million to states and Indian tribes through its SMCRA program for hardrock mine cleanups. Table 1 summarizes information on expenditures and hardrock mine cleanup activities at BLM, the Forest Service, EPA, and OSM. See appendix II for more detailed information on agency expenditures by fiscal year. According to available data, as of September 30, 2007, BLM had spent the largest share of its funds in Montana—about $18 million; EPA had spent the largest share of its funds in Idaho—about $352 million; and Wyoming was the largest recipient of OSM grants for cleaning up hardrock mine sites—receiving about $99 million. Wyoming was eligible for OSM grants after OSM’s acceptance of the state’s certification that it had completed its cleanup of coal mine sites. The Forest Service was unable to provide this information by state. See appendix II for BLM, EPA, and OSM total funding by state. Previous state estimates of the number of abandoned hardrock mine sites vary widely in the six studies that we reviewed because, in part, there is no generally accepted definition for a hardrock mine site and the studies rely on the states’ different definitions of hardrock mine sites. In addition, we found problems with BLM’s and the Forest Service’s estimate of 100,000 abandoned hardrock mines on their lands because the agencies included non-hardrock mines and mines that may not be on their lands. Using our consistent definition, 12 western states and Alaska estimated a total of at least 161,000 abandoned hardrock mine sites in their states on state, private, or federal lands. We identified six studies conducted in the past 10 years that estimated the number of abandoned hardrock mine sites in the 12 western states and Alaska. The estimates in each of these studies were developed by asking states to provide data on the number of abandoned hardrock mine sites in their states, generally without regard to whether the mine was on federal, state, Indian, or private lands. The estimates for a particular state do, in some cases, vary widely from study to study. For example, for Nevada, the Western Governors’ Association/National Mining Association estimated that the state had 50,000 abandoned hardrock mine sites in 1998, while in 2004 EPA estimated that the state had between 200,000 to 500,000 abandoned sites. The estimates also reflect the different definitions that states used for abandoned hardrock mining sites for a given study. For example, we found that, within the same study, some states define an abandoned mine site as a mine opening or feature, while others define a site as all associated mine openings, features, or structures at a distinct location. As a result, an abandoned hardrock operation with two mine openings, a pit, and a tailings pile could be listed as one site or four sites, depending on the definitions and methodologies used. See appendix III for more information on estimates from these studies. In addition, some regional or state estimates included coal and other non- hardrock mineral sites because it was (1) not important to distinguish between the type of minerals mined or (2) difficult to determine what mineral had been mined. In 2004, EPA commented on this problem, noting, “it is important to keep in mind that a universally applied definition of an does not exist at present…therefore, the various agencies and state-developed…inventories presented may possess inconsistencies and are not intended for exact quantitative comparisons.” BLM and the Forest Service have also had difficulty determining the number of abandoned hardrock mines on their lands and have no definitive estimates. In September 2007, the agencies reported that there were an estimated 100,000 abandoned hardrock mine sites, but we found problems with this estimate. For example, the Forest Service had reported that it had approximately 39,000 abandoned hardrock mine sites on its lands. However, we found that this estimate includes a substantial number of non-hardrock mines, such as coal mines, and sites that are not on Forest Service land. At our request, in November 2007, the Forest Service provided a revised estimate of the number of abandoned hardrock mine sites on its lands, excluding coal or other non-hardrock sites. According to this estimate, the Forest Service may have about 29,000 abandoned hardrock mine sites on its lands. That said, we still have concerns about the accuracy of the Forest Service’s recent estimate because it includes a large number of sites on lands with “undetermined” ownership, and therefore these sites may not all be on Forest Service lands. BLM has also acknowledged that its estimate of abandoned hardrock mine sites on its lands may not be accurate because it includes sites on lands that are of unknown or mixed ownership (state, private, and federal) and a few coal sites. In addition, BLM officials said that the agency’s field offices used a variety of methods to identify sites in the early 1980s, and the extent and quality of these efforts varied greatly. For example, they estimated that only about 20 percent of BLM land has been surveyed in Arizona. Furthermore, BLM officials said that the agency focuses more on identifying sites closer to human habitation and recreational areas than on identifying more remote sites, such as in the desert. Table 2 shows the Forest Service’s and BLM’s most recent available estimates of abandoned mine sites on their lands. To estimate abandoned hardrock mining sites in the 12 western states and Alaska, we developed a standard definition for these mine sites. In developing this definition, we consulted with mining experts at the National Association of Abandoned Mine Land Programs; the Interstate Mining Compact Commission; and the Colorado Department of Natural Resources, Division of Reclamation, Mining and Safety, Office of Active and Inactive Mines. We defined an abandoned hardrock mine site as a site that includes all associated facilities, structures, improvements, and disturbances at a distinct location associated with activities to support a past operation, including prospecting, exploration, uncovering, drilling, discovery, mine development, excavation, extraction, or processing of mineral deposits locatable under the general mining laws. We also asked the states to estimate the number of features at these sites that pose physical safety hazards and the number of sites with environmental degradation. See appendix I for the complete definition we used when asking states for their estimates. Using this definition, states reported to us the number of abandoned sites in their states, and we estimated that there are at least 161,000 abandoned hardrock mine sites in their states. At these sites, on the basis of state data, we estimated that at least 332,000 features may pose physical safety hazards, such as open shafts or unstable or decayed mine structures; and at least 33,000 sites have degraded the environment, by, for example, contaminating surface water and groundwater or leaving arsenic- contaminated tailings piles. Table 3 shows our estimate of the number of abandoned hardrock mine sites in the 12 western states and Alaska, the number of features that pose significant public health and safety hazards, and the number of sites with environmental degradation. While states used our definition to provide data on the estimated number of mine sites and features, these data have two key limitations. First, the methods and sources used to identify and confirm abandoned sites and hazardous features vary substantially by state. For example, some states, such as Colorado and Wyoming, indicated they had done extensive and rigorous fieldwork to identify sites and were reasonably confident that their estimates were accurate. Other states, however, relied less on rigorous fieldwork, and more on unverified, readily available records or data sources, such as published or unpublished geological reports, mining claim maps, and the Mineral Availability System/Mineral Industry Locator System (MAS/MILS), which states indicated were typically incomplete. Several of those states that relied primarily on literature used the literature only as a starting point, and then estimated the number of features on the basis of experience. For example, while one state estimated that there were about three times the number of public safety hazards as identified by the literature, another state estimated that there were four times as many, and a third state estimated that there were up to six times as many. Second, because states have markedly different data systems and requirements for recording data on abandoned mines, some states were less readily able to provide the data directly from their systems without manipulation or estimation. For example, New Mexico estimated the number of abandoned mine sites from the data it maintains on hazardous features, and Nevada estimated the number of abandoned hardrock mine sites from the data it maintains on the number of mining districts in the state. As of November 2007, hardrock mining operators had provided financial assurances valued at approximately $982 million to guarantee the reclamation costs for 1,463 hardrock mining operations on BLM lands in 11 western states, according to BLM’s Bond Review Report. The report also indicates that 52 of the 1,463 hardrock mining operations had inadequate financial assurances—about $28 million less than needed to fully cover estimated reclamation costs. We determined, however, that the financial assurances for these 52 operations should be more accurately reported as about $61 million less than needed to fully cover estimated reclamation costs. Table 4 shows total hardrock mining operations by state, the number of operations with inadequate financial assurances, the financial assurances required, BLM’s calculation of the shortfall in assurances, and our estimate of the shortfall, as of November 2007. The $33 million difference between our estimated shortfall of nearly $61 million and BLM’s estimated shortfall of nearly $28 million occurs because BLM calculated its shortfall by comparing the total value of financial assurances in place with the total estimated reclamation costs. This calculation approach has the effect of offsetting the shortfalls in some operations with the financial assurances of other operations. However, the financial assurances that are greater than the amount required for an operation cannot be transferred to an operation with inadequate financial assurances. In contrast, we totaled the difference between the financial assurance in place for an operation and the financial assurances needed for that operation to determine the actual shortfall for each of the 52 operations for which BLM had determined that financial assurances were inadequate. BLM’s approach to determining the adequacy of financial assurances is not useful because it does not clearly lay out the extent to which financial assurances are inadequate. For example, in California, BLM reports that, statewide, the financial assurances in place are $1.5 million greater than required, suggesting reclamation costs are being more than fully covered. However, according to our analysis of only those California operations with inadequate financial assurances, the financial assurances in place are nearly $440,000 less than needed to fully cover reclamations costs. BLM officials agreed that it would be valuable for the Bond Review Report to report the dollar value of the difference between financial assurances in place and required for those operations where financial assurances are inadequate and have taken steps to modify LR2000. BLM officials said that financial assurances may appear inadequate in the Bond Review Report when expansions or other changes in the operation have occurred, thus requiring an increase in the amount of the financial assurance; BLM’s estimate of reclamation costs has increased and there is a delay between when BLM enters the new estimate into LR2000 and when the operator provides the additional bond amount; and BLM has delayed updating its case records in LR2000. Conversely, hardrock mining operators may have financial assurances greater than required for a number of reasons; for example, they may increase their financial assurances because they anticipate expanding their hardrock operations. In addition, according to the Bond Review Report, there are about 2.4 times as many notice-level operations—operations that cause surface disturbance on 5 acres or less—as there are plan-level operations on BLM land—operations that disturb more than 5 acres (1,033 notice-level operations and 430 plan-level operations). However, about 99 percent of the value of financial assurances is for plan-level operations, while 1 percent of the value is for notice-level operations. While financial assurances were inadequate for both notice- and plan-level operations, a greater percentage of plan-level operations had inadequate financial assurances than did notice-level operations—6.7 percent and 2.2 percent, respectively. Finally, over one-third of the number of all hardrock operations and about 84 percent of the value of all financial assurances are for hardrock mining operations located in Nevada. See appendix IV for further details on the number of plan- and notice-level operations in each state. Mr. Chairman, this concludes my prepared statement. I would be happy to respond to any questions that you or Members of the Committee may have. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. For further information about this testimony, please contact Robin M. Nazzaro, Director, Natural Resources and Environment (202) 512-3841 or [email protected]. Key contributors to this testimony were Andrea Wamstad Brown (Assistant Director); Casey L. Brown; Kristen Sullivan Massey; Rebecca Shea; and Carol Herrnstadt Shulman. To determine the (1) federal funds spent to clean up abandoned hardrock mine sites since 1998, (2) number of abandoned hardrock mine sites and the number of associated hazards, and (3) value and coverage of the financial assurances operators use to guarantee reclamation costs on the Department of the Interior’s Bureau of Land Management (BLM) land, we interviewed officials at the BLM, the U.S. Department of Agriculture’s Forest Service, the Environmental Protection Agency (EPA), and the Department of the Interior’s Office of Surface Mining Reclamation and Enforcement (OSM); examined agency documents and data; and reviewed relevant legislation and regulations. Specifically, to answer our first objective, we interviewed officials involved with the abandoned mine cleanup programs at BLM, the Forest Service, EPA, and OSM to request expenditure data, to understand how they tracked and monitored expenditures to clean up abandoned hardrock mines, and to request and ensure that we would receive the data we needed. We reviewed agency documents, budget justification reports and reports detailing agencies’ cleanup efforts and programs. We obtained data on total expenditures for cleaning up and reclaiming abandoned hardrock mine sites that were compiled from BLM’s Financial Accounting and Reporting System, EPA’s Superfund eFacts Database, OSM’s Abandoned Mine Land Inventory System, and Forest Service officials. BLM officials told us that in addition to the expenditure data they provided, the agency receives funding allocations from other sources, such as the Department of the Interior’s Central Hazardous Materials fund. Since BLM does not track the expenditures from these other sources, we were unable to provide this information. Because the four agencies’ abandoned hardrock mine programs started in different years, start years for expenditure data vary. Specifically, BLM’s data were for fiscal years 1997 through 2007; Forest Service’s data, for fiscal years 1996 through 2007; EPA’s data, for fiscal years 1988 through 2007; and OSM’s data, for fiscal years 1993 to 2007. We performed a limited reliability assessment of the expenditure data and determined that we would limit our year-by-year presentation of expenditure data to the past 10 years (1998 through 2007) because of (1) variability in the program start year across the agencies, (2) inconsistencies across the agencies in their methods for tracking and reporting the data, and (3) some data recording errors in early years at some agencies. We presented these data in 2008 constant dollars. Because of limited time in preparing this testimony, we were unable to fully assess the reliability of the agencies’ expenditure data and the data are therefore of undetermined reliability. However, we concluded that the data are appropriate as used and presented to meet our objectives because we (1) attribute the data to what agencies report as their expenditures, (2) present rounded data to minimize the perception of precision, and (3) do not base any conclusions or recommendations on the data. To answer our second objective, we summarized selected prior survey efforts by federal agencies and organizations to document differences in estimates, definitions, and methodologies. We also consulted experts in mining and abandoned mine land programs at the National Association of Abandoned Mine Land Programs; the Interstate Mining Compact Commission; and the Colorado State Department of Natural Resources, Division of Reclamation, Mining and Safety, Office of Active and Inactive Mines to develop a standard definition for estimating the number of abandoned hardrock mine sites, features, and sites with environmental degradation. Other efforts to assess the magnitude of the abandoned mine situation have acknowledged limitations in their efforts to develop a nationwide estimate because of inconsistencies in states’ definitions and methods for estimating abandoned sites. Consequently, through iterative consultation with state and other mining experts, the definition we ultimately chose was clear and incorporated enough flexibility for all major hardrock mining states—the 12 western states and Alaska—to reasonably comply with our request, despite differences in how the states might define and maintain abandoned mine data. We then provided states with an edit-controlled data collection instrument that requested data specifically tailored to our definitions and methods. Our definition of abandoned hardrock mine sites includes all associated facilities, structures, improvements, and disturbances at a distinct location associated with activities to support a past operation, including prospecting, exploration, uncovering, drilling, discovery, mine development, excavation, extraction, or processing of mineral deposits locatable under the general mining laws; can range from an isolated prospect shaft and its associated waste rock pile and adjacent prospect pits, to a complex site with multiple entries, shafts, open pits, mill buildings, waste rock piles, a tailings pond, and associated environmental problems; and includes only hardrock (also known as locatable), non-coal sites. Features that pose a significant hazard to public health and safety include features, such as mine openings, structures, and highwalls; and impoundments that pose a threat to public health and safety and require actions to secure, remedy or reclaim. Sites with environmental degradation include features that lead to environmental degradation, and, consequently, require remediation of air, water, or ground pollution. Rather than reporting, as requested, the number of features leading to environmental degradation, most states reported only the number of sites with environmental degradation, if they reported data for this request at all. Because most states do not maintain environmental degradation data by feature, states could only speculate about this figure, or compute it by estimating an average number of features per site and multiplying that by the overall number of sites with environmental degradation. Because of these limitations with feature-level data, we report only the number of sites with data on environmental degradation in order to ensure more reliable and consistent reporting across the states. As a secondary confirmation that states provided data consistent with the definition, our data collection instrument included a section for states to provide a brief description of how the various data points were calculated, and whether the data provided were actual or estimated values. Based on comments in these fields, and basic logic checks on the data, we followed up as needed through telephone interviews to clarify and confirm problematic responses. Our definitional and editing processes provided us with reasonable assurance that the data were as clean and consistent as possible, and using these final edited data, we calculated the estimated number of abandoned mine sites, the number of features that pose physical safety and environmental hazards, and the number of abandoned mine sites with environmental degradation in the 12 western states and Alaska. To answer our third objective—to determine the value and coverage of financial assurances in place to guarantee coverage of reclamation costs— we requested the BLM Bond Review Report from BLM’s Legacy Rehost System 2000 (LR2000) database. Because we had previously reported reliability problems with data on financial assurances in LR2000, we conducted a limited reliability assessment of the bond report data. This limited assessment included (1) basic logic checks on the data we received, (2) interviews with BLM minerals management officials knowledgeable of the changes made to LR2000 to address GAO’s 2005 recommendations, and (3) a review of BLM’s June 14, 2006, Instruction Memorandum 2006-172 for processing and entering Bond Review Report data in LR2000. Although the data are of undetermined reliability, our limited assessment indicates that management controls were improved for the generation of bond review reports from LR2000. We concluded that the data are appropriate as used and presented, and we did not base any conclusions or recommendations on these data. This appendix provides information on federal expenditures used to clean up abandoned hardrock mines by fiscal year (table 5) and by state (table 6). Range of estimated abandoned mines previously (2001) (2007) Mineral Policy Center (2003) Earthworks (formerly Mineral Policy Center) (2007) (2004) “openings” No data provided Western Governors’ Association and National Mining Association, Cleaning Up Abandoned Mines: A Western Partnership, 1998. This appendix provides information from BLM’s November 2007 Bond Review Report, which includes information on the number of financial assurances in place for hardrock operations on BLM lands in 11 western states (table 7); the value of these financial assurances by state (table 8); the number of inadequate financial assurances for notice- and plan-level operations, by state (table 9); and BLM’s and our analyses of the differences between financial assurance requirements and actual value of financial assurances in place for notice- and plan-level operations by state (table 10).

The Mining Act of 1872 helped foster the development of the West by giving individuals exclusive rights to mine gold, silver, copper, and other hardrock minerals on federal lands. However, miners often abandoned mines, leaving behind structures, safety hazards, and contaminated land and water. Four federal agencies--the Department of the Interior's Bureau of Land Management (BLM) and Office of Surface Mining Reclamation and Enforcement (OSM), the Forest Service, and the Environmental Protection Agency (EPA)--fund the cleanup of some of these sites. To curb further growth in the number of abandoned hardrock mines on federal lands, in 1981 BLM began requiring mining operators to reclaim lands when their operations ceased. In 2001, BLM began requiring all operators to provide financial assurances to guarantee funding for reclamation costs if the operator did not complete the task as required. This testimony provides information on the (1) federal funds spent to clean up abandoned hardrock mine sites since 1998, (2) number of abandoned hardrock mine sites and hazards, and (3) value and coverage of financial assurances operators use to guarantee reclamation costs on BLM land. To address these issues, GAO, among other steps, asked 12 western states and Alaska to provide information on the number of abandoned mine sites and associated features in their states using a consistent definition. Between fiscal years 1998 and 2007, BLM, the Forest Service, EPA, and OSM spent at least $2.6 billion (in 2008 constant dollars) to reclaim abandoned hardrock mines. BLM and the Forest Service have reclaimed abandoned hardrock mine sites on the lands they manage; EPA funds the cleanup of these sites, primarily on nonfederal lands through its Superfund program; and OSM provides some grants to states and Indian tribes to clean up these sites on their lands. Of the four agencies, EPA has spent the most--about $2.2 billion (in 2008 constant dollars) for mine cleanups. BLM and the Forest Service spent about $259 million (in 2008 constant dollars), and OSM awarded grants totaling about $198 million (in 2008 constant dollars) to support the cleanup of abandoned hardrock mines. Over the last 10 years, estimates of the number of abandoned hardrock mining sites in the 12 western states and Alaska have varied widely, in part because there is no generally accepted definition for a hardrock mine site. Using a consistent definition that GAO provided, 12 western states and Alaska provided estimates of abandoned hardrock mine sites. On the basis of these data, GAO estimated a total of at least 161,000 such sites in these states with at least 332,000 features that may pose physical safety hazards and at least 33,000 sites that have degraded the environment. According to BLM's information on financial assurances as reported in its November 2007 Bond Review Report, mine operators had provided financial assurances valued at approximately $982 million to guarantee reclamation costs for 1,463 hardrock operations on BLM land. The report also estimates that 52 mining operations have financial assurances that amount to about $28 million less than needed to fully cover estimated reclamation costs. However, GAO found that the financial assurances for these 52 operations are in fact about $61 million less than needed to fully cover estimated reclamation costs. The $33 million difference between GAO's estimated shortfall and BLM's occurs because BLM calculated its shortfall by comparing the total value of financial assurances in place with the total estimated reclamation costs. This calculation approach has the effect of offsetting the shortfalls in some operations with the financial assurances of other operations. However, financial assurances that are greater than the amount required for an operation cannot be transferred to another operation that has inadequate financial assurances. BLM officials agreed that it would be valuable for the Bond Review Report to report the dollar value of the difference between financial assurances in place and required for those operations where financial assurances are inadequate, and BLM has taken steps to correct this. GAO discussed the information in this testimony with officials from the four federal agencies, and they provided GAO with technical comments, which were incorporated as appropriate.

You are an expert at summarizing long articles. Proceed to summarize the following text: The 8(a) program, administered by SBA’s Office of Minority Enterprise Development, is one of the federal government’s primary vehicles for developing small businesses that are owned by minorities and other socially and economically disadvantaged individuals. Firms that enter the program are eligible to receive contracts that federal agencies designate as 8(a) contracts without competition from firms outside the program. During fiscal year 1995, 6,002 firms participated in the 8(a) program. SBA data show that during fiscal year 1995, 6,625 new contracts and 25,199 contract modifications, totaling about $5.82 billion were awarded to 8(a) firms. To be eligible for the 8(a) program, a firm must be a small business that is at least 51-percent owned and controlled by one or more socially and economically disadvantaged persons. A business is small if it meets the SBA standard for size established for its particular industry. Members of certain ethnic groups, such as black and hispanic Americans, are presumed to be socially disadvantaged. To be economically disadvantaged as well, socially disadvantaged individuals cannot have personal net worth (excluding equity in a personal residence and ownership in the firms) exceeding $250,000. In addition, the firm must be an eligible business and possess a reasonable prospect for success in the private sector. Firms can participate in the 8(a) program for a maximum of 9 years. The Business Opportunity Development Reform Act of 1988 marked the third major effort by the Congress to improve SBA’s administration of the 8(a) program and to emphasize its business development aspects. The legislation affirmed that the measure of success for the 8(a) program would be the number of firms that leave the program without being unreasonably reliant on 8(a) contracts and that are able to compete on an equal basis in the mainstream of the American economy. Over the years, reports by GAO, SBA’s Inspector General, and others have identified continuing problems with SBA’s administration of the program and/or with the program’s ability to develop firms that could successfully compete in the marketplace after leaving the program. To help develop firms and better prepare them to compete in the commercial marketplace after they leave the program, the act requires that 8(a) program contracts be awarded competitively to 8(a) firms when the total contract price, including the estimated value of contract options, exceeds $5 million for manufacturing contracts or $3 million for all other contracts. Of the approximately $3.13 billion in new 8(a) contracts awarded in fiscal year 1995, about $610 million, or 19.5 percent of the total dollar amount, was awarded competitively. In comparison, in fiscal year 1994, about $380 million, or 18.5 percent of the $2.06 billion in new 8(a) contracts, was awarded competitively. Between fiscal years 1991 and 1995, the total dollar value of new 8(a) contract awards increased by about 96 percent, while the value of contracts awarded competitively increased by about 190 percent. Appendix I shows the number and the dollar value of 8(a) contracts awarded competitively in fiscal years 1991 through 1995. SBA’s June 1995 revisions to the 8(a) program regulations closed a major loophole involving the competitive award of indefinite delivery, indefinite quantity (IDIQ) contracts. IDIQ contracts are used when an agency does not know the precise quantity of supplies or services to be provided under a contract. As the agency identifies a specific need for goods or services, it modifies the IDIQ contract to reflect the actual costs associated with providing that quantity of goods or services, up to the maximum amount specified in the contract. Before the June 1995 revisions, SBA’s 8(a) program regulations required that an agency, when determining whether an IDIQ contract should be offered on a competitive or noncompetitive (sole-source) basis, consider only the guaranteed minimum value of the contract rather than the estimated total contract amount. According to SBA, IDIQ contracts were often improperly used simply to avoid the need for competition, and wide differences often occurred between the guaranteed minimum values of IDIQ contracts and the amount eventually spent by agencies under the contracts. To avoid this problem, the June 1995 regulations require that for all 8(a) program contracts SBA accepts after August 7, 1995, including IDIQ contracts, the procuring agency must consider the total estimated value of the contract, including the value of contract options, when determining whether the contract should be awarded competitively. The concentration of 8(a) contract dollars among relatively few firms is a long-standing condition that continued in fiscal year 1995. SBA data show that in fiscal year 1995, 50 firms—less than 1 percent of the 6,002 total firms in the 8(a) program during the fiscal year—received about $1.46 billion, or about 25 percent of the $5.82 billion in total 8(a) contracts awarded. In fiscal year 1994, 50 firms—about 1 percent of the 5,155 firms then in the program—also received about 25 percent of the $4.37 billion in total 8(a) contract dollars awarded during the fiscal year. Twelve firms that were among the top 50 in fiscal year 1995 were also among the top 50 firms in the previous year. Furthermore, 22 firms that were among the top 50 in fiscal year 1994 were also among the top 50 firms in fiscal year 1993. Appendix II contains a table that shows the range of total contracts dollars awarded to the top 50 firms for fiscal years 1992 through 1995. While 8(a) contract dollars continue to be concentrated in a relatively few firms, many economically disadvantaged firms do not receive any 8(a) program contracts. SBA data show that of the 6,002 firms in the program during fiscal year 1995, 3,267 firms, about 54 percent, did not receive any program contracts during the fiscal year. In comparison, in fiscal year 1994, 56 percent of the 8(a) firms did not receive any program contracts. As we testified in April 1995, a key reason for the continuing concentration of contract dollars among a relatively few firms is the conflicting objectives confronting procuring officials, according to SBA officials. In SBA’s view, the primary objective of procuring officials is to accomplish their agency’s mission at a reasonable cost; for these officials, the 8(a) program’s business development objectives are secondary. At the same time, the agency’s procurement goals for the 8(a) program are stated in terms of the dollar value of contracts awarded. According to SBA, the easiest way for agencies to meet these goals is to award a few large contracts to a few firms, preferably firms with which the agencies have had experience and whose capabilities are known. In addition, according to SBA the concentration of firms receiving 8(a) contracts is no different than the concentration among firms that occurs in the normal course of federal procurement. However, while this may be true for federal procurement overall, the Congress in amending the 8(a) program in 1988 sought to increase the number of competitive small businesses owned and controlled by socially and economically disadvantaged individuals through the fair and equitable distribution of federal contracting opportunities. In 1995, SBA made several efforts to increase the award of 8(a) contracts to firms that had never received contracts. SBA required its district offices to develop action plans to increase the number of 8(a) contract opportunities offered to a greater percentage of 8(a) firms. These action plans were to include specific initiatives for marketing the program to federal procurement offices in their jurisdictions. In addition, the Departments of Defense and Veterans Affairs agreed to give special emphasis to 8(a) firms that had never received contracts. Although SBA has not assessed the impact of these activities on increasing contract awards, SBA officials believe that these steps have helped in getting 8(a) contracts to firms that had never received them. At the same time, in the view of SBA officials, the fact that some firms do not receive any 8(a) contracts may not be a problem because not all firms enter the program to receive 8(a) contracts. Rather, some firms, according to SBA officials, seek 8(a) certification in order to qualify as disadvantaged firms for other federal programs, such as the highway construction program funded by the Department of Transportation, or state and city programs that set aside contracts for disadvantaged firms. To increase the program’s emphasis on business development and the viability of firms leaving the program, the act directed SBA to establish target levels of non-8(a) business for firms during their last 5 years in the program. The non-8(a) target levels increase during each of the 5 years, from a minimum of 15 percent of a firm’s total contract dollars during its fifth year to a minimum of 55 percent in the firm’s ninth or final program year. SBA field offices, as part of their annual reviews of firms, are responsible for determining whether firms achieve these target levels. In April 1995, we testified that SBA data showed that while 72 percent of the firms in their fifth year that had 8(a) sales met or exceeded the minimum 15-percent non-8(a) target established for the fifth year, only 37 percent of the firms in their ninth or final program year that had 8(a) sales met or exceeded the minimum 55-percent target established for that year. The data also showed that of the 1,038 firms in the fifth through the ninth year of their program term that had 8(a) sales, 37 percent did not meet the minimum targets. SBA data for fiscal year 1995 showed that of the 8(a) firms in their fifth year that had 8(a) sales during the fiscal year, about 85 percent met or exceeded the minimum non-8(a) business target of 15 percent established for that year. In comparison, of the 8(a) firms in their ninth or final program year that had 8(a) sales during the fiscal year, 58 percent met or exceeded the minimum non-8(a) business target of 55 percent established for that year. Appendix III shows the extent to which firms met their target levels for fiscal year 1995. In a September 1995 report, SBA’s Inspector General (IG) discussed SBA’s problems in enforcing the business-mix requirements. According to the IG, over one-third of the 8(a) firms in the last 5 years of their program term did not meet the business-mix requirements, yet they accounted for about $1.4 billion (63 percent) of total 8(a) contract revenues of all firms subject to the requirements. The IG noted that SBA’s regulations identify a range of remedial actions that the agency can take to improve firms’ compliance with the requirements, including reducing or eliminating sole-source 8(a) contract awards, and that SBA personnel have the discretion of selecting which remedial actions to impose. The IG found, however, that SBA personnel often took minimal or no action when firms did not meet the requirements, and firms continued to obtain 8(a) contracts even though they were not complying with the regulations to develop non-8(a) business. To address this problem, the IG recommended that SBA limit the dollar value of new 8(a) contracts awarded to firms that do not meet their non-8(a) business target levels. SBA concurred with this recommendation and in March 1996 stated that it was exploring two options—eliminating all new 8(a) contracts to firms that do not meet their non-8(a) business levels, or placing a limit on the dollar value of 8(a) contracts awarded to such firms. In September 1996, an SBA official told us that the agency could not propose regulations implementing such restrictions until the Department of Justice finalizes its regulations regarding federal affirmative action programs. The IG’s September 1995 report also concluded that SBA could not measure the success of the 8(a) program as defined by the Congress, namely the number of firms that leave the program without being unreasonably reliant on 8(a) contracts and that are able to compete on an equal basis in the mainstream of the American economy. The IG reported that SBA’s procedures did not provide for compiling and reporting data on the (1) number of companies that met their business-mix requirements while in the program and (2) companies that remained in business after they no longer had 8(a) revenues. As a result, the IG concluded that neither SBA nor the Congress could determine whether the 8(a) program was accomplishing its intended purpose or whether any changes to the program were needed. To address these problems, the IG recommended that SBA annually compile data on the numbers of firms that leave the 8(a) program that are unreasonably reliant on 8(a) contracts and those that are not. The IG also recommended that SBA (1) track former 8(a) firms after they have completed all 8(a) contracts to determine whether they are still in business and (2) annually determine how many of the firms that are still in business were unreasonably reliant on 8(a) contracts when they left the program. With regard to this recommendation, the IG noted that responses to a questionnaire it sent to former 8(a) firms that had been out of the program for approximately 1.5 to 5.5 years showed that many firms still had substantial revenues from carryover 8(a)contracts. For example, 23 percent of the respondents reported that more than 50 percent of their total revenues were from 8(a) contracts. In March 1996, SBA stated that it would begin to annually compile data on the number of firms leaving the 8(a) program that met or did not meet the business-mix requirements and, as a result, were or were not unreasonably reliant on 8(a) program contracts. SBA also stated that it was currently tracking 8(a) graduates to determine their current status and levels of revenues. Finally, SBA announced that it was developing a more thorough survey to track graduates and was considering using external data sources, such as Dun and Bradstreet, for this information. As of September 1996, SBA had not developed this survey. According to an SBA official, work on this project has been delayed by several factors, including the furloughs of SBA staff and the turnover of a top SBA official. SBA’s regulations provide that any firm that (1) substantially achieves its business development goals and objectives before completing its program term and (2) has demonstrated the ability to compete in the marketplace without 8(a) program assistance may be graduated from the 8(a) program. According to the regulations, factors SBA is to consider in deciding whether to graduate a firm include the firm’s sales, net worth, working capital, overall profitability, access to credit and capital, and management capacity and capability. SBA may also consider whether the firm’s business and financial profile compares positively with the profiles of non-8(a) firms in the same area or a similar line of business. A determination of whether a firm should be graduated is a part of SBA’s annual review of each firm. A firm has the option to appeal SBA’s determination that it graduate from the 8(a) program. After graduating, a firm is no longer eligible to receive 8(a) contracts. According to SBA data, during fiscal year 1995, SBA graduated three firms from the program—the first graduations in the program’s history, according to SBA officials. The data also show that during fiscal year 1995, SBA terminated another 160 firms from the program for various reasons, including failure to comply with program requirements, and 250 more firms left the program because their program terms had expired during the fiscal year. According to SBA officials, SBA usually does not require that a firm graduate because of anticipated appeals and the difficulty in enforcing the graduation requirement, especially if the firm disagrees with SBA’s decision. SBA’s IG has identified companies that should have been, but were not, graduated from the 8(a) program. For example, the IG reported in September 1994 that its examination of 50 of the larger 8(a) firms found that most of these firms were larger and more profitable than firms not in the program. Specifically, the IG’s review showed that 32 of the 50 8(a) firms exceeded their respective industries’ averages for the following five performance factors: business assets, revenues, gross profits, working capital, and net worth. The IG concluded that allowing such firms to continue in the program deprived other truly economically disadvantaged firms of 8(a) assistance and understated the 8(a) program’s overall success because firms that had demonstrated success were not graduated. In May 1995, as a result of the IG’s review, SBA established requirements for its field staff to (1) compare annually five financial performance factors of 8(a) firms with the industry averages for companies in the same line of business and (2) consider graduation from the program for any 8(a) firm that meets or exceeds three of the averages. However, a February 1996 evaluation by SBA of annual reviews conducted by SBA field staff of 8(a) firms raises questions about the ability of the field staff to conduct such analysis. SBA noted that the staffs’ financial analyses are very poor, staff members do not fully understand the concepts of economic disadvantage, financial condition of the firm, and access to capital, and the annual reviews contained few comparisons of the condition of 8(a) firms with similar businesses. To address this problem, SBA recommended that field staff receive training in financial analysis and guidance on the concept of continuing economic disadvantage. As of September 1996, SBA planned to provide this training during a national meeting planned for October or November 1996. I would now like to provide some overall statistics regarding SBA’s disposition of applications made to the 8(a) program during fiscal year 1995, and the amount of management and technical assistance provided during the year. SBA data show that during fiscal year 1995, SBA processed 1,306 8(a) program applications. SBA approved 696 of the applications and initially denied the remaining 610. Among the reasons cited for denying the 610 applications were the following: The firm lacked potential for success (367 applications). The socially and economically disadvantaged individual did not own or control the firm (364 applications). The individual who owned and controlled the firm was not socially or economically disadvantaged (263 applications). The firm was a type of business that is not eligible to participate in the program (78 applications). Of the 610 applications that SBA initially denied, 323 were reconsidered and 189 were subsequently approved, bringing to 885 the total number of applications approved during fiscal year 1995. In comparison, SBA ultimately approved 1,107 of the 1,536 applications it processed in fiscal year 1994, and 540 of the 819 applications it processed in fiscal year 1993. As small businesses, 8(a) firms are eligible to receive management and technical assistance from various sources to aid their development. SBA’s primary source of such assistance has been its 7(j) program. Authorized by section 7(j) of the Small Business Act, as amended, the 7(j) program provides seminars and individual assistance to 8(a) firms. The 8(a) firms are also eligible to receive assistance from SBA’s Executive Education Program, which is designed to provide the owners/managers of 8(a) firms with executive development training at a university. SBA may also provide 7(j) assistance to socially and economically disadvantaged individuals whose firms are not in the 8(a) program, firms located in areas of high unemployment, and firms owned by low-income individuals. In fiscal year 1995, SBA spent about $7.6 million for 7(j) assistance to 4,604 individuals. This figure included individuals from 1,785 8(a) firms that received an aggregate of 9,452 days of assistance, and 190 firms that received executive training under SBA’s Executive Education Program. In fiscal year 1996, SBA changed the focus of the 7(j) program to provide only executive-level training. The individual assistance and seminar training previously provided will be provided by SBA’s Small Business Development Centers and Service Corps of Retired Executives. This concludes my prepared statement. I would be glad to respond to any questions that you or the Members of the Committee may have. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. 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GAO discussed the Small Business Administration's (SBA) 8(a) Minority Business Development Program, focusing on SBA progress in: (1) requiring the competitive award of high-value 8(a) contracts; (2) distributing 8(a) contracts to a larger number of firms; (3) ensuring that firms rely less on 8(a) contracts as they move through the 8(a) program; and (4) graduating from the program firms that have demonstrated that they can survive without 8(a) contracts. GAO noted that: (1) while the dollar amount of 8(a) contracts awarded competitively during fiscal year (FY) 1995 increased over FY 1994, the percentage of contract dollars awarded competitively remained at about 19 percent; (2) SBA revisions closed a major loophole that allowed the use of indefinite delivery, indefinite quantity contracts to avoid competition; (3) although SBA made several efforts to more widely distribute 8(a) contracts, the concentration of 8(a) program dollars to relatively few firms continued in FY 1995; (4) during FY 1995, a larger percentage of 8(a) firms in their final year of the program achieved the required level of non-8(a) business than was reported for previous years; (5) during FY 1995, SBA graduated 3 firms from the 8(a) program, the first graduations in the program's history, and terminated another 160 firms for various reasons, and 250 firms left the program; (6) during FY 1995, SBA approved 885 8(a) applications; and (7) SBA provided management and technical assistance to 8(a) firms through its 7(j) program.

You are an expert at summarizing long articles. Proceed to summarize the following text: Some of the TARP performance audit recommendations we made were program-specific, while others addressed crosscutting issues such as staffing and communications. Our program-specific recommendations focused on the following TARP initiatives: Bank investment programs: CPP was designed to provide capital to financially viable financial institutions through the purchase of preferred shares and subordinated debentures. Community Development Capital Initiative provided capital to Community Development Financial Institutions by purchasing preferred stock. Capital Assessment Program (CAP) was created to provide capital to institutions not able to raise it privately to meet Supervisory Capital Assessment Program—or “stress test”— requirements. This program was never used. Credit market programs: Term Asset-backed Securities Loan Facility (TALF) provided liquidity in securitization markets for various asset classes to improve access to credit for consumers and businesses. SBA 7(a) Securities Purchase Program provided liquidity to secondary markets for government-guaranteed small business loans in the Small Business Administration’s (SBA) 7(a) loan program. American International Group (AIG) Investment Program (formerly Systemically Significant Failing Institutions Program) provided support to AIG to avoid disruptions to financial markets from AIG’s possible failure. Automotive Industry Financing Program aimed to prevent a significant disruption of the American automotive industry through government investments in the major automakers. Home Affordable Modification Program (HAMP) divides the cost of reducing monthly payments on first-lien mortgages between Treasury and mortgage holders/investors and provides financial incentives to servicers, borrowers, and mortgage holders/investors for loans modified under the program. Principal Reduction Alternative (PRA) pays incentives to mortgage holders/investors for principal reduction in conjunction with a HAMP loan modification for homeowners with a current loan-to-value ratio exceeding 115 percent. The Second-Lien Modification Program (2MP) provides incentives for second-lien holders to modify or extinguish a second-lien mortgage when a HAMP modification has been initiated on the first-lien mortgage for the same property. Home Affordable Foreclosure Alternatives (HAFA) provides incentives for short sales and deeds-in-lieu of foreclosure as alternatives to foreclosure for borrowers unable or unwilling to complete the HAMP first-lien modification process. Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (Hardest Hit Fund or HHF) supports innovative measures developed by state housing finance agencies and approved by Treasury to help borrowers in states hit hardest by the aftermath of the housing crisis. Federal Housing Administration’s (FHA) Short Refinance Program provides underwater borrowers—those with properties that are worth less than the principal remaining on their mortgage—whose loans are current and are not insured by FHA with the opportunity to refinance into an FHA-insured mortgage. As of August 22, 2016, our performance audits of the TARP programs resulted in 74 recommendations to Treasury. Treasury implemented 62, or approximately 84 percent. Three of the implemented recommendations were closed based on actions taken by Treasury since we last reported on the status of our TARP recommendations in September 2015—all three recommendations were MHA-related. Five recommendations remain open. Treasury partially implemented three of the recommendations (that is, took some steps toward implementation) and had not taken any steps to implement the remaining two recommendations. Each of the five recommendations for which Treasury took some or no implementation steps were directed at MHA housing programs. Seven recommendations have been closed as not implemented because we determined that they were outdated and no longer applicable due to the evolving nature of the programs. Of these recommendations, one was closed since September 2015 and was directed at CPP. Three of these seven recommendations were related to CPP and two to MHA programs. As of August 22, 2016, Treasury implemented six of nine recommendations for CPP. For example, we recommended that Treasury apply lessons learned from CPP implementation to similar programs, such as the Small Business Lending Fund (SBLF)—specifically, by including a process for reviewing regulators’ viability determinations of eligible applicants. Treasury changed the SBLF process to include additional evaluation by a central application review committee for all eligible applicants who had not been approved by their federal regulator. Treasury also took steps to provide information from its evaluation to the regulator when their views differed. These steps should help ensure that applicants will receive consistent treatment across different regulators. Since August 2015, one of our CPP-related recommendations was closed without being implemented by Treasury. In March 2012, we recommended that the Secretary of the Treasury consider analyzing and reporting on remaining and former CPP participants separately. In particular, we noted that remaining CPP institutions tended to be less profitable and held riskier assets than other institutions of similar asset size. We analyzed financial data on 352 remaining CPP institutions and 256 former CPP institutions that exited CPP and found that the remaining CPP institutions had significantly lower returns on average assets and higher percentages of noncurrent loans than former CPP and non-CPP institutions. They also held less regulatory capital and reserves for covering losses. Although our analysis found differences in the financial health of remaining and former CPP institutions, we noted that Treasury’s quarterly financial analysis of CPP institutions did not distinguish between them. Treasury said it is not likely to consider analyzing and reporting on remaining and former CPP participants separately. Treasury believes that providing information about the financial position of institutions in CPP was unnecessary because it is publicly available to interested parties through regulatory filings or other sources. We closed this recommendation as not implemented because circumstances have changed significantly since we made the recommendation. Specifically, 363 institutions were in CPP around the time we made the recommendation, and the analysis we recommended was intended to provide Treasury useful information about the relative likelihood of remaining institutions repaying their investments and exiting CPP. However, Treasury has been winding down CPP. When we last conducted an analysis of the financial condition of the 16 institutions that remained in CPP as of February 2016, most of them continued to exhibit signs of financial weakness. Treasury officials recognized that the remaining CPP firms generally have weaker capital levels and worse asset quality than firms that exited the program. They further noted that this situation was a function of the life cycle of the program, because stronger institutions had greater access to new capital and were able to exit, while the weaker institutions have been unable to raise the capital needed to exit the program. Treasury believes that the remaining institutions likely will not be able to repay their investments in full. Consequently, we determined that the recommendation was no longer applicable. As of August 22, 2016, Treasury implemented 22 of our 29 MHA-related recommendations. Three of the 22 recommendations were implemented after our September 2015 report on the status of TARP recommendations: In February 2014, we recommended that Treasury ensure that its MHA compliance agent assess servicer compliance with Limited English Proficiency (LEP) relationship management guidance, once it was established. Treasury issued clarifying LEP guidance to MHA program servicers in April 2014. In June 2016, Treasury provided us with copies of the final report on the results of the compliance reviews of the larger MHA program servicers’ implementation of LEP guidance. Treasury also provided specific examination policies and procedures used by MHA Compliance agent in its reviews of program servicers’ implementation of LEP requirements. In October 2014, we recommended that Treasury conduct periodic evaluations to help explain differences among MHA servicers in the reasons for denying applications for trial modifications. Since the issuance of that report, Treasury conducted two denial reason rate reviews in 2015—one looking at 11 MHA servicers with a high concentration of various denial reasons and the other looking at 7 MHA servicers—to understand the prevailing reasons for their use of specific denial reason codes (ineligible mortgage, request incomplete, and offer not accepted/withdrawn). According to Treasury officials, the results of these and other evaluations helped inform Treasury’s decision to implement Streamline HAMP to help address the most common denial reason (i.e., failure to submit required documentation). Treasury also began conducting quarterly compliance reviews at the largest MHA servicers to verify the accuracy of denial reasons reported. In March 2016, we recommended that Treasury review potential unexpended balances by estimating future expenditures of the MHA program, which would impact its lifetime cost estimate for the program. Treasury stated that it historically assumed that all funds obligated for MHA would be spent in furtherance of its mandate under EESA to preserve homeownership and protect home prices. In February 2016, following the enactment of legislation that terminates MHA on December 31, 2016, Treasury lowered the lifetime cost estimate for MHA, from $29.8 billion to $25.1 billion, which Treasury said would continue to be reflected in its public reports on TARP. Treasury has taken some actions to address three of the open recommendations directed at the MHA programs: In June 2010, we recommended that Treasury expeditiously report activity under PRA, including the extent to which servicers determined that principal reduction was beneficial to investors but did not offer it, to ensure transparency in the implementation of this program feature across servicers. Starting with the monthly MHA performance report for the period through May 2011, Treasury began reporting summary data on the PRA program. Specifically, Treasury provides information on PRA trial modification activity as well as median principal amounts reduced for active permanent modifications. In addition, Treasury’s public MHA loan-level data files include information on the results of analyses of borrowers’ net present value under PRA and indicate whether principal reduction was part of the modification. While this information would allow interested users with the capability to analyze the extent to which principal reduction was beneficial but not offered overall, it puts the burden on others to analyze and report the results publicly. Also, the publicly available data do not identify individual servicers and thus cannot be used to assess the implementation of this program feature across servicers. Our recommendation was intended to ensure transparency in the implementation of this program feature across servicers, which would require that information be reported on an individual servicer basis to allow comparison between servicers and highlight differences in the policies and practices of individual servicers. We maintain that Treasury partially implemented this recommendation and should take action to fully implement it. In October 2014, we recommended that Treasury conduct periodic evaluations using analytical methods, such as econometric modeling, to help explain differences among MHA servicers in redefault rates. Such analyses could help inform compliance reviews, identify areas of weaknesses and best practices, and determine the need for additional program policy changes. Treasury subsequently conducted an analysis to compare redefault rates among servicers and to determine whether servicers’ portfolio of HAMP-modified loans performed at, above, or below expectations for the metrics analyzed. Although they performed these analyses, Treasury officials maintained that such analyses are inherently limited and therefore they did not intend to repeat them. However, by not periodically conducting analyses of differences in servicer redefault rates and capitalizing on the information these methods provide, Treasury risks making policy decisions based on potentially incomplete information and may miss opportunities to identify best practices to assist the greatest number of eligible borrowers. Thus, we continue to maintain that Treasury should take action to fully implement this recommendation. This will continue to be important after December 2016, when the HAMP program is closed to new entrants, since borrowers are eligible for up to 6 years of pay-for-performance incentives if they are able to maintain good standing on their modified loan payments. In March 2016, we recommended that Treasury deobligate funds that its review showed likely would not be expended. Treasury’s most recent estimates identified $4.7 billion in potential excess funds, of which Treasury has deobligated $2 billion as of August 22, 2016. For the additional $2.7 billion in potential excess funds Treasury identified, Treasury stated that once servicers report all final transactions to the MHA system of record in late 2017, it plans to calculate the maximum potential expenditures under MHA and deobligate any estimated excess funds at that time, as appropriate. Given the uncertainties in estimating future participation and the associated expenditures—in particular, the effect of Streamline HAMP which was not fully implemented at the time of Treasury’s last program estimate—it will be important for Treasury to update its cost estimates as additional information becomes available and take timely action to deobligate likely excess funds. Finally, Treasury has not taken action to address two open recommendations directed at MHA: In February 2014, we recommended that Treasury require its MHA compliance agent to take steps to assess the extent to which servicers established internal control programs that effectively monitored compliance with fair lending laws applicable to MHA programs. As we noted in the report, both the MHA Servicer Participation Agreement and MHA Handbook require that servicers have an internal control program to monitor compliance with relevant consumer protection and fair lending laws. In April 2014, Treasury officials stated that they planned to continue efforts to promote fair lending policies. However, they noted that they believed that the federal agencies with supervisory authority remain in the best position to monitor servicer compliance with fair lending laws and that they did not plan to implement this recommendation. Representatives of the federal regulators said that their fair lending reviews have a broader overall focus that may not specifically focus on MHA activities. Moreover, our analysis identified some statistically significant differences among four large MHA program servicers in the number of denials and cancellations of trial modifications and in the potential for redefault of permanent modifications for certain protected groups. Evaluating the extent to which servicers have developed and maintained internal controls to monitor compliance with fair lending laws could give Treasury additional assurances that servicers have implemented MHA programs in compliance with fair lending laws. In July 2015, we recommended that Treasury develop and implement policies and procedures to better ensure that changes to TARP- funded housing programs are based on evaluations that comprehensively and consistently met the key elements of benefit- cost analysis. Treasury agreed that it is important to assess the benefits and costs of proposed program improvements, and that it would continue to consider the costs of program enhancements and balance those considerations with the overall objective of helping struggling homeowners. Treasury also noted that, given the scheduled application deadline for MHA on December 30, 2016, it did not anticipate making significant policy changes to the MHA programs. Although the deadline for new MHA program applicants is December 30, 2016, elements of the MHA program will remain in effect after the application deadline. For example, in the case of a HAMP loan modification, borrowers are eligible for program benefits for up to 6 years. As such, we continue to maintain that Treasury should take action to fully implement the partially implemented and open recommendations. We will continue to assess the status of these recommendations considering program activity and actions taken by Treasury. We provided a draft of this report to Treasury for comment. Treasury had no formal or technical comments on the draft report. We are sending copies of this report to the appropriate congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. The following table summarizes the status of our TARP performance audit recommendations as of August 22, 2016. We classify each recommendation as implemented, partially implemented (the agency took steps to implement the recommendation but more action would be required to fully implement it), open (the agency had not taken steps to implement the recommendation), and closed, not implemented (the agency decided not to take action to implement the recommendation and we no longer consider the recommendation relevant). The recommendations are listed by report. In addition to the contact named above, Harry Medina (Assistant Director), Jason Wildhagen (Analyst-in-Charge), Anne Akin, Bethany Benitez, John Karikari, Barbara Roesmann, Mathew J. Scirè, Jena Sinkfield, and Karen Tremba made key contributions to this report.

The Emergency Economic Stabilization Act of 2008 (EESA) authorized the creation of TARP to address the most severe crisis that the financial system had faced in decades. Treasury has been the primary agency responsible for TARP programs. EESA provided GAO with broad oversight authorities for actions taken under TARP and included a provision that GAO report at least every 60 days on TARP activities and performance. This 60-day report describes the status of GAO's prior TARP performance audit recommendations to Treasury as of August 2016. In particular, this report discusses Treasury's implementation of GAO's recommendations focusing on two programs: CPP and MHA. GAO's methodologies included assessing relevant documentation from Treasury, interviewing Treasury officials, and reviewing prior TARP reports issued by GAO. As of August 2016, GAO's performance audits of the Troubled Asset Relief Program (TARP) activities have resulted in 74 recommendations to the Department of the Treasury (Treasury). Treasury has implemented 62 of the 74 recommendations, some of which were aimed at improving the transparency and internal controls of TARP. Five recommendations remain open, all pertaining to the Making Home Affordable (MHA) program, a collection of housing programs designed to help homeowners avoid foreclosure. Of the five: Treasury has partially implemented three open MHA recommendations—that is, it has taken some steps toward implementation but needs to take more actions. For example, in March 2016, GAO recommended that Treasury deobligate funds that its review showed would likely not be expended. Treasury's most recent estimates identified $4.7 billion in potential excess funds, of which Treasury has deobligated $2 billion as of August 2016. Two additional MHA recommendations remain open—that is, Treasury has not taken steps to implement them. GAO recommended that Treasury take steps to assess the extent to which servicers have established internal control programs that monitor compliance with fair lending laws applicable to MHA programs. GAO also recommended that Treasury establish a standard process to better ensure that changes to TARP-funded MHA programs are based on comprehensive cost-benefit analyses. Treasury told GAO they would consider this recommendation but has noted that it plans no major program policy changes given the December 30, 2016, application deadline for the MHA program. Seven recommendations have been closed but were not implemented. Five were related to the Capital Purchase Program (CPP) and MHA and two to other TARP activities. Generally, these recommendations were closed because GAO determined that the recommendations were no longer applicable. GAO continues to maintain that Treasury should take action to fully implement the three partially implemented and two open MHA recommendations. GAO will continue to assess the status of these recommendations considering new program activity and any further actions taken by Treasury.

You are an expert at summarizing long articles. Proceed to summarize the following text: Food and beverages have been served onboard Amtrak trains since Amtrak was created. Amtrak’s eleven commissaries are located around the country and are responsible for receiving, warehousing and stocking food, beverages, and other items for Amtrak’s onboard dining and café service. Until January 1999, Amtrak ran these commissaries with its own employees. Since then, Amtrak has contracted out the responsibility for the commissaries and for ordering and stocking all food, beverages, and related items under a contract that expires in September 2006. Gate Gourmet (the contractor), is also a supplier of food and beverages to several major airlines. During fiscal years 2002 through 2004, the 3-year period we focused on in our audit work, Amtrak paid Gate Gourmet between $59 and $64 million a year in reimbursements and fees. Gate Gourmet personnel operate Amtrak-owned commissaries and order, receive, store, and stock trains with food, beverages, and other related items such as table linens and napkins. Food and beverage stock are charged to Amtrak employees who account for the food en route. When a train arrives at its final destination, all remaining stock items are returned to a commissary. Gate Gourmet charges Amtrak for the items used, as well as for labor, management, and other fees. The contract requires that Gate Gourmet provide Amtrak an independently audited annual report within 120 days following the expiration of each contract year. Amtrak’s model for handling its food and beverage service is similar to other passenger transportation companies, with some important differences. Northwest Airlines has outsourced their kitchen and commissary operations and have food and beverages delivered to each airplane before each flight. VIA Rail Canada, Canada’s national passenger railroad, serves food on most of its trains and owns and operates its own commissaries. Food and other items are delivered to each train, consumed during the train’s run and restocked at the destination. The Alaska Railroad, however, has a private contractor that orders, stocks, delivers, prepares, and serves all of its food and beverages on its trains using their own labor force. With certain exceptions and limits, all food and beverage revenues and expenses are the responsibility of the contractor. Amtrak’s financial records show that for every dollar Amtrak earns in food and beverage revenue, it spends about $2—a pattern that has held consistent for all 3 years we reviewed. (See table 1 and fig. 2.) Amtrak’s financial records also indicate that Amtrak has lost a total of almost $245 million for fiscal year 2002 through fiscal year 2004 on food and beverage service. Section 24305(c)(4) of Title 49, United States Code, states that Amtrak is not to operate a food and beverage service whose revenues do not exceed the cost of providing such service. About half of the total food and beverage expenditure is labor cost for Amtrak staff who prepare and serve the food aboard the trains. About 38 percent is reimbursements and fees to Gate Gourmet, representing the cost of food and other products in addition to other fees paid to Gate Gourmet. About 9 percent is for other Amtrak costs. While Amtrak’s labor costs for its food and beverage service are significant, these costs are part of Amtrak’s overall labor cost structure, and as such, are beyond the scope of work we did for this testimony. However, a recent Amtrak Inspector General report suggested that Amtrak could save money on its food and beverage labor if the cost of this labor was similar to that of the restaurant industry. Amtrak has responded to these continued losses with some incremental reductions in food and beverage service. On July 1, 2005, Amtrak plans to discontinue food and beverage service on its routes between New York City and Albany, New York, which would allow Amtrak to close its commissary in Albany. An official in Amtrak’s Office of Inspector General stated that Amtrak lost between $6 to $8 per person on food service on those routes and that closing the commissary will save Amtrak about $1 million per year. However, achieving additional savings by closing commissaries could be limited, as Amtrak’s other commissaries serve multiple Amtrak trains that would continue to offer food and beverage service. In other words, closing a commissary could affect multiple trains on multiple routes. According to an Amtrak procurement official, a team consisting of members of Amtrak’s procurement, legal, financial and transportation departments is currently working to identify ways to reduce Amtrak’s costs in its next commissary contract. Other transportation companies have taken actions to better control their food and beverage costs in recent years. For example, Northwest Airlines officials stated that they pay particular attention to food and beverage expenses. Since 2002, Northwest has reduced its food costs by 4 percent. This has been achieved by reducing or eliminating complimentary food service for coach passengers on domestic flights (even to the point of eliminating pretzels on these flights), aggressive pricing of food products and flexible budgeting that adjusts each month to reflect increases or decreases in ridership. VIA Rail officials told us they have considerable flexibility in hiring its onboard service personnel to adjust its labor force to respond to peak and off-peak tourist seasons for its long-distance trains. In addition, VIA Rail officials said they have considerable flexibility in how onboard service staff are used; in essence, all onboard service staff can be used wherever and whenever needed. The Alaska Railroad restructured the contract with its food and beverage service provider to allow for food price fluctuation within defined limits. One way to control costs is to build provisions into a contract that motivate a contractor to keep costs as low as possible. Amtrak’s current cost reimbursable contract with Gate Gourmet creates, if anything, an incentive to increase Amtrak’s costs unless properly monitored. Under the contract, Gate Gourmet receives a number of reimbursements, including commissary, labor, and insurance costs, in addition to an operating fee. The operating fee is defined in the contract as 5 percent of the total actual cost of the onboard food and beverage items. This fee is an incentive for the contractor to increase Amtrak’s food and beverage costs. These costs can change in each yearly operating budget. This operating budget is subject to review by Amtrak and is mutually agreed to by both Amtrak and Gate Gourmet. Incentives can also be written into a cost reimbursable contract to control costs and enhance performance. Although the contract included a discussion of performance standards, these standards and related measures were never created, even though they were required 45 days after the contract was signed in January 1999. Performance standards would have allowed for performance incentives and penalties. If these incentives had been developed, then they could have been used to pay Gate Gourmet based on such things as finding lower-priced food products of similar quality to what is being purchased now, or identifying ways the food and beverage service could be operated more economically or efficiently. Other factors may not provide the needed incentives for Gate Gourmet to aggressively seek to reduce Amtrak’s food costs. Under current contract provisions, Gate Gourmet can charge Amtrak for food prepared in Gate Gourmet facilities and delivered to Amtrak’s commissaries. The contract provides considerable pricing flexibility to Gate Gourmet for these items with no detailed definitions or price caps. This makes it difficult to determine whether or not Amtrak is being charged a reasonable price. In addition, the contract also provides that Gate Gourmet deduct any trade or quantity discounts on items purchased for Amtrak either immediately from Amtrak’s invoices or retroactively based on the proportion of Amtrak’s purchases. Discounts applied retroactively are to be applied by Gate Gourmet in “good faith” and retroactive payments are “an approximation and that cannot guarantee exactness.” The contract stipulates these payments are subject to an audit by Amtrak. However, these audits have never been conducted. In contrast, while Northwest Airlines has cost plus contracts with its largest food and beverage contractors (including Gate Gourmet), Northwest’s management of them is different. Northwest’s caterer contracts have labor and other rates specified in the contract. According to Northwest’s food and beverage officials, they know quickly if they change their menu, how much their suppliers will charge them—even to the addition or subtraction of a leaf of lettuce served as part of an entree. In addition, Northwest officials stated that each price charged by its contractors is checked and invoices are audited. We identified five types of management controls that Amtrak did not fully exercise regarding oversight of its food and beverage service. These include the following: Requirement for an annual report has never been enforced. Amtrak’s contract requires Gate Gourmet to provide an independently audited annual report within 120 days following the expiration of each contract year; this report must also be certified by Gate Gourmet officials. This report is to provide actual and budgeted amounts for key line items and to provide a narrative explanation for any actual to budget variance greater than one percent in the aggregate for all commissaries. However, Gate Gourmet has not provided this report during the five completed years the contract has been in place. Amtrak food and beverage officials could not provide us with a reason as to why they had decided not to enforce this provision. They told us that they relied on contractor-provided monthly operating statements and on reports from Amtrak’s Inspector General instead. Our review found that the monthly operating statements lacked critical information that was to be included in the annual report, were prepared by the party seeking reimbursement, and, perhaps more importantly, were not independently reviewed or audited. By contrast, the annual report was to be certified by contractor officials and audited by an independent certified public accountant. The Inspector General’s reports, while providing management with information on some aspects of Amtrak’s food and beverage service activities, should not be viewed as a substitute for a comprehensive audit and report. Audits of discounts and rebates were not conducted. The contract provides that Amtrak audit Gate Gourmet’s allocations of trade and quantity discounts received from purchases of food and beverages. However, Amtrak has never conducted an audit of the discounts credited to it, nor has it requested that the contractor certify that all of the discounts that Amtrak should receive have been credited to its account. Information we reviewed indicates that such audits may yield savings for Amtrak. For example, Amtrak officials advised us that discounts and rebates totaling over $550,000 for fiscal years 2002 and 2003 had been credited on gross purchases of about $6.5 million. However, total Gate Gourmet purchases exceeded $90 million for the 2-year period—roughly 13 times the amount of purchases the contractor reported as being subject to discounts and rebates. Because Amtrak did not require an independent audit or otherwise analyze the trade and quantity discounts received, Amtrak does not know whether or not it received all of the discounts and rebates to which it was entitled. Amtrak could not provide us with reasons supporting its decision or its consideration of this issue. Adequate monitoring of purchase price information needs improvements. Amtrak did not adequately monitor its purchase price information for food and beverage items purchased by Gate Gourmet. Amtrak officials said they monitored contractor purchases using daily price reports that listed unit prices for purchases ordered the previous day and the price the last time the item was ordered. However, given the importance of purchase orders in a food and beverage operation, internal controls need to be developed to systematically monitor and analyze purchase information. These controls should then be monitored on a regular basis to assess the quality of performance over time. For example, controls should include processes to identify unit price variances over established or pre-set amounts and actions taken to document follow- up work performed. Although Amtrak had some processes that compare prices, the process was not robust enough to include a record of price trends or follow up actions taken such as corrections of amounts billed. Our testing of this control showed that if Amtrak had approached this review in a more rigorous manner, it may have identified discrepancies warranting further investigation. For example: Monitoring of Purchase Order Pricing: Using data mining and other audit techniques, we selectively reviewed more than $80 million of purchase order information for fiscal years 2002 and 2003 and found that the contractor was generating purchase orders with significant variances in unit prices. For example, in 2003, the purchase order price of a 10-ounce strip steak ranged from $3.02 to $7.58. Monitoring of Actual Product Price Charged by Gate Gourmet: When Amtrak officials told us that purchase order information did not always reflect actual amounts paid, we tested actual prices paid by Amtrak to Gate Gourmet. To test purchase order data, we nonstatistically selected 37 payment transactions and reviewed the underlying supporting documentation and found evidence of widely variable product prices. For instance, in fiscal years 2002 and 2003, payments of over $400,000 for 12-ounce Heineken beer varied from $0.43 to $3.93 per bottle. Amtrak product pricing excludes labor costs. Our work revealed that Amtrak’s product price to the customer does not take into account over half of Amtrak’s total food and beverage costs. Amtrak’s target profit margin is 67 percent for prepared meals and 81 percent for controlled beverages. These target profit margins are expressed as a percentage of sales over the item product cost charged to Amtrak. However, these target profit margins do not take into account Amtrak’s on-board labor costs, which our work has determined is estimated at over half of Amtrak’s food and beverage total expenditures. Amtrak’s current food and beverage product pricing seems to ensure that its food and beverage service will not be profitable. Available procurement expertise not brought to bear. Finally, Amtrak’s procurement department was not involved in the negotiation of the original contract. The current contract was signed by officials of Amtrak’s now defunct Northeast Corridor Strategic Business Unit. The contract’s initial period was for about 7 years (January 29, 1999, to September 30, 2006), with a 5-year extension option. In addition, another agreement to supply Amtrak’s Acela train service for food and beverage items from Gate Gourmet’s flight kitchens was made verbally between Amtrak’s former president and the president of Gate Gourmet. Amtrak does not have any documentation for the contract terms for this service. In contrast to Amtrak, other transportation companies we interviewed closely monitor their invoices and contractor payments through periodic audits or have given the responsibility for costs and pricing to the contractor. For example, Northwest Airlines officials stated that they conduct regular audits of “every price” they are charged from their contractors and have found errors in either prices or labor charges in their contractor invoices. VIA Rail selectively audits their food supplier invoices that are attached to every billing statement they receive. Finally, the Alaska Railroad food and beverage business model gives responsibility for food and labor costs to the contractor, subject to contractual limits. Finally, information that would provide accountability over this service, both internally and externally, is limited. We noted that while Amtrak reports the combined revenue from its food and beverage services in its monthly performance reports, it does not identify for stakeholders the revenue attributable to each service. Amtrak also does not include any information about its food and beverage expenses in any of its internal or external reports, including its monthly performance reports, its internal quarterly progress reports, or its annual consolidated financial statements. Absent this information, it is difficult for internal and external stakeholders to determine the amount of expense attributable to the food and beverage service and to gauge the profit or loss of the operation. This hinders oversight and accountability. Other transportation companies we studied have a different accountability structure for their food and beverage service. Because VIA Rail has a fixed subsidy from the federal Canadian government, VIA Rail’s management has an inherent incentive to control its costs in all areas of its operation, including its food and beverage service. VIA Rail controls its food and beverage costs in many different ways including fixed fee supplier contracts, item price reports, monitoring of supplier markups and item prices, and fixed food cost budgets to VIA Rail menu planners. Northwest Airlines has a flexible monthly food and beverage budget that increases or decreases with ridership levels. In addition, each supplier contract has established markups on product prices and its contracts with food preparation and delivery providers have detailed labor rates that are all audited for accuracy. The Alaska Railroad receives biweekly reports from its contractor detailing its labor and food costs that show, among other things, contractor performance against the contractual cost caps. In addition, the contractor and the Alaska Railroad will conduct annual audits of its contractor’s performance under the contract. Amtrak’s food and beverage service may represent a relatively small part of the company’s operating budget, but it speaks volumes about Amtrak’s need to get its operations in better order. In administering this contract, basic steps for good management have been ignored or otherwise set aside. Omissions include not completing agreed-upon provisions of the contract, not carrying through with basic oversight called for in the contract, and ensuring that the organization was getting products at the most reasonable price. Prudence requires a stronger effort, beginning with carrying out those steps that, under the contract, should have been taken all along. Amtrak needs to take such steps not only to curb the losses in this program, but to help convince the public that it is acting as a careful steward of the federal dollars that continue to keep it operating. Based on our work to date, we anticipate making recommendations to Amtrak to improve controls over its food and beverage operations. Since we did not have sufficient time to obtain Amtrak’s comments, as required by government auditing standards prior to this hearing, the recommendations remain tentative until that process is complete. At that time, we anticipate making the following recommendations that Amtrak: 1. Better contain its food and beverage costs through: Following its own procedures for ensuring proper contracts and Enforcing key provisions of the current Gate Gourmet contract including annual reports that are independently audited by an outside auditing firm and certified by Gate Gourmet officials and conduct regular audits of discount and rebates. 2. Prepare a written contract for food and beverage service on Acela trains that specifies the service to be provided, includes incentives to ensure efficient and effective contractor performance, and includes regular annual reports and audits. 3. Create separate revenue and expenditure reporting and other basic food service metrics to allow for internal and external accountability for its food and beverage service and create incentives to reduce costs and/or increase revenue. 4. Comprehensively review the revenue and cost structure of its food and beverage service to determine the most cost effective solution that can increase the financial contribution of its food and beverage function. Mr. Chairman, this concludes my testimony. I would be happy to answer whatever questions you or the other members might have. For further information, please contact JayEtta Z. Hecker at [email protected] or at 202-512-2834. Individuals making key contributions to this statement include Greg Hanna, Heather Krause, Bert Japikse, Richard Jorgenson, Steven Martin, Robert Martin, Irvin McMasters, Robert Owens, and Randy Williamson. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Amtrak has provided food and beverage service on its trains since it began operations in 1971. Amtrak has struggled since its inception to earn sufficient revenues and depends heavily on federal subsidies to remain solvent. While a small part of Amtrak's overall expenditures, Amtrak's food and beverage service illustrates concerns in Amtrak's overall cost containment, management and accountability issues. This testimony is based on GAO's work on Amtrak's management and performance as well as additional information gained from Amtrak and other transportation providers. This testimony focuses on (1) the provisions written into Amtrak's contract with Gate Gourmet to control costs, (2) the types of management controls Amtrak exercises to prevent overpayments, and (3) the information Amtrak collects and uses to monitor the service and to report to stakeholders such as its Board of Directors. Amtrak's financial records show that for every dollar Amtrak earns in food and beverage revenue, it spends about $2--a pattern that has held consistent for all 3 years GAO reviewed. In GAO's estimation, Amtrak has lost a total of almost $245 million from fiscal year 2002 through fiscal year 2004 on food and beverage service. Since 1999, Amtrak has contracted out the responsibility to Gate Gourmet International (Gate Gourmet) for managing commissaries and for ordering and stocking all food and beverages and related items managing under a contract that expires in September 2006. Amtrak's current cost reimbursable contract with Gate Gourmet creates, if anything, an incentive to increase Amtrak's costs unless properly monitored. Gate Gourmet can charge Amtrak for the cost of the food and beverage items, as well as management, labor, and other expenses. Without defined controls and management, this type of contract structure provides little incentive for a contractor to reduce or contain costs to provide better value to its customer. GAO found five different management controls that Amtrak did not fully exercise regarding oversight of its food and beverage service. These controls include: (1) requiring an independently audited financial report, (2) auditing for all applicable rebates and discounts that Gate Gourmet could have applied to food and beverage items purchased for Amtrak, (3) adequately monitoring purchase price information for its food and beverage items, (4) not considering Amtrak's food and beverage labor costs, as a part of product markups, and that (5) not utilizing Amtrak's procurement department in negotiating the current contract. Information that could provide both internal and external accountability for the food and beverage function is limited. Amtrak does not include any information about its food and beverage expenses in any of its internal or external reports, including its monthly performance reports, its internal quarterly progress reports or its annual consolidated financial statements. This lack of information makes it difficult for internal and external stakeholders to gauge the profit or loss of the operation as well as to assign accountability.

You are an expert at summarizing long articles. Proceed to summarize the following text: Mr. Chairman and Members of the Committee: We are pleased to have this opportunity to discuss the key steps and challenges in using the Government Performance and Results Act (GPRA) to improve federal civilian science agencies’ management and congressional decisionmaking. Each year, American taxpayers invest about $70 billion of federal funds in military and civilian research and development (R&D) efforts. Over the years, this investment has yielded substantial benefits to the health, welfare, and security of the American people. Yet the powerful pressures to reduce the deficit are forcing Congress and the executive branch to undertake a basic reexamination of the value of programs across the federal government and to update the nation’s spending priorities. The effort to reduce the deficit is therefore placing pressure as never before on all federal agencies, including the civilian science agencies, to clearly demonstrate that they are making sound and effective use of taxpayers’ dollars. Fortunately, the landmark GPRA provides a legislative vehicle for agencies to use as they seek to demonstrate and improve their effectiveness. Equally important, if successfully implemented, GPRA should help Congress make the difficult funding, policy, and program decisions that the current budget environment demands. Under GPRA, agencies are to set strategic and annual goals, measure performance, and report on the degree to which goals are met. Congress intended for GPRA to fundamentally shift the focus of federal management and accountability from a preoccupation with staffing and activity levels to a focus on “outcomes” of federal programs. Outcomes are results expressed in terms of the difference federal programs make in people’s lives. In crafting GPRA, Congress recognized that the types of management changes that successful implementation will require will not come quickly or easily for many agencies. As a result, GPRA is being phased in initially through almost 70 pilot projects during fiscal years 1994 through 1996 to provide agencies with experience in meeting its requirements before governmentwide implementation in the fall of 1997. Several agencies with a major civilian science focus, such as the Department of Energy (DOE), the Environment Protection Agency, the National Oceanic and Atmospheric Administration, and the National Science Foundation (NSF), have programs that are included in the pilot phase of GPRA. Our recently released Executive Guide: Effectively Implementing the Government Performance and Results Act, which, at the request of the Committee, we are providing for the record, is intended to help federal managers implement GPRA and make the difficult transition to a form of management and accountability that stresses outcomes. In the guide, we discuss three key steps for federal agencies to successfully implement results-oriented management. These three steps are (1) define mission and desired outcomes, (2) measure performance, and (3) use performance information. The guide shows the relationship of these steps to GPRA and highlights important practices associated with each step. The guide also discusses the role of top leadership in implementing GPRA and the practices leaders can follow to make GPRA a driving force in federal decisionmaking. Accompanying the discussion of each practice is a case illustration describing a federal agency that has made progress incorporating the practice into its operations. The practices discussed in the guide emerged from the experiences of leading public organizations here and abroad and have been shown to be effective in the federal management environment. These practices provide a useful framework for agencies working to implement GPRA and for assessing their progress. Our comments today use that framework to underscore the opportunities and challenges to using GPRA as a vehicle that agencies and Congress can employ as they seek to improve the effectiveness and efficiency of civilian science programs. Our comments are based on completed and ongoing reviews of efforts to implement GPRA in pilot and nonpilot agencies across the federal government and of the management of civilian science agencies. Our work has shown that all too frequently individual agencies have lacked clear missions and goals, and related agencies’ efforts have not been complementary. Moreover, legislative mandates may be unclear and Congress, the executive branch, and other stakeholders may not agree on the goals an agency and its programs should be trying to achieve, the strategies for achieving those goals, and the ways to measure their success. Thus, many agencies cannot confidently answer the basic questions in defining a mission—what is our purpose, whom do we serve, and how do we meet our mission? GPRA seeks to address these problems by requiring executive branch agencies to develop strategic plans that are to define missions and articulate strategic goals. Although statutory requirements are to be the starting point for agency mission statements, agencies are to consult with Congress and other stakeholders in defining their missions. In the case of Congress, this may entail identifying legislative changes that are needed either to clarify Congress’ intent and expectations or to address differing conditions and citizens’ needs that have arisen since initial statutory requirements were established. Congressional consultation may also involve obtaining guidance on Congress’ priorities in those frequent cases where agencies have more than one statutory mission. These consultations are an important opportunity for Congress and the executive branch to work together in reassessing and clarifying the missions of federal agencies and the desired outcomes of agencies’ programs. For example, our work has shown that DOE sorely needs a reevaluation of its basic mission, including its significant science responsibilities. DOE’s mission and priorities have changed dramatically over time so that DOE is now very different from what it was in 1977 when it was created in response to the nation’s energy crisis. While energy research, conservation, and policymaking dominated early DOE priorities, national defense and environmental clean-up now overshadow those efforts. Meanwhile, new mission areas in science and industrial competitiveness, such as applied R&D programs supporting technology to secure future energy supplies, have emerged and are pressing for priority attention. Each new phase in DOE’s evolution has been accompanied by new leadership with vastly different agendas concerning DOE’s basic mission and how it should be managed. the collective strengths of the laboratories to meet pressing national needs. As a result, DOE was unable to address issues that required cooperation and coordination across its many mission areas. For example, we reported that although solutions to the proliferation of nuclear weapons require expertise in identifying the effects of weapons, the research on nonproliferation and effects of weapons was carried out in different laboratories and was managed by different assistant secretaries. Overall, laboratory managers said that they feared that the lack of proper departmental direction was compromising both their effectiveness and their ability to respond to new national priorities. Planning-related problems were not unique to DOE. As another example, our past work at the National Aeronautics and Space Administration (NASA) showed the need for NASA to develop a strategic plan that realistically matched its program plans to its likely budgets. NASA strategic planning efforts in the early 1990s were incomplete and unrealistic because they did not indicate the relative priority of NASA’s key missions and large programs and provided no balance between planning and budgeting. For example, NASA’s failure to ground its goals in realistic budget expectations forced it to make significant program adjustments to make up for the lower-than-planned funding levels. Over the past several years we have reported that space shuttle operations, the space station, the Advanced X-Ray Astrophysics Facility, the Earth Observing System, and other NASA programs and projects had been or were being restructured primarily because they were not deemed affordable. Both DOE and NASA are undertaking strategic planning efforts intended in part to address these longstanding problems. Sustained congressional involvement in these efforts and similar planning efforts undertaken by other agencies are vital to ensuring that missions are focused, goals are clearly established, and strategies and funding expectations are appropriate and reasonable. The experiences of leading organizations suggest that planning efforts that have such characteristics can become driving forces in improving the effectiveness and efficiency of program efforts. The GPRA strategic planning process thus provides Congress with a potentially powerful vehicle for clarifying its expectations for agencies and the program results expected from funding decisions. programs and aid congressional decisionmaking as it relates to the individual agencies. Equally important, we believe, is congressional involvement in strategic planning for program efforts that cut across several agencies. This is particularly true for science programs where, in many cases, the greatest return for the federal dollar can come through the coordinated efforts of a number of agencies. Not surprisingly, given the planning problems that individual agencies have confronted, program efforts that involve several agencies also have suffered from a lack of focus and unclear goals. For example, we also have reported that the multiagency High Performance Computing and Communication (HPCC) initiative could benefit from a strengthened program direction. Our work showed that a more focused management approach and an identification of priority areas were needed to help ensure that the program’s goals were met. The HPCC program was originally established, by design, as a loosely coordinated, scientifically oriented research effort rather than a rigorously managed development program. Once the administration expanded the role of HPCC to support the national information infrastructure, a more rigorous and coordinated management approach was required that better targeted the specific technology areas that most needed to be developed to support the information superhighway. The HPCC effort at NSF, an agency with a major role in the program, is one of NSF’s four GPRA pilot projects. NSF is using GPRA as a vehicle for clarifying the long-term goals for its HPCC program and developing performance measures to gauge progress. grants, a wide range of R&D performed by businesses, universities, and other organizations. The Office of Management and Budget (OMB) recognizes the key role that the development of strategic plans under GPRA can have in helping to ensure federal efforts across agencies are properly coordinated. OMB is now undertaking a “Summer Review” during which it is examining the progress that agencies are making in meeting the GPRA strategic planning requirements. As part of that review, OMB is seeking to identify any steps that should be taken on a multiagency basis to coordinate and harmonize goals and objectives for cross-agency programs and functions. OMB’s efforts under GPRA should assist Congress as it looks for opportunities to streamline and improve the effectiveness of the federal government. GPRA requires executive agencies to develop annual plans with suitable performance measures to reinforce the connection between the long-term strategic goals outlined in their strategic plans and the day-to-day activities of their managers and staff. Measuring performance allows an organization to track its progress toward its goals and gives managers important information on which to base their organizational and management decisions. At a broader level, measuring R&D agencies’ performance helps Congress to know the results of R&D investments and to effectively allocate budgets among competing programs. Science agencies, like other agencies, must guard against the understandable tendency to overly rely on goals and measures that are easily quantifiable, such as numbers of research grants provided and completed, at the expense of what is truly important but more difficult to measure, such as the difference a research grant made. Organizations that measure and manage on the basis of easily quantifiable goals rather than results run the risk of striving to achieve goals that may be only marginally related to the reasons the program was created. For example, we recently reviewed the short-term performance results and long-term evaluation strategy of the Advanced Technology Program (ATP). ATP is administered by the National Institute of Standards and Technology (NIST) within the Department of Commerce and has had its funding grow from $68 million in fiscal year 1993 to $431 million in fiscal year 1995, more than doubling each year. NIST identified several evaluation measures that it expects will indicate the long-term economic success of ATP projects. One NIST measure is “straightforward tracking of technical milestones.” However, we found that achieving technical milestones may not be a valid indicator of the economic success of ATP projects because achieving technical milestones does not always lead to economic success. For example, earlier versions of the ATP evaluation plan pointed to one ATP project that was achieving all of its technical milestones as evidence of the project’s likely success in stimulating economic growth. However, the lead company involved in this joint venture went bankrupt before the project was completed. Although the other company in the joint venture has stated its intention to continue the joint venture commercialization plan, the lead company’s bankruptcy reduces the likelihood of future economic benefits being realized from this ATP project. The tendency to focus on what is relatively easy to measure may be particularly strong for science agencies because the selection and use of performance measures have presented a longstanding challenge for such agencies, especially for those that support fundamental scientific research. In particular, assessing the outcomes of science-related projects can be extremely difficult because a wide range of factors determine if and how a particular R&D project will result in commercial or other benefits. It can also take many years between when a research project is undertaken and when the outcome occurs. For example, the National Institutes of Health and other federal institutions support research at universities by investing in (1) the development of principal investigators, who work at the forefront of scientific and engineering research and (2) the training of new PhDs and other professionals. Hence, these people are “products” of the research projects the agencies support. However, the outcomes—in terms of scientific contributions—produced by these individuals as a result of the federal agencies’ investments in their development and training frequently extend well beyond a specific federally funded research project and can be exceedingly difficult to measure. publications or citations, and contributions to expanding the number of research scientists. To help address the challenges of measuring the results of R&D programs, the Research Roundtable, a consortium of federal agency representatives, has been meeting periodically to share ideas and approaches for implementing GPRA. The Roundtable has been considering the extent to which R&D agencies can and should adopt a common approach to measuring performance. It is still too early to tell whether this group will define and recommend a common model to meet the performance requirements under GPRA. Nonetheless, the Roundtable’s efforts are promising in that they show that officials in science agencies recognize the performance measurement challenges they confront and are working collectively to address those challenges. Congress can support the Roundtable’s efforts by working with it to ensure that congressional data needs are met by any common performance measurement model that the Roundtable may recommend. GPRA recognizes how difficult it is to state the goals and measure the results of some programs. While the law encourages the use of objective measures of performance, it authorizes agencies—with the approval of OMB—to use alternative, subjective measures of performance. Congress expects that one form of alternative measurement will be to define the characteristics of a marginally effective program and a fully successful program and to assess progress against those definitions. NSF is seeking OMB approval to use an alternative format for articulating its performance goals under GPRA. This request, and any additional ones, to employ an alternative form of measurement may become an important indicator of the difficulty of fully achieving GPRA’s design in science programs. As to be expected during the initial efforts of such a challenging management reform effort as GPRA, most agencies, including science agencies, are still struggling to integrate the mission-based goal-setting and performance measurement requirements of GPRA into their daily program operations. This integration is important because GPRA performance information is to be used to guide an array of congressional and executive branch decisions. being used to make decisions will send an unmistakable message to agencies that Congress expects GPRA to be implemented as conscientiously as possible. Congressional hearings, such as the one the Committee is holding today, are one key to showing agencies that Congress is looking to use GPRA performance goals and information to help inform its decisions and that it expects agencies to do the same. Moreover, congressional engagement in the strategic planning efforts now under way in executive agencies provides an excellent opportunity to clarify agencies’ missions and goals and ensure that the resulting performance information will meet congressional and other decisionmakers’ needs. In summary, if successfully implemented in the science agencies, GPRA should help the Committee make the difficult science policy and program decisions confronting the nation. It also will help science agencies manage their programs and provide Congress and the American people with better assurance that tax dollars are being wisely spent. But the changes in management and accountability envisioned by Congress in passing GPRA are not coming quickly or easily, particularly in science agencies. The continued support and interest of this Committee may well determine the degree to which GPRA is successfully implemented in those agencies. Executive Guide: Effectively Implementing the Government Performance and Results Act (GAO/GGD-96-118, June 1996). Managing for Results: Achieving GPRA’s Objectives Requires Strong Congressional Role (GAO/T-GGD-96-79, Mar. 6, 1996). Federal R&D Laboratories (GAO/RCED/NSIAD-96-78R, Feb. 29, 1996). GPRA Performance Reports (GAO/GGD-96-66R, Feb. 14, 1996). Office of Management and Budget: Changes Resulting From the OMB 2000 Reorganization (GAO/GGD/AIMD-96-50, Dec. 29, 1995). Department of Energy: A Framework For Restructuring DOE and Its Missions (GAO/RCED-95-197, Aug. 21, 1995). Managing for Results: Status of the Government Performance and Results Act (GAO/T-GGD-95-193, June 27, 1995). Department of Energy: Framework Is Needed to Reevaluate Its Role and Missions (GAO/T-RCED-95-232, June 21, 1995). Managing for Results: Critical Actions for Measuring Performance (GAO/T-GGD/AIMD-95-187, June 20, 1995). Government Reorganization: Issues and Principles (GAO/T-GGD/AIMD-95-166, May 17, 1995). Performance Measurement: Efforts to Evaluate the Advanced Technology Program (GAO/RCED-95-68, May 5, 1996). Managing for Results: Experiences Abroad Suggest Insights for Federal Management Reforms (GAO/GGD-95-120, May 2, 1995). Department of Energy: Alternatives for Clearer Missions and Better Management at the National Laboratories (GAO/T-RCED-95-128, Mar. 9, 1995). Department of Energy: Research and Agency Missions Need Reevaluation (GAO/T-RCED-95-105, Feb. 13, 1995). Department of Energy: National Laboratories Need Mission Focus and More Effective Departmental Management (GAO/RCED-95-10, Jan. 27, 1995). Department of Energy: Need to Reevaluate Its Role and Missions (GAO/T-RCED-95-85, Jan. 18, 1995). DOE’s National Laboratories: Adopting New Missions and Managing Effectively Pose Significant Challenges (GAO/T-RCED-94-113, Feb. 3, 1994). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. 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GAO discussed the challenges in implementing the Government Performance and Results Act (GPRA) in federal civilian science agencies, focusing on ways to improve the management of federal civilian science agencies and aid congressional decisionmaking. GAO noted that: (1) GPRA enables Congress to make difficult funding, policy, and programming decisions relative to science agencies' demands; (2) the science agencies are required to set strategic and annual goals, measure performance rates, and report their goals attainment; (3) GPRA has shifted the focus of federal management and accountability from staffing and activity levels to federal program outcomes; (4) GPRA is being phased in through 70 pilot projects, to provide agencies with guidance in meeting GPRA requirements; (5) the successful implementation of this results-oriented management approach depends on defining missions and desired outcomes, measuring program performance, and using performance data to improve program operations; (6) measuring program performance can be extremely difficult because of the wide range of factors to consider in determining a project's commercial viability; and (7) most agencies are struggling to integrate GPRA goal-setting and performance measurement requirements into their daily program operations.

You are an expert at summarizing long articles. Proceed to summarize the following text: DOD space systems support and provide a wide range of capabilities to a large number of users, including the military services, the intelligence community, civil agencies, and others. These capabilities include positioning, navigation, and timing; meteorology; missile warning; and secure communications, among others. Space systems can take a long time to develop and often consist of multiple components, including satellites, ground control stations, terminals, and user equipment. DOD satellite systems are also expensive to acquire. Unit costs for current DOD satellites can range from $500 million to over $3 billion, and ground systems can cost as much as $3.5 billion. The cost to launch just one satellite can climb to well over $100 million. Most major space programs have experienced significant cost and schedule increases. For instance, program costs for the Advanced Extremely High Frequency (AEHF) satellite program, a protected satellite communications system, had grown 116 percent as of our latest review, and its first satellite was launched over 3.5 years late. For the Space Based Infrared System High (SBIRS High), a missile warning satellite program, costs grew nearly 300 percent and the launch of the first satellite was delayed roughly 9 years. Last year, we reported that contract costs for the Global Positioning System (GPS) ground system, designed to control on-orbit GPS satellites, had more than doubled and the program had experienced a 4-year delay. The delivery of that ground system is now estimated to be delayed another 2 years, for a cumulative 6-year delay. Some DOD officials say even that is an optimistic timeline. Table 1 below provides more details on the current status of DOD’s major space programs. Cost and schedule growth in DOD’s space programs is sometimes driven by the inherent risks associated with developing complex space technology; however, for at least the past 7 years we have identified a number of other management and oversight problems that can worsen the situation. These include overly optimistic cost and schedule estimating, pushing programs forward without sufficient knowledge about technology and design, and problems in overseeing and managing contractors, among others. Some of DOD’s programs in operation were also exceedingly ambitious, which in turn increased technology, design, and engineering risks. While satellite programs have provided users with important and useful capabilities, their cost growth has significantly limited DOD’s buying power—at a time when more resources may be needed to protect space systems and to recapitalize the space portfolio. Since 2013, I have testified that DOD has implemented actions to address space acquisition problems, and most of its major space programs have transitioned into the production phase where fewer problems tend to occur. These range from improvements to cost estimating practices and development testing to improvements in oversight and leadership, such as the addition of the Defense Space Council, designed to bring together senior leaders on important issues facing space. DOD has also started fewer new programs and even those are less ambitious than prior efforts, which helps to reduce the risk of cost and schedule growth. Given the problems we have identified in the GPS program, however, it is clear that more needs to be done to improve the management of space acquisitions. Our past work has recommended numerous actions that can be taken to address the problems we typically see in space programs. Generally, we have recommended that DOD separate the process of technology discovery from acquisition, follow an incremental path toward meeting user needs, match resources and requirements at program start, and use quantifiable data and demonstrable knowledge to move programs forward to next phases. We also have identified practices related to cost estimating, program manager tenure, quality assurance, technology transition, and an array of other aspects of acquisition program management that could benefit space programs. Right now, DOD is at a crossroads for space. Fiscal constraints and increasing threats—both environmental and adversarial—to space systems have led DOD to consider alternatives for acquiring and launching space-based capabilities. For satellites, our reports since 2013 have described efforts such as: disaggregating large satellites into multiple, smaller satellites or payloads; relying on commercial satellites to host government payloads; and procuring certain capabilities, such as bandwidth and ground control, as services instead of developing and deploying government-owned networks or spacecraft. For space launch this includes continuing to introduce competition into acquisitions as well as eliminating reliance on Russian-built rocket engines. In some cases, such as space launch, changes are being implemented. For example, as we reported in April 2015, DOD has introduced competition into acquisitions. In other areas, such as space-based environmental (or weather) monitoring, decisions have just recently been made. In still others, such as protected satellite communications and overhead persistent infrared sensing, decisions on the way forward, including satellite architectures, have not yet been made though alternatives have been assessed. Figure 1 describes some changes DOD is considering in some areas for space. In multiple reports since our last testimony on this subject in April 2015, our work has touched on these and other potential changes. Our reports have specifically covered issues associated with protecting space assets, transforming launch acquisitions, and improving purchases of commercial satellite bandwidth, as well as the development of the GPS ground control system and user equipment. We are also currently examining the analysis used to support decisions on future weather system acquisitions as well as space leadership. All of this work is summarized below. Together, these reports highlight several major challenges facing DOD as it undertakes efforts to change its approaches to space acquisitions. First, though DOD is conducting analyses of alternatives to support decisions about the future of various programs, our preliminary work suggests there are gaps in cost and other data needed to weigh the pros and cons of changes to space systems. Second, most changes being considered today will impact ground systems and user equipment, but these systems continue to be very troubled by cost and schedule overruns. Third, leadership for space acquisitions is still fragmented, which may hamper the implementation of changes, especially those that stretch across satellites, ground systems and user equipment. Space Situational Awareness Costs. According to Air Force Space Command, U.S. space systems face intentional and unintentional threats, which have increased rapidly over the past 20 years. These include radio frequency interference (including jamming), laser dazzling and blinding, kinetic intercept vehicles, and ground system attacks. Additionally, the hazards of the already-harsh space environment (for example, extreme temperature fluctuations and radiation) have increased, including numbers of active and inactive satellites, spent rocket bodies, and other fragments and debris. In response, recent government-wide and DOD-specific strategic and policy guidance have stressed the need for U.S. space systems to be survivable or resilient against such threats. The government relies primarily on DOD and the intelligence community to provide Space Situational Awareness (SSA)—the current and predictive knowledge and characterization of space objects and the operational environment upon which space operations depend—to provide critical data for planning, operating, and protecting space assets and to inform government and military operations. In October 2015, as mandated by the Senate Armed Services Committee, we reported on estimated costs of SSA efforts over the next 5 years. Specifically, we reported that the government’s planned unclassified budget for SSA core efforts—DOD, the National Aeronautics and Space Administration (NASA), and the National Oceanic and Atmospheric Administration (NOAA) operations of sensors, upgrades, and new developments—averages about $1 billion per year for fiscal years 2015 through 2020. Operations and payroll accounts for about 63 percent of the core budget during fiscal years 2015 through 2020, while investments for new sensors and systems, as well as upgrades for existing ones, account for the rest. Moreover, we could not report total costs since SSA is not the primary mission for many of the sensors that perform this mission. This is partly because DOD leverages systems that perform other missions to conduct SSA. This is a good practice since it reduces duplication and overlap but it makes accounting for SSA costs difficult. For example, missile defense sensors also perform SSA missions. The Missile Defense Agency has not determined what percentage of its budget for operating its missile defense sensors, which averages about $538 million per year over the next several years, would be allocated to the SSA mission. Moreover, these sensors would be procured by the Missile Defense Agency even if they were not involved in the SSA mission. Responsive Launch. In light of DOD’s dramatically increased demand and dependence on space capabilities and that operationally responsive low cost launch could assist in addressing such needs, DOD was required to report to the Congress on “responsive launch,” which generally means the ability to launch space assets to their intended orbits as the need arises, possibly to augment or reconstitute existing space capabilities. In October 2015, we reported that DOD did not yet have a consolidated plan for developing a responsive launch capability since there were no formal requirements for such a capability. DOD and contractor officials we spoke with also highlighted several potential challenges DOD faces as it pursues operationally responsive launch capabilities. For example, DOD officials told us that existing national security space program architectures (including payloads, ground systems, user equipment, and launch systems) may need to be modified to improve responsiveness, which could present challenges. That is, modifying one program could have repercussions for another, including changes to infrastructure and command and control elements. Further, while smaller, simpler satellites may require less time and effort to develop, build, and launch, a larger number of satellites may be needed to provide the same level of capability, and the transition from existing system designs could increase costs. DOD plans to validate future responsive launch requirements as it gains knowledge about emerging threats. Once this is done, having a single focal point for prioritizing and developing its responsive launch capabilities will be important, especially since different components of DOD already have ongoing efforts in place to develop responsive launch capabilities. Competitive Launch Acquisition. The Air Force is working to introduce competition into the Evolved Expendable Launch Vehicle (EELV) program. For almost 10 years, the EELV program had only one company capable of providing launches. In working to introduce competition into launch contracts, the Air Force is changing its acquisition approach for launch services, including the amount of cost and performance data that it plans to obtain under future launch contracts. Given these expected changes, the National Defense Authorization Act for Fiscal Year 2015 included a provision for us to examine the advisability of requiring that launch providers establish or maintain business systems that comply with the data requirements and cost accounting standards of the Department of Defense. The United Launch Alliance (ULA)—EELV’s incumbent provider—currently provides national security space launch services under a contract with cost-reimbursable provisions awarded using negotiated procedures. Under this type of contract, the Air Force is able to obtain from ULA cost and performance data from contractor business systems. The Air Force uses this business data for a variety of purposes, including monitoring contractor performance and identifying risks that could affect the program’s cost, schedule, or performance. However, for at least the first phase of future launches, the Air Force chose to change its acquisition approach to procure launch services as a commercial item using a firm-fixed-price contract, which will prevent the service from collecting business data at the same level of detail. As a result, the Air Force will have significantly less insight into program costs and performance than what it has under the current contract with ULA, though according to the Air Force the level of information gathered is sufficient for monitoring launch costs in a competitive, fixed-price environment. In August 2015, we reported that the acquisition approach chosen for the first competitive launches offers some benefits to the government, including increased competition, but it could limit program oversight and scheduling flexibility. The Air Force asserts that the use of full and open competitive procedures in a commercial item acquisition will increase the potential to keep more than one launch company viable. The Air Force’s use of commercial item contracts eliminates the need for contractors to develop the business systems associated with a cost-reimbursement contract and generally places greater responsibility upon the contractor for cost control. However, the Air Force has struggled with EELV program management and lack of oversight in the past, and removing the requirement for cost and performance data could leave it vulnerable to similar problems in the future in an uncertain commercial market. Also, the first competitive contracts may limit the Air Force’s flexibility in modifying its launch schedule, and schedule changes resulting from satellite production delays may result in added costs. Satellite delays have historically been an issue for the program, and the Air Force’s ability to modify the launch schedule is an important component of the current acquisition approach with ULA. We also reported that the Air Force is at risk of making decisions about future EELV acquisitions without sufficient knowledge. The Air Force plans to develop an acquisition strategy for the next phase of competitive launches before it has any actionable data from the first competitive launches. In addition, the Air Force views competition as crucial to the success of its new acquisition strategy, yet the viability of a competitive launch industry is uncertain. The launch industry is undergoing changes, and the ability of the domestic industry to sustain two or more providers in the long-term, while desirable, is unclear. Presently, there is only one company certified to compete with ULA for national security launches, and there are no other potential competitors in the near future. To adequately plan for future competitions and ensure informed decision making before committing to a strategy, it will be important for the Air Force to obtain knowledge about its new acquisition approach and on the launch industry. The Air Force concurred with our recommendation to ensure the next phases incorporate lessons learned. Purchases of commercial satellite bandwidth. DOD depends on commercial satellite communications (SATCOM) to support a variety of critical mission needs, from unmanned aerial vehicles and intelligence to voice and data for military personnel. Data from fiscal year 2011, the most recent information available, show that DOD spent over $1 billion leasing commercial SATCOM. In prior work, we found that some major DOD users of commercial SATCOM were dissatisfied with the Defense Information Systems Agency’s (DISA) acquisition process, seeing it as too costly and lengthy. These users also indicated that the contracts used were too inflexible. The Senate Armed Services Committee’s report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2014 included a provision for DOD to provide a report detailing a 5-, 10-, and 25-year strategy for using a mix of DOD and commercial satellite bandwidth, and for us to review DOD’s acquisition strategy of the report, issued in August 2014. In July 2015, we reported that DOD procurement of SATCOM is fragmented and inefficient. DOD policy requires all of its components to procure commercial SATCOM through DISA but we found that some components were independently procuring SATCOM to meet their individual needs. DOD’s most recent SATCOM usage report estimates that over 30 percent of commercial SATCOM is bought independently by DOD components, even though DOD found the average cost of commercial SATCOM bought through DISA is about 16 percent lower than independently bought commercial SATCOM. Fragmentation such as this limits opportunities for DOD to bundle purchases, share services, and streamline its procurement of commercial SATCOM. DOD is taking steps to improve its SATCOM procurement and address challenges through “pathfinder” efforts aimed at identifying short- and long-term options. For example, DOD intends to study the potential benefits of using innovative contracting approaches as it procures military and commercial SATCOM, and refine its understanding of DOD’s global SATCOM requirements. However, it may be several years before DOD is able to evaluate the results of its pathfinder efforts. For example, all of the 10 pathfinders planned or already underway are expected to be completed in or beyond fiscal year 2017. DOD’s efforts to improve its procurement of military and commercial SATCOM will also be hampered by two long-standing challenges—lack of knowledge of what DOD is spending on commercial SATCOM and resistance to centralized management of SATCOM procurement. We reported on and made recommendations to improve both in 2003. Specifically, we recommended that DOD strengthen its capacity to provide accurate and complete analyses of commercial bandwidth spending and implement a strategic management framework for improving the acquisition of commercial bandwidth. DOD generally concurred with our 2003 recommendations and developed a plan to address them, but none of DOD’s corrective actions were carried out as intended. These challenges are commonly faced by organizations seeking to strategically source procurements of services, but our work has shown they can be overcome by employing best practices, to include conducting detailed spend analyses and centralized management of service procurements to identify procurement inefficiencies and opportunities. GPS Ground System and User Equipment. In 2009, we reported that development of space systems is not optimally aligned, and we recently noted that development of satellites often outpaces that of ground systems and user terminals (such as those on airplanes, ground vehicles, and ships), leading to underutilized on-orbit satellites and delays in getting new capabilities to end users. In some cases, gaps in delivery can add up to years, meaning that a satellite is launched but not effectively used for years until ground systems become available. The reasons for the gaps in the delivery of space system segments include funding instability, and poor acquisition management (requirements instability, underestimation of technical complexity, and poor contractor oversight). Our September 2015 report on GPS showed that these problems still persist. Specifically, we reported that the Air Force awarded the contract to begin GPS Next Generation Operational Control System (OCX) development— the command and control system for GPS III satellites—without following key acquisition practices such as completing a preliminary design review before development start as called for by best practices and generally required by statute. In addition, key requirements, particularly for cybersecurity, were not well understood by the Air Force and contractor at the time of contract award. The contractor, Raytheon, experienced significant software development challenges from the onset, but the Air Force consistently presented optimistic assessments of OCX progress to acquisition overseers. Further, the Air Force complicated matters by accelerating OCX development to better synchronize it with the projected completion time lines of the GPS III satellite program, but this resulted in disruptions to the OCX development effort. As Raytheon continued to struggle developing OCX, the program office paused development in late 2013 to fix what it believed were the root causes of the development issues, and significantly increased the program’s cost and schedule estimates. However, progress reports to DOD acquisition leadership continued to be overly optimistic relative to the reality of OCX problems. OCX issues appear to be persistent and systemic, raising doubts whether all root causes have been adequately identified, let alone addressed, and whether realistic cost and schedule estimates have been developed. Furthermore, since we reported in September 2015, the Under Secretary of Defense for Acquisition, Technology and Logistics has directed the OCX program to add an additional 24 months to its delivery schedule, increasing the delay to roughly 6 years from what was estimated at contract award. And some DOD officials believe the program could realistically need another 2 years beyond that before the first increment of the OCX ground system is delivered. We also reported that the Air Force revised the Military GPS User Equipment (MGUE) acquisition strategy several times in attempts to develop military-code (or M-code) capability—which can help users operate in jamming environments. Even so, the military services were unlikely to have sufficient knowledge about MGUE design and performance to make informed procurement decisions starting in fiscal year 2018 because it was uncertain whether an important design review would be conducted prior to that time and because operational testing would still be under way. Again, GPS is not the only program where we have seen these types of problems. AEHF and the Mobile User Objective System have encountered significant delays with the delivery of user equipment and the SBIRS High ground system was not fully completed when satellites were launched. Moreover, we have reported that these challenges could intensify with the potentially larger numbers and novel configurations of satellites, payloads, and other components of a disaggregated approach. Analysis of Alternatives for Weather Systems. DOD has been conducting analyses of alternatives (AOA) to assist in deciding what space assets should be acquired for its missile warning, protected communications and environmental monitoring (weather) missions. AOAs provide insight into the technical feasibility and costs of alternatives and can carry significant weight in the decision-making process, in part because they involve participation and oversight by a diverse mix of military, civilian, and contractor personnel. We testified last year that the time frames for making decisions about the way forward are narrowing, and if not made in time, DOD may be forced to continue with existing approaches for its next systems. As of today, only the weather AOA has been completed and approved by DOD. We were required by the National Defense Authorization Act for Fiscal Year 2015 to review this particular AOA. We are currently in the process of completing this review and expect to issue our final report in mid-March 2016. Our preliminary findings are that the AOA provided thorough analysis of some of the 12 capabilities identified for the assessment, but ineffective coordination with NOAA, among other issues, imposed limitations on the analysis of the two highest-priority capabilities—cloud characterization and theater weather imagery. Specifically, DOD did not employ a formal collaboration mechanism that identified roles and responsibilities for DOD and NOAA in conducting the AOA, which contributed to DOD making an incorrect assumption about the continued availability of critical data from European partner satellites. As a result, the two capabilities were not as thoroughly analyzed for potential solutions, and they are now being re-assessed outside of the AOA process as near-term gaps approach. We plan to recommend that DOD ensure the leads of future planning efforts establish formal mechanisms for coordination and collaboration with NOAA that specify roles and responsibilities to ensure accountability for both agencies. DOD concurred with this recommendation in its review of our draft report. A positive aspect of the weather AOA was that DOD took a relatively new approach to analyzing alternatives with cost-efficiency in mind, including considering which capabilities DOD needed to provide and which could be provided by leveraging other sources of data. This should help DOD find cost-effective ways for meeting some of its needs. Space Leadership. The DOD’s space acquisition portfolio has numerous stakeholders, including each of the military services; intelligence community organizations; research agencies; multiple DOD headquarters offices; civil government agencies; and the Executive Office of the President. Over more than the last 15 years, we have noted—along with congressional committees, and various commissions and reviews—concern about the fragmented nature of DOD’s space system acquisition processes and acquisition oversight. In September 2015, we began a review based on language in the Senate Report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2016 which is looking at: (1) how DOD’s management and oversight of space system acquisitions are structured; (2) whether past recommendations for improving this structure have been implemented; and (3) what challenges, if any, result from this current structure. Our preliminary findings indicate that the structure of space system acquisitions and oversight continues to be complicated. It involves a large number of stakeholders, and there is no single individual, office, or entity in place that provides oversight for the overall space program acquisition structure. A number of commissions and study groups have recommended substantive changes to the way the government plans for, acquires, and manages space systems, including centralizing planning and decision-making authority for space systems and establishing oversight authority outside the Air Force. Additionally, various DOD officials and experts that we spoke with noted other problems with the process of acquiring and managing space systems, including long acquisition timelines and extensive review processes, decision-making authority being at too high a level, and little long-term planning or system architecture work. DOD does point to a recent change in DOD’s organizational structure for space programs that attempts to mitigate these problems. The Deputy Secretary of Defense designated the Secretary of the Air Force as the Principal DOD Space Advisor, with responsibility for overseeing all defense space policies, strategies and plans, and serving as an independent advisor on all space matters to the Secretary of Defense and other DOD leadership. This is a new position and its responsibilities are still being fully established according to DOD officials; however at this point it is too early to tell whether this position will have sufficient enforcement authority and the extent to which it will address the leadership problems raised in the past. Our reviews in recent years have made a number of recommendations aimed at putting DOD on a better footing as it considers and implements significant changes for space programs. For example, we recommended that when planning for the next phase of competition for launches, the Air Force use an incremental approach to the next acquisition strategy to ensure that it does not commit itself to a strategy until data is available to make an informed decision. For purchases of commercial bandwidth, we recommended that DOD conduct a spend analysis identifying procurement inefficiencies and opportunities; and assess whether further centralization of commercial SATCOM procurement could be beneficial. DOD concurred. It is too early to determine the extent to which DOD will implement these and other recommendations made this year but we have seen considerable efforts to address recommendations from other reports. For instance, in 2013, we recommended that future DOD satellite acquisition programs be directed to determine a business case for proceeding with either a dedicated or shared network for that program’s satellite control operations and develop a department-wide long-term plan for modernizing its Air Force Satellite Control Network and any future shared networks and implementing commercial practices to improve DOD satellite control networks. DOD has taken initial steps toward making a significant transformation in its satellite control operations. We look forward to assessing its plans in the near future in response to a mandate from this Committee. As noted earlier, we have also made numerous recommendations related to acquisition management and our ongoing review of space leadership will highlight what past recommendations may still be worth addressing. Overall, it is exceedingly important that DOD address acquisition governance and management problems in the near future. Work is already underway on recapitalizing the space portfolio, yet fiscal constraints and past problems have limited resources available for new programs. Moreover, protecting space assets will likely require more investments as well as more effective coordination. Chairman Sessions and Ranking Member Donnelly, this concludes my statement for the record. For further information about this statement, please contact Cristina Chaplain at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this statement include Rich Horiuchi, Assistant Director; Claire Buck; Maricela Cherveny; Alyssa Weir; Emily Bond; and Oziel Trevino. Key contributors for the previous work on which this statement is based are listed in the products cited. Key contributors to related ongoing work include Raj Chitikila; Laura Hook; Andrea Evans; Brenna Guarneros; Krista Mantsch; and James Tallon. Space Acquisitions: GAO Assessment of DOD Responsive Launch Report. GAO-16-156R. Washington, D.C.: October 29, 2015. Space Situational Awareness: Status of Efforts and Planned Budgets. GAO-16-6R. Washington, D.C.: October 8, 2015. GPS: Actions Needed to Address Ground System Development Problems and User Equipment Production Readiness. GAO-15-657. Washington, D.C.: September 9, 2015. Evolved Expendable Launch Vehicle: The Air Force Needs to Adopt an Incremental Approach to Future Acquisition Planning to Enable Incorporation of Lessons Learned. GAO-15-623. Washington, D.C.: August 11, 2015. Defense Satellite Communications: DOD Needs Additional Information to Improve Procurements. GAO-15-459. Washington, D.C.: July 17, 2015. Space Acquisitions: Some Programs Have Overcome Past Problems, but Challenges and Uncertainty Remain for the Future. GAO-15-492T. Washington, D.C.: April 29, 2015. Space Acquisitions: Space Based Infrared System Could Benefit from Technology Insertion Planning. GAO-15-366. Washington, D.C.: April 2, 2015. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-15-342SP. Washington, D.C.: March 12, 2015. Defense Major Automated Information Systems: Cost and Schedule Commitments Need to Be Established Earlier. GAO-15-282. Washington, D.C.: February 26, 2015. DOD Space Systems: Additional Knowledge Would Better Support Decisions about Disaggregating Large Satellites. GAO-15-7. Washington, D.C.: October 30, 2014. Space Acquisitions: Acquisition Management Continues to Improve but Challenges Persist for Current and Future Programs. GAO-14-382T. Washington, D.C.: March 12, 2014. U.S. Launch Enterprise: Acquisition Best Practices Can Benefit Future Efforts. GAO-14-776T. Washington, D.C.: July 16, 2014. Evolved Expendable Launch Vehicle: Introducing Competition into National Security Space Launch Acquisitions. GAO-14-259T. Washington, D.C.: March 5, 2014 The Air Force’s Evolved Expendable Launch Vehicle Competitive Procurement. GAO-14-377R. Washington, D.C.: March 4, 2014. 2014 Annual Report: Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits. GAO-14-343SP. Washington, D.C.: April 8, 2014. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-14-340SP. Washington, D.C.: March 31, 2014. Space Acquisitions: Assessment of Overhead Persistent Infrared Technology Report. GAO-14-287R. Washington, D.C.: January 13, 2014. Space: Defense and Civilian Agencies Request Significant Funding for Launch-Related Activities. GAO-13-802R. Washington, D.C.: September 9, 2013. Global Positioning System: A Comprehensive Assessment of Potential Options and Related Costs is Needed. GAO-13-729. Washington, D.C.: September 9, 2013. Space Acquisitions: DOD Is Overcoming Long-Standing Problems, but Faces Challenges to Ensuring Its Investments are Optimized. GAO-13-508T. Washington, D.C.: April 24, 2013. Launch Services New Entrant Certification Guide. GAO-13-317R. Washington, D.C.: February 7, 2013. Satellite Control: Long-Term Planning and Adoption of Commercial Practices Could Improve DOD’s Operations. GAO-13-315. Washington, D.C.: April 18, 2013. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-13-294SP. Washington, D.C.: March 28, 2013. Evolved Expendable Launch Vehicle: DOD Is Addressing Knowledge Gaps in Its New Acquisition Strategy. GAO-12-822. Washington, D.C.: July 26, 2012. Space Acquisitions: DOD Faces Challenges in Fully Realizing Benefits of Satellite Acquisition Improvements. GAO-12-563T. Washington, D.C.: March 21, 2012. Space Acquisitions: DOD Delivering New Generations of Satellites, but Space System Acquisition Challenges Remain. GAO-11-590T. Washington, D.C.: May 11, 2011. Space Acquisitions: Development and Oversight Challenges in Delivering Improved Space Situational Awareness Capabilities. GAO-11-545. Washington, D.C.: May 27, 2011. Space and Missile Defense Acquisitions: Periodic Assessment Needed to Correct Parts Quality Problems in Major Programs. GAO-11-404. Washington, D.C.: June 24, 2011. Global Positioning System: Challenges in Sustaining and Upgrading Capabilities Persist. GAO-10-636. Washington, D.C.: September 15, 2010. Defense Acquisitions: Challenges in Aligning Space System Components. GAO-10-55. Washington D.C.: October 29, 2009. Satellite Communications: Strategic Approach Needed for DOD’s Procurement of Commercial Satellite Bandwidth. GAO-04-206. Washington D.C.: December 10, 2003. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

DOD is shifting its traditional approach to space acquisitions, bolstering its protection of space systems, and engaging with more commercial providers. Given the time and resource demands of DOD's space systems and today's budget environment, challenges that hinder these transitions must be addressed. This statement focuses on (1) the current status and cost of major DOD space system acquisitions, and (2) challenges and barriers DOD faces in addressing future space-based mission needs. This statement highlights the results of GAO's work on space acquisitions over the past year and presents preliminary observations from ongoing work. We obtained comments from DOD on a draft of preliminary findings contained in this statement. Most major space programs have experienced significant cost and schedule increases. For instance, program costs for the Advanced Extremely High Frequency satellite program, a protected satellite communications system, have grown 116 percent as of our latest review, and its first satellite was launched more than 3 years late. For the Space Based Infrared System High, a missile warning satellite program, costs grew almost 300 percent and its first satellite was launched roughly 9 years late. Last year, we reported that contract costs for the Global Positioning System (GPS) ground system, designed to control on-orbit GPS satellites, had more than doubled and the program had experienced a 4-year delay. The delivery of that ground system is now estimated to be delayed another 2 years, for a cumulative 6-year delay. Some DOD officials say even that is an optimistic timeline. Though steps have been taken to improve acquisition management in space, problems with GPS show that much more work is needed, especially since DOD is considering going in new directions for space programs. Right now, DOD is at a crossroads for space. Fiscal constraints and increasing threats—both environmental and adversarial—to space systems have led DOD to consider alternatives for acquiring and launching space-based capabilities, such as: disaggregating large satellites into multiple, smaller satellites or payloads; relying on commercial satellites to host government payloads; and procuring certain capabilities, such as bandwidth and ground control, as services instead of developing and deploying government-owned networks or spacecraft. This year, GAO's work on space acquisitions continued to show that DOD faces several major challenges as it undertakes efforts to change its approaches to space acquisitions. Our work assessed a range of issues including DOD's analysis supporting its decisions on future weather satellites, space leadership, and the introduction of competition into space launch acquisitions. These and other studies surfaced several challenges: First, though DOD is conducting analyses of alternatives to support decisions about the future of space programs, there are gaps in cost and other data needed to weigh the pros and cons of changes to space systems. Second, most changes being considered today will impact ground systems and user equipment, but these systems continue to be troubled by management and development issues. Third, leadership for space acquisitions is still fragmented, which will likely hamper the implementation of new acquisition approaches, especially those that stretch across satellites, ground systems and user equipment. Past GAO reports have generally recommended that DOD adopt best practices. DOD has generally agreed and taken actions to address these recommendations. Consequently, GAO is not making any recommendations in this statement.

You are an expert at summarizing long articles. Proceed to summarize the following text: The term preventive services refers to a range of services aimed at preventing and diagnosing serious heath conditions among adults and children, as well as managing health conditions through early treatment to prevent them from worsening. Generally, preventive services are intended for the following three purposes: Prevent a health condition from occurring at all. Immunizations to prevent diseases such as influenza or pneumonia qualify as this first type of preventive service, called primary prevention. Prevent or slow a condition’s progression to a more significant health condition by detecting a disease in its early stages. Mammograms to detect breast cancer and other screening tests to detect disease early are examples of this second type of preventive service, called secondary prevention. Prevent or slow a condition’s progression to a more significant health condition by minimizing the consequences of a disease. Services that help management of existing health conditions, such as diet or exercise counseling to manage obesity or medication to manage high blood pressure, are examples of this third type of preventive service, called tertiary prevention. Preventive services can help prevent or manage a number of serious health conditions, such as heart disease, diabetes, obesity, and cancer. For example, heart disease and stroke are leading causes of death and disability in the United States, and the risk of developing these conditions can be substantially reduced if high blood pressure and cholesterol— which can develop in children as well as adults—are detected early and managed through diet, exercise, medication, or a combination. Similarly, diabetes is a leading cause of blindness, renal disease, and amputation, and also contributes to heart disease. Early diagnosis and management of diabetes, by controlling levels of blood glucose, blood pressure, and cholesterol, can reduce the risk of these and other diabetes complications. Finally, the importance of obesity as a health problem for both children and adults in the United States is increasingly apparent. Obesity is associated with an increased risk of many other serious conditions, including heart disease, stroke, diabetes, and several types of cancer. Overweight and obese children are at risk of health problems during their youth, such as diabetes, and are more likely than other children to become obese adults. Intensive counseling about diet, exercise, or both can promote sustained weight loss for obese adults. The federal government has established national health objectives and goals to monitor the health of the U.S. population, and several reflect the importance of preventive services. Healthy People 2010, coordinated by the Office of Disease Prevention and Health Promotion within HHS, is a statement of national health objectives designed to identify the most significant preventable threats to health and to establish national goals to reduce these threats to certain target levels. Some of the national goals established through Healthy People 2010 include reducing the proportion of children and adults who are obese, reducing the proportion of adults with high blood pressure and high blood cholesterol, reducing the overall rate of diabetes and increasing the proportion of adults with diabetes whose condition has been diagnosed, and increasing the proportion of children and adults who receive recommended preventive screening tests and immunizations. Recent reviews of progress toward these goals, however, in some cases show no progress or even movement away from certain goals, underscoring the importance of continued attention to prevention. Under federal law, state Medicaid programs generally must cover EPSDT services for children under age 21. A key component of EPSDT services is that it entitles children to coverage of well-child check ups, which may target health conditions for which growing children are at risk, such as obesity. An EPSDT well-child check up must include a comprehensive health and developmental history, a comprehensive unclothed physical exam, appropriate immunizations and laboratory tests, and health education. EPSDT well-child check ups may be a vehicle to provide preventive services to children, such as measurement of height and weight, nutrition assessment and counseling, immunizations, blood pressure screening, and cholesterol and other appropriate laboratory tests. State Medicaid programs must provide EPSDT services at intervals which meet reasonable standards of medical and dental practice as determined by the state and as medically necessary to determine the existence of a suspected illness or condition. Accordingly, states either develop their own periodicity schedules, that is, age-specific timetables that identify when EPSDT well-child check ups and other EPSDT services should occur, or they may adopt a nationally recognized schedule, such as that of the American Academy of Pediatrics, which recommends well-child check ups once each year or more frequently, depending on age. State periodicity schedules for fiscal year 2006 generally specified multiple well-child check ups per year for children aged 0 through 2, one well-child check up per year for children aged 3 through 5, and a well-child check up every 1 to 2 years for children aged 6 through 20. The Omnibus Budget Reconciliation Act of 1989 (OBRA 89) required the Secretary of HHS to set annual goals for children’s receipt of EPSDT services, and CMS established a yearly goal that each state provide EPSDT well-child check ups to at least 80 percent of the Medicaid children in the state who should receive one, based on the state’s periodicity schedule. Under the authority of OBRA 89, CMS also requires that states submit annual EPSDT reports known as the CMS 416. Along with other information, the CMS 416 captures the information used to measure progress toward the 80 percent goal. On the CMS 416, this information is termed the EPSDT participant ratio. For Medicaid adults, Medicaid programs generally are not required to cover preventive services. States operate their Medicaid programs within broad federal requirements which generally require states to cover certain mandatory benefit categories, such as “physician services” and provide states the choice to cover a range of additional optional benefit categories, thereby creating programs that may differ from state to state. As federal Medicaid law does not define preventive services or include these services under a mandatory benefit category, states can opt to cover various preventive services for adults under different categories. For example, states may choose to cover certain preventive services as part of “preventive, diagnostic, and screening services,” an optional benefit category under Medicaid. They may also choose to cover other specific preventive services such as cholesterol tests under other mandatory or other optional benefit categories. CMS officials said they do not track the specific preventive services covered for adults by each state Medicaid program. National survey data suggest that children in Medicaid under age 21 are at risk of certain health conditions, particularly obesity, that can be identified or managed by preventive services, and many are not receiving well-child check ups. The same surveys suggest that Medicaid adults are also an at- risk population—nearly 60 percent were estimated to have at least one health condition we reviewed that can be identified or managed by preventive services—and their receipt of preventive services varied widely depending on the service. Obesity is a serious health concern for children enrolled in Medicaid. NHANES examinations conducted from 1999 through 2006 suggest that nearly one in five children in Medicaid aged 2 through 20 (an estimated 18 percent) were obese. These rates of obesity are well above the Healthy People 2010 target goal of reducing to 5 percent the proportion of children nationwide who are obese or overweight (see fig. 1). Furthermore, about half (an estimated 54 percent) of the Medicaid children who were obese, or their parents, reported that the child had not previously been diagnosed as overweight. Among privately insured children, an estimated 14 percent were obese. The NHANES examinations also revealed that some children in Medicaid have other potentially serious health conditions that can be identified and managed by preventive services. Among Medicaid children aged 8 through 20 years, an estimated 4 percent had high blood pressure. Among Medicaid children aged 6 through 20 years, an estimated 10 percent had high cholesterol. These rates were generally similar to estimates for privately insured children. MEPS data from 2003 through 2006 suggest that many children in Medicaid do not regularly receive well-child check ups. Children in Medicaid are generally eligible for a well-child check up at least once every 1 to 2 years, but an estimated 41 percent of children in Medicaid aged 2 through 20 had not received a well-child check up during the previous 2-year period. This proportion varied by the children’s age: for example, an estimated 22 percent of children in Medicaid aged 2 through 4, 40 percent of children in Medicaid aged 5 through 7, and 48 percent of children in Medicaid aged 8 through 10 had not received a well-child check up during the previous 2 year period (see fig. 2). In comparison, the estimated proportions of privately insured children who had received a well-child check up were generally similar. Similarly, our analysis of MEPS data also showed that, for children in Medicaid, reported rates of receipt of certain specific preventive services that could occur during a well-child check up were correspondingly low. For example, an estimated 37 percent of children in Medicaid aged 2 through 20 had not had a blood pressure test, and an estimated 48 percent of children in Medicaid aged 2 through 17 had not received diet or exercise advice from a health care professional during the 2 years prior to the survey. The data suggest, however, that most children in Medicaid aged 2 through 17—an estimated 88 percent—had their height and weight measured by a health care professional during the 2 years prior to the survey. The estimated rates of receipt of blood pressure tests, height and weight measurement, and diet or exercise advice were generally similar for children in Medicaid and privately insured children. NHANES data suggest that a majority of adults in Medicaid aged 21 through 64 have at least one potentially serious health condition. An estimated 57 percent of Medicaid adults had obesity, diabetes, high cholesterol, high blood pressure, or a combination of these conditions. Obesity was the most common of these health conditions; an estimated 42 percent of adults in Medicaid aged 21 through 64 were obese (see fig. 3). As with children in Medicaid, the rate of obesity among adults aged 21 through 64 in Medicaid was well above national goals—the estimated 42 percent rate of obesity among Medicaid adults was nearly three times higher than the Healthy People 2010 target goal of 15 percent. The estimated rate of obesity among adults in Medicaid was also somewhat higher than the estimated rate among privately insured adults, which was 32 percent. Adults in Medicaid were almost twice as likely to have diabetes compared to privately insured adults: 13 percent of examined adults in Medicaid were estimated to have diabetes, compared to 7 percent of privately insured adults. Estimated rates of high blood pressure and high cholesterol were similar between both health insurance groups (see fig. 3). The NHANES interview data also suggest that a large proportion of adults in Medicaid found to have these health conditions may not have been aware of them prior to participation in the NHANES examination. An estimated 40 percent of adults in Medicaid found to have one or more of the health conditions we reviewed had at least one condition that they reported had not been previously diagnosed. The percentage of adults in Medicaid who reported that their health condition had not been previously diagnosed varied by condition: for example, an estimated 17 percent of adults in Medicaid with diabetes reported that this condition had not been previously diagnosed, while an estimated 35 percent of those with high cholesterol reported that this condition had not been previously diagnosed (see fig. 4). These estimates were similar to those of privately insured adults. MEPS data suggest that Medicaid adults’ receipt of recommended preventive services varied widely by service. For example, an estimated 93 percent of adults in Medicaid aged 21 through 64 received a blood pressure test during the 2 years prior to the survey. Similarly, an estimated 90 percent of women in Medicaid aged 21 through 64 received a cervical cancer screening during the 3 years prior to the survey. However, estimated rates of receipt were lower for other important recommended preventive services. For example, only an estimated 41 percent of adults in Medicaid aged 50 through 64 had ever received a colorectal cancer screening test. Similarly, estimates based on NHIS data suggest that only 33 percent of adults in Medicaid aged 21 through 64 with high blood pressure had received a screening test for diabetes within the past 3 years (see fig. 5). As compared to the privately insured adult population, MEPS and NHIS data show that a lower percentage of adults in Medicaid received certain recommended preventive services, in particular, mammograms, cholesterol tests, diabetes screening, or colorectal cancer screening, within recommended time frames. Medicaid and privately insured adults were estimated to be about equally likely to receive recommended blood pressure tests, diet or exercise advice, and influenza immunizations within recommended time frames. Most state Medicaid programs reported on our survey that they monitored and set goals for children’s utilization of certain preventive services. Most states also reported undertaking multiple initiatives since 2004 to promote preventive services. In response to our survey, most of the 51 state Medicaid programs reported that they monitored utilization of one or more preventive services by children in Medicaid. For example, when asked whether they monitored children’s utilization of Medicaid well-child check ups or health risk assessments, 42 states reported doing so. States less frequently reported monitoring utilization of specific services that could be provided during these well-child check ups, such as blood pressure tests or obesity screenings (see fig. 6). When asked the reasons why they were not conducting more monitoring of children’s utilization of preventive services in Medicaid (beyond federally required monitoring through the CMS 416), the top two reasons states chose were “administrative burden” and “technology challenges.” In addition to monitoring specific preventive services, about two-thirds of state Medicaid programs reported that the state had established its own target goals or benchmarks for children’s utilization of preventive services, in addition to the CMS goal that each state provide EPSDT well-child check ups to at least 80 percent of Medicaid children in a state who should receive one, based on the state’s periodicity schedule. For example, 33 states reported they had established utilization goals of their own, separate from CMS’s 80 percent goal, for children’s well-child check ups. Twenty-six states reported goals for the total number of any preventive services received, and 12 states reported utilization goals for at least one specific preventive service such as obesity screening, diabetes screening, blood pressure tests, cholesterol tests, or cervical cancer screening. States that had established goals often reported, however, that not all of their goals were being met. For example, of the states with a goal for children’s utilization of well-child check ups, 42 percent reported that the goal was not being met. The top two reasons states cited as reasons they believed they were not meeting utilization goals were beneficiaries missing appointments and beneficiaries or their families not being concerned about receiving preventive services. A few states also mentioned difficulties with tracking service utilization. Although most state Medicaid programs reported monitoring and setting goals for children’s utilization of preventive services, these efforts differ by type of service delivery system; programs more often monitor or set goals for services provided to children in managed care than for services provided to children in fee-for-service delivery systems. For example, of the 37 states reporting that at least some children in Medicaid were enrolled in managed care, 33 (89 percent) reported monitoring well-child check ups provided through managed care organizations. In contrast, of the 47 programs reporting that at least some children received services through a fee-for-service delivery system, 26 (55 percent) reported monitoring utilization of well-child check ups provided by fee-for-service providers. Similarly, goals for children’s utilization of preventive services were most often targeted to managed care organizations. For example, 25 of 37 states with children enrolled in Medicaid managed care organizations (68 percent) reported having established goals for the managed care organizations’ provision of well-child check ups, compared to 16 of 47 Medicaid programs (34 percent) with children in fee-for-service. Most state Medicaid programs (47), reported conducting multiple initiatives since 2004 to improve providers’ provision of preventive services to children in Medicaid, most commonly educating pediatric providers about coverage of preventive services (42 states), increasing payment rates for pediatric providers for office visits or specific preventive services (37 states), streamlining payment processing (29 states), and starting a provider advisory panel (29 states). States that had implemented one or more of the above four initiatives often viewed them as successful. About half of the states implementing them reported that the initiative had resulted in some improvement or major improvement. Most of the other half reported that they did not know the extent of improvement; only a few states reported that any of the initiatives had not resulted in improvement. State Medicaid programs also reported conducting several types of initiatives directed at Medicaid beneficiaries, such as encouraging children’s use of preventive services through direct mail or telephone outreach, and many also reported initiatives specifically targeted at reducing obesity in Medicaid children. For example, 37 states reported initiatives to educate providers to conduct obesity screening or counseling for Medicaid children, and 12 states reported implementing family-based childhood obesity prevention programs. Most state Medicaid programs reported that they choose to cover some but not all of the preventive services we asked about on our survey. Of the eight recommended services we asked about, the services that were most commonly reported as covered for adults were cervical cancer screenings and mammograms, which were covered by 49 and 48 states, respectively. Four additional preventive services were reported as covered for adults by three-quarters or more of the 51 states. These four services were diabetes screenings, cholesterol tests, colorectal cancer screenings, and influenza immunizations. The remaining two recommended services—intensive counseling for adults with obesity and intensive counseling for adults with high cholesterol—were reported as covered for adults by less than one- third of states. Thirteen states (25 percent) reported covering intensive counseling for obese adults and 14 states (27 percent) reported covering intensive counseling for adults with high cholesterol (see fig. 7). Thirty- nine states reported covering well-adult check ups or health risk assessments for adults, which provide an opportunity for delivering other recommended preventive services such as blood pressure tests and obesity screenings. (See appendix III for more detailed survey results.) In examining a selected, non-generalizable sample of 18 state Medicaid programs’ Medicaid managed care contracts, we found wide variation in the extent to which the contracts delineated coverage expectations for specific preventive services. As we have previously reported, specific and comprehensive contract language helps ensure that managed care organizations know their responsibilities and can be held accountable for delivering services. According to one expert on Medicaid managed care contracts, state Medicaid programs run the risk that managed care organizations may not cover certain services the program intends to cover if Medicaid managed care contracts lack specific and comprehensive contract language related to covered services. Three of the contracts did not specifically refer to any of the preventive services that state Medicaid programs reported were required to be covered by managed care organizations in those states. By contrast, two contracts specifically referred to all of the preventive services that the state reported covering. CMS oversight is primarily focused on children’s receipt of EPSDT services, and consists largely of collecting state EPSDT reports. CMS has conducted few reviews of EPSDT programs, including those that CMS 416 reports indicate have low participant ratios—the information used to assess progress toward CMS’s goal that each state provide EPSDT well- child check ups to at least 80 percent of the Medicaid children in the state who should receive one, based on the state’s periodicity schedule. For adults in Medicaid, CMS has issued some guidance related to preventive services and shared some best practices. CMS oversight of preventive services for children in Medicaid centers on the annual collection of the required CMS 416 report from each state Medicaid program on the provision of EPSDT services for children in Medicaid. We reported in 2001 that CMS 416 reports were often not timely or accurate, but since that time, CMS officials told us they had taken steps to improve the underlying data, and state and national health association officials concurred that the data has improved. For example, we reported in 2001 that underlying data for the CMS 416 may not be accurate in part because of incomplete data on service utilization by children in managed care. In 2007, we reported that officials from several states and national health associations stated that, although the CMS 416 was limited in its usefulness for oversight, the quality and completeness of the underlying data that states used to prepare the CMS 416, including the data collected from managed care organizations, had improved since 2001. State Medicaid programs’ CMS 416 reports continue to show gaps in the provision of EPSDT services to Medicaid children. CMS uses the participant ratio from the CMS 416 to measure progress toward CMS’s goal that each state provide EPSDT well-child check ups to at least 80 percent of the Medicaid children in the state who should receive one, based on the state’s periodicity schedule. By contrast, in fiscal year 2007, the national average participant ratio among 51 states reporting on the CMS 416 was 58 percent, and no state reported a ratio of 80 percent or more. Individual states reported ratios ranging from 25 to 79 percent, and 11 states had ratios under 50 percent (see fig. 8). Participant ratios from fiscal years 2000 through 2006 are generally consistent with those in fiscal year 2007, though there is some variation between years. For example, in fiscal year 2006, 2 states reported participant ratios greater than 80 percent, and 15 states reported ratios under 50 percent. Although the completeness and accuracy of the CMS 416 data may have improved in recent years, according to agency officials, the CMS 416 is still limited for oversight purposes. For example, the form does not differentiate between the delivery of services for children in managed care and fee-for-service programs or illuminate possible factors contributing to low receipt of services. We reported in 2007 that many officials from national health associations told us the CMS 416 did not provide enough information to allow CMS to assess the effectiveness of states’ EPSDT programs. One official who works with many state Medicaid agencies told us that states do not generally use the CMS 416 to inform their monitoring and quality improvement activities. In addition to collecting the CMS 416, CMS officials also oversee the provision of preventive services to children in Medicaid through occasional reviews of individual state EPSDT programs, which are conducted by CMS regional offices; we previously reported such reviews were helpful in illuminating policy and process concerns as well as innovative practices of states. The reviews look at how states meet statutory requirements—such as ensuring that all eligible Medicaid beneficiaries under 21 are informed of and have access to EPSDT services—and are conducted with the intent of identifying deficiencies and providing recommendations and guidance to states to help improve their programs. For example, one review assessed a state’s performance in ensuring that managed care organizations and providers understood the benefits available under EPSDT and their respective responsibilities for providing these services. Another review investigated whether a state had developed an appropriate periodicity schedule and examined coordination of children’s care in the context of a managed care service delivery system. CMS’s EPSDT reviews have also examined data collection and reporting—for example, one review examined the extent to which a state collected CMS 416 data in accordance with instructions and used the data to measure progress and define areas for improvement. EPSDT program reviews can and have resulted in recommendations and corrective action plans intended to improve the provision of EPSDT services. The reviews have also highlighted best practices that could be emulated by other state Medicaid programs. Recommendations—which are, according to CMS officials, implemented at a state’s discretion—have included actions such as assessing potential impediments to timely access to EPSDT services, ensuring that providers are aware of how to access current data in order to monitor their efforts, and developing a state standard for timely access to services. For example, one review found that providers seemed confused about the health plans’ requirements for prior authorization and specialty referrals; CMS recommended that the state assess whether the providers’ understanding of prior authorization procedures was impeding timely access to EPSDT services and, if so, ensure that training was provided to correct the misunderstanding. Corrective action plans—upon which states must act, according to CMS officials—have included requirements for states to improve the process of informing beneficiaries, providers, and community partners about the support services available through Medicaid and how to access them, to develop an appropriate methodology to report data for the CMS 416, and to identify and implement strategies to increase vaccination of children against pneumonia. Best practices that reviews have identified have included a statewide EPSDT outreach effort to ensure that beneficiaries are aware of the availability of Medicaid services, a dance program that addresses childhood obesity, and the provision of Medicaid instructions and written materials in a patient’s primary language. With the exception of reviews specifically focused on dental services, CMS conducted only 11 EPSDT program reviews between April 2001 and June 2009, and few states with low participant ratios had been reviewed. For example, eight states reported participant ratios below 50 percent on all of their annual CMS 416 reports from fiscal years 2000 through 2007. Of those eight states, six had not had their EPSDT programs reviewed by CMS between April 2001 and June 2009. Although CMS has developed an EPSDT review guide to promote consistency, according to CMS officials there is no CMS directive or requirement for the CMS regional offices to perform these reviews, and CMS has not established criteria or a schedule for performing regular reviews. CMS oversight of preventive services for children in Medicaid also includes providing policy guidance to state Medicaid programs, such as through its State Medicaid Manual and other guidance; for example, CMS officials reported that they intend to draft guidance for states on coverage of obesity services as part of EPSDT services, but as of the time of our review had not done so. A 2006 study raised concerns that Medicaid providers may not be aware to what extent obesity services were covered or reimbursed under EPSDT, and that states’ provider manuals did not often explain this coverage. For example, the study found that state Medicaid manuals did not specifically discuss coverage of nutritional counseling, and that states may not have been correctly compensating providers whose practices emphasized appropriate obesity interventions. The study recommended that states take several steps, including clarifying the proper coding and payment procedures for obesity prevention and treatment services. As of the time of our review, CMS officials told us that they intend to draft policy guidance to address these concerns and that the guidance would suggest methods for reporting and charging for obesity-related services, but that they had not yet begun drafting this guidance. Unlike CMS’s oversight of children’s EPSDT services, CMS is not required to collect utilization data from states on adults’ receipt of services and— according to officials—does not conduct program reviews as it does for EPSDT services for children in Medicaid. CMS has, however, issued guidance for state Medicaid programs through State Medicaid Director Letters (SMDL) on topics relevant to adult preventive services. For example, one letter issued in 2004 provided guidance on how states could cover certain services, known as disease management services, to manage chronic health conditions such as diabetes in their Medicaid programs and discussed how new disease management models could be implemented by states. As of March 2009, CMS had not issued similar coverage guidance on other recommended preventive services we reviewed for adults, such as obesity screening and intensive counseling. Although CMS has issued some guidance through SMDLs, several state Medicaid programs expressed that additional guidance could be helpful. In response to an open-ended survey question on support state Medicaid programs would like from CMS related to preventive services, 12 states reported they would like more technical assistance and guidance from CMS. For example, one state reported that the state would like clarification of restrictions to coverage of preventive services and another reported it would like advice on how to monitor improvements in utilization of preventive services. In addition, four states expressed interest in CMS sharing best practices of other states. As of March 2009, there were 24 promising practices for Medicaid and CHIP on the CMS Web site; 8 of these pertained to preventive services for adults. The prevalence of obesity and other health conditions among Medicaid beneficiaries nationally suggests that more can and should be done to ensure this vulnerable population receives recommended preventive services. Although Medicaid children generally are entitled to coverage of EPSDT services that may identify and address health conditions such as obesity, both national survey data and states’ 416 reports to CMS suggest that children’s receipt of EPSDT services is well below national goals. Further, providers may not understand that services to screen for and manage obesity are covered under EPSDT. State-specific reviews of EPSDT programs have helped identify needed improvements but too few have been done. For adults, states’ coverage of preventive services generally is not required, but USPSTF recommends certain preventive services for specific ages and risk groups, and such services can be covered by Medicaid if states choose to do so. National survey examination data suggest that the provision of recommended services could benefit adults in Medicaid, as 6 in 10 adults in Medicaid have one or more potentially preventable health conditions. States and CMS have acted in recent years to improve the provision and monitoring of preventive services for the Medicaid population. CMS intends to develop policy guidance for obesity services for Medicaid children under EPSDT, though as of the time of our review, had not done so. However, gaps in provision of services remain. An estimated 41 percent of Medicaid children aged 2 through 20 participating in a nationally representative survey had not received a well-child check up during a 2-year period, and receipt of recommended preventive services in the adult Medicaid population varied widely, depending on the service. Improved access to preventive services for Medicaid beneficiaries will take a concerted effort by the federal government and states. To improve the provision of preventive services to the Medicaid population, we recommend that the Administrator of CMS take the following two actions: Ensure that state EPSDT programs are regularly reviewed to identify gaps in provision of EPSDT services to children and to identify needed improvements. Expedite current efforts to provide policy guidance on coverage of obesity-related services for Medicaid children, and consider the need to provide similar guidance regarding coverage of obesity screening and counseling, and other recommended preventive services, for adults. We provided a draft of this report to HHS for comment, and CMS responded on behalf of HHS. (See app. IV.) CMS concurred with both of our recommendations, and commented that the agency recognizes the need for and the value of preventive services, and will remind states of the importance of ensuring that children receive a comprehensive well-child check up, and of the importance of providing preventive services to adults. CMS agreed with our recommendation that the agency ensure state EPSDT programs are regularly reviewed. CMS committed to establishing a training program and protocol for the state reviews and technical assistance by the end of the year and also commented that it intends to conduct related efforts, including developing a comprehensive work plan to establish a regular schedule for reviewing state policy and implementation efforts and reviewing and revising the CMS 416. CMS also agreed with our recommendation that the agency expedite efforts to provide guidance to states on coverage of obesity-related services for Medicaid children, and consider the need to provide similar guidance regarding coverage of obesity screening and counseling, and other recommended preventive services, for adults. CMS committed to providing guidance on obesity-related services for children through an SMDL by the end of the calendar year. CMS also highlighted the agency’s involvement in several initiatives related to childhood obesity at the national level and the agency’s support of the development of new Healthcare Effectiveness Data and Information Set measures that address obesity. CMS also provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of HHS and other interested parties. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made major contributions to this report are listed in appendix V. The National Health and Nutrition Examination Survey (NHANES), conducted multiple times since the early 1960s by the Department of Health and Human Services’s (HHS) National Center for Health Statistics of the Centers for Disease Control and Prevention (CDC), is designed to provide nationally representative estimates of the health and nutrition status of the noninstitutionalized civilian population of the United States. NHANES provides information on civilians of all ages. Prior to 1999, three periodic surveys were conducted. Since 1999, NHANES has been conducted annually. For this study, we examined data from 1999 through 2006 on children aged 2 through 20 and adults aged 21 through 64. We grouped NHANES data from 1999 through 2006 in order to include a sufficient number of survey participants to provide a reliable basis for assessing the extent of health conditions in the Medicaid population. To assess the reliability of NHANES data, we interviewed knowledgeable officials, reviewed relevant documentation, and compared the results of our analyses to published data. We determined that the NHANES data were sufficiently reliable for the purposes of our engagement. Our analysis of NHANES data focused on physical examinations and laboratory tests for a variety of health conditions. As part of an overall physical examination of survey participants, trained medical personnel generally obtain a blood sample and administer laboratory tests such as measurement of total blood cholesterol and glucose levels, obtain height and weight measurements, and conduct three or four blood pressure readings. To analyze these data, we considered two categories of survey participants based on their health insurance status at the time of the survey, as reported during the interview section of the survey: Medicaid beneficiaries and the privately insured. We do not present results for the uninsured, those with other forms of government health insurance, such as Medicare (we excluded adults enrolled in both Medicare and Medicaid), and those who provided no information on their health insurance status. For the 1999 through 2004 period, the NHANES Medicaid category for children includes some children enrolled in the State Children’s Health Insurance Program (CHIP). In the 2005 through 2006 NHANES data, children enrolled in CHIP can be differentiated from children enrolled in Medicaid, but we grouped these children together for consistency with the previous time period. We estimate that about 84 percent of these children were enrolled in Medicaid with the remainder enrolled in CHIP between 1999 and 2006. For children, we used the NHANES data to estimate the percentage who were obese, the percentage with high blood pressure, the percentage with high blood cholesterol, and the percentage of obese children who had not been diagnosed as overweight (see tables 1 and 2). Obesity. NHANES data included measures of the height and weight of children aged 2 through 20. Obesity in children aged 2 through 19 was defined as having a body mass index (BMI) equal to or greater than 95th percentile of age and sex-specific BMI, based on CDC growth charts for the United States; obesity in children age 20 was defined as having a BMI of 30 or higher. Girls who were pregnant were not included in the obesity analysis. Children or their parents were also asked if the child had been diagnosed as overweight prior to participating in the survey. High Blood Pressure. NHANES data included up to four blood pressure readings for children aged 8 through 20. We calculated average systolic and diastolic blood pressure based on the second, third, and fourth readings. High blood pressure in children aged 8 through 17 was defined as equal to or greater than 95th percentile of age, height, and sex-specific average systolic or diastolic blood pressure, based on blood pressure tables from HHS’s National Heart, Lung, and Blood Institute. High blood pressure in children aged 18 through 20 was defined as having an average systolic blood pressure reading of 140 millimeters of mercury (mmHg) or higher, or having an average diastolic blood pressure of 90 mmHg or higher. High Blood Cholesterol. NHANES data included measures of total blood cholesterol in children aged 6 through 20. High total blood cholesterol in children aged 6 through 20 was defined as greater than or equal to 200 milligrams per deciliter (mg/dL). For adults aged 21 through 64, we used NHANES data to estimate the percentage who were obese, the percentage with high blood pressure, the percentage with high blood cholesterol, the percentage with diabetes, and the percentage with a combination of these conditions. We used CDC definitions of these health conditions. Of adults with each of these conditions, we also estimated the percentage who reported that their condition had not been diagnosed by a health care professional prior to the survey (see tables 3 and 4). Obesity. NHANES examinations of adults included height and weight measurements. Obesity for adults was defined as having a BMI of 30 or higher (pregnant women were not included in the obesity analysis). High Blood Pressure. NHANES examinations of adults included up to four blood pressure readings. Average systolic and diastolic blood pressure readings were calculated as described for children (see footnote 62). High blood pressure for adults was defined as having an average systolic blood pressure reading of 140 mmHg or higher, having an average diastolic blood pressure reading of 90 mmHg or higher, or taking blood pressure lowering medication. High Blood Cholesterol. NHANES laboratory tests for adults included measurement of blood cholesterol. High total blood cholesterol for adults was defined as 240 mg/dL or more. Diabetes. A subsample of NHANES participants, those whose examination was scheduled in the morning, were asked to fast prior to having their blood drawn. Laboratory tests for this subsample of NHANES participants included measurement of fasting plasma glucose. Diabetes for adults was defined as fasting plasma glucose of 126 mg/dL or more, or having previously been diagnosed with diabetes. For all estimated percentages for children and adults, we calculated a lower and upper bound at the 95 percent confidence level (there is a 95 percent probability that the actual percentage falls within the lower and upper bounds), of beneficiaries in each of the two insurance categories using raw data and the appropriate sampling weights and survey design variables. We used the standard errors of the estimates to calculate whether any differences between the two insurance groups were statistically significant at the 95 percent confidence level. The Medical Expenditure Panel Survey (MEPS), administered by the Department of Health and Human Services’s (HHS) Agency for Healthcare Research and Quality (AHRQ), collects data on the use of specific health services. We analyzed results from the MEPS household component, which collects data from a sample of families and individuals in selected communities across the United States, drawn from a nationally representative subsample of households that participated in the prior year’s National Health Interview Survey (NHIS, a survey conducted by the National Center for Health Statistics at the Centers for Disease Control and Prevention (CDC)). We pooled MEPS data from multiple years to yield sample sizes large enough to generate reliable estimates for the Medicaid subpopulation. Our analysis was based on data from surveys conducted in 2003 through 2006, the most recent data available. We supplemented our MEPS analysis with analysis of data from the 2006 NHIS survey, which covered a question of interest that was not available in MEPS. It was possible to use one year of the NHIS data because the sample size is larger than MEPS. To determine the reliability of the MEPS and NHIS data, we spoke with knowledgeable agency officials and reviewed related documentation and compared our results to published data. We determined that the MEPS and NHIS data were sufficiently reliable for the purposes of our engagement. The MEPS household interviews feature several rounds of interviewing covering 2 full calendar years. MEPS is continuously fielded; each year a new sample of households is introduced into the study. MEPS collects information for each person in the household based on information provided by one adult member of the household. This information includes demographic characteristics, self-reported health conditions, reasons for medical visits, use of medical services including preventive services, and health insurance coverage. We analyzed responses to MEPS questions about children’s medical visits and children’s and adults’ receipt of preventive services. NHIS collects information about demographic characteristics, health conditions, use of medical services, and health insurance coverage. We analyzed responses to an NHIS question on adults’ receipt of a diabetes screening test. As with the National Health and Nutrition Examination Survey (NHANES) data described in appendix I, we analyzed results for children under age 21 and adults aged 21 through 64, divided into two categories on the basis of their health insurance status. Unless noted, we used age and insurance status variables that were measured during the same interview as the questions about preventive services. Similar to NHANES, the Medicaid category in MEPS included children enrolled in the State Children’s Health Insurance Program (CHIP). We estimate that 82 percent were enrolled in Medicaid with the remainder enrolled in CHIP between 2003 and 2006. Our NHIS analysis was limited to adults. For children, we analyzed data for several different MEPS questions to examine children’s receipt of well-child check ups and specific preventive services (see tables 5 and 6). Well-Child Check Up. The MEPS survey included questions about office based and outpatient medical visits for children aged 0 through 20. We considered a medical visit to be a well-child check up if the visit was in person and if the respondent reported that the reason for the visit was either: a well-child check up, a general examination, or shots and immunizations. Using sampling weights, for each health insurance category, we estimated the percentage of children aged 2 through 20 at the end of the survey’s 2-year period who had received one or more well-child check ups during the survey’s 2-year period. We used insurance status variables that were measured at the end of the survey’s 2-year period. We used MEPS longitudinal weights to facilitate this analysis of medical visits that occurred during the 2-year survey period. The pooled 2-year survey periods analyzed were 2003 through 2004, 2004 through 2005, and 2005 through 2006. Blood Pressure Test. MEPS included questions about whether children aged 2 through 20 had their blood pressure measured by a doctor or health care professional, and if so, how long ago. Using sampling weights, we estimated the percentage of children in each health insurance category that had their blood pressure measured during the 2 years prior to the question being asked. Diet or Exercise Advice. MEPS included questions about whether children aged 2 through 17 had (1) received advice about eating healthy from a doctor or health care professional, and if so, how long ago, and (2) received advice about exercise, sports, or physically active hobbies from a doctor or health care professional, and if so, how long ago. Using sampling weights, we estimated the percentage of children in each health insurance category that had received advice about either a healthy diet or exercise, during the 2 years prior to the question being asked. Height and Weight Measurement. MEPS included questions about whether children aged 0 through 17 had (1) had their height measured by a doctor or health care professional, and if so how long ago; and (2) had their weight measured by a doctor or health care professional, and if so, how long ago. Using sampling weights, we estimated the percentage of children in each health insurance category that had both their height and their weight measured during the two years prior to the question being asked. Height and weight were not necessarily measured at the same time, and these measurements did not necessarily take place in the context of a body mass index (BMI) calculation or obesity screening. For adults aged 21 through 64, we analyzed data for several different MEPS questions that related to receipt of recommended preventive services (see table 7). It was not possible to determine whether respondents received these services for screening purposes, as recommended by the United States Preventive Services Task Force (USPSTF), as opposed to receiving them for purposes of diagnosing a suspected health condition. Nevertheless, the estimates are useful in indicating the maximum percentages of adults who may have received certain recommended preventive services. For example, if 40 percent of adults aged 50 through 64 reported receiving a colorectal cancer screening, some may have received the screen for diagnostic purposes after experiencing symptoms of colorectal cancer. Regardless, in this example, 60 percent of adults in this age range—for whom colorectal cancer screening is recommended by the USPSTF—did not receive a colorectal cancer screening for any reason. Blood Pressure Test. MEPS included questions about whether adults had their blood pressure measured by a doctor or health care professional, and if so, how long ago. Using sampling weights, we estimated the percentage of adults aged 21 through 64 in each health insurance category who reported that they had their blood pressure measured during the 2 years prior to the question being asked. Cholesterol Test. MEPS included questions about whether adults had their cholesterol tested by a doctor or health care professional, and if so, how long ago. Using sampling weights, we estimated the percentage of adults in each health insurance category for whom a cholesterol test was recommended, who reported that they had their cholesterol tested during the five years prior to the question being asked. USPSTF recommends cholesterol tests for men aged 35 and older, and men and women aged 20 and older with health conditions that are risk factors for heart disease. We used available information about risk factors for heart disease that was self-reported by survey participants to determine whether a cholesterol test was recommended on this basis; these risk factors were diabetes, high blood pressure, or BMI greater than or equal to 30. Mammogram. MEPS included questions about whether women had a mammogram, and if so, how long ago. Using sampling weights, we estimated the percentage of women aged 40 through 64 in each health insurance category who reported that they had a mammogram during the 2 years prior to the question being asked. Cervical Cancer Screening. MEPS included questions about whether women had a cervical cancer screening, and if so, how long ago. Using sampling weights, we estimated the percentage of women aged 21 through 64 in each health insurance category who had not reported having a hysterectomy and who reported that they had a cervical cancer screening during the 3 years prior to the question being asked. Colorectal Cancer Screening. MEPS included questions about whether adults had a colonoscopy, a sigmoidoscopy, or a stool test, and if so, how long ago. Using sampling weights, we estimated the percentage of adults aged 50 through 64 in each health insurance category who reported that they had ever had one of these tests. Influenza Immunization. MEPS included questions about whether adults had received a flu shot, and if so, how long ago. Using sampling weights, we estimated the percentage of adults aged 50 through 64 in each health insurance category who reported that they had a flu shot during the year prior to the question being asked. Diet or Exercise Advice. MEPS included questions about whether adults had received advice from a doctor or health care professional to (1) eat fewer high fat or high cholesterol foods, or (2) exercise more. Using sampling weights, we estimated the percentage of adults aged 21 through 64 in each health insurance category, whose self reported height and weight corresponded to a BMI of 30 or higher, who reported that they had ever received either diet or exercise advice. This type of advice does not fulfill the USPSTF recommendation that obese adults receive sustained intensive obesity counseling, but it provides an indicator of the maximum proportion of adults who could have received such counseling. Diabetes Screening. MEPS interviews from 2003 through 2006 did not ask about adults’ receipt of diabetes screening tests, but the 2006 NHIS did; adults who had not previously been diagnosed with diabetes were asked if they had been tested for high blood sugar or diabetes in the last 3 years. Using NHIS sampling weights, we estimated the percentage of adults aged 21 through 64 in each health insurance category, who reported having high blood pressure and who reported that they had received a screening test for diabetes during the 3 years prior to answering the question. USPSTF recommends diabetes screening for adults with high blood pressure. For all estimated percentages for children and adults, we calculated a lower and upper bound at the 95 percent confidence level using the appropriate sampling weights and survey design variables. We used the standard errors of the estimates to calculate if any differences between the insurance groups were statistically significant at the 95 percent confidence level. To gather information about state Medicaid programs’ coverage, oversight, and promotion of preventive services, we surveyed 51 state Medicaid directors (in the 50 states and the District of Columbia). The survey was conducted from October 29, 2008, through February 6, 2009. It included questions on the coverage of preventive services for adults, the methods used for oversight of preventive services for children and adults, including monitoring of utilization of specific services, utilization goals, including whether or not goals were being met, state promotion efforts and specific initiatives aimed at preventive services, and the federal support provided to state Medicaid programs for the provision of preventive services. Many of the survey questions asked state Medicaid directors to consider specific Medicaid populations such as children in Medicaid under age 21 or adults in Medicaid age 21 and over, or beneficiaries enrolled in managed care organizations (MCO) or fee-for-service (FFS). We developed the content of the survey based on interviews with officials from the Centers for Medicare & Medicaid Services (CMS) and state Medicaid programs, and a review of documents from CMS and external reports. Some content and changes were made after pre-testing with state Medicaid programs. Many of our survey questions focused on specific preventive services. For example, the survey included questions about states’ coverage for adults, and monitoring for adults and children, of several specific preventive services including well-child and well-adult check ups, health risk assessments, diabetes screening, cholesterol tests, cervical cancer screening, mammography, colorectal cancer screening, and influenza immunization. We asked about these specific preventive services because they were related to recommended preventive services and to the services we examined in our analysis of Medical Expenditure Panel Survey (MEPS) and National Health Interview Survey (NHIS) data (see appendix II). We did not ask about coverage of services for children because the children’s Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefit is required to be covered under Medicaid. To establish the reliability of our survey data, we spoke with knowledgeable agency officials in developing the survey, pre-tested the survey questions, and followed up with state Medicaid officials to achieve a 100 percent response rate. Survey responses were submitted electronically. In a few cases, when states gave responses that were unclear or signaled the question was not completed, we followed up with states to clarify their responses in order to ensure that their responses contained the most accurate and current information available. We determined that the data submitted by states were sufficiently reliable for the purposes of our engagement. In addition to the individual named above, Katherine M. Iritani, Acting Director; Emily Beller; Susannah Bloch; Elizabeth Deyo; Erin Henderson; Martha Kelly; Teresa Tam; and Hemi Tewarson made key contributions to this report. Medicaid: Extent of Dental Disease in Children Has Not Decreased, and Millions Are Estimated to Have Untreated Tooth Decay. GAO-08-1121. Washington, D.C.: September 23, 2008. State Children’s Health Insurance Program: Program Structure, Enrollment and Expenditure Experiences, and Outreach Approaches for States That Cover Adults. GAO-08-50. Washington, D.C.: November 26, 2007. Medicaid: Concerns Remain about Sufficiency of Data for Oversight of Children’s Dental Services. GAO-07-826T. Washington, D.C.: May 2, 2007. Childhood Obesity: Factors Affecting Physical Activity. GAO-07-260R. Washington, D.C.: December 6, 2006. Childhood Obesity: Most Experts Identified Physical Activity and the Use of Best Practices as Key to Successful Programs. GAO-06-127R. Washington, D.C.: October 7, 2005. Medicaid Managed Care: Access and Quality Requirements Specific to Low-Income and Other Special Needs Enrollees. GAO-05-44R. Washington, D.C.: December 8, 2004. Medicare Preventive Services: Most Beneficiaries Receive Some but Not All Recommended Preventive Services. GAO-04-1004T. Washington, D.C.: September 21, 2004. Medicaid and SCHIP: States Use Varying Approaches to Monitor Children’s Access to Care. GAO-03-222. Washington, D.C.: January 14, 2003. Medicare: Most Beneficiaries Receive Some but Not All Recommended Preventive Services. GAO-03-958. Washington, D.C.: September 8, 2003. Medicare: Use of Preventive Services Is Growing but Varies Widely. GAO-02-777T. Washington, D.C.: May 23, 2002. Medicare: Beneficiary Use of Clinical Preventive Services. GAO-02-422. Washington, D.C.: April 10, 2002. Medicaid: Stronger Efforts Needed to Ensure Children’s Access to Health Screening Services. GAO-01-749. Washington, D.C.: July 13, 2001. Lead Poisoning: Federal Health Care Programs Are Not Effectively Reaching At-Risk Children. HEHS-99-18. Washington, D.C.: January 15, 1999. Medicaid Managed Care: Challenge of Holding Plans Accountable Requires Greater State Effort. GAO/HEHS-97-86. Washington, D.C.: May 16, 1997. Medicare: Provision of Key Preventive Diabetes Services Falls Short of Recommended Levels. T-HEHS-97-113. Washington, D.C.: April 11, 1997.

Medicaid, a federal-state program that finances health care for certain low-income populations, can play a critical role in the provision of preventive services, which help prevent, diagnose, and manage health conditions. GAO examined available data to assess (1) the extent to which Medicaid children and adults have certain health conditions and receive certain preventive services, (2) for Medicaid children, state monitoring and promotion of the provision of preventive services, (3) for Medicaid adults, state coverage of preventive services, and (4) federal oversight by the Centers for Medicare & Medicaid Services (CMS). GAO analyzed data from nationally representative surveys: the National Health and Nutrition Examination Survey (NHANES), which includes physical examinations of participants, and the Medical Expenditure Panel Survey (MEPS). GAO also surveyed state Medicaid directors and interviewed federal officials. Nationally representative data suggest that a large proportion of children and adults in Medicaid have certain health conditions, particularly obesity, that can be identified or managed by preventive services, and adults' receipt of preventive services varies widely. For Medicaid children, NHANES data from 1999 through 2006 suggest that 18 percent of children aged 2 through 20 were obese, 4 percent of children aged 8 through 20 had high blood pressure, and 10 percent of children aged 6 through 20 had high cholesterol. Furthermore, MEPS data from 2003 through 2006 suggest that many Medicaid children were not receiving well-child check ups. For Medicaid adults aged 21 through 64, NHANES data suggest that more than half were obese or had diabetes, high cholesterol, high blood pressure, or a combination. MEPS data suggest that receipt of preventive services varied widely by service: receipt of some services, such as blood pressure tests, was high, but receipt of several other services was low. MEPS data also suggest that a lower percentage of Medicaid adults received preventive services compared to privately insured adults. For children in Medicaid, who generally are entitled to coverage of comprehensive health screenings, including well-child check ups, as part of the federally required EPSDT benefit, most but not all states reported to GAO that they monitored or set goals related to children's utilization of preventive services and had undertaken initiatives to promote their provision. Nine states reported that they did not monitor children's utilization of specific preventive services. Forty-seven states reported having multiple initiatives to improve the provision of preventive services to children. For adults in Medicaid, for whom states' Medicaid coverage of preventive services is generally not required, most states reported to GAO that they covered most but not all of eight recommended preventive services that GAO reviewed. Nearly all state Medicaid programs, 49 and 48 respectively, reported covering cervical cancer screening and mammography, and three-quarters or more states reported covering four other preventive services. Two additional recommended services--intensive counseling to address obesity or to address high cholesterol--were reported as covered by fewer than one-third of states. For children in Medicaid, CMS oversees the provision of preventive services through state EPSDT reports and reviews of EPSDT programs, but gaps in oversight remain; for adults, oversight is more limited. For children, state reports showed that, on average, 58 percent of Medicaid children who were eligible for an EPSDT service in 2007 received one; far below the federal goal of 80 percent. CMS reviewed only 11 state EPSDT programs between April 2001 and June 2009. Few states reporting low rates of service provision were reviewed. CMS guidance to states may also have gaps: a 2006 study raised concerns that providers may not be aware of coverage of obesity-related services for Medicaid children. CMS has recognized the need for but has not yet begun drafting guidance on such coverage. For adults, CMS has provided some related guidance to states, but not on the reviewed preventive services.

You are an expert at summarizing long articles. Proceed to summarize the following text: As of March 2002, State had 16,867 American employees worldwide—more than one-third of whom are overseas. Of those serving overseas, about 60 percent are stationed at hardship posts. Of the 158 hardship posts, nearly half are found in Africa and Eastern Europe and Eurasia, which includes the Newly Independent States (see fig. 1). State defines hardship posts as those locations where the U.S. government provides differential pay incentives—an additional 5 to 25 percent of base salary depending on the severity or difficulty of the conditions—to encourage employees to bid on assignments to these posts and to compensate them for the hardships they encounter. Among the conditions State uses to determine hardship pay are poor medical facilities,substandard schools for children, severe climate, high crime, political instability, and physical isolation. Recently, State has begun recognizing the lack of spousal employment opportunities as another factor in determining hardship. Where conditions are so adverse as to require additional pay as a recruitment and retention incentive, State can provide additional differential pay of up to 15 percent of base salary. Moreover, State pays an additional 15 percent to 25 percent of salary for danger pay to compensate employees for the security risks they face in certain countries. Under State’s open assignment system, employees submit a list (bids) of assignments they want and then the department tries to match bidders’ experience and preferences with the needs of posts and bureaus. (For an overview of the bidding and assignment process, see app. II.) The Department of State has reported a shortage of professional staff in its Foreign Service overseas workforce. Many positions at hardship posts, including some of strategic importance to the United States, remain vacant for extended periods of time or are filled with staff whose experience or skills fall short of the requirements for the position. Our discussions with former and current ambassadors, senior post officials, and the regional bureaus indicate that this is a widespread problem that weakens diplomatic programs and management controls and impedes posts’ ability to carry out U.S. foreign policy objectives effectively. In the three countries we visited—China, Saudi Arabia, and Ukraine—we found that (1) mid-level officers were working in positions well above their grade, (2) first-tour officers were in positions that require experienced officers, and (3) staff did not meet the minimum language proficiency required to perform their jobs effectively. However, the magnitude of this problem on an aggregate level is unclear because State lacks certain human resources data that are necessary to fully assess staffing limitations and capabilities worldwide. State has more positions than it has staff to fill them. As shown in table 1, the State Department reported a staff deficit of 1,340 employees worldwide as of March 2002. The biggest shortages are in overseas Foreign Service employees, which had a staff deficit of 543, and in the civil service, which had a staff deficit of 811. According to State, 60 percent of its Foreign Service overseas workforce are in hardship posts, which have a vacancy rate of 12.6 percent, compared with a vacancy rate of 8.4 percent in nonhardship posts. Data from posts in the seven countries we reviewed showed staffing shortfalls, in varying degrees. (Key staffing issues in these selected countries are outlined in app. III.) These shortfalls, according to ambassadors and senior post officials, compromise diplomatic readiness. We found many employees working in positions well above their grade levels as well as staff who did not meet the minimum language proficiency requirements of the positions to which they were assigned. Moreover, post staff complained of the lack of training to upgrade their language proficiency and other skills. Senior post officials, including chiefs of mission and former ambassadors, stated that staffing shortfalls (1) weaken diplomatic programs and management controls and (2) impede posts’ ability to effectively carry out U.S. foreign policy objectives. For a number of the hardship posts we examined, the dual problem of a shortage in the number of positions a post has and the lack of fully qualified, experienced, and trained staff to fill them has been a long-standing concern, dating back to the 1990s when hiring below attrition levels resulted in what some State officials characterize as the “hollowing out” of the Foreign Service workforce. The State Inspector General has issued numerous reports citing serious problems filling hardship posts with adequately skilled staff. In a May 2001 semiannual report to the Congress, the Inspector General stated that inadequate training for first-tour staff in consular offices has led to lapses in nonimmigrant visa management at posts in a region where alien smuggling and visa fraud are prevalent. Furthermore, in Conakry (Guinea)—a 25 percent hardship post where visa fraud and administrative problems were attributed to inexperienced staff—the Inspector General found a high proportion of junior officers, mostly on their first tour, and officers in positions above their grade, making them ill-prepared to deal with work challenges. Similarly, in Bamako (Mali), another 25 percent hardship post that is chronically understaffed, the Inspector General again cited staff inexperience when consular employees failed to detect an alien smuggling ring. In these cases, the Inspector General called on the State Department to examine whether staff assigned to these posts have the level of experience necessary to operate effectively. Meanwhile, chronic staffing problems experienced in many African posts persist, and because consular positions worldwide are often filled by lower level staff, the Bureau of Consular Affairs considers African posts at risk. In Lagos (Nigeria), for example, 12 State positions were unfilled as of February 2002; and many of those filling positions were first-tour junior officers and civil service employees who had never served overseas. In the 10-officer consular section in Lagos, only the consul had more than one tour of consular experience. According to bureau and post officials, with virtually no mid-level Foreign Service officers at post, the few senior officers there were stretched thin in training and mentoring junior officers. While the State Department considers assignment of employees to positions that are at grade and within their functional specialty to be the most effective use of its human resources, many employees are working in positions well above their grade. State policy does allow “stretch” assignments—positions either above an officer’s grade (an “upstretch”) or below an officer’s grade level (a “downstretch”)—at certain points of the assignments cycle and under certain conditions. For instance, when there are no eligible bidders at grade, an upstretch assignment may be made for positions that are hard to fill, including those at high differential posts (15 percent or higher) and posts that are among the most difficult to staff. State officials pointed out that one-grade stretches are often offered as a reward and as career-enhancing opportunities for those who have demonstrated outstanding performance. Thus, human resources officials at State cautioned us that while global information on employees working in positions above their grade could be generated from the department’s personnel database, records would need to be examined on a case-by-case basis to determine the rationale for each individual assignment. In the countries we examined for our review, we focused on staffing data for those officers working two or three grades above their rank. We found instances where this occurred, often with junior officers serving in mid- level and, occasionally, senior-level positions. For example, in Kiev (Ukraine), about half of the Foreign Service officer positions were staffed by junior officers or others in the positions for the first time; several employees were working in positions at least two levels above their grades. In addition, with the consul general position vacant in Kiev for a year and the deputy consul general position vacant for 15 months, a junior officer was serving as acting consul general. A similar situation occurred at a U.S. consulate in Russia when an untenured junior officer was serving as the consul general in 2001. A junior officer told us that, prior to joining the Foreign Service in 1999, he was hired as a part-time intermittent temporary employee in Almaty (Kazakhstan) to serve for 7 months as consular chief at the embassy. Data from several of our post staffing reviews suggest that language requirements make it more challenging to staff some hardship posts— particularly those with languages that are hard to learn. Many of those assigned to these posts lacked the minimum language proficiency to perform their jobs effectively. State officials emphasized the importance of language proficiency to perform effectively, and as one former ambassador stated, “a Foreign Service officer who does not know the language would be inhibited at every turn.” Based on our review of language capabilities of Foreign Service employees at the seven countries we examined, we found that many staff lacked the minimum language proficiency requirements of the positions to which they were assigned. For example, post officials told us that at the U.S. mission in China, 62 percent of Foreign Service employees did not meet the language proficiency requirements of their positions. In Russia, 41 percent of U.S. mission employees did not meet the language proficiency level designated for their positions. In Pakistan, five public diplomacy positions in Islamabad, Lahore, and Karachi were held by employees without the language proficiency State would consider useful. In Saudi Arabia, the head of the public diplomacy section at a consulate had no Arabic language skills. According to post officials, language requirements are regularly lowered or waived to fill some positions quickly and reduce lengthy staffing gaps. To compensate for this, missions like China and Russia offer staff the opportunity to pursue language training while they are at post. Although staff felt these opportunities were very helpful, they told us that such training was difficult to pursue because the languages were extremely hard to learn and heavy workloads prevented them from devoting time during normal working hours for training. State’s human resources data system does not provide complete and accurate information that can be readily used for management purposes. More specifically, State officials could not provide, on a global basis, information necessary to assess the extent of staffing shortfalls, including whether the experience and skills of employees match those needed for the positions they fill. We have reported that valid and reliable data are a key element to effective workforce planning and strategic human capital management. While State officials told us they are making significant efforts to improve the department’s mechanisms for workforce planning, we found the existing human resources data that State maintains and analyzes to be limited. For example, State does not maintain historical bidding data, data on directed assignments, and data on the dispersion of employee ratings and promotions at an aggregate level and the extent to which hardship service was considered in these personnel actions. In addition, State does not regularly analyze assignment histories to determine how the burden of hardship service is shared among Foreign Service employees. Finally, State has not fully assessed the impact that financial incentives and disincentives may have on recruiting employees for hardship posts. In January 2002, we reported that State had difficulties generating a consistent global aggregate measure of its actual language shortfalls because of inadequate departmentwide data on the number of positions filled with qualified language staff. State officials acknowledged errors in data collection and processing and indicated that corrective action was imminent, but as of May 2002, the human resources bureau was still unable to generate accurate language information from its database. State’s assignment system is not effective in staffing hardship posts. While Foreign Service employees are expected to be available to serve worldwide, few bid on positions at some hardship posts, and very few— excluding junior officers, whose assignments are directed—are forced to take assignments they have not bid on. We found that State’s mechanisms for sharing hardship service and determining staffing priorities have not achieved their intended purposes—to place qualified personnel in appropriate positions while meeting the needs of the Foreign Service and the employees’ professional aspirations and career development goals. Furthermore, financial and nonfinancial recruiting and retention incentives have not enticed employees to bid on some hardship posts in sufficient numbers. According to State officials, the problem of staffing hardship posts is exacerbated by a shortage of officers in the mid-level ranks, as well as certain restrictions such as medical problems (an employee’s or a family member’s), difficulty obtaining jobs for spouses, inadequate schooling for children, or the time to become proficient in a difficult language. (App. III discusses many of the key staffing issues at selected posts.) State has launched an aggressive program to hire more staff, but absent a comprehensive approach to human capital management that addresses the needs of hardship posts, these efforts may still fall short of putting the right people where they are most needed and filling the most demanding positions with the most experienced talent. Foreign Service employees are obligated to serve overseas, and mid-level and senior officers are expected to serve a substantial amount of time overseas. However, there is no requirement for hardship service, and the primary approaches State uses to encourage and steer employees toward hardship service have fallen short of their intended objectives to fill critical staffing gaps and to share the burden of hardship assignments. One example illustrating this problem is the assignment of senior officers. These officers are needed at overseas posts, particularly at hardship posts, to apply their experience and give guidance to junior officers. However, as we discuss later, senior officers nearing retirement often prefer to complete their careers in Washington for financial reasons. State’s assignment system tends to accommodate these preferences even though this means that some service needs at hardship posts will not be met. Although procedures are in place to force employees into assignments if there is an urgent service need to fill a position, procedures for directed assignments have rarely been enforced in recent years. Because State does not routinely track the number of directed assignments made, statistics for the 2001 and 2002 assignments cycles were not available. However, previously recorded data showed that only 39 assignments were directed by the Director-General in 1998, 37 in 1999, and 12 from January to June 2000. At the same time, State has no criteria that clearly define what constitutes an urgent service need—leaving this determination for the functional and regional bureaus, rather than the human resources office that coordinates assignments, to make. In a February 2002 joint statement, the Director-General of the Foreign Service and the American Foreign Service Association underscored the need to strengthen worldwide availability of Foreign Service employees and called for more aggressive enforcement of existing procedures so that Foreign Service employees serve where their skills are needed most. While there were those who favored directed assignments to deploy staff where and when they are needed, many State officials we interviewed were concerned that such an approach would only create more problems at the post level because employees who are forced into positions they do not want are more apt to have poor morale and be less productive. Based on an expectation that Foreign Service employees be available for their share of hardship assignments, State has special bidding requirements for employees who have not served at a hardship post in the last 8 years. Under the program, Foreign Service employees who have not served 18 months at a hardship post in an 8–year period are considered “fair share” bidders. However, State does not require that these bidders actually be assigned to hardship posts. In fact, rules under this program permit some fair share bidders to bid only on domestic positions. If fair share bidders bid on any overseas assignment, three of the six bids that they submit at their grades and within their specialty must be on hardship posts. Bidders may include up to three bids on assignments one level above their grade at 15 percent hardship posts or higher. However, employees may still choose to bid on posts with lesser hardship (5 to 10 percent differential). In the 2001 assignments cycle, 464 employees were designated as fair share bidders. As shown in figure 2, the vast majority of the fair share bidders—322—were assigned to domestic positions or nonhardship posts. Only 79 bidders, or 17 percent of the total, received hardship assignments. Of this number, 49 bidders were assigned to the greater hardship posts—those with a pay differential of 15 percent or higher. The remaining 63 bidders have already retired or resigned from the Foreign Service or will retire or resign soon. Recognizing that it faced a staffing deficit, State in the past engaged in an exercise just prior to the assignments cycle to identify those positions that are less essential and, therefore, it would not fill. However, this exercise was not based on realistic expectations of the number of employees available for placement, and State continues to advertise positions for which it has no staff to fill. For example, in June 2000, only 53 mid-level generalist positions were on the list of positions State decided not to fill— a fraction of the 222 mid-level generalist positions that the department identified as the shortfall for the 2001 cycle. For the 2002 cycle, State officials decided not to designate positions it would not fill. Instead, because of increased hiring, in July 2001, regional bureaus identified about 120 mid-level positions to be offered to and filled by junior officers—also well below the staffing shortfall of 607 mid-level positions in this current cycle. Neither of these actions prioritized the positions that needed to be filled based on the actual number of employees available for new assignment, and neither is based on an assessment of State’s staffing priorities worldwide. Several former and current ambassadors with whom we met believe the assignment process should include a rigorous and systematic assessment upfront that identifies critical positions that need to be filled based on State’s worldwide strategic priorities and other positions that, although important, should not be filled until State has more staff available. In analyzing bidding data for the 2001 and 2002 summer assignments cycles, we found that positions at hardship posts received significantly fewer bids on average than positions at nonhardship posts. In addition, many mid-level positions at posts with significant U.S. interests had few or no bidders, and the higher the differential incentive paid for a hardship assignment, the fewer the number of bidders. Figure 3 shows the average bids on mid-level positions at overseas posts by differential rate for the 2002 summer assignments cycle. As the graph shows, nondifferential posts such as London, Toronto, Canberra (Australia), Madrid, and The Hague are highly sought, and received, on average, 25 to 40 bids per position. On the other hand, many positions at hardship posts received few, and sometimes no bids. For example, posts such as Karachi (Pakistan), St. Petersburg (Russia), Shenyang (China), Lagos (Nigeria), Kiev (Ukraine), and Jeddah (Saudi Arabia) received, on average, two, one, or no bids per position. We found that, in the 2002 assignments cycle, 74 mid-level positions had no bidders, including 15 positions in China and 10 positions in Russia. Figure 3 may suggest that the hardship pay has not been sufficient to attract bidders to certain posts, even at posts where employees can earn an additional 25 percent above their base pay. In fact, according to a State Department Inspector General’s survey issued in 1999 of Foreign Service employees, 80 percent of the respondents did not believe that the differential pay incentives were sufficient to staff hard-to-fill positions. The line in the graph (fig. 3) shows the median of the average number of bids for each differential rate. As the line indicates, the median of the average at a nonhardship post is about 14 bids while the median of the average at a 25 percent differential rate post is about 3 bids. For a complete list of the countries that we identified as the most heavily bid and underbid for the 2001 and 2002 cycles combined, see table 10 in app. IV. According to State, the biggest shortages are for Foreign Service generalists in the mid-level ranks, particularly in the administrative, consular, and public diplomacy areas, as well as Foreign Service specialists who provide infrastructure support services. It is in these areas that positions tend to have fewer bidders—oftentimes two or fewer bidders who meet the grade and functional specialty requirements, the threshold at which State considers a position hard-to-fill. As shown in table 2, we analyzed the average number of bids submitted for the 2002 assignments cycle and found an average of fewer than three bidders for administrative and consular positions in 20 and 25 percent hardship posts; and an average of fewer than three bidders for public diplomacy positions in 15 and 25 percent hardship posts. Finally, Foreign Service specialist positions in 25 percent hardship posts also had, on average, fewer than three bidders. Based on these data, it appears that, on average, positions in other functional areas and in the lesser hardship posts (e.g., economic, political, and rotational positions in nondifferential posts) have a greater supply of interested bidders. To fill positions that are difficult to staff, primarily in hardship posts, State’s policies allow bidding and assignment rules to be relaxed when there are not enough bidders. In addition, various employment mechanisms are available to allow post management to fill staffing gaps with temporary or limited-term personnel when necessary. While these options help ease the staffing problems at hardship posts and offer short- term relief, they are less than ideal. Senior post officials acknowledged that employing staff with less experience and expertise than the positions require impedes the efficiency of post operations but that the alternative— absorbing the impact of extended staffing gaps—is worse. Bidding and assignment rules may be relaxed for (1) hard-to-fill positions—where there are two or fewer fully qualified bidders who are at grade and are in the designated specialty and (2) posts that are identified as among the most difficult to staff—where 50 percent of the positions advertised have two or fewer bidders. Ninety-eight, or about 38 percent, of the posts overseas met the criteria to be designated most difficult to staff in the 2002 assignments cycle. To staff positions at these posts, State eases certain rules, which could compromise diplomatic readiness. For example, to attract employees to bid on these positions, the department may allow stretch assignments early in the assignments cycle, waive language requirements, or offer unusually short tours of duty (12 to 18 months). The vast majority of the most-difficult-to-staff posts are in the Bureau of African Affairs, with about 40 percent (39) of the posts, and the Bureau of European and Eurasian Affairs, with 27 percent (26 posts, mostly in the Newly Independent States). (A complete list of U.S. diplomatic posts worldwide is shown in app. V.) In addition, State offers assignment opportunities for State Department civil service employees to temporarily fill Foreign Service positions that remain underbid. State targeted 50 such positions to fill in 2001. In 2002, State established a limit to fill 50 Foreign Service positions with civil service employees, including those who were already in the program and went on to a subsequent tour. Approximately 200 civil service employees are now assigned to hard-to-fill positions overseas that are ordinarily staffed by Foreign Service officers. In a report to State in March 2001, the Office of the Inspector General supported using civil service employees to fill overseas vacancies but stated that the program had not substantially reduced the systemwide staffing shortage. Moreover, despite widespread support for the program, use of civil service staff in Foreign Service positions raises workforce planning concerns, particularly for the bureaus that are sending, and thus temporarily losing, their civil service staff. State also employs retired Foreign Service officers for temporary duty, international fellows and presidential management interns, family members, and American residents who are hired locally as part-time intermittent temporary employees or on personal services contracts or agreements. According to post officials, although these staff augment the capabilities of mission operations, the methods by which they are hired, the tasks to which they are assigned, and the employee benefits to which they are entitled are not applied consistently—thereby raising some personnel and morale issues at the post level. State does not regularly analyze how the burden of hardship service is being shared among Foreign Service officers, although this has been a long-standing concern. To measure how the burden is shared, we analyzed the careers of 1,100 mid-level Foreign Service officers who were hired between 1986 and 1991, which represents about 10 to 15 years of service. We performed the analysis by using the Lorenz curve, which is a methodology traditionally used to measure income inequality. Figure 4 shows the relationship between the percentage of employees and the percentage of weighted hardship burden. (For a detailed discussion of our methodology, see app. I.) The graph is an indication of how the hardship burden is being shared. The broken diagonal line represents perfect sharing of burden while the curve reflects how the actual burden is shared. The data indicate that half of the officers experienced 27 percent of the hardship burden while the other half experienced 73 percent (point A). Viewed another way, the bottom 20 percent of employees served 5 percent of the hardship (point B) while the top 20 percent served about 37 percent of the hardship (point C). State officials noted several reasons why some employees cannot serve at certain hardship posts, such as medical conditions, inadequate schools for their children, and a lack of spousal employment opportunities. State offers some financial incentives for hardship service, which have yielded mixed results. These financial incentives include a post differential allowance (or hardship pay) ranging from 5 to 25 percent of base pay to compensate employees for service where environmental conditions differ substantially from those in the United States and to entice them to serve.While there are factors other than money that may keep an officer from bidding for a position at a particular hardship post or restrict an officer’s options to only selected posts, our analysis of bidding data (fig. 3) suggests that the differential rate does not appear to be effective in enticing a significant number of employees to certain posts. To address this issue, in 2001, State began to provide an additional 15 percent incentive to those who sign up for a third year at selected 2-year posts that have been extremely difficult to staff. According to State officials and Foreign Service employees, the incentive provided by differential (hardship) pay for overseas service has been diminished by rules governing locality pay. Locality pay is a salary comparability benefit to attract workers in the continental United States to the federal government versus the private sector. In 1994, an executive order began the process of allocating annual governmentwide pay increases between base pay and locality pay. However, Foreign Service employees serving overseas do not get locality pay. Thus, the differences in the statutes governing differential pay for overseas service and locality pay have created a gap between the compensation of domestic and overseas employees—a gap that grows each year as locality pay rates continue to rise by 1 percent or more annually. State has not analyzed the effect that this difference has had since 1994 on the number of Foreign Service employees who bid on overseas assignments, including hardship posts. However, State Department officials, the American Foreign Service Association, and many officers with whom we met said that this gap penalizes overseas employees and that if it continues to grow, it will inevitably keep employees from choosing an overseas career in the Foreign Service. Figure 5 illustrates the effect that increases in locality pay have on the relative value of overseas differential rates. As figure 5 shows, the advantage of overseas pay with differential has eroded over time and locality pay has created a financial disincentive for all overseas employees. As of January 2002, the locality pay rate for Washington, D.C., was 11.48 percent. We estimate that by 2006 and 2010, the differential pay incentives for the 15 percent and 20 percent differential posts, respectively, will be less than the locality pay for Washington, D.C., assuming that the locality pay rate continues to increase at about 1 percent per year. In addition, Foreign Service employees we interviewed emphasized that it is also a financial disincentive to retire while serving overseas because post differential is not used to determine an officer’s retirement benefits whereas locality pay, which is offered to those employees who serve in Washington, D.C., is factored into the retirement benefit. According to State human resources officials, retiring with a high three average salary calculated on service abroad can result in a substantial reduction in annuity annually, compared with a Washington-based high three average salary. As a result, a significant number of employees who are nearing retirement return to Washington, D.C., for their last tour of duty to have their locality pay factored into their high three salaries for purposes of calculating retirement benefits. In fact, according to State, since 1997, 62 percent of senior Foreign Service and management level employees who retired concluded their careers in Washington rather than from an overseas tour. This exacerbates the problem of staffing hardship posts because the most experienced employees tend not to choose overseas service during their last tour of duty. To address these overseas pay and retirement benefit issues, State, with the support of the American Foreign Service Association, proposed that Foreign Service employees working overseas should get locality pay equal to the Washington, D.C., rate. The Office of Personnel Management agrees that locality pay should be extended to overseas employees and has asked the Office of Management and Budget to consider this issue. The State Department estimates that it would cost $50 million to $60 million a year to increase overseas employees’ pay to the Washington, D.C., level. State officials believe that extending locality pay to overseas employees is the best way to address pay comparability issues with employees serving in Washington, D.C. As a short-term measure in the interim, the administration has approved and forwarded to Congress a supplemental retirement proposal to address, for those who are nearing retirement, the immediate problem of reduced retirement annuities due to service overseas. While these proposals could encourage overseas service, there are no assurances that they will fully address the problem of staffing hardship posts because all overseas Foreign Service employees would gain the same benefit and may continue to bid on assignments at nonhardship posts. The State Department has developed a pilot program that offers an additional financial incentive to employees accepting a 3-year tour in 41 designated hardship posts. This effort has begun to make a difference in a number of posts. Nonetheless, some employees choose not to remain at post for an additional year and thus forego the additional differential of 15 percent. Out of 173 positions that were eligible for the program in the 2001 assignments cycle, the first full year the program became operational, 127 employees (73 percent) signed up for a third year at posts that ordinarily require a 2-year tour. Based on State records, the program was estimated to cost about $1.8 million in fiscal year 2002. While many State officials with whom we met—in Washington and at the posts we visited—were enthusiastic about the new program, it appears that some of the more difficult hardship posts have not yet realized the benefits they had hoped the additional incentive might bring. For example, 10 employees in two China posts—Chengdu and Shenyang—extended their tours to take advantage of the new incentive. However, bureau officials noted that, even with the additional 15 percent differential offered as a recruiting incentive, Shenyang has no bidders for any of the six positions advertised in the current 2002 cycle; Chengdu had a few bidders, but none of them opted to take advantage of the incentive and sign up for an additional year. None of the staff assigned to two posts in Russia—Vladivostok and Yekaterinburg—has chosen an extended tour, and none of the employees newly assigned to these posts has opted for an additional year. In Kiev, about half of those eligible signed up for the program and extended their tours for a third year. In Lagos and Abuja, 16 percent of the employees who were eligible extended their tours in 2002, the first year that the program went into effect there. While several State officials in Washington suggest that service at hardship posts is favorably considered in various aspects of a Foreign Service officer’s career, such as promotions and onward assignments, many of the post staff with whom we met said they believe otherwise. However, State could not provide data on the extent to which hardship service is actually taken into account in such personnel decisions. The criteria that State’s selection boards use to determine promotion of Foreign Service officers do not explicitly require hardship service. However, the guidelines do state that an officer’s performance under unusually difficult or dangerous circumstances is relevant in evaluating whether an officer has the qualities needed for successful performance at higher levels. In addition, the guidelines do not require service abroad as a prerequisite for promotion, but they do encourage selection boards to consider an officer’s demonstrated competence in that regard. Ironically, some employees believe that hardship service could actually disadvantage them on promotion decisions. State officials also told us that service at hardship posts is generally considered in determining an employee’s next assignment, and a number of post management officials agreed that fair onward assignments are one way to reward employees for serving at hardship posts. However, many employees at several hardship posts we visited were not convinced that their service at a hardship assignment would necessarily be rewarded in determining their next assignment. Nonetheless, we noted that bidding instructions for junior officers do state that in filling heavily bid vacancies at popular nonhardship posts, priority and appropriate credit will be given to those serving at hardship posts. Bidding instructions for mid-level and senior positions do indicate that prior service at hardship posts is one of several factors considered in determining assignments, in addition to an employee’s language competence, rank, and functional expertise for the position. As part of its Diplomatic Readiness Initiative announced in January 2001, State has launched an aggressive recruiting program to rebuild the department’s workforce. According to State officials, the department is on track to meet its hiring goal of 465 new Foreign Service officers this fiscal year. As of March 2002, State reported hiring or committing to hire 344 new junior officers, 74 percent of State’s hiring target for this fiscal year. Under the Diplomatic Readiness Initiative, State requested a total of 1,158 new employees above attrition over the 3-year period from fiscal years 2002 to 2004. State officials, particularly those in Washington, D.C., believe that State’s hiring program will largely address the staffing shortage the department now faces as new entry-level junior officers advance to the mid-level ranks. However, it will take years before the new hires advance to the mid-level ranks, where State has reported experiencing its biggest staffing deficit. Moreover, as the influx of new employees advance to mid-level positions, they may also tend not to bid on hardship assignments. Although post officials were encouraged by the new hiring, a number of them were not clear as to whether and how the additional officers hired under the Diplomatic Readiness Initiative will address specific staffing shortfalls experienced at some hardship posts. A senior official in China told us that neither the geographic bureau nor the post has advance knowledge about the new recruits—posts in China can hope but have no assurances that there are enough recruits with some language skills to keep an adequate pool of language-trained staff in the pipeline. An officer in Nigeria noted that individuals with backgrounds in development work and humanitarian affairs, such as former Peace Corps volunteers and those who have worked with nongovernmental organizations, would be especially appropriate for many of the hardship posts in Africa; and for that reason, diversifying the pool of applicants to reach out to such groups is important. Human resources officials in Washington told us that State has embarked on an active outreach program that targets, for example, college campuses, professional associations, and other groups that offer a pool of potential applicants who are proficient in difficult languages and possess other knowledge, skills, and competencies the Foreign Service desires. In addition, they said State is intensifying overseas recruitment efforts. Although State has numerical hiring goals for broad occupational skill categories, State does not have numerical targets for specific skill requirements such as language or regional expertise. In general, the department recruits generalists with a broad range of skills, and they are later trained in specific areas to meet changing requirements. Thus, although State officials are optimistic that enough new hires are being brought in to address the overall staffing shortage, there are no assurances that the recruiting efforts will result in the right people with the right skills needed to meet specific critical shortfalls at some hardship posts. The State Department is facing serious staffing shortfalls at many of its posts, especially those designated hardship posts, and State’s system for assigning available staff has been ineffective in ensuring that overseas staffing requirements, particularly at strategic posts, are adequately addressed. In making assignment decisions, State attempts to strike a balance between matching the preferences, personal circumstances, and professional development goals of individual employees with the needs of the service. However, in an environment where the number of positions exceeds the number of staff to fill them, State is not able to ensure that staff are assigned where they are needed most. The new service need differential program holds some promise, but the extent to which it will address the problem of staffing hardship posts remains unclear. State believes that the department’s new hiring initiatives will gradually solve its current staffing problem. However, positions at hardship posts will continue to have fewer bids from qualified Foreign Service employees unless (a) adequate incentives are in place to entice these employees to bid on and accept assignments at hardship posts and (b) appropriate levers are used, when necessary, to assign experienced staff where they are most needed. Moreover, an assignment system that puts Foreign Service employees in the driver’s seat and does not systematically prioritize the posts and positions that must be filled does not ensure that State’s staffing requirements at hardship posts are adequately addressed. Without a comprehensive, strategic approach to marshaling and managing State’s human capital, there is little assurance that State will be able to place the right people in the right posts at the right time. As a result, diplomatic readiness could be at risk at hardship posts, many of them of significant importance to the United States. In light of our findings that State’s assignment system has not been effective in addressing staffing requirements at hardship posts, including many of strategic importance, we recommend that the Secretary of State: improve personnel and assignment data so that they will (1) allow State to fully assess its human capital capabilities and limitations and enhance the department’s workforce planning efforts, and (2) enable State to take a fact-based, performance-oriented approach to human capital management that would involve analyzing bidding and assignment data to determine its success in addressing staffing needs at all posts, including hardship posts and posts of strategic importance to the United States; rigorously and systematically determine priority positions that must be filled worldwide as well as positions that will not be filled during each assignments cycle, based on the relative strategic importance of posts and positions and realistic assumptions of available staff resources; consider a targeted hiring strategy, with measurable goals, designed to specifically address critical shortfalls, such as employees who are proficient in certain foreign languages; are interested in those particular positions, functional specialties, or career tracks that are in short supply; and are interested in serving in hardship locations; and develop a package of incentives and implement appropriate actions to steer employees toward serving at hardship posts. Such measures could include: 1. proposing a set of financial incentives to Congress that State believes will entice more employees to bid on and accept hardship positions based on analyses that estimate the costs and likelihood of increasing the number of Foreign Service employees who bid on assignments in the selected hardship posts; 2. making hardship service an explicit criterion for promotions and 3. employing more directive approaches to assignments as necessary to steer fully qualified employees toward hardship posts that require their skills and experience and to ensure that hardship assignments are shared equitably. The State Department provided written comments on a draft of our report. State’s comments, along with our responses to specific points, are reprinted in appendix VI. In general, State found our report to be very helpful. It acknowledged the difficulties the department faces in staffing hardship posts around the world and the negative effect that staffing problems have on these posts. State found our statistical findings, including our analyses of bidding and assignment patterns as well as the relative decline of hardship pay due to the lack of locality pay for employees assigned abroad, to be very useful. State indicated that it would implement two of our recommendations. The department said it will (1) study alternative ways to provide additional incentives for employees to serve at hardship posts, and (2) review the implementation of human resources data systems to enhance State’s reporting capabilities along the lines that we suggested. State did not indicate its position with regards to our two other recommendations—that State rigorously and systematically determine staffing priorities worldwide and consider a targeted hiring strategy. State attributes the problem of staffing hardship posts to the department’s staffing shortfall of 1,100 people, which the department is addressing through its Diplomatic Readiness Initiative. In addition to hiring more staff, a major thrust of State’s efforts is addressing the locality pay issue. While we acknowledge that these efforts would ease State’s overall staffing problem, both domestically and overseas, we do not believe that they would necessarily fully address the staffing requirements of hardship posts, including those of significant importance to the United States. We hold this opinion because staffing decisions made under State’s assignment system tilt the balance toward employee preferences, rather than the needs of the service. Although there will be more staff available to fill positions, it will take years before the new hires advance to the mid- level ranks where State has reported the largest deficit. Furthermore, as the new employees advance to mid-level positions, they may tend to bid on and be assigned to non-hardship posts unless State (1) hires people with the specific skills that are in short supply and who are inclined to serve in hardship posts and (2) puts in place appropriate levers to steer employees with the right skills and experience to serve in hardship posts. We do not believe that hardship posts should suffer disproportionately from staff shortages. Our recommendations, if implemented, would help ensure that the staffing needs of hardship posts, including those critical to U.S. interests, are met. We are sending copies of this report to appropriate congressional committees. We are also sending copies of this report to the Secretary of State. Copies will be made available to others upon request. If you or your staff have any questions about this report, please contact me on (202) 512-4128. Other GAO contacts and staff acknowledgments are listed in appendix VII. To assess the number, experience, and skills of staff in hardship positions and the potential impact on diplomatic readiness, we selected seven countries identified by State as strategically important to U.S. interests: China, Kazakhstan, Nigeria, Pakistan, Russia, Saudi Arabia, and Ukraine. We also visited seven hardship posts in three of the countries we examined—Beijing, Guangzhou, Shanghai, and Shenyang in China; Riyadh and Jeddah in Saudi Arabia; and Kiev, Ukraine—where we met with numerous post officials to obtain human resources data not available in headquarters and to assess the impact that staffing shortfalls may have on diplomatic readiness. To examine how well State’s assignment system is meeting the staffing requirements of hardship posts, we reviewed State’s policies, processes, and programs for filling hardship posts, as well as State’s open assignments manuals and other human resources documents. In addition, we analyzed the process, mid-level bidding data, and results of the 2001 assignments cycle, including fair share assignments; mid-level bidding data on the 2002 assignments cycle; and the assignment histories of 1,100 mid- level generalists hired between 1986 and 1991. We did not validate the accuracy of the data obtained from State. We also met with several offices within the Bureau of Human Resources; executive directors, post management, and human resources officials in five of the six regional bureaus; nine current and former ambassadors who have served in hardship posts; and representatives of the American Foreign Service Association. We analyzed bidding data to determine the average number of position bids by posts, the median average bid for each differential rate, and the areas of specialization that are difficult to staff. For these analyses, we used the mid-level bidding data for the 2001 and 2002 summer assignments cycles. The bidding data include the number of positions to be filled at each post and the number of bids received for each position. We used the mid-level bidding data because mid-level positions comprised 58 percent of the total Foreign Service workforce. We also used the bidding data for the summer assignments cycle because, according to State officials, most employees are transferred during this cycle, compared to the winter cycle. In addition, the analysis was limited to 2 years because State has bidding data for only the 2001 and 2002 cycles. Although we analyzed data for the two cycles, we provided information for only the 2002 cycle (see fig. 3) because the results for 2001 were similar: To obtain the average number of bids for each post, we took the total number of bids received on all positions at each post and divided it by the total number of positions to be filled at the post. For example, in the 2002 summer assignments cycle, Beijing had 12 positions to be filled and received a total of 53 bids, resulting in an average of 4.4 bids for this post. To obtain the median bid at each differential rate, as represented in the line in figure 3, we arranged in ascending order the average bid for each post at the corresponding differential rate and used the middle average bid. For example, assuming there are only 5 posts at the 25 differential rate and their average bids are 3, 5, 7, 9, and 16, the median of the average bids is 7. To measure how the hardship burden is shared by Foreign Service employees (fig. 4), we analyzed about 10,000 assignments of 1,100 mid- level generalists with 10 to 15 years of service. We performed the analysis by using the Lorenz curve, which is a methodology traditionally used to measure income inequality: First, we assigned weights to posts based on State’s level of differential (hardship) pay. State differential pay range from 5 percent to 25 percent of base pay. For example, we assigned 1.0 to a nonhardship post, 1.10 to a 10 percent hardship post, and 1.25 to a 25 percent hardship post. Next, we multiplied the number of days each mid-level generalist served at each post by the weighted post differential to obtain total hardship weighted days. We subtracted the total number of unweighted days served at all posts to obtain the number of hardship burden days for each generalist. The number of hardship burden days was divided by the number of career years served to obtain hardship burden per year per employee. The graph represents the ordering of employees from the lowest to the highest weighted hardship burden. In addition, we analyzed D.C. pay, which incorporates locality pay, versus overseas pay with differential rates to determine the effects of the locality rate on the relative value of overseas differential rates (fig. 5). For our analysis, we focused on a hypothetical Foreign Service officer at the FS-04 step 13 level, who would have had a base salary of $50,526 when locality pay was put in place in 1994. We then compared subsequent increases in pay for D.C. employees with pay increases for personnel at nonhardship posts and at posts with varying levels of differential rate. For the period from 1994 through 2002, we used historical data provided by the Office of Personnel Management. Based on these historical patterns and projections of increases in federal pay levels by the Office of Management and Budget, we assumed that D.C. pay increases will average 4 percent annually from 2003 to 2011 and that overseas pay increases will average 3 percent annually over that period because locality pay is not included in overseas pay. The overseas pay does not include other allowances such as education and housing, of which the value varies depending on the circumstances of the individual employee. We conducted our review from July 2001 to May 2002 in accordance with generally accepted government auditing standards. The authority to make assignments, which is granted to the Secretary of State, is delegated to the Undersecretary for Management. This authority is exercised through the Director-General of the Foreign Service, who is responsible for formulating and implementing personnel policies and programs. Under the direction of the Director-General and the Principal Deputy Assistant Secretary for Human Resources, the Director of the Office of Career Development and Assignments (HR/CDA) is responsible for assigning Foreign Service personnel resources throughout the State Department and overseas. The functions of HR/CDA are divided into four divisions: Senior Level, Mid-level, Entry Level, and Assignments. (Fig. 6 below illustrates the organization and functions of HR/CDA.) State policy is that Foreign Service employees are to be available to serve worldwide. Foreign Service personnel are assigned through an “open assignment system.” The current open assignment process was established in response to a directive issued from the Secretary of State in June 1975, which called for creating a more open, centrally directed assignment process. The system is designed to engage all Foreign Service employees directly in the assignment process by providing information on all position vacancies and giving them the opportunity to compete openly. According to HR/CDA, while a major element of the 1975 directive was to eliminate the right of a bureau or post to veto assignments, the mandate for HR/CDA to take bureau and post interests into account in making assignments was extended and strengthened. Prior to the start of the assignments cycle, the open assignments agreement is negotiated each year between management and the American Foreign Service Association to cover applications for positions represented by the association (bargaining unit positions). Based on State’s open assignments manual, management, for the purposes of transparency and efficiency, also applies the agreement to nonbargaining unit positions, such as the deputy chiefs of mission. State has two assignments cycles: summer and winter. State’s assignment process centers on the high-volume summer transfer season, which is when most Foreign Service employees assume their new assignments. The assignment process begins when approximately 3,500 Foreign Service employees who are eligible to be transferred from their current assignment each year receive a list of instructions and upcoming vacancies for which they may compete. Staff then must submit a list of those positions for which they want to be considered. In general, employees must bid on at least 6 positions and no more than 15; 6 of the bids should be at their grades and within their designated functional specialty (called “core” bids) and be in more than one bureau or geographic region. To encourage service at hardship posts, three bids on one-grade stretch assignments at 15 percent and above differential posts now may count among an employee’s core bids. The remaining nine bids may be on any other positions, including those outside of an officer’s specialty or for training, detail, and stretch assignments. There are other regulations that pertain to fair share and service at hardship posts, length of service in Washington, D.C., tandem couple procedures, and medical clearances. Employees also submit bids based on their preferences by indicating whether bids are high, medium, or low priority. This designation is shared with the panels but not with the bureaus or posts. After employees make their choices, most submit bids electronically to their career development officers, who review the bids for compliance with applicable rules and regulations. From this point forward, the process takes various paths depending upon an officer’s grade and functional specialty. Junior and certain senior positions are governed by different procedures, as are assignment categories including long-term training,hard-to-fill positions, and details to other agencies and organizations. Certain assignments/positions are determined early in the assignment process. Starting about 3 months into the summer assignment process (around the end of October), employees may be assigned to certain positions by a panel. These positions include at-grade fair share bidders at 15 percent or higher differential post, deputy chief of mission, principal officer of consulates, office director, positions at Special Embassy Program posts, long-term training, and other key positions. Fair share bidders also may be assigned to at-grade positions at differential posts, and to one-grade stretch positions at 15 percent or higher differential posts. When the regular assignment season begins in December, HR/CDA proceeds with at-grade assignments, where language requirements are met, and stretch assignments at 15 percent differential and most difficult- to-staff posts. Other stretch proposals are held until March. HR/CDA will continue to focus on the hard-to-fill positions, and by the middle of March of the following year civil service personnel can bid on Foreign Service hard-to-fill positions. Certain specified domestic and overseas positions cannot be filled without the agreement of the interested principal officer, assistant secretary, and/or the ambassador. These positions include deputy assistant secretaries, office managers for principal and assistant secretaries, deputy chiefs of mission, special assistant to the ambassador, and chief of mission office managers. The appropriate HR/CDA division, working through the assignment officers, consults with bureaus to define position requirements and to request names of preferred potential candidates. Slates of qualified candidates for policy-level positions (deputy chief of mission, deputy chief of mission/special embassy posts) are reviewed and approved by a special committee and submitted to the Director-General for selection. After a candidate is selected, the assignment officer or career development officer will bring the assignment to panel for approval. The mid-level employees comprise the majority of the Foreign Service staff. Generally, the process brings together the employee’s interests, represented by the career development officers, and the bureau’s interests, represented by the assignment officers. State Department officials stressed that it has become increasingly useful, and in some cases essential, for mid-level employees to make themselves known to their prospective supervisors when pursuing their next assignment. After all the bids are submitted, HR/CDA prepares a bid book, which lists the bidders for every projected job vacancy. All bureaus and posts receive a copy of the bid book, which represents the official start of what is referred to at State as the “meat market.” This is when the bureaus attempt to identify the most qualified bidders for jobs available. It is also when bidders start marketing themselves to secure their choice assignments. However, State employees told us that marketing or lobbying actually starts long before bids are submitted, adding that lobbying for a job is not easy for many people. Assignment decisions ultimately are made by panels within the Career Development and Assignments Office. According to State, panels apply a variety of criteria when considering applicants for a position, including transfer eligibility, language competence, rank, and functional specialty. In addition, panels consider and give varying weights to service need, employee and bureau preferences, employee career development and professional aspirations, special personal circumstances (such as medical limitations and educational requirements of family members), and prior service at hardship posts. Bureaus or individuals may appeal panel decisions to the Director-General. The mid-level panel makes roughly 60 percent of Foreign Service assignments. The assignment process for untenured junior (entry-level) officers is somewhat different than the process for mid-level and senior-level officers. While junior officers also submit bids that indicate their preferences, their assignments are directed by the Entry Level Division with little input from the posts or bureaus on which the employees bid. In fact, junior officers are strongly advised not to lobby the bureaus and posts in which they have an interest. According to State, the directed approach ensures maximum fairness in making assignments. The Entry Level Division proposes assignments to the assignments panel only after taking into account an officer’s preferences, language probation status, functional and geographic diversity, equities from prior service in hardship posts, timing, and other important factors. In addition, according to HR/CDA, while the list of bidders goes to the panel, the assignment is done “off panel.” Junior officers serve their first two tours overseas and are expected to serve in consular positions in either the first or second of these assignments, normally for a minimum of 1 year but not less than 10 months. The following tables summarize staffing data and some of the factors that affect staffing of hardship posts in each of the seven countries we examined. Information for the four countries we included in our review but did not visit—Kazakhstan, Nigeria, Pakistan, and Russia—was obtained from the regional bureaus in Washington, D.C., with input from post officials. Table 10 lists the countries in each region that had the most number of bids per position, on average, and the fewest bids. Table 11 lists the 259 diplomatic posts that State operates worldwide, by region and by country. For every post, the tour of duty, hardship differential pay, and any danger pay that may be applicable are shown. The list also shows the 41 posts that have been designated for a service need differential—an additional recruitment and retention incentive of 15 percent above base pay for those who agree to serve for a third year—and the 98 posts that State has designated most-difficult-to-staff. The following are GAO’s comments on the Department of State’s letter dated June 5, 2002. 1. We agree that hiring staff under the Diplomatic Readiness Initiative will enable State to fill more of its positions. However, unless other actions are taken, such as those we have recommended, certain hardship posts may continue to be disproportionately staffed with entry-level employees who may not have the right experience, training, and skills to perform their jobs effectively. Furthermore, it will take years for new employees to acquire the skills and experience required to fill the mid-level positions. In the meantime, State needs to ensure that hardship posts do not suffer disproportionately from State’s shortages of mid-level employees. 2. We acknowledge that entry-level employees are frequently assigned to hardship posts. Our concern is that entry-level employees are assigned to positions that require more experience and that they may not get the supervision and guidance they need from more experienced staff due to the shortage of mid-level officers at hardship posts. 3. Our work shows that State is having difficulty filling positions at hardship posts that are critical to U.S. interests with qualified, experienced staff. Based on our case studies, State’s assignment system does not necessarily ensure that staff are assigned to positions in locations where they are needed most. For example, as noted in our report, State had difficulties staffing public diplomacy positions in Saudi Arabia with experienced, Arabic-speaking officers. In China and Russia, many Foreign Service officers did not meet the language proficiency requirements for their positions. Moreover, State does not rigorously and systematically determine its worldwide staffing priorities. 4. In studying additional incentives for employees to serve at hardship posts, State needs to examine not only financial incentives but also nonfinancial incentives and other actions specifically designed to steer qualified employees toward hardship posts that require their skills and experience and to ensure that the burden of hardship service is shared equitably. These actions could include, for example, making hardship service an explicit criterion in promotion and onward assignment decisions and employing more directive approaches to assignments. Any financial incentives that State may propose should fully analyze the estimated costs associated with each option and assess how they will affect the likelihood of increasing the number of Foreign Service employees who bid on assignments at selected hardship posts. In addition to the person named above, Joy Labez, Barbara Shields, Phil McMahon, Melissa Pickworth, and Janey Cohen made key contributions to this report. Rick Barrett, Tim Carr, Martin De Alteriis, Mark Dowling, Jeffrey Goebel, Kathryn Hartsburg, Bruce Kutnick, Mike Rohrback, and Ray Wessmiller also provided technical assistance.

Foreign service employees often experience difficult environmental and living conditions while assigned to U.S. embassies and consulates that are designated as "hardship posts." These conditions include inadequate medical facilities, few opportunities for spousal employment, poor schools, high levels of crime, and severe climate. Because the State Department is understaffed, both in terms of the number and types of employees, it is difficult to ensure that it has the right people in the right place at the right time. The impact of these staffing shortfalls is felt most strongly at hardship posts, some of which are of strategic importance to the United States. As a result, diplomatic programs and management controls at hardship posts could be vulnerable and the posts' ability to carry out U.S. foreign policy objectives effectively could be weakened. State's assignment system is not effectively meeting the staffing needs of hardship posts. Although American Foreign Service employees are obligated to serve anywhere in the world, State rarely directs employees to serve in locations for which they have not shown interest by bidding on a position. Because few employees bid on these positions, State has difficulty filling them.

You are an expert at summarizing long articles. Proceed to summarize the following text: DOD’s housing management manual states that military-owned, -leased, or -sponsored housing may be budgeted to meet long-range requirements in areas where the local community cannot support the housing needs of military members. Military housing may also be required if available housing in the community has been determined to be unacceptable or if personnel must reside on the installation for reasons of military necessity.Each service is responsible for determining family housing requirements. In general terms, the services should determine their on-base housing requirements based on the number of military families at an installation that are seeking housing, minus the affordable and acceptable supply of existing rental housing units available to the military in the private sector. The supply of private sector housing should be calculated through a detailed housing market analysis and should include a count of available houses in the private sector based on the housing allowances for each pay grade, considering family size. An installation has a housing deficit if a greater number of personnel are seeking housing than the private sector can support. Conversely, a surplus of on-base housing occurs if the private sector housing supply is greater than the number of families seeking housing. DOD has acknowledged the need for further reductions and the streamlining of its infrastructure. In the most recent Annual Defense Report, the Secretary of Defense stated that the Department continues to seek congressional approval for additional rounds of base realignments and closures. By eliminating excess infrastructure and consolidating its forces at fewer bases, the Department believes it will be able to spend its resources on forces and equipment critical to its modernization effort. As part of our ongoing Performance and Accountability Series, we reported in January of this year that infrastructure costs continue to consume large portions of DOD’s budget. Our recent analysis of DOD’s Future Years Defense Program documents for fiscal years 2001-2005 showed that the proportion of resources devoted to direct infrastructure relative to mission has not changed, despite expectations that it would decrease. After years of effort, DOD has not yet implemented a DOD-wide process for determining requirements for family housing on its installations. As a result, the Department cannot know with assurance how many housing units it needs and where it needs them and may be investing in infrastructure it no longer needs. The Department has worked to develop the framework for a process to determine family housing needs that requires reliance on the private sector first to house its servicemembers. However, it has not adopted the process because of a lack of consensus across DOD on common standards such as the definition of affordable housing and acceptable commuting distances. Moreover, a recent study by the Center for Naval Analyses indicates that the services seem to be protecting their existing family housing infrastructures because of concerns about a potential loss of military community. Over the past several years, the Congress, GAO, and the DOD Inspector General have been critical of the inconsistent methodologies used by the services to determine the availability of housing for military families in private sector areas surrounding military installations. In September 1996, we found DOD had not maximized the use of private sector housing because, among other reasons, the housing requirements analyses often underestimated the ability of the private sector to meet housing needs. The Department’s Inspector General recommended in a 1997 report that DOD develop a Department-wide standard process and standard procedures to determine family housing requirements. Further, the Inspector General cautioned that the Department and the Congress did not have sufficient assurances that requests for funds for housing construction on military installations addressed the services’ actual needs in a consistent and valid manner (see fig. 1 for a chronology of selected reports concerning military family housing). Appendix I provides a summary of recent reports concerning the military family housing program. “The Department continues to work on the development of a single model for determining the government-owned housing needs using a set of standard DOD-wide factors along with flexible variables that accommodate service differences. This model will help DOD determine the number of government-owned housing units that need to be constructed or maintained as well as determine the size of the Department’s housing privatization projects.” DOD and the services have worked to develop the framework for a single, consistent process for determining housing requirements. The proposed framework would require the military services to conduct a market analysis surrounding each installation to determine the amount of adequate, affordable housing the private sector could provide. Once this was determined, available housing would be compared to military personnel needing housing and the difference would be the military housing requirement. According to Department housing officials, the proposed process would provide the services latitude in applying service-specific criteria and military judgment in developing housing requirements. For example, the requirement could be adjusted for the retention of housing for key and essential personnel, a percentage of personnel in each pay grade, and for the retention of historic housing. According to DOD housing officials, each of these factors would usually have a relatively small impact on the requirement. In our view, some flexibility in the process is warranted because of the differences in private sector housing around each installation, but DOD must carefully monitor the services use of this flexibility to ensure that they adhere to Department policy to use the private sector first for housing their service families. While DOD has worked to develop the framework for a consistent process, Department housing officials stated that several issues remain unresolved. Issues such as what constitutes affordable civilian housing and reasonable commuting distances have slowed the adoption of the process. For example, the Air Force recently reduced the acceptable commuting distance from the 60-minute standard used by the other services to a 30-minute standard. According to a recent Center for Naval Analyses report, the services will need to agree on each element of the new requirements procedure before it can be finalized. The report further stated that the Office of the Secretary of Defense must obtain agreement among the services or be forced to impose the standards. Department housing officials stated that once a new process is in place, it will take years to update the housing requirements DOD-wide, since the detailed market analyses must be performed base by base. This is of concern, because the Department risks investing valuable resources in housing that it does not need. In late 1999 and 2000, each of the military services submitted Military Family Housing Master Plans to Congress that document deficits in military housing. These plans indicate that, DOD-wide, the services want about 12 percent more military housing units than they have. In addition, the plans show that about two-thirds of the approximately 285,000 aging government-owned houses are in inadequate condition. The housing plans show that the services plan to address inadequate and deficit family housing through a combination of military construction and privatization initiatives. About 3 percent of family housing units were deemed surplus. (See fig. 2 for a status of military family housing units for each service.) The DOD Inspector General and GAO have previously reported that the services use inaccurate housing market analyses when determining the need for military housing. According to a July 1996 Inspector General report, the requirements for seven military family housing projects at a Marine Corps base were unsupported because the number of needed family housing units was unknown. The report recommended that all of these construction projects be placed on hold and that the Marine Corps perform a new housing analysis to justify the family housing construction projects. Although management concurred with the recommendations, the Marine Corps proceeded with two of the projects. We reported in 1996 that according to Army and Air Force information, many military installations in the United States had not maximized the use of private sector housing to meet military family housing needs. For example, the Army’s housing requirements model estimated that 844 of Fort Eustis’ 1,330 family housing units were surplus. If the model had matched housing requirements against adequate private sector housing before matching them against government housing, the model would have estimated that 1,170 of these units were surplus. The Department still does not maximize the use of private sector housing. As part of its effort to develop a standard requirements-setting process, DOD asked a contractor to perform housing market analyses at selected installations. We reviewed the results of three of these market analyses. Two of the three installations were projected to have substantial surpluses once the private sector’s ability to provide housing was factored in. Based on these analyses, over half (1,599 of 3,039) of the military houses at these installations would be surplus. According to DOD housing officials, the third base—a remote, rural installation—had a modest shortage of military housing units. Surplus military housing is the nearly inevitable result if the Department starts by setting housing requirements based on the availability of private sector housing for its members. Surplus housing identified by the proposed process will be disposed of at the end of its useful life, according to DOD housing officials. During the 5-year transition period, the housing officials said the Department would avoid investments in surplus housing units, but admitted that this would be difficult to do without firm requirements. Demand for military housing—evidenced by long waiting lists and high occupancy rates—could be seen as evidence that military housing is needed and that DOD does not have surplus family housing. However, as we have previously reported, waiting lists can be misleading because many personnel on them do not accept military housing when offered because they have already found suitable civilian housing while waiting. One service’s policy is to use occupancy rates to adjust the requirements- setting process: for example, if an installation’s family housing is filled to capacity, all of it must be needed. This rationale is not consistent with DOD’s stated policy of relying on the private sector first. The services— through their referral offices—guide military families to find housing and thus control occupancy. Essentially, the referral offices offer military families a choice between free military housing or an allowance for private sector housing that generally does not cover the total cost of rent and utilities. However, the planned increases in the housing allowance will gradually remove the financial disincentive associated with civilian housing and should make living off base more attractive. Although the change in the housing allowance program is likely to decrease the demand for military housing relative to civilian housing, there are indications that the services are reluctant to reduce on-base family housing. DOD has recognized the concerns among service leaders that housing military personnel off installations in civilian housing would weaken the sense of military community. However, as we said in our May 2001 report, personnel live in military housing primarily because it is free and they seek to avoid additional out-of-pocket costs associated with living in civilian housing. According to a recent Rand report, members in focus groups “scoffed” at the notion that living in military housing helped them to do a better job. And only about 2 percent of servicemembers selected “like having military neighbors” as the first or second most important factor in the decision to live in military housing. Rand concluded that most military members simply do not see a compelling reason—beyond the economic benefit—to live on base. After meeting with each of the services to discuss the methodology for determining housing requirements, the Center for Naval Analyses concluded that a primary goal of the services seemed to be to protect their current family housing inventories. The services were concerned about how any change in procedure would affect the number of on base family housing units. The Center reported that the services want to retain their current military housing, regardless of the new requirements-setting process. Reasons for this include the prospect of large amounts of surplus housing, and concerns about possible morale problems resulting from personnel being forced to move into private sector housing. The Center’s report concluded that increased service resistance to accept a procedural change that may reduce the number of housing units has delayed the completion of formal DOD guidance. The increase in housing allowances has several advantages but makes the need for a DOD-wide requirements-setting process more urgent. The Department could more readily implement its policy to rely first on the private sector to house service families because the additional out-of- pocket costs would be eliminated by the increased housing allowance. Thus, the demand for civilian housing is likely to increase, while the demand for military housing should decrease. While costs for the increased housing allowance appear substantial in the short term, evidence shows that it is cheaper for the government to provide an allowance for private sector housing than to provide a military house on base. Until the Department sets accurate housing requirements DOD-wide, however, it could face mounting costs to maintain its aging and in some places unnecessary housing infrastructure. The housing allowance increase should allow DOD to better satisfy the preferences of servicemembers. We have previously reported that, based on the results of DOD’s 1999 Active Duty Survey, military members prefer civilian housing if costs are equal. Of those currently receiving a housing allowance or living in military housing, about 72 percent said they would prefer civilian housing if costs were equal, while 28 percent said they would prefer military housing. In its 1999 report, Rand reported that only about 20 percent of military members prefer military housing, and that the predominant reason servicemembers live in military housing is for the economic benefit. Department officials also believe the housing allowance increase will ultimately change the composition of the population in military housing. Rand’s analysis indicates that demographic characteristics are the main factor in the demand for military housing. Those who prefer military housing include lower income personnel (especially junior enlisted personnel), those with spouses who do not work outside the home, and those with a greater number of children. Military members with larger families tend to be entitled to a larger residence in military housing than they would be able to afford on the civilian market (housing allowances increase by pay grade). Regardless of whether DOD fully implements a private sector first policy, the increase in housing allowance will add substantial costs to the housing program in the near term. By 2005, the Department projects total costs to be $12.8 billion, about 34 percent more than the $9.6 billion for fiscal year 2000 (see fig. 3). The amount allocated to the housing allowance program will grow from $6 billion in fiscal year 2000 to over $8.8 billion in 2005, about a $2.8 billion increase. The amount allocated for military family housing is expected to grow from $3.5 billion in 2000 to about $4 billion in 2005. Considerable evidence suggests that providing a housing allowance is less expensive and more flexible than providing a military house. In 1993, the Congressional Budget Office estimated that DOD saved about $3,800 per family by paying a housing allowance versus providing military housing.In our 1996 report, we estimated that the military saved almost $5,000 per unit by paying a housing allowance. In its 1999 report, Rand said that all 12 installations they visited had paid more to provide military housing— from $3,000 to $10,000 per unit. Increasing the housing allowance will somewhat narrow the savings that will result from putting personnel in private sector housing instead of family housing on base. Admittedly, these estimates are very rough and are not based on life-cycle costs. However, DOD officials told us that they do not compute life-cycle costs nor do they capture all overhead and other costs associated with military housing, since they are absorbed in many places in the DOD budget. For example, military housing has other significant costs associated with it, including the associated infrastructure like schools, childcare, recreational facilities, and other amenities on installations. Thus, DOD budget officials told us that current funding figures tend to understate the cost of military housing. While these cost estimates are imprecise, it seems unlikely that the government can provide housing cheaper than the private sector, which is driven by market forces. Moreover, DOD housing officials told us that maintaining family housing is not a core mission for the military services and that family housing has been under-funded for many years. This, in their view, is the reason why so much of the family housing stock is inadequate today. As the housing allowance increase is phased in—eliminating the financial disincentive to living in civilian housing—demand for military housing is likely to decrease. This decrease in demand for military housing reinforces the need to implement a consistent housing requirements-setting process quickly so that the Department of Defense and the Congress are assured that the housing construction and privatization projects they review are essential. Unless the Department can accurately determine the housing it needs on its installations, it may spend funds for housing it does not, and will not, need. We recommend that you expedite the implementation of a consistent DOD-wide process for establishing military housing requirements, ensuring that the Department does not spend money on housing it does not need. Specifically, we recommend you demonstrate the need for new construction, renovation, or privatization projects using a process that consistently and adequately considers the availability of civilian housing, before submitting requests for funds for the projects to the Congress. Under 31 U.S.C. 720, you are required to submit a written statement of the actions taken on our recommendations to the House Committee on Government Reform and to the Senate Committee on Governmental Affairs not later than 60 days from the date of this report and to the House and Senate Committees on Appropriations with the agency’s first request for appropriations made more than 60 days after the date of this report. We provided a draft of this report to the Office of the Deputy Under Secretary of Defense for Installations and Environment for comment. The Deputy Under Secretary generally concurred with our conclusions and recommendations. The Department and the military services have agreed that a single, consistent method for determining military housing requirements is needed. The Deputy Under Secretary noted that the Department has spent a great deal of time and effort developing a process that would implement DOD’s long-standing policy of relying on the civilian sector, but that significant issues still need resolution. He cited concerns that a change in the housing requirements process could result in divestiture of thousands of homes before the housing allowance increase is fully phased in by 2005, but noted that this is mitigated because the requirements-setting process under consideration projects private-sector housing availability out 5 years. He indicated that the Department recognizes some demand for on-base housing, but to include an on-base housing demand factor in the housing requirements process would inevitably require DOD to reverse or at least decrease its reliance on the private sector. Rather, the Department’s housing inventory must be validated through an auditable process that can project the extent to which the private-sector housing around military installations can support military families. We agree that considering demand for on-base military housing would, in effect, reverse DOD’s long-standing policy to rely on the private sector first and should therefore be avoided. The Deputy Under Secretary partially concurred with our recommendation that the Department demonstrate the need for new construction, renovation, or privatization projects using a process that consistently and adequately considers the availability of civilian housing, before submitting the requests for funds for the projects to Congress. While recognizing that funding the retention or construction of unneeded housing diverts resources from other DOD priorities, he noted that the current amount of inadequate housing argues for continuing military construction investment while the requirements-setting process is finalized. We agree that some military construction may be needed in locations where the private sector cannot support the housing need, but the Department should carefully review projects to ensure that the private sector cannot meet the housing need before requesting funds from Congress. In our view, these long-standing requirement-setting weaknesses need to be addressed now. Otherwise, DOD risks spending millions on infrastructure that it does not, or will not, need. To determine whether DOD has implemented a standard process for determining the need for military housing based on available private sector housing, we held discussions with, and reviewed documents from, DOD housing officials about the Department’s efforts to develop such a process. We reviewed numerous past reports, including but not limited to, those from GAO, the Department of Defense Inspector General, and the Center for Naval Analyses documenting problems with the current processes used to establish military housing requirements, and obstacles that must be overcome to implement a standard Department-wide process. To assess how the housing allowance increase will affect the need for housing on military installations over the long term, we held discussions with, and reviewed documents from, DOD officials of the Under Secretary of Defense for the Comptroller; the Deputy Under Secretary of Defense for Installations and Environment; and the Under Secretary of Defense for Personnel and Readiness. We relied on data from past GAO and Rand reports. We performed our work from January 2001 through June 2001 in accordance with generally accepted government auditing standards. We are sending copies of this report to appropriate congressional committees. We will make copies available to others upon request. The report will also be available at http://www.gao.gov. Please contact me at (202) 512-5559 or William Beusse, Assistant Director, at (202) 512-3517 if you have any questions concerning this report. Major contributors to this report were Jack Edwards, John Pendleton, and Matthew Ullengren. Recently, several organizations have reported on the military family housing program. The Congress, GAO, and the Department of Defense (DOD) Inspector General have identified problems with the military services’ methodologies for developing housing requirements. Some have recommended that the Department develop and implement a more consistent requirements process. Table 1 provides a summary of the current problems and recommendations that were made to the DOD to improve its requirements.

This report reviews the Department of Defense's (DOD) family housing program. GAO discusses (1) whether DOD has implemented a standard process for determining the required military housing based on housing available in the private sector and (2) how an increase in the housing allowance is likely to affect the need for housing on military installations over the long term. Despite calls from Congress, GAO, and DOD's Inspector General, DOD has not introduced a standard process for determining military housing requirements. DOD and the services have worked to develop the framework for the process, but technical concerns, such as standards for affordable housing and commuting distance, have stalled its adoption. Increasing the housing allowance underscores the urgent need for a consistent process to determine military housing requirements because it is expected to increase demand for civilian housing and lessen the demand for military housing. From a policy standpoint, increasing the allowance better positions DOD to rely on the private sector first for housing because it removes the financial disincentive to living in civilian housing. From a management standpoint, considerable evidence suggests that it is less expensive to provide allowances for military personnel to live on the civilian market than to provide military housing. Although overall program costs are increasing significantly in the short term to cover increased allowances, DOD could save money in the longer term by encouraging more personnel to move into civilian housing.

You are an expert at summarizing long articles. Proceed to summarize the following text: More than 14,000 different types of commodities are imported into the United States, involving more than 15 million separate shipments or transactions each year. In 1992 and 1993, U.S. imports were valued at $532.7 billion and $580.5 billion, respectively. Customs has the primary responsibility for processing imports to ensure that they do not violate U.S. laws and regulations. Also, Customs is responsible for ensuring that duties and fees are paid and, with more than $21.6 billion collected in fiscal year 1993, is second only to the Internal Revenue Service in its revenue-producing function. Customs also accumulates basic information on imports in its ACS database for oversight and statistical purposes. For about 94 percent of the ACS entries, importers or licensed brokers—referred to as “filers”—electronically enter data directly into ACS and generally follow this with a manually prepared entry summary. For the remaining 6 percent of the ACS entries, the filers elect not to file the entry electronically, and Customs must enter the information into ACS from the manually prepared entry summaries. Periodically, Census extracts data from ACS for use in developing and publishing trade statistics. The Census data are available in two forms. The first and most comprehensive is the Import Detailed Data Base, which contains information on individual transactions and is restricted to official use. The second consists of various reports and publications that summarize trade statistics and are made available to the public. In 1990, two professors at Florida International University (FIU), using the summary Census data, found wide variations in the unit values for seemingly identical commodities. For example, the professors found that the unit value for razors varied from $0.03 to $34.81 each. They also found that emeralds from Panama had an average unit value of $974.58 a carat, compared with $5.29 a carat for those from Brazil. Other commodities showed similar disparities. As the results of the FIU study became known, concerns were raised that the differences in unit value could be the result of criminal activities, such as money laundering. For example, a person in the United States could transfer money to another country simply by paying far too much for an imported product in an exchange that would otherwise appear legitimate. As discussed with the Subcommittee, we determined that statistical sampling of a database as large as ACS’ was impractical, given the time constraints of our work. Instead, we agreed to judgmentally select eight commodities for detailed examination. We selected these commodities from the Harmonized Tariff Schedule (HTS) of the United States, which classifies and describes all commodities subject to importation and lists the applicable duties, fees, and quotas for each commodity. We selected a broad variety of commodities that generally had narrow definitions and provided some overlap with previous studies by Customs and FIU. Three of the eight commodities were subject to quotas. To meet our first objective of determining how widely unit values for identical types of commodities varied, we used the Import Detailed Data Base for fiscal year 1992 to compute and analyze unit values and to develop statistical profiles for each of the eight commodities. To meet our second objective of determining why these variations occurred, we selected 10 transactions across a wide range of values under each of the 8 commodities. For each of these 80 transactions, we then examined supporting documentation, such as entry summaries, invoices, and shipping manifests, to verify that the commodity was appropriately classified and to recalculate the unit values that should have been reported. Our objectives, scope, and methodology are discussed in more detail in appendix I. Appendix II provides a summary comparison of the commodities we selected for analysis. Appendixes III through X show the results of these analyses by commodity, including (1) comparisons of high, low, average, and median unit values by U.S. port of entry, country of export, importer, and method of transport; (2) quantities shipped and unit values at each decile across the range of values; and (3) a comparison of the unit value we computed with those in the ACS database for the selected transactions. We obtained written comments on a draft of this report from Customs and Census. Their comments are evaluated at the end of this letter and are reprinted in appendixes XI and XII. We did our work between November 1993 and August 1994 in accordance with generally accepted government auditing standards. Just as the FIU study, we found wide variations in unit values for transactions within the same commodity classification. Table 1 shows the highest, lowest, and average unit values for each of the eight commodities. Appendixes III through X show the unit values for each commodity across percentile ranges and provide further comparisons by U.S. port of entry, country of origin, importer, and method of shipment. As seen from table 1, variations in unit value were the norm for the eight commodities we examined. Raw cane sugar had the most narrow unit value range and, even then, the highest value of $1.75 a kilogram was four times the lowest value of $0.43 a kilogram. At the other extreme, the high unit value of $3,809 per meter for wood dowel rods was 952,250 times the lowest unit value of $0.004 per meter. Some unit values appeared implausible. Such was the case with facsimile machines valued at $5.62 each, pantyhose for $1,267.50 a dozen pair, or hypodermic syringes as low as $0.01 and as high as $3,485 each. Also, 185 shipments of scrap gold, which accounted for 783,380 grams (or 4.3 percent of the total quantity), each had a unit value of more than $11.60 a gram—the price of pure gold at the time. Overall unit values for scrap gold ranged from $0.02 to $4,368 a gram, with an average unit value of $3.75 a gram. In examining the supporting documentation for individual transactions, we found two causes for variations in unit values. First, the commodity classifications used by Customs were so broad that a particular code could cover a wide assortment of products with natural variations in value. In practice, Customs can do little about the wide commodity definitions, since they are determined through a combination of law, international agreement, and agreements among various U.S. agencies, including Customs. Second, filers frequently made errors in entering the commodity code, quantity, or total value into ACS. While Customs could correct these errors if it knew of them, the current parameters used to detect unit value anomalies are so broad that they identify only those errors involving extremely high or low unit values. In coding commodities for entry, Customs requires filers to choose from the more than 14,000 codes specified by the HTS. The HTS is subdivided into sections, chapters, and specific commodity types. The codes range from 4 to 10 digits in specificity, depending on the degree to which a particular commodity is subdivided. For example, facsimile machines are at the 10-digit level (8517.82.00.40) under “electrical machinery and equipment” (Chapter 85), the 4-digit level (8517) under “electrical apparatus for line telephony or telegraphy,” and the 6-digit level (8517.82) under “telegraphic.” Even with the large number of specialized codes, commodities within a particular HTS classification can vary by type, quality, and intended use. As shown in the transaction analyses in table 8 of appendixes III through X, these variations in products lead to variations in unit values. For example, the facsimile machine classification described in appendix V covers everything from inexpensive and mass-produced, home-use models to machines that are highly specialized and designed to be used in complex and sophisticated communications systems. We analyzed the supporting documentation for the 10 facsimile machine transactions and found machines that were properly valued as low as $264.14 per unit and as high as $26,425 per unit. Similarly, the pantyhose classification discussed in appendix IV is broad enough to include such diverse products as pantyhose of differing grades and sizes, tights, and support hose. For the 10 pantyhose transactions, we analyzed the supporting documentation and found products that were properly valued from as low as $3.50 a dozen pair to as high as $156.59 a dozen pair. Two of the transactions, with unit values of $156.59 and $66.64 a dozen pair, were special orders intended for promotional uses. The scrap gold classification is broad because it covers gold waste and scrap, regardless of the weight, purity, or metals to which it is clad. For example, we examined the supporting documentation for one transaction where the commodity was described on the invoice as “scrap gold for refining” and was properly valued at $9.26 a gram. We examined the supporting documentation for another transaction and found the scrap gold was properly valued at $0.22 a gram and, according to the invoice, consisted of gold and brass “floor sweeps.” The U.S. International Trade Commission publishes the HTS, following guidelines set by law, international agreement, and agreements among U.S. agencies. As one of these agencies, Customs can only recommend changes in the level of specificity within individual HTS classifications. Customs officials said they would not necessarily make changes in the definitions even if they could do so. According to these officials, while narrower product definitions would reduce the range of unit values within a particular commodity code, the higher level of specificity also would increase the number of codes with which Customs and the filers would have to contend. Another reason unit values for imports varied so widely is that the Import Detailed Data Base contains errors. Such errors occur when the filer enters the wrong HTS code, quantity, or total value into ACS and the data are not corrected prior to being extracted by Census. We examined the supporting documentation for 80 transactions, and we found that 45 transactions contained one or more types of errors. For 14 of the 45 transactions with errors, the filer entered the wrong HTS code. Thus, while the unit value may have been computed properly, it was entered under the wrong commodity classification. The following are examples of valuation errors created by the filer having entered the wrong HTS code: Four of the 10 facsimile machine transactions were wrongly coded because the products shipped were not facsimile machines. Two of these transactions, with unit values of $492.84 and $5.62 each, actually were for spare parts. A third transaction, with a unit value of $29.23 each, was for a shipment of modems. The fourth transaction—and by far the largest single unit value we analyzed—was for a telegraph machine with a unit value of $147,292. Three of the 10 raw cane sugar transactions—accounting for 64.7 percent of the total volume shipped during 1992—were wrongly coded. Since the product did not meet the commodity definition of raw sugar, it should have been listed under another cane sugar category. Three shipments of unsweetened cocoa, with unit values of $234.43, $2.62, and $0.24 a kilogram, were wrongly coded. Even though the products contained cocoa, one shipment was a specialty concentrate and the other two shipments were cocoa cake. Each type of product has its own HTS classification. For 36 of the 45 transactions with errors, the filer entered either the wrong quantity, the wrong total value, or both the wrong quantity and total value into ACS. Five of these 36 transactions contained errors because the filer had also entered the wrong HTS. The following are examples of the types of quantity and value errors we found: On a shipment of hypodermic syringes, the filer showed the quantity as 600,000 when it should have been 60,000. Since the total value was properly shown as $135,000, the unit value was computed as $0.23 each when the correct unit value was $2.25 each. On a shipment of wood dowel rods, the quantity was incorrectly shown as 2 meters when it should have been 4,618 meters. This resulted in the computation of the unit value as $3,809 per meter when the correct value was $1.65 per meter. The opposite occurred on another shipment, when the quantity was shown as 2,709,190 meters instead of 225,765 meters. Thus, the unit value should have been $0.05 per meter instead of $0.004 per meter. A shipment of gold had a unit value of $4,368 a gram, or 379 times the going rate for pure gold at the time, because the filer had entered the wrong quantity. The supporting invoice showed the quantity as 2.05 kilograms and, apparently, the filer showed this as 2 grams in making the entry. The correct unit value of the scrap gold was $4.26 a gram, or less than half of the then market price of $11.54 a gram for pure gold. Eighteen shipments of unsweetened cocoa showed a unit value of $0.00 a kilogram because, in each case, no quantity was shown on the Import Detailed Data Base. We analyzed the supporting documentation on one of these shipments and found that the quantity should have been 8,164 kilograms. Since the total value was properly entered at $14,940, the unit value should have been $1.83 a kilogram. For the transactions we examined, the effect of the filer errors on revenues was minimal. However, the errors raise questions about the accuracy of trade statistics and Customs’ ability to use unit values as a screening mechanism in ACS to detect data errors or to identify problems, such as quota violations or improper payment of duties and fees. The filer errors we found had only a minimal effect on revenues. Of the 45 transactions we found with errors, we identified only 5 transactions where we could determine the duties or fees were wrong, with a net overcollection of $114.57. Each of these incorrect duties or fees was caused by a quantity or value error. We could not determine the effect on duties for two other transactions because the supporting documentation did not contain sufficient information to identify the HTS code that should have been entered. None of the classification errors resulted in a dollar loss because the duties and fees actually paid were equal to or greater than what should have been paid. Similarly, most of the remaining errors involved quantity, whereas duties and fees typically are tied to total value. Quantity errors could be a problem where quotas are concerned, and three of the commodities we selected—raw cane sugar, tire cord fabric, and pantyhose—were subject to quotas. Again, however, the errors we found did not raise concerns that quotas may have been exceeded significantly. In two cases, the quantities were overstated because of errors, so the quota was not exceeded. In the third case, the quantity understated was minimal, amounting to only 0.026 percent of the total quantity shipped for the year. Errors in the Import Detailed Data Base can affect trade statistics. When the filer enters the wrong quantity or value into ACS, the effect is limited to the HTS classification being examined. In those cases where the wrong HTS is entered, the quantity and value data will be in error for both the classification that was entered by mistake and the classification that should have been entered. Since we did not randomly sample commodities or transactions, we cannot project the overall effect of filer errors on trade statistics. However, raw cane sugar, one of the commodities we selected, had only 32 transactions for 1992. We analyzed 10 of the 32 transactions and found that 3 transactions were improperly coded. The three transactions accounted for 64.6 percent of the total quantity and 55.7 percent of the total value reported. The effect of these three classification errors was an overstatement of both quantity and total value in the raw cane sugar category. If not for these 3 errors, the total quantity would have been 931,237 instead of the reported 2,632,911 and the total value would have been $630,491 instead of $1,422,070. Presumably, the categories that should have been entered were understated by like amounts. As a means to detect potential errors in the trade data drawn from the Import Detailed Data Base, Census developed a series of screening parameters that provide a warning that the information entered is outside of the norm. Two types of warnings involve unit value—one warning if it is too high and one warning if it is too low. In effect, the warnings provide a range within which the unit value should fall for a particular commodity code. Table 2 shows the Census unit value ranges for each of the eight commodities we selected for analysis. The Census ranges are integrated into Customs’ ACS, which is to use them to screen each automated entry for unit value anomalies. When the unit value of a particular entry falls above or below the Census range, ACS is to first warn the filer, who then can review the data entered and make corrections if necessary. If the numbers are accurate, but outside the range, Customs is to require the filer to provide supporting documentation with the paper entry summary that follows the electronic submission. ACS is also to alert Customs officials that the entry is outside of the range, and they can review the supporting documentation and ask the filer for more details, if desired. A unit value outside the Census range does not necessarily mean that Customs will review the transaction or make changes to its database. For example, Customs’ procedures provide that no changes to the Import Detailed Data Base generally are required for nontextile commodities if the total value of the transaction is less than $10,000 and no quota or voluntary restraint agreement is involved. Also, Customs officials may choose to take no action or correct only portions of the data, such as those necessary to ensure the proper collection of duties and fees. We examined the supporting documentation for 80 transactions and found that 15 had unit values that were either higher or lower than the Census ranges. In all but 1 of these 15 cases, the filers had made errors in entering the HTS code, the quantity, or the total value into ACS. The only transaction that fell outside of the Census ranges, but was properly entered, was a shipment of tire cord fabric in which the high unit value of $44.64 a kilogram was due to its being a prototype item with a small quantity. Customs officials had not made corrections to the Import Detailed Data Base on any of the 14 transactions we examined and on which we found errors. In some cases, however, the officials had made corrections to the entry summary documents, duties and fees charged, or other modules of ACS. One limitation in the Census ranges is that they are so broad they are of little use in identifying any but the most extreme variations from the norm. This limitation occurs because the Census ranges were designed to detect only those unit values it considered most likely to be erroneous. According to Census, a group of transactions falling outside of a range may indicate the need to adjust the range for a number of reasons, including natural value fluctuations, a change in the diversity of the products included in a particular category, incorrect reporting, or new products entering the trade flow. For the 8 commodities we selected, only 196 (or 1.8 percent) of the 11,100 transactions in 1992 fell outside of the Census ranges. The Trade Agreements Act of 1979 (P.L. 96-39) established one primary valuation method—transaction value—and four secondary methods for determining customs value. Under the transaction value method, Customs generally accepts the price agreed to between the buyer and the seller as the basis for Customs’ valuation as compared to the more complex procedures of the prior valuation system. In practice, Customs officials said that Customs relies on the value declared by the filer unless it has some reason to question the value’s accuracy. In 1990, Customs officials became concerned that valuation had become a low priority within Customs and performed an internal valuation review. The study confirmed the need to re-emphasize valuation in the entry process so that Customs would be better equipped to detect importer attempts to manipulate valuation laws and regulations. Since its 1990 study, Customs has taken several courses of action to address concerns on the valuation of imports. These actions include establishing valuation as one of six priorities in Customs’ Trade Enforcement Strategy Plan, creating a National Valuation Center to help implement the Strategy Plan, increasing training of import specialists on valuation issues, increasing analysis of valuation in enforcement and compliance activities, and implementing an Entry Summary Review Program to increase uniformity in the classification and appraisement of imports. Customs’ analyses of unit values identified the same types of anomalies we found in our review. For example, an enforcement initiative in 1992, which studied shipments into the Miami District, found asparagus valued at $7 a kilogram compared with a world average of $1.38 a kilogram and dryers with a unit value range of $4.24 to $746,723 each. Similarly, in 1993, national import specialists in New York analyzed 1,199 shipments of automatic typewriters and word processing machines and found unit values that ranged from $1.83 to $17,937 each, with an average of $124.67 each. Customs also identified some of the same causes for unit value variations that we identified. An April 1994 Quality Assurance Review draft report, which dealt with the statistical reporting of trade data, pointed out that the wrong HTS codes were entered in ACS because (1) the codes were difficult to interpret and use, (2) the filers did not have sufficient expertise in determining the proper code, and (3) there were few disincentives for using the wrong code. The report also agreed that the Census ranges on valuation were too broad. The report made a number of recommendations for improving the entry, use, and screening of valuation data. These recommendations were preliminary and had been disseminated for field comment; thus, we did not evaluate them. Customs currently is redesigning its entry summary selectivity process, which defines the procedures followed in selecting import documentation for further review by import specialists. This redesign is part of a larger redesign effort, which also is considering changes in the way cargo is selected for physical inspection. Customs officials have not yet determined the degree to which valuation will be a part of the entry summary selectivity process redesign, although they said it may play a prominent role. Customs officials said that changing the way the Census ranges are used presents a dilemma. The Customs officials said that they realize the current ranges are too broad to detect many errors and that they had considered narrowing them. However, while narrowing the ranges would identify more problem entries, this action also would (1) create the need for reviewing more entries that do not have a problem and (2) divert Customs’ resources from other endeavors. Nevertheless, Customs officials said they will continue to look for ways to improve the use of unit value screening mechanisms. We asked the Customs officials whether they had considered using two sets of ranges—one fairly narrow set for the filer and a broader set for Customs and Census. Such a system would place more of the burden on the filers who are making the errors and would encourage these filers to use greater care when entering data. Since Customs and Census could continue to use the broader ranges for their own purposes, any increased workload for the agencies would be minimized. One of the commodities we selected for analysis, hypodermic syringes, can be used as a hypothetical example of how narrower ranges may be beneficial. At the time of our review, the acceptable Census range for this commodity was from $0.01 to $500 each, with only 2 of the 417 transactions for the year falling outside of this range. However, had the Census range been $0.05 to $6.68 each—the unit values at the 20th and 80th percentiles for all transactions during fiscal year 1992 ranked by descending unit values—125 of the 417 transactions would have fallen outside of the range. Included in the transactions that would have been questioned under the new range, but not the old range, was a shipment of 600 syringes with a unit value of $95.35 each. We determined that this shipment should have been recorded at a quantity of 319,800 and a unit value of $0.18. While we could not determine how many other transactions were in error, we did note that a total of 24 transactions had a unit value of more than $40 each, which Customs officials said is improbable for a single syringe. Customs officials said that, while a two-tiered set of unit value ranges merited consideration, they had not considered such a process and were not sure whether it could be done within the current system. The officials planned to study the feasibility of a two-tiered process, but they had not done so at the completion of our work. On the basis of our analysis of eight commodities imported during 1992, unit values did vary widely, with the highest values ranging from 4 times to almost 1 million times the lowest values. Certain unit values—such as pantyhose priced as low as $0.00 a dozen pair and as high as $1,267.50 a dozen pair—appeared implausible. We found two primary causes for these wide-ranging values. First, the commodity definitions themselves may be so broad that they cover a diverse group of products with correspondingly diverse values. Second, the importers and brokers may enter the wrong classification code, quantity, or total value into Customs’ ACS. Thus, many of the unit values being calculated from the Import Detailed Data Base may be incorrect. Our analysis does not allow us to make any generalizations about error rates across all commodities or even within the commodities we examined. However, the high overall error rate (errors in 45 of 80 transactions); the frequency of errors in HTS codes, which affects both the incorrect commodity and the correct commodity; and the fact that Customs’ own research has also shown a high number of errors lead to concerns about the accuracy of these data. The errors we found did not cause a loss of revenues or problems with quotas in relation to the limited number of commodities and transactions we examined. However, our analysis has demonstrated the potential for errors to affect revenues, quotas, and trade statistics. The errors also could lead to difficulties for Customs in using unit value ranges to identify data errors and import compliance problems. To improve the quality of filer data, Customs could consider adding narrower unit value ranges to ACS at the point of data entry, thereby weighing the benefits of such a change against the costs to importers. We recommend that the Secretary of the Treasury direct the Commissioner of Customs to determine the feasibility of adding narrower unit value ranges to Customs’ ACS that will allow the filer to identify and correct more errors at the point of data entry. If the Commissioner finds that such ranges are feasible and cost effective, he should take the appropriate steps to implement them. The Customs Service and the Bureau of the Census provided written comments on a draft of this report. Customs agreed with our conclusions and recommendation and discussed recent actions that it had taken to increase the accuracy of data that are reported for trade statistics. Customs stated that, by placing emphasis on improving overall compliance levels through its Compliance Measurement program, major improvements will be made in the level of compliance with a resultant increase in the quality of trade data. Customs also discussed a pilot program that will use reasonable maximum and minimum unit values to screen entries for potential errors and discrepancies. Also, Customs said it is working in partnership with Census to ensure that the ACS redesign program will provide a long-term basis for overall statistical improvement. Census stated that it believed the report should have specified that ACS provides Customs with the capability to override numerous Census edits including price range and quantity requirements. We agree with this point. On pages 10 to 11, we discuss ACS procedures for screening each automated entry for unit value anomalies and Customs’ review of particular entries that fall above or below the Census range. Our primary concern is Customs’ use of the data to ensure compliance and to generate accurate trade statistics. In this regard, we recommend that Customs determine the feasibility and cost effectiveness of developing narrower unit value ranges for its own use. Census also believed clarification was needed in our statement that Census may broaden the unit value range when too many transactions fall outside the range. Census stated that it does not automatically adjust a range and that the more likely scenario is that adjustments are a reaction to new products entering the trade flow. One of the ways of identifying new products is through groups of transactions falling outside an established range. We have modified the language on page 11 accordingly. Our main point is that the ranges are too broad for any practical use of the unit values as a screening device by Customs in ensuring compliance and accuracy of transaction data. We are providing copies of this report to the Secretary of the Treasury, the Secretary of Commerce, the Commissioner of Customs, and other interested parties. Copies also will be made available to others upon request. Major contributors to this report are listed in appendix XIII. If you need additional information or have any questions, please contact me at (202) 512-8777. On October 23, 1992, the Chairman of the Subcommittee on Oversight, House Committee on Ways and Means, requested that we conduct a study of unit values of imports and exports. His concerns were based on work in 1990 by two professors from Florida International University (FIU), which found significant variations in the unit values of seemingly identical commodities. Specifically, the Chairman asked us to assess the risk of false pricing of imports and exports as a cover for money laundering, how such schemes were being used, the pervasiveness of the problem, and the federal response needed. On September 14, 1993, we briefed the Subcommittee on our work to date. We said that laundering money through manipulative import and export pricing is possible, however, it would be difficult since (1) illicit currency would already have to be laundered once by getting it into the banking system and (2) easier methods of laundering money exist, such as simply smuggling it out of the country. Neither we nor the Customs Service had found evidence of any widespread import and export pricing schemes. On the basis of our analyses of selected transactions, we believe the more likely explanation was that the variations were the product of erroneous data being provided to Customs by the industry. The Subcommittee noted that the original request letter was broad and it was concerned with the overall issue of import valuation, not just money laundering. They asked that we continue our work, but refocus our analysis. In this regard, we agreed to limit our scope to imports and to revise our objectives to determine (1) how widely unit values for identical types of commodities varied and (2) why such variations occurred. They further agreed to our providing detailed analyses of judgmentally selected commodities and transactions, recognizing that the results would be illustrative, but not projectable. As the focus of our study, we obtained from Customs the Import Detailed Data Base, commonly referred to as the IM115 database, for fiscal year 1992, which was the most recent year available. These data, extracted from Customs’ Automated Commercial System (ACS) for use by Census in developing trade statistics, include all import transactions for the year. In total, the files included 15,022,423 records. We used the Harmonized Tariff Schedule (HTS) of the United States as the source for selecting commodities. The HTS provides the official classification codes and descriptions for more than 14,000 types of commodities subject to importation into the United States. The HTS also provides information on the duties, fees, and quotas. We selected eight commodities for detailed analysis. These were pantyhose, raw cane sugar, scrap gold, tire cord fabric, unsweetened cocoa, wood dowel rods, hypodermic syringes, and facsimile machines. While the selections were judgmental, we followed some general criteria. Thus, we chose commodities that would appear to have a relatively narrow product description. The one exception was facsimile machines, which were known to have a broad definition and were chosen for comparison. We chose three commodities (raw cane sugar, tire cord fabric, and pantyhose) that were subject to quotas. We chose two commodities (scrap gold and pantyhose) that had been studied earlier by Customs and were known to have unit value anomalies. We also chose one (scrap gold) that had been included in the FIU study. At Customs’ recommendation, we restricted our analysis of the Import Detailed Data Base to entries listed as “consumption entry” or “warehouse withdrawals.” This restriction was to ensure we were looking at original entries only and to prevent double counting. We then extracted data from the following fields on each of the commodities selected: entry date, importer, consignee, quantity of items in shipment, Customs’ valuation of shipment, port of entry, method of transportation, and country of origin. At Customs’ recommendation, we did not use the unit price variable in the Import Detailed Data Base, but rather calculated unit value on our own by dividing the Customs valuation by quantity shipped. For each commodity, we ranked the individual shipments or transactions in descending order by unit value. We then divided the overall distribution of transactions for each commodity into deciles. Since many transactions had the same unit value, the number of transactions in each decile varied in some instances. We also developed analyses for each commodity showing the number of transactions, total quantity, total value, highest unit value, lowest unit value, median (by quantity and number of shipments) unit value, and average unit value by country of origin, importers, U.S. port of entry, and method of transport. For our transaction analysis, we selected 10 transactions for each of the 8 commodities. Again, we selected these judgmentally but used some broad criteria in making the selections. We selected transactions that would give us a range of values across (although not necessarily in each of) the deciles, a representation of the extremely high and extremely low unit values, a range across importers, a comparison of transactions by the same importer, comparisons between the number of shipments and quantity shipped by the same importer, and a range of quantities shipped. We also used individual criteria for selected commodities. For example, we were interested in transactions of scrap gold where the unit value was more than the value of pure gold, a transaction of raw cane sugar that accounted for more than half of the quantity imported during the year, and transactions on quota commodities where the quantities appeared too small for the values cited. Because we did not randomly sample the commodities or transactions, we cannot generalize about the overall level of errors in the Import Detailed Data Base. To verify the correct unit value for each of the transactions, we obtained the supporting documentation maintained by Customs. These documents included such items as the entry summary, invoices, shipping documents, packing lists, certifications of quota eligibility, laboratory reports, and miscellaneous memoranda. We compared the quantities, values, and HTS codes shown in the Import Detailed Data Base with these documents. Where we noted discrepancies or could not determine the correct amount, we contacted the cognizant officials at Customs’ ports and districts to determine what the correct entries should have been. We also discussed each commodity and transaction with Customs’ cognizant National Import Specialist in New York as well as with Customs’ port representatives when more information was needed. We obtained and analyzed other data on the transactions from Customs’ ACS to determine the amounts of duties and fees paid, questions, if any, raised and resolved during the entry process, etc. In some cases, Customs officials obtained information directly from the importers or brokers for our use; however, we did not contact the importers and brokers ourselves. Because the only unit value screens in Customs’ ACS were the ranges devised by the Census Bureau, we discussed each of the commodities selected with Census officials and attempted to determine how transactions with unit values outside the Census ranges were resolved. The data available were limited, because neither Census nor Customs maintains a complete record of what was questioned or how the matter was resolved. We met with Customs officials in Washington, D.C.; Atlanta; Miami, FL; and New York to discuss enforcement activities, activities related to the entry selectivity redesign project, quality assurance reviews, and other special projects. We also held telephone discussions with Customs’ import specialists at various Customs’ ports and districts nationwide. UNIT OF MEASUREMENT: Gram DESCRIPTION: This category includes gold waste and scrap, including metals clad with gold. It does not include sweepings containing other precious metals or gold-plated items. No distinction is made within the code for the weight or purity (e.g., 10 carat, 14 carat, 24 carat, etc.). Quantity (grams) Quantity (grams) Quantity (grams) Quantity (grams) Includes France, Andorra, and Monaco. Quantity (grams) Importer name deleted to avoid identification with trade-sensitive data. Quantity (grams) Includes pipeline and powerhouse. Quantity (grams) Quantity understated by 2,048 grams. No effect on duties and fees. Unit value changed. Quantity understated by 4,601 grams. No effect on duties and fees. Unit value changed. Quantity understated by 175,660 grams. No effect on duties and fees. Unit value changed. Quantity understated by 181,878 grams. No effect on duties and fees. Unit value changed. Quantity and total value understated by 6,000 grams and $5,000, respectively. No effect on duties and fees. Unit value changed. Quantity overstated by 2,340 grams. No effect on duties and fees. Unit value changed. Quantity overstated by 41,800 grams. No effect on duties and fees. Unit value changed. Legend: N/A = Not applicable. UNIT OF MEASUREMENT: Dozen pair DUTY: The duty ranges from free to 72 percent of value, depending on the country. DESCRIPTION: Products in this category include hosiery from fabric that is made of synthetic fibers measuring less than 67 decitex per single yarn. The level of decitex in the hosiery determines the sheerness or the heaviness of the material; a low level means that the stocking is sheer, and a higher level means that it will be heavier. The range of products includes various styles and ranges of pantyhose, tights, and stockings for varicose veins. Quantity (dozen pair) Quantity (dozen pair) Quantity (dozen pair) Quantity (dozen pair) Quantity (dozen pair) Importer name deleted to avoid identification with trade-sensitive data. Quantity (dozen pair) Quantity (dozen pair) Quantity understated by 145 dozen pair. No effect on duties and fees. Unit value changed. Quantity overstated by 24 dozen pair and total value understated by $270.00. Duties underpaid by $45.90. Fees underpaid by $0.34. Unit value changed. Quantity overstated by 35,750 dozen pair. No effect on duties and fees. Unit value changed. Legend: N/A = Not applicable. UNIT OF MEASUREMENT: Each unit DUTY: The duty ranges from free to 35 percent of the value, depending on the country. DESCRIPTION: This commodity is an electrical apparatus which electronically transmits and reproduces printed material. The category is extremely broad, covering items from simple units for home use to elaborate units integrated into complex commercial applications. Quantity (each) Quantity (each) Quantity (each) Quantity (each) Quantity (each) Importer name deleted to avoid identification with trade-sensitive data. Quantity (each) Quantity (each) Entry should have been made under another category covering other telegraphic apparatus (HTS 8517.82.00.80). No effect on duties and fees. Total value overstated by $27,654. No effect on duties and fees. Unit value changed. Quantity understated by 135 units. No effect on duties and fees. Unit value changed. Entry should have been made under another category covering other parts of telegraphic apparatus (HTS 8517.90.80.00). Quantity and value overstated by 200 units and $42,100. No effect on duties and fees. Unit value changed. Entry should have been made under another category covering modems for automatic data processing machines (HTS 8517.40.10.00). No effect on duties and fees. Quantity overstated by 1,056 units. No effect on duties and fees. Unit value changed. Entry should have been made under another category covering parts for telegraphic terminal apparatus (HTS 8517.90.70.00). No effect on duties and fees. Legend: N/A = Not applicable. UNIT OF MEASUREMENT: Each unit DUTY: The duty ranges from free to 60 percent of value, depending on the country. DESCRIPTION: A hypodermic syringe is an instrument used in medical, surgical, dental, or veterinary procedures to inject fluids. This particular HTS is for hypodermic syringes (with or without needle), which are used for medical purposes. Quantity (each) Quantity (meters) Quantity (each) Quantity (each) Quantity (each) Importer name deleted to avoid identification with trade-sensitive data. Quantity (each) Quantity (each) N/A Entry should have been made under other instruments and appliances (HTS 9018.19.80.60). Quantity understated by 19 units. Duty overpaid by $146.37. No effect on fees. Unit value changed. Quantity understated by 319,200 units. No effect on duties and fees. Unit value changed. Quantity understated by 3,009,096 units. No effect on duties and fees. Unit value changed. Quantity overstated by 540,000 units. No effect on duties and fees. Unit value changed. Legend: N/A = Not applicable. UNIT OF MEASUREMENT: Kilogram QUOTA: Sugar is under a tariff rate quota and only those countries with a quota can export sugar to the United States. The United States imposes a quantitative sugar quota on over 50 countries, and imports in excess of the quota are subject to a higher duty. DUTY: The regular duty for this type of sugar ranges from free to $0.043817 per kilogram, depending on the country. Imports in excess of the quota are subject to a duty of $0.37386 per kilogram. In addition, sugar imports are subject to a sugar fee of $0.022 per kilogram. DESCRIPTION: This category includes raw cane sugar, which is in solid form and (1) contains no added flavoring or coloring matter; (2) has a dry-state sucrose content that, by weight, corresponds to a polarity reading of less than 99.5 degrees; and (3) is not to be further refined or improved in quality. This is a relatively small and narrow category of sugar, falling between the still-to-be processed raw sugar traded on the world market and the highly refined sugars commonly available for general use as a sweetener. Quantity (kilograms) Quantity (kilograms) Quantity (kilograms) Quantity (kilograms) Quantity (kilograms) Importer name deleted to avoid identification with trade-sensitive data. Quantity (kilograms) Quantity (kilograms) Quantity overstated by 16 kilograms. No effect on duties and fees. Total value overstated by $13,077. No effect on duties and fees. Unit value changed. Quantity overstated by 668 kilograms. No effect on duties and fees. Unit value changed. Entry should have been made under another category of cane sugar (HTS 1701.99.01.35). No effect on duties and fees. Entry should have been made under another category of cane sugar (HTS 1701.99.01.35). No effect on duties and fees. Entry should have been made under another category of cane sugar (HTS 1701.99.01.35). No effect on duties and fees. Legend: N/A = Not applicable. UNIT OF MEASUREMENT: Meter DUTY: The duty ranges from free to 5 percent of the value, depending on the country. DESCRIPTION: Wood dowel rods are round pieces of wood of various lengths and diameters. They have many uses, such as in the manufacturing of furniture, mop and broom handles, and coat racks. Quantity (meters) Quantity (meters) Quantity (meters) Quantity (meters) Quantity (meters) Importer name deleted to avoid identification with trade-sensitive data. Quantity (meters) Quantity (meters) Quantity understated by 4,616 meters. No effect on duties and fees. Unit value changed. Quantity and value overstated by 200 meters and $1,270 respectively. No effect on duties; fees overpaid by $2.15. Quantity overstated by 1,027,783 meters. No effect on duties and fees. Unit value changed. Quantity overstated by 2,483,425 meters. No effect on duties and fees. Unit value changed. Legend: N/A = Not applicable. UNIT OF MEASUREMENT: Kilogram DUTY: The duty ranges from 0.7 to 25 percent of value, depending on the country. DESCRIPTION: Tire cord fabric is a strong, heat resistant material that is used to manufacture tires. The fabric has a high level of tenacity. Quantity (kilograms) Quantity (kilograms) Quantity (kilograms) Quantity (kilograms) Quantity (kilograms) Importer name deleted to avoid identification with trade-sensitive data. Quantity (kilograms) Quantity (kilograms) Entry should have been made under another category of tire cord. Effect on duties unknown because correct HTS is unknown. No effect on fees. Quantity overstated by 1,832 kilograms. Entry should have been made under polyurethane impregnated textile fabric (HTS 5903.20.25.00). No effect on duties and fees. Unit value changed. Quantity overstated by 296 kilograms. No effect on duties and fees. Unite value changed. Quantity overstated by 317 kilograms. No effect on duties and fees. Unit value changed. Quantity overstated by 297 kilograms. No effect on duties and fees. Unit value changed. Quantity and value overstated by 1,269 kilograms and $264 respectively. Duties overpaid by $10.30 and fees overpaid by $0.18. Unit value changed. Quantity overstated by 144 kilograms. Entry should have been made under another category of tire cord. Effect on duties unknown because correct HTS is unknown. No effect on fees. Unit value changed. Legend: N/A = Not applicable. UNIT OF MEASUREMENT: Kilogram DUTY: The duty ranges from free to $0.066 per kilogram, depending on the country. DESCRIPTION: This category covers cocoa powder that contains no added sugar or other sweetening matter. It does not include similar commodities, such as cocoa butter, paste, or chocolate preparations. Quantity (kilograms) Quantity (kilograms) Quantity (kilograms) Quantity (kilograms) Quantity (kilograms) Importer name deleted to avoid identification with trade-sensitive data. Quantity (kilograms) Quantity (kilograms) Entry should have been made under another category covering chocolate and other food preparations containing cocoa (HTS 1806.20.80.60). No effect on duties and fees. Quantity understated by 10,100 kilograms. No effect on duties and fees. Unit value change. Entry should have been made under another category of cocoa (HTS 1803.20.00.00), also quantity understated by 97,200 kilograms. No effect on duties and fees. Unit value changed. Quantity and total value overstated by 20,123 kilograms and $22,210, respectively. No effect on duties and fees. Unit value changed. Quantity and total value overstated by 250 kilograms and $152, respectively. Duty overpaid by $1.55 and fees overpaid by $0.26. Entry should have been made under another category of cocoa (HTS 1803.20.00.00). No effect on duties and fees. Quantity understated by 8,164 kilograms. No effect on duties and fees. Unit value changed. Legend: N/A = Not applicable. Frankie L. 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Pursuant to a congressional request, GAO reviewed the importation of eight classifications of commodities in fiscal year 1992, focusing on why unit values for identical types of imported commodities varied. GAO found that: (1) unit values for identical imports varied widely because of overly broad commodity classifications and product misclassifications; (2) although Customs used Census Bureau-developed parameters to screen filers' entries and detect possible unit value errors that could adversely affect the quality of trade data, most of the parameters were so broad that Customs only detected errors involving extremely high or low unit values; (3) the errors that were noted had little effect on quotas, duties, and fees for the 80 transactions reviewed; (4) although generalizations about the overall level of errors in the Import Detailed Data Base could not be made, the high number of errors found indicated the need to improve Automated Commercial System (ACS) data accuracy; (5) a high error rate could threaten the accuracy of U.S. trade statistics and Customs ability to screen transactions for errors or illegal activities; and (6) adding narrower unit value ranges to ACS would allow filers to identify and correct more errors during data entry.

You are an expert at summarizing long articles. Proceed to summarize the following text: Initially referred to as the “Next Generation Space Telescope,” JWST is a large deployable, infrared-optimized space telescope intended to be the successor to the aging Hubble Space Telescope. JWST is designed to be a 5-year mission to find the first stars and trace the evolution of galaxies from their beginning to their current formation, and is intended to operate in an orbit approximately 1.5 million kilometers—or 1 million miles—from the Earth. In a 2001 decadal survey, the National Research Council rated the JWST as the top-priority new initiative for astronomy and physics. With its 6.5-meter primary mirror, JWST will be able to operate at 100 times the sensitivity of the Hubble Space Telescope. A tennis-court-sized sunshield will protect the mirrors and instruments from the sun’s heat to allow the JWST to look at very faint infrared sources. The Hubble Space Telescope operates primarily in the visible and ultraviolet regions. JWST has experienced significant increases to project costs and schedule delays. Prior to being approved for development, cost estimates of the project ranged from $1 billion to $3.5 billion with expected launch dates ranging from 2007 to 2011. In March 2005, NASA increased the JWST’s life-cycle cost estimate to $4.5 billion and slipped the launch date to 2013. We reported in 2006 that about half of the cost growth was due to schedule slippage—a 1-year schedule slip because of a delay in the decision to use a European Space Agency-supplied Ariane 5 launch vehicle and an additional 10-month slip caused by budget profile limitations in fiscal years 2006 and 2007. More than a third of the cost increase was caused by requirements and other changes. An increase in the program’s contingency funding accounted for the remainder—about 12 percent—of the growth. NASA Headquarters chartered an Independent Review Team to evaluate the project that same year. In April 2006, the review team’s assessment confirmed that the program’s technical content was complete and sound, but expressed concern over the project’s contingency reserve funding—funding used to mitigate issues that arise but which were previously unknown—reporting that it was too low and phased in too late in the development life cycle. The team reported that for a project as complex as the JWST, a 25 to 30 percent total contingency was appropriate. At that time, JWST’s total contingency was about 19 percent. The team cautioned that this contingency compromised the project’s ability to resolve issues, address risk areas, and accommodate unknown problems. The team also concluded that the 2013 launch date was not viable for the project based on its anticipated budget. It recommended that before the project was formally approved for development and baselined, NASA should take steps to provide the JWST project with adequate time-phased reserve funding to secure a stable launch date. Additional reserves were added and the project was baselined in April 2009 with a life-cycle cost estimate of $4.964 billion and a launch date in June 2014. Shortly after JWST was approved for development and its cost and schedule estimates were baselined, project costs continued to increase. In 2010, Senator Barbara Mikulski, chair of the Senate Committee on Appropriations, Subcommittee on Commerce, Justice, Science, and Related Agencies, asked NASA to initiate another independent review in response to the project’s cost increases and reports that the June 2014 launch date was in jeopardy. The Independent Comprehensive Review Panel (ICRP) was commissioned by NASA and began its review in August 2010. In October 2010, the ICRP issued its report and cited several reasons for the project’s problems including management, budgeting, oversight, governance and accountability, and communication issues. The panel concluded JWST was executing well from a technical standpoint, but that the baseline funding did not reflect the most probable cost with adequate reserves in each year of project execution, resulting in an unexecutable project. The review panel recommended that additional resources be considered along with organizational and management restructuring. Following this review, the JWST program underwent a replan in 2011. In November 2011, the JWST project was reauthorized, but not before it was recommended for termination by the House Appropriations Committee. On the basis of the replan, NASA announced that the project would be rebaselined at $8.835 billion—a 78 percent increase to the project’s life-cycle cost from the confirmed baseline—and would launch in October 2018—a delay of 52 months. The revised life- cycle cost estimate included 13 months of funded schedule reserve. In the President’s Fiscal Year 2013 budget request, NASA reported a 66 percent joint cost and schedule confidence level associated with these estimates. A joint cost and schedule confidence level (JCL) is the process NASA uses to assign a percentage to the probable success of meeting cost and schedule targets and is part of the project’s estimating process. The JWST project is divided into three major segments: the launch segment, the ground segment, and the observatory segment. The launch segment is primarily provided by the European Space Agency (ESA), which is contributing the Ariane 5 launch vehicle and launch site operations in French Guiana. The ground segment will be responsible for collecting the data obtained by JWST in space and making it usable for scientists and researchers. This includes the development of software that will translate data into usable formats as well as operation of the software once the telescope is in space. The Space Telescope Science Institute, operated by the Association of Universities for Research in Astronomy (AURA) on a contract awarded by NASA, which currently performs science operations for the Hubble Space Telescope, is developing the science and operations and flight operations center for JWST and will conduct the first 6 months of flight and science operations. The NASA contract with the Space Telescope Science Institute extends through the first 6 months of JWST operations. A contract to manage the long term operations of JWST is planned to be awarded approximately 2 years prior to launch. The observatory segment will be launched into space and includes five major subsystems. These subsystems are being developed through a mixture of NASA, contractor, and international partner efforts. See figure 1. JWST is a single project program reporting directly to the NASA Associate Administrator for programmatic oversight and to the Associate Administrator for the Science Mission Directorate for technical and analysis support. Goddard Space Flight Center is the NASA center responsible for the management of JWST. See figure 2 for the current JWST organizational chart. Our analysis of JWST’s revised cost estimate showed that it is not fully consistent with best practices for developing reliable and credible estimates, although project officials took some steps in line with best practices in the development of the estimate. For example, as part of its cost estimation process, the project conducted a joint cost and schedule risk analysis, or joint cost and schedule confidence level (JCL), which assigned a 66 percent confidence level to the estimate. In addition, we found that the cost estimate included all life cycle costs for the project. Although NASA’s methods for developing the JWST cost estimate reflect some features of best practices, our review of the estimate showed that based on best practice criteria, it did not fully meet the four characteristics of a reliable estimate. See figure 3. Specifically, the project’s estimate was found to substantially meet the best practice criteria for being comprehensive, and the remaining three characteristics of being well documented, accurate, and credible were found to be only partially met. For example, the accuracy of the cost estimate, and therefore the confidence level assigned to the estimate, was lessened by the schedule used in the JCL analysis because it prevented us from, among other things, identifying the activities that were on the critical path—defined as time associated with activities that drive the overall schedule. The credibility of the estimate was lessened because project officials did not perform a sensitivity analysis that would have identified key drivers of costs, such as workforce size. Although NASA is not required to adhere to these best practices, our prior work has shown that not following best practices for cost estimating can make the cost estimate less reliable, putting projects at risk of experiencing cost overruns, missed deadlines, and performance shortfalls. The best practices stem from practices federal cost estimating organizations and industry use to develop and maintain reliable cost estimates, including the Department of Defense and NASA. According to program officials, it would have been difficult, if not impossible, for the project to have met all of the best practice criteria given the complexity of the project and that some elements of the project are quite mature in their development. Instead, the program manager stated that the project followed a tailored process to develop the cost estimate that was appropriate for the project. Furthermore, officials report the project is currently meeting a majority of its milestones and executing as planned to the revised estimates for the JWST. A work breakdown structure reflects the requirements and what must be accomplished to develop a program, and it provides a basis for identifying resources and tasks for developing a program cost estimate. The work breakdown structure should be used to define all program activities and tasks to ensure that the schedule encompasses the entire work. two was not compatible. Finally, although the project outlined and documented the ground rules and assumptions, we were unable to determine whether risks associated with any assumptions were identified and traced to specific elements. Well documented: The JWST cost estimate only partially met the criteria for being well documented because it did not include a step-by-step description of how the estimate was developed, the raw data used to develop the estimate, or the calculations and estimating methodology for specific cost elements of the work breakdown structure. Without good documentation, a cost analyst unfamiliar with the program will not be able to replicate the estimate, because he or she will not understand the logic behind it. Good documentation, for example, assists management and oversight in assessing the credibility of the estimate, helps to keep a history of reasons for cost changes and to record lessons learned, defines the scope of the analysis, and answers questions about the approach or data used to create the estimate. Project documentation, however, does provide evidence that NASA management reviewed and accepted the cost estimate because managers were briefed on the technical aspects of the estimate and were provided an overview of the joint cost and schedule risk analysis that was conducted. Accurate: The JWST cost estimate only partially met the criteria for being accurate because the projected costs of schedule reserve did not reflect actual data, the summary schedule used to derive the JCL prevented us from sufficiently understanding how risks were incorporated, and the project did not provide evidence that it regularly updates the estimate or plans to conduct another JCL. For example, using historical actual cost data from Northrop Grumman, we estimated that 13 months of schedule reserve is likely to be $204 million instead of NASA’s estimate of $121 million—a potential underestimation of 69 percent related to the schedule reserve. Project officials, however, believe they have adequate reserves available to offset any underestimation. In addition, the summary schedule the project used as an input to the JCL, although deemed acceptable by NASA, contained many long-duration activities, some with 1,000 days or more. Because of these long durations in the summary schedule used for the JCL, the lack of detail prevented us from identifying the activities that were on the critical path, as well as which risks were applied to remaining activities. As a result, there is no way to ensure that risks were appropriately assigned to activities in the schedule to account for the impact of the risks during the JCL analysis. Finally, it was unclear whether the cost estimate was regularly updated to reflect material changes in actual costs and in the project itself, such as when schedules or other assumptions change, due to a lack of detailed documentation for the cost estimate. Project officials stated that in keeping with NASA policy they do not plan, nor are they required, to conduct another JCL analysis. GAO’s cost estimating best practices call for estimates to be continually updated through the life of the project, ideally every month as actual costs are reported in earned value management reports, and that a risk analysis and risk simulation exercise—like the JCL analysis—be conducted periodically through the life of the program, as risks can materialize or change throughout the life of a project. Unless properly updated on a regular basis, the cost estimate cannot provide decision makers with accurate information to assess the current status of the project. NASA officials state that the life-cycle cost estimate is updated annually for the budgeting process, and that historical records such as earned value data were used to develop the estimate. They also stated that this information is updated in several different documents being provided to management; however, we were unable to determine how this information was used in updating the cost estimate on a regular basis. Credible: The JWST cost estimate only partially met the criteria for being credible because project officials did not adequately test and verify the reasonableness of the cost estimate and the schedule used in conducting the JCL did not have a valid critical path and contained durations that were too long to properly account for risks. For example, project officials said they did not perform a sensitivity analysis for the cost estimate. A sensitivity analysis identifies key elements that drive cost and permits analysis of different outcomes and is often used to develop cost ranges and risk reserves. NASA officials stated that the largest cost driver for the JWST project is the size of the workforce, which could have been subjected to a sensitivity analysis; yet, the cost model did not include a sensitivity analysis that would show how staff increasing or decreasing over time affects cost. In addition, NASA officials believe that all risks were sufficiently accounted for when conducting the JCL, however, the software used to conduct the JCL analysis does not recognize certain risks that officials had placed on activities in the project schedule and, therefore, some risks were discarded during the simulation. The schedule used to conduct the JCL was also summarized at such a high level that the durations were too long to effectively model the risks. For example, one of the activities that drove the launch date was over 4 years in duration and should have been broken down further prior to conducting the simulation. Moreover, the critical path in the JCL schedule consisted of six level of effort activities all with the same duration of 2,238 Level of effort activities should never be on the critical days in length.path because support activities should never drive any milestone finish date. As a result of the schedule used in the JCL not fully meeting best practices, we question the results of the analysis. Furthermore, the risk of having to carry the JWST workforce to support the project if delayed was not included since a sensitivity analysis was not performed. Project officials report that, instead, risk associated with the workforce was factored in when establishing cost reserves. In addition, project officials did not commission an independent cost estimate, which is considered one of the best and most reliable estimate validation methods because it shows whether other estimating procedures produce similar results, and it provides an independent view of expected program costs that tests the program office’s estimate for reasonableness.independent cost estimate has an increased risk of being underfunded An estimate that has not been reconciled with an because the independent cost estimate provides an objective and unbiased assessment of whether the project estimate can be achieved. Notably, however, project officials provided evidence that an independent cost assessment was done for the project at the request of the JWST Standing Review Board, the independent review team for the project, and the assessment was within 2 percent of the project’s estimated cost for the rebaseline. Project officials contend that the approach they used in developing the life-cycle cost estimate for the project is more accurate than the types of approaches often used to develop and independent estimate. We did not conduct a full schedule assessment to determine the reliability of the revised schedule based on best practices due to on-going contract negotiations. The project has an integrated master schedule developed as part of the replan; however, it is not finalized because major contract modifications have yet to be negotiated and definitized. Specifically, the modification to the Northrop Grumman contract, which accounts for approximately 40 percent of the total project cost and spans much of the work on the spacecraft and OTE, remains undefinitized more than a year after the project was rebaselined. Once the project completes negotiations for the contract modification and all schedule dates are set, the project can then have a measurable integrated master schedule. Project officials stated that the negotiation process and updating of associated schedules are planned to be complete in January 2013 for the Northrop Grumman contract modification—a year after submission of the latest update to its proposal for the replan. The project also reported that multiple audits of the proposals submitted by Northrop Grumman and its subcontractor by the Defense Contract Audit Agency have delayed definitization. Negotiations for the modification to NASA’s contract with the Space Telescope Science Institute to incorporate the October 2018 launch readiness date are not scheduled to be complete until spring 2013. Once all the contracts have been definitized and the project’s integrated master schedule is baselined, we plan to conduct a comprehensive best practices assessment of the reliability of the project’s schedule estimates. Project officials report that the JWST schedule has 14 months of reserve, which meets Goddard guidance for schedule reserve; however, only 7 of the 14 months are likely to be available for the last three of JWST’s five complex integration and test efforts. GAO’s prior work shows that it is during integration and test where problems are commonly found and schedules tend to slip. Given that JWST has a challenging integration and test schedule, this could particularly be the case. The project has made some significant progress in the past year, notably successfully completing development of the 18 primary mirror segments—considered JWST’s top technical risk. Nevertheless, ongoing challenges are indicative of the kinds of issues that can require a significant amount of effort to address. For example, instrument challenges have delayed the first integration and test effort. In addition, key long-term risks on subsystems with a significant amount of work remaining will not be retired until 2016. Currently, NASA’s plan for project oversight calls for one independent system integration review about 13 months before launch. While this is consistent with what NASA requires for its projects, this approach may not be sufficient for a project as complex as JWST. As a result, the current plan may be inadequate to ensure key technical and management issues are identified early enough to be addressed within the current integration and test phase schedule. JWST has a complex and lengthy integration and test phase, which includes five major integration and test efforts—ISIM, OTE, OTIS, spacecraft, and observatory. See figure 4 for the project reported dates for the major integration and test efforts and the schedule reserve allocated for each effort. Overall, project officials report that the critical path schedule has 14 months of reserve with 7 months after the ISIM and OTE integration and test efforts. If these efforts are delayed beyond those 7 months, they will impinge on the schedule for the remaining three integration and test efforts. Project officials stated that the baseline plan is for the OTIS integration and test effort to not begin earlier than May 2016. These officials reported it is likely that all of the 7 months of schedule reserve held by the OTE subsystem will be utilized during its integration and test prior to delivery to OTIS and that the OTE effort is on the critical path for the project. Therefore, the remaining integration and test efforts—OTIS, Spacecraft, and Observatory—will likely have at most 7 months divided among them to use if issues are found during integration and test. In addition to not likely being able to conserve any of the unused first 7 months of schedule reserve, the project has limited time allocated to the final three integration and test efforts, with between 2 to 4 months for each. This time could be used easily by the project if an issue were to arise during integration and test. An example of this is seen in the OTIS integration and test schedule, which currently has 3 months of schedule reserve. The final event in the OTIS integration and test effort is a lengthy cryo-vacuum test—the first time that the optics integrated with the instruments will be tested at operational temperatures near absolute zero (less than -400 degrees Fahrenheit)—that takes approximately 3 months, due to the requirements of the test. If an issue were to arise during this test that requires shutting the test down and working on the hardware, the chamber would have to be slowly warmed to a temperature safe for removal of the hardware from the chamber, work would be performed, and the 3-month test process would need to begin again. This could easily exhaust the available schedule reserve. Prior GAO work shows that it is during integration and test when problems are commonly found, and schedules tend to slip. A project official confirmed that this is the case because during integration and test the process is more sequential and there is less flexibility to move work around if problems are found. A NASA Inspector General report on the Mars Science Laboratory, another complex and high-cost mission, found that historically the probability that schedule-impacting problems will arise is commensurate with the complexity of the project. JWST is one of NASA’s most technologically complex projects to date. The project has made significant progress overcoming several technical challenges over the last year. In December 2011, for example, the project completed development of the 18 segments of the primary mirror—the project’s primary technology risk—approximately 6 weeks ahead of schedule. In addition, project officials stated that during the last year they were also able to accelerate other optics-related work, which added one month of funded reserve to the schedule, bringing the total to 14 months. Finally, the project successfully addressed an increase in the estimated amount of heat on the instruments, which otherwise could have pushed observatory temperatures close to where the optics would not function correctly. Although technical challenges are being overcome, the project will likely continue to experience additional challenges over the remainder of the project, given the significant portion and complexity of the work remaining. Four of six major subsystems have nearly 50 percent or more of their development work remaining based on its current budget information, although the dollar amounts associated with the work vary. See figure 5. Currently, the project is experiencing several technical issues that have required a significant amount of time and effort to address. For example, the spacecraft subsystem, which experienced delays in development prior to the replan, is currently estimated to be heavier than its mass limit.Spacecraft development has lagged behind other subsystems because it was viewed as a lower risk part of the project and was therefore not allocated funding when budgets were limited prior to the replan. In March 2010, the project passed its mission critical design review, which evaluated the project design and its ability to meet mission requirements and indicated that the design was ready for fabrication phase; however, the spacecraft was not included in this review due to its delayed development. Under the initial replan, which had constrained funding in fiscal years 2011 and 2012, the spacecraft critical design review was scheduled for June 2014; however, due to additional funding in the final agency-approved replan, the project was able to accelerate work and this review is now planned for December 2013. Project officials have been concerned with the mass of JWST since its inception because of the telescope size and the limits of available launch vehicles. Accordingly, mass limits have been allocated for each subsystem, including the spacecraft. Project officials stated that they expected to encounter mass growth on the spacecraft, but that the magnitude of the mass growth on the spacecraft was unexpected. As shown in figure 6, the current spacecraft projected mass exceeds its mass allocation. Primary drivers of the mass growth on the spacecraft are increases in the estimated weight of the wiring harnesses, which distribute power and electric signals between different parts of the observatory, the solar array, and other structures that make up the spacecraft. The burden to find ways to reduce mass has been primarily placed with the spacecraft because it was assessed by the project to have the least technical risk and because it is the least mature subsystem and can more easily accommodate design changes. Over 100 kilograms, or 220 pounds, of mass savings options are being evaluated by the project and Northrop Grumman, which is developing the spacecraft. Potential mass solutions have been identified by Northrop Grumman and the project; however, cost and risk vary with each solution and the project is still evaluating the trade-offs of the various solutions. Project officials stated that final decisions for all tradeoffs will need to occur before spacecraft critical design review in December 2013. The ISIM subsystem is experiencing technology and engineering challenges that resulted in the use of 18 of ISIM’s 26 months of schedule reserve. The schedule for the instruments needed for ISIM continues to slip, which could result in use of more schedule reserve. Based on the replan, all four instruments were to be delivered by September 2012; however, only two instruments were delivered by that time and those still have issues that must be addressed. The remaining two instruments are currently scheduled to be delivered at least 11 months late. See table 1 below for the instrument specific issues. In addition to the instrument delays, two other technical challenges associated with ISIM are: (1) the detectors used by three of the four instruments to capture infrared light in space are degrading and may need to be replaced, resulting in the addition of another round of cryo- vacuum testing—in which a test chamber is used to simulate the near absolute zero temperatures in space, and (2) issues with the development of the cryo-cooler system that removes heat and cools MIRI. In December 2010 the project became aware that the detectors in three of the instruments were degrading.million and 15 months of schedule reserve to replace the detectors were included in the replan. These additions covered the cost of manufacturing the detectors; fabrication, assembly, and test of new focal plane assemblies; changing the detectors on three instruments, and the addition of a third ISIM cryo-vacuum test. The manufacturing process for new detectors takes approximately 30 months, which means that they cannot be delivered until after the second round of ISIM cryo-vacuum testing in 2014. As a result, $2 million of the $42 million in the replan was used to add a third round of cryo-vacuum testing for ISIM. The third test will validate the performance requirement of the ISIM and is the only time the instruments are tested with the flight detectors. Changing the detectors requires disassembling the instruments from ISIM, a process that will risk damage to the structure and instruments. Project officials stated that they will continue to monitor the degradation rate of the current detectors because if the degradation rate is low, they may not replace the detectors. As a result, approximately $42 Development issues with a part of the cryo-cooler needed for MIRI have delayed its delivery to ISIM. In 2010, project officials realized that an essential valve in the cryo-cooler was leaking at rates that exceeded requirements. Following the results of a failure review board, the contractor manufactured a newly designed valve, but it also did not meet leak rate requirements. Project officials stated that a new valve design will not be manufactured in time for use in the first ISIM cryo-vacuum test. The project is concurrently developing three alternatives and authorized manufacturing for one of the alternatives in October 2012. Project officials stated that the MIRI cryo-cooler is particularly complex because it spans approximately 10 meters—or approximately 33 feet—through the entire JWST observatory. These issues combined required the use of 18 months of schedule reserve, which reduced ISIM’s schedule reserve from the 26 months established in the replan to 8 months before it is needed for integration with the OTIS subsystem. These types of issues are not uncommon among NASA programs as technical issues tend to arise when disparate parts are integrated and tested together for the first time. Given the complexity and cutting edge technology developed and used on JWST, it is expected that these kinds of issues will continue to materialize as the program moves through its complex integration and test program. Figure 7 shows the delay of instrument deliveries as well as changes to the ISIM integration and test and final delivery dates over the last year. Until the project is able to overcome the major issues with the instruments and other parts of the ISIM, it is likely that the schedule would continue to slip and may begin to affect the overall project schedule. ISIM still has 8 months of schedule reserve before the slipping of its schedule would affect the schedule for the remainder of the project. The instrument, detector, and cryo-cooler issues have all contributed to the delay in the ISIM integration and test schedule and the reduction of objectives that can be achieved in the first two rounds of cryo-vacuum testing. The first round of testing will not include two instruments, a final design of the cryo- cooler hardware, or new detectors. As a result project officials will only be able to gather risk reduction information on the FGS/NIRISS, MIRI, test procedures, and test support equipment from the first cryo-vacuum test. The project also has several known long term risks and challenges remaining. For example, risks related to OTIS, the sunshield, and the ground system subsystems are not scheduled to be addressed until late in project development. As of October 2012, seven of the top 10 project risks were related to the long-term risks associated with the OTIS and sunshield, most of which will not be resolved until 2016 or later. For example, several risks relating to OTE are not scheduled to be closed until the OTIS testing in the chamber at Johnson Space Center in February 2017. Project officials are adding risk mitigation through early and additional testing, where possible, to these subsystems. Prior to the replan, the ground system software was at high risk for not being completed before launch and many tasks were planned for completion after launch. Space Telescope Science Institute officials stated that the replan allows them to plan for completion of their work before launch on a more realistic time schedule, which decreases schedule and operational risk. A continuing challenge on the ground system is that some development and testing is dependent on the final design of subsystems such as the instruments, which continue to slip delivery dates. The project plans to hold independent and management reviews required for all projects during the integration and test phase, but this phase for JWST is particularly complex. JWST has five major integration and test efforts that span 7 years and only one independent mission-level technical review—the system integration review. The system integration review evaluates the readiness of the project and associated supporting infrastructure to begin system assembly, integration, and test, and evaluates whether the remaining project development can be completed within available resources. For JWST, this review is scheduled in September 2017, only 13 months prior to launch. Projects we reviewed that had recently launched, however, held their system integration review on average approximately 22 months prior to launch. The project has an internal review with participation from standing review board members planned before the beginning of OTIS integration and test activities begin, and it will be subject to independent lower level reviews conducted by the Goddard Systems Review Office of the integration and test process. In addition, key decision point D (KDP-D)—when the senior agency decision authority would approve the project to proceed into the system integration and test phase—is scheduled for December 2017, 3 months after the commencement of the final major integration and test activity. According to NASA policy, this review should be held prior to the start of the system integration and test phase of the project.shows that over 90 percent of expected integration and test funding will be spent on four major integration and test activities prior to the scheduled mission-level system integration review and KDP-D approval by NASA senior management. As a result, the current plan may be inadequate to ensure that key technical and management issues are identified early enough to be addressed within the current integration and test phase schedule. The JWST project has taken steps to improve communications and oversight of its contractors as part of the replanning activities. For example, based on recommendations from the ICRP, the project has instituted meetings at various levels throughout NASA and its contractors and subcontractors. In addition, the project has added personnel at contractor facilities, which has allowed for more direct interaction and quicker resolution of issues. The project also assumed responsibility of the mission-level systems engineering function from Northrop Grumman, a move that shifts the authority to make trades or decisions to NASA. An independent NASA review of the project conducted in May 2012 found, however, that agencywide reductions in travel budgets have put the effectiveness of the JWST project’s oversight plans in jeopardy. While the project received partial relief from travel budget reductions in fiscal year 2012, project officials are concerned that the current level of oversight will not be sustained if similar cuts in travel funding occur in future years as anticipated. The project is also taking steps to enhance its oversight of project risks by implementing a new risk management system. The new project manager found that the previous system lacked rigor and was relatively ineffective for managing project risks, especially for a project as complex as JWST. The new system should allow for better tracking of risks than did the previous system. While these enhancements to the oversight of the project are steps in the right direction, it will take time to assess their effectiveness. Based on recommendations in the ICRP report, NASA has taken action to enhance oversight and communications. See table 2 for the ICRP recommendations and actions taken by NASA in response. NASA has taken steps to increase communication between the project and its contractors and subcontractors in an effort to enhance oversight. According to project officials, the increased communication has allowed them to better identify and manage project risks by having more visibility into contractors’ activities. The project reports that a great deal of communication existed across the project prior to the ICPR and replan; however, improvements have been made. For example, monthly meetings between project officials at Goddard and all of the contractors have continued on a regular basis and include half-day sessions devoted to business discussions. The project reports that these meetings have benefits over other forms of communication. For example, it was through dialogue with several technical leads at Northrop Grumman during detailed reviews of analytical models that the project identified that the mass issue on the spacecraft was likely to occur. In addition, the project has increased its presence at contractor facilities as necessary to provide assistance with issues. For example, the project has had two engineers working on a recurring basis at Lockheed Martin to assist in solving problems with the NIRCam instrument. The ISIM manager said that these engineers have insight into Lockheed Martin’s work and are having a positive effect as they offer technical help and are involved in devising the solutions to issues. He added that that these engineers have authority to make decisions on routine issues to allow the work flow to continue, but decisions that are more complex or require a commitment of funds are communicated to project management for disposition. The project reports that the Jet Propulsion Laboratory, responsible for NASA contribution to the MIRI instrument and its associated cryo-cooler, has an in-house representative in the responsible Northrop Grumman division to monitor the work being performed on the cryo-cooler. The JWST project also assumed full responsibility for the mission system engineering functions from Northrop Grumman in March 2011. NASA and Northrop Grumman officials both said that NASA is better suited to perform these tasks. Project officials stated the systems engineering requires the ability to make trades and decisions across the entire observatory, and because Northrop Grumman is only responsible for portions of the observatory, it did not have the authority to make trades or decisions for areas outside of its control. Although responsibility for the overall mission systems engineering function was removed from Northrop Grumman, it retains system engineering responsibility for work still under its contract, such as development of the spacecraft and sunshield. The ICRP noted that a highly capable, experienced systems engineering group is fundamental to project success and appropriate to ensure accountability especially for a project of JWST’s complexity and visibility. While these enhancements to the oversight of the project are steps in the right direction, it will take time to assess their effectiveness. In addition, sustainment of these efforts on the part of the project will be important. Project and contractor officials we spoke with believe that the increased communication has had a positive effect on the relationships between them. We will continue to monitor the interaction between the project and its contractors and its frequency in future reviews to identify whether the changes have had the desired results. The JWST project reported that its travel budget was reduced by approximately $200,000 from the $1.2 million planned in fiscal year 2012 as a result of NASA’s implementation of an Executive Order to promote According to project officials, the changes in more efficient spending.oversight necessitated by a reduction in travel funds represent a major shift away from the management paradigm adopted during the replan. Proposed reductions in future fiscal years could significantly reduce the project’s travel budget. The project reports that the travel requirements for fiscal years 2013 through 2015 are $1.6 million, $1.7 million, and $1.8 million, respectively. Officials reported that while travel is a small percentage of the project’s annual budget, the majority of expected travel—about 87 percent—is for oversight functions put in place as a result of the ICRP recommendations, such as having a permanent on-site presence at Northrop Grumman. These oversight functions include attending and participating in contractor monthly programmatic and technical reviews, technical interface meetings, recurring on-site presence at contractor facilities for quality assurance reviews and inspection of hardware. JWST project officials are concerned that decreased oversight could translate into the project increasing its use of cost and schedule reserves as they will not be conducting planned oversight to better ensure success. A recent NASA Office of Evaluation review concluded that by not having an adequate travel budget, the project is at risk of cost/schedule growth and/or technical risk due to the late identification of issues or timely resolution strategies. The project has made adjustments to absorb the reduction in fiscal year 2012 and plans to identify instances of increased cost or schedule risk due to late identification of issues. However, the project does not have a strategy to address anticipated future reductions. Ensuring adequate oversight is particularly important as the project begins its complex and lengthy test and integration phase, where issues will likely surface. As part of NASA’s approach to increase oversight of the project at headquarters, NASA’s Office of Evaluation recently conducted an independent review of the JWST project to assess the progress since the September 2011 rebaseline was approved. According to the Director of the Office of Evaluation, the goal of the review was not to reproduce the replan assessment, but rather to assess progress based on cost, schedule, and technical performance of the project and the status of oversight functions within NASA headquarters, the JWST Program Office, and Goddard Space Flight Center. The intended outcome of the review was 1) to obtain a snapshot of performance to determine if the program was progressing in accordance with its plan, and 2) to identify leading indicators for upper management to use when tracking future performance. The review team identified several areas of concern within the program, many of which we have highlighted, and recommended a list of leading indicators that project management should consider tracking. The Director of the Office of Evaluation said that the project is generally performing the activities and maintaining the schedule set forth in the replan; however, the team identified key areas that should be monitored as the project moves forward. The review team also recommended a set of leading indicators for project management to consider tracking to measure and monitor progress. The Director added that these indicators are for the project to use and would not be specific criteria for use by independent review boards such as the Standing Review Board. These indicators are a positive step to ensure that NASA management has the information necessary to monitor the progress of the JWST project. See table 3 below for the concerns raised by the review team. The new JWST project manager re-emphasized the importance of the project’s risk management system and, in August 2012, a new risk management database was implemented to support the system. The project manager told us that he evaluated the risk management system being utilized by the project when he assumed his position and found it to be ineffective and not robust, especially for a project as complex as JWST. While the basic risk management methodology remains unchanged, the project manager wanted a more regimented system. For example, the project utilizes a hierarchy of risk boards that periodically reviews and provides disposition of all new and existing risks. These risk boards reviewed and assessed new risks and lower level risk board actions and met on an ad hoc basis. The project manager instituted a more regimented system that re-emphasized and revised the weekly project risk board meetings. Lower level risk boards meet a minimum of once a month depending on activity. The project manager also determined that a new risk management database needed to be put in place that would bring more rigor to the risk management process. The project manager told us that he directed an overhaul of the risk management database to provide more complete information to management on the purpose and history for each risk. The goal was to improve consistency in how the project determined the potential for a risk to occur and its impact, and provide greater detail on mitigation and better tracking of the status for each risk. For example, the new system puts more emphasis on understanding and capturing the key events in the mitigation plan that are intended to result in a change in likelihood or consequence of a risk. The new system has a provision where the mitigation plan will be entered and updated over time, and the capability to store data such as mitigation steps throughout the life of the risk. In addition, the new system now archives data automatically to provide a traceable history of the risk. The prior data system did not have as robust of an archiving function. Furthermore, the project manager wanted to improve the linkage between the risk database entries and financial records to ensure consistency of the data in the risk database with regard to cost and schedule for risk mitigations with project office financial records. As the changes to the risk management system and database, as well as other changes we identified that were put in place to enhance oversight were just recently implemented, we will continue to monitor their continued use and assess the impact they may be having on the project. The JWST project is among the most challenging and high-risk projects NASA has pursued in recent years. It is also one of the most expensive, with a recent major replan resulting in a total cost of $8.8 billion. The reasons for cost and schedule growth were largely recognized by an independent review team to be rooted in ineffective funding, management, communication, and oversight. NASA has invested considerable time and resources replanning the project and instituting management and oversight improvements in order to ensure that it (1) can be executed within its new estimates and (2) has addressed the majority of issues raised in the recent independent review. It appears that communications with contractors and within NASA have improved, that a more robust risk mitigation system is in place, that more is known about what it will take to complete the project and how much it will cost, and that the project is currently meeting the majority of its milestones. Nevertheless, over the course of the next several years, the project will be executing a large amount of work with several extremely complex and challenging integration and test efforts. Because three major test and integration efforts must be completed in the last 2 years of the JWST schedule, it is essential that issues are identified and addressed early enough to be handled within the project’s current schedule. While the JWST oversight plan is consistent with NASA’s requirements for all project’s required reviews, a single independent review scheduled just over a year before launch may not be sufficient to identify and resolve problems early for a project of this magnitude. A key element of overseeing project progress is monitoring how the project is executing to its cost baseline. To that end, while NASA took some steps that were in line with best practices to develop its revised baseline, some of the deficiencies we found in its process could impact the reliability of the cost estimate and the joint cost and schedule confidence level that was provided to headquarters decision-makers. Without higher-fidelity, regularly updated information related to costs, as well as an oversight regime during later phases of test and integration that is commensurate with the complexity of that effort, NASA risks late identification of technical and cost issues that could delay the launch of JWST and increase project costs beyond established baselines. Also important to oversight for the remainder of the project is the ability of officials to sustain improvements to communication with and oversight of contractors. Anticipated travel restrictions, however, could decrease the project team’s ability to sustain these actions. Without a plan to address such reductions in future years, the project could once again become susceptible to communication and oversight problems identified in earlier reviews, which could also have a detrimental impact on continued project performance. To ensure that the JWST life-cycle cost estimate conforms to best practices, GAO recommends that the NASA Administrator direct JWST officials to take the following three actions to provide high-fidelity cost information for monitoring project progress: improve cost estimate documentation and continually update it to reflect earned value management actual costs and record any reasons for variances, conduct a sensitivity analysis on the number of staff working on the program to determine how staff variations affect the cost estimate, and perform an updated integrated cost/schedule risk analysis, or joint cost and schedule confidence level analysis, using a schedule that meets best practices and includes enough detail so that risks can be appropriately mapped to activities and costs; historical, analogous data should be used to support the risk analysis. To ensure that technical risks and challenges are being effectively managed and that sufficient oversight is in place and can be sustained, GAO recommends that the NASA Administrator direct JWST officials to take the following three actions: conduct a separate independent review prior to the beginning of the OTIS and spacecraft integration and test efforts to allow the project’s independent standing review board the opportunity to evaluate the readiness of the project to move forward, given the lack of schedule flexibility once these efforts are under way, schedule the management review and approval to proceed to integration and test (key decision point D or KDP-D) prior to the start of observatory integration and test effort, and devise an effective, long-term plan for project office oversight of its contractors that takes into consideration the anticipated travel budget reductions. NASA provided written comments on a draft of this report. These comments are reprinted in appendix IV. NASA also provided technical comments, which were incorporated as appropriate. In responding to a draft of this report, NASA concurred with three recommendations and partially concurred with three other recommendations and commented on actions in process or planned in response. In some cases, these actions meet the intent and are responsive to issues we raise; however, some of the responses do not fully address the issues we raised in the report. NASA partially concurred with our recommendation to improve the cost estimate documentation of the JWST project, and to continually update it to reflect earned value management actual costs and record any reasons for variances between planned and actual costs. In response to this recommendation, NASA officials stated that the project currently receives earned value data from some of its contractors and performs monthly analysis of that data to understand the contractors’ estimates at completion, and then compares these numbers to similar figures independently assessed by the JWST project. NASA also highlighted its efforts to improve the agency’s documentation of the earned value variances and to extend the earned value management analysis to areas where it is not yet implemented, such as ground systems development at the Space Telescope Science Institute. In addition, NASA responded that its annual budget process generates a requirements-driven budget plan consistent with the rebaseline. NASA stated that this information is updated in several different documents that are provided to management and it does not plan to revise its JCL documentation developed during the replan. Despite these steps, we could not independently confirm that they were leading to an updated cost estimate, which is the basis of our recommendation. If the estimate is not updated, it will be difficult to analyze changes in project costs and collecting cost and technical data to support future estimates will be hindered. Furthermore, if not properly updated on a regular basis, the cost estimate cannot provide decision makers with accurate information for assessing alternative decisions. Without a documented comparison between the current estimate (updated with actual costs) and the old estimate, the cost estimator cannot determine the level of variance between the two estimates and cannot see how the project is changing over time. Therefore, we continue to believe NASA will be well served by following best practices and updating its cost estimate with current information and documenting reasons for any variances. We encourage the project to improve the cost estimate documentation and record any reasons for variances between planned and actual costs and we intend to review the documentation as a part of our ongoing review of the project. NASA officials partially concurred with our recommendation that the project conduct a sensitivity analysis on the number of staff working on the project to determine how staff variations affect the cost estimate. In its response, the agency stated that it believes it met the intent of this recommendation when staffing levels were determined in the 2011 JWST rebaseline based on programmatic experience from the accomplishment of similar activities. To accommodate the possibility of increased costs based on increased staffing hours, NASA reports that funded schedule reserve was built into the JWST rebaseline, in addition to unallocated future expenses being held at various levels of the organization. NASA believes that these reserves will be sufficient to cover increases for the duration of specific activities that result in increased staffing cost, and that an additional workforce sensitivity analysis is not warranted. NASA added that the joint cost and schedule confidence level analysis performed provided a de facto workforce sensitivity analysis and does not plan any further action. A joint cost and schedule confidence level analysis, however, is not the same as a sensitivity analysis wherein the sources of the workforce variation should be well documented and traceable. While we appreciate the steps NASA took to account for workforce variation, the JWST cost model does not show how staff levels increasing or decreasing over time affects cost. Furthermore, best practices call for a risk analysis to be conducted in conjunction with a sensitivity analysis, not to be a substitute for it. As a best practice, a sensitivity analysis should be included in all cost estimates because it examines the effects of changing assumptions and ground rules. Since uncertainty cannot be avoided, it is necessary to identify the cost elements that represent the most risk and, if possible, cost estimators should quantify the risk. Without performing a sensitivity analysis that reveals how the cost estimate is affected by a change in a single assumption, such as workforce size, the cost estimator will not fully understand which variable most affects the cost estimate. Therefore, we continue to believe that NASA should conduct a sensitivity analysis for the JWST project, given the large number of staff working on the program, to determine how staff variations positively or negatively affect the cost estimate rather than relying on schedule reserve and unallocated future expenses to offset any shortfall. NASA concurred with our recommendation to perform an updated integrated cost and schedule risk analysis using a schedule that meets best practices and includes enough detail so that risks can be appropriately mapped to activities and costs. In response to this recommendation, NASA stated that the agency is already using tools and a method to conduct programmatic assessments of projects after the baseline was established using the JCL methodology. While these may be good tools, the key point is the need to address shortcomings of the schedule that supports the baseline itself. For example, the lack of detail in the summary schedule used for the joint cost and schedule risk analysis prevented us from sufficiently understanding how risks were incorporated; therefore, we question the results of that analysis. Since the JCL was a key input to the decision process of approving the project’s new cost and schedule baseline estimates, we maintain that the JWST project should perform an updated JCL analysis using a schedule with sufficient detail to map risks to activities and costs. Doing so could help increase the reliability of the cost estimate and the confidence level of the JCL. Furthermore, risk management is a continuous process that constantly monitors a project’s health. Given that JWST is many years from launch and the risks that the project faces are likely to change, a risk analysis should be conducted periodically throughout the life of the project. NASA concurred with our recommendation to conduct a separate independent review prior to the beginning of the OTIS and spacecraft integration and test efforts. In response to this recommendation, NASA stated that it will request members of the independent JWST Standing Review Board participate in OTIS Pre-Environmental Review scheduled prior to the beginning of OTIS environmental testing. A member of the Standing Review Board will co-chair this review and report its findings to the NASA Associate Administrator, which is the practice of all Standing Review Board reviews. In addition, NASA plans to direct Northrop Grumman, the spacecraft developer, to add members of the Standing Review Board, as well as members of the Goddard Independent Review Team, to the spacecraft element integration readiness review and report their findings to the NASA Associate Administrator. We believe these actions meet the intent of our recommendation and will afford an independent evaluation of the readiness of the project to move forward with its major integration and test efforts. NASA partially concurred with our recommendation to schedule the management review and approval to proceed to integration and test (KDP-D) prior to the start of the observatory integration and test effort. In response to this recommendation, NASA stated that it will reduce the 3- month gap between the scheduled system integration review and the KDP-D review, which it believes will provide NASA management and the NASA Associate Administrator with the full independent assessment earlier than currently planned. While we agree that this change will move the review earlier than previously planned, based on its response, NASA still plans to hold the review after the observatory integration and test is already underway. Holding this review after the observatory integration and test effort is already underway does not meet agency policy and will lessen the impact of the review as it may be inadequate to ensure key technical and management issues are identified early enough to be addressed. KDP-D is the point in which management approval is given to transition to the test and integration phase. We reiterate our recommendation that NASA should hold this important key decision point prior to the beginning of this last major integration and test effort, as required by agency policy. NASA concurred with our recommendation to devise an effective, long- term plan for project office oversight of its contractors that takes into consideration the anticipated travel budget reductions. In response to this recommendation, NASA stated that it will develop a plan based on fiscal year 2013 travel allocations and will take into consideration anticipated travel budget reductions. In addition, NASA stated that the plan will enable the project to maintain oversight of JWST contractors and their ability to meet performance and delivery deadlines and work closely with the international partners. We believe such a plan will be critical to ensuring adequate oversight, which is particularly important as the project enters into the complex integration and test efforts where issues will likely surface. In addition, we agree with the concerns of project officials that the current efforts to increase communication and oversight may not be sustained if reductions to future travel budgets occur as anticipated. We encourage the project to complete this plan in a timely manner and intend to review it as a part of our ongoing assessment of the project’s oversight efforts. We will send copies of the report to NASA’s Administrator and interested congressional committees. We will also make copies available to others upon request. In addition, the report will be available at no charge on GAO’s web-site at http://www.gao.gov. Should you or your staff have any questions on matters discussed in this report, please contact me at (202) 512-4841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V. Our objectives were to assess (1) the extent to which NASA’s revised cost and schedule estimates are reliable based on GAO best practices, (2) the major risks and technological challenges the James Webb Space Telescope (JWST) project faces, and (3) the extent to which the National Aeronautics and Space Administration (NASA) has improved the oversight of the JWST project. In assessing the project’s cost and schedule estimates, we performed various checks to determine that the provided data were reliable enough for our purposes. Where we discovered discrepancies, we clarified the data accordingly. Where applicable, we confirmed the accuracy of NASA-generated data with multiple sources within NASA. Northrop Grumman, the Space Telescope Science Institute, and the JWST program and project offices. After reviewing cost estimate documentation submitted by NASA and conducting numerous interviews with relevant sources within the project office, we calculated the assessment rating of each criteria within the four characteristics by assigning each individual assessment rating: Not Met = 1, Minimally Met = 2, Partially Met = 3, Substantially Met = 4, and Met = 5. We then took the average of the individual assessment ratings for the criteria to determine the overall rating for each of the four characteristics. The resulting average becomes the “Overall Assessment” as follows: Not Met = 1.0 to 1.4, Minimally Met = 1.5 to 2.4, Partially Met = 2.5 to 3.4, Substantially Met = 3.5 to 4.4, and Met = 4.5 to 5.0. We discussed the results of our assessments with officials within the program office at NASA headquarters and the project office at Goddard Space Flight Center. We supplemented the assessment of the revised 2011 cost estimate with an assessment of the summary schedule used for the JCL, which was a part of the project’s cost estimation process, and followed criteria laid out in the GAO schedule guide. These practices address whether the schedule (1) captured all activities; (2) sequenced all activities—that is, listed in the order in which they are to be carried out; (3) assigned resources to all activities; (4) established the duration of all activities; (5) integrated schedule activities horizontally and vertically, which identifies whether products and outcomes associated with other sequenced activities are arranged in the right order, and that varying levels of activities and supporting subactivities are also aligned properly; (6) established for all activities, the critical path, which is the longest continuous sequence of activities that is necessary to examine the effects of activities slipping in the schedule; (7) identified between activities float, which is the amount of time by which a predecessor activity can slip before the delay affects the program’s estimated finish date; (8) identified a level of confidence using a schedule risk analysis; and (9) was updated using logic and durations to determine dates. We also reviewed the inputs to the JCL model, the document outlining the methodology of the analysis that accompanied the electronic files, and interviewed cognizant project officials to discuss their use of the summary schedule. Because the project’s detailed integrated master schedule has not been finalized because of ongoing negotiations and contract modifications, we did not conduct a complete schedule analysis using the GAO schedule assessment guide. We plan to perform this assessment in a subsequent review of the JWST project. To assess the major short- and long-term risks and technological challenges facing the project, we reviewed the project’s risk list, monthly status reviews, and other documentation provided by projects and contractor officials. This information covered the risks, mitigation plans, and timelines for addressing risk and technological challenges. We also interviewed project officials for each major observatory subsystems to clarify information and to obtain additional information on risks and technological challenges. Further, we interviewed officials from the Jet Propulsion Laboratory, Northrop Grumman Aerospace Systems, Lockheed Martin Advanced Technology Company, Teledyne Imaging Sensors, the University of Arizona, and the Space Telescope Science Institute concerning risks and challenges on the subsystems, instruments, or components they were developing. We reviewed GAO’s prior work on NASA Large Scale Acquisitions, NASA Office of Inspector General reports, and NASA’s Space Flight Program and Project Management Requirements and Systems Engineering Processes and Requirements We compared NASA’s controls as outlined in these policy documents.agency policies with the project plan to assess the extent to which the JWST’s plan followed the intent of the policies with regard to independent oversight and management approval processes. To assess the extent to which NASA is performing enhanced oversight of the JWST project, we reviewed documentation from the Independent Comprehensive Review Panel and the project to determine actions taken by NASA in response to the panel’s recommendations. We interviewed project officials to understand the impact of these changes on the oversight processes for the project and communication between the project and its contractors. We also interviewed officials from the Jet Propulsion Laboratory, Northrop Grumman Aerospace Systems, Lockheed Martin Advanced Technology Company, Teledyne Imaging Sensors, the University of Arizona, and the Space Telescope Science Institute concerning project oversight of work they were performing and the effectiveness of oversight changes. In addition, we reviewed a presidential directive and Office of Management and Budget and project documentation and interviewed project officials concerning the reductions to travel budgets and their impact on project oversight activities. We interviewed the Director of NASA’s Office of Evaluation about a recent internal review of the JWST project and reviewed documentation from that review. We also reviewed documentation and interviewed project officials concerning the changes made to the project’s risk management system. Our work was performed primarily at NASA Headquarters in Washington, D.C., and Goddard Space Flight Center in Greenbelt, Maryland. We also visited Johnson Space Center in Houston, Texas, and the Jet Propulsion Laboratory in Pasadena, California. In addition, we met with representatives from Northrop Grumman Aerospace Systems, Lockheed Martin Advanced Technology Company, Teledyne Imaging Sensors, the University of Arizona, and the Space Telescope Science Institute. We conducted this performance audit from February 2012 to December 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In determining that the National Aeronautics and Space Administration’s (NASA) processes for developing the James Webb Space Telescope (JWST) cost estimate do not fully comply with best practices, we evaluated the project’s cost estimation methods against our 2009 Cost Estimating and Assessment Guide. (See table 4.) We applied the following scale across the four categories of best practices: Not met: NASA provided no evidence that satisfies any portion of the criterion. Minimally met: NASA provided evidence that satisfies less than one- half of the criterion. Partially met: NASA provided evidence that satisfies about one-half of the criterion. Substantially met: NASA provided evidence that satisfies more than one-half of the criterion. Met: NASA provided complete evidence that satisfies the entire criterion. In addition to the contact named above, Shelby S. Oakley, Assistant Director; Karen Richey, Assistant Director; Richard A. Cederholm; Laura Greifner; Cheryl M. Harris; David Hulett; Jason Lee; Kenneth E. Patton; Sylvia Schatz; Stacey Steele; Roxanna T. Sun; Jay Tallon; and Jade A. Winfree made key contributions to this report.

JWST is one of NASA's most expensive and technologically advanced science projects, intended to advance understanding of the origin of the universe. In 2011, JWST was rebaselined with a life cycle cost estimate of $8.8 billion and a launch readiness date in October 2018--almost nine times the cost and more than a decade later than originally projected in 1999. Concern about the magnitude of JWST's cost increase and schedule delay and their effects on NASA's progress on other high-priority missions led conferees for the Consolidated and Further Continuing Appropriations Act, 2012, to direct GAO to report on the project. Specifically, GAO assessed (1) the extent to which NASA's revised cost and schedule estimates are reliable based on best practices, (2) the major risks and technological challenges JWST faces, and (3) the extent to which NASA has improved oversight of JWST. To do this, GAO compared NASA's revised cost and schedule estimates with best practice criteria, reviewed relevant contractor and NASA documents, and interviewed project and contractor officials. The National Aeronautics and Space Administration (NASA) has provided significantly more time and money to the James Webb Space Telescope (JWST) than previously planned and expressed high confidence in the project's new baselines. Its current cost estimate reflects some features of best practices for developing reliable and credible estimates. For example, the estimate substantially meets one of four cost characteristics--comprehensive--that GAO looks for in a reliable cost estimate, in part because all life cycle costs were included. The estimate, however, only partially met the other three characteristics--well documented, accurate, and credible--which detracts from its reliability. For example, the estimate's accuracy, and therefore the confidence level assigned to the estimate, was lessened by the summary schedule used for the joint cost and schedule risk analysis because it did not provide enough detail to determine how risks were applied to critical project activities. The estimate's credibility was also lessened because officials did not perform a sensitivity analysis that would have identified key drivers of costs, such as workforce size. Program officials believe that it would have been difficult to fully address all best practice characteristics. GAO believes there is time to improve the estimate and enhance the prospects for delivering the project according to plan. Project officials report that the JWST schedule has 14 months of reserve, which meets Goddard guidance for schedule reserve; however, only 7 of the 14 months are likely to be available for the last three of JWST's five complex integration and test efforts. GAO's prior work shows that the integration and test phases are where problems are commonly found and schedules tend to slip. Given that JWST has a challenging integration and test schedule, this could particularly be likely. The project has made some significant progress in the past year, notably successfully completing development of the 18 primary mirror segments--considered JWST's top technical risk. Nevertheless, ongoing challenges are indicative of the kinds of issues that can require significant effort to address. For example, instrument challenges have delayed the first integration and test effort. In addition, key long-term risks on subsystems with a significant amount of work remaining will not be retired until 2016. Currently, NASA's plan for project oversight calls for one independent mission-level system integration review about 13 months before launch. While this is consistent with what NASA requires for its projects, this approach may not be sufficient for a project as complex as JWST. JWST has taken several steps to improve communications and oversight of the project and its contractors--such as taking over responsibility for mission systems engineering from the prime contractor; instituting meetings that include various levels of NASA, contractor, and subcontractor management; and implementing a new risk management system to allow for better tracking of risks. The enhancements to the oversight of the project are steps in the right direction, but it will take time to assess their effectiveness and ensure that the efforts are sustained by the project in the future. Reductions in travel budgets, however, could require the project to adjust the oversight approach that was adopted as a result of the replan. Additional reductions in travel budgets are anticipated in future years, but officials do not have a plan to address such reductions and their potential impact on continuing the current oversight approach. GAO recommends NASA take six actions including, among others, to take steps to improve its cost estimate; to conduct an additional, earlier independent review of test and integration activities; and to develop a long-term oversight plan that anticipates planned travel budget reductions.

You are an expert at summarizing long articles. Proceed to summarize the following text: Recessions mark a distinct phase of the overall business cycle, beginning with a business cycle “peak” and ending with a business cycle “trough.” Between trough and peak the economy is in an expansion. The National Bureau of Economic Research (NBER) identifies dates for national recessions, which can vary in overall duration and magnitude. While NBER sets dates for the peaks and troughs of national recessions, no dates are set for turning points in state economies. State economic downturns vary in magnitude, duration, and timing, and do not necessarily coincide with dates identified for national recessions. NBER defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production, and wholesale-retail sales. NBER uses several monthly indicators to identify national recessions. These indicators include measures of GDP and gross domestic income (GDI), real personal income excluding transfers, the payroll and household measures of total employment, and aggregate hours of work in the total economy. Since 1973, NBER has identified six national recessions. These recessions have varied considerably in duration and magnitude (table 1). For example, real GDP declined by 4.1 percent over the course of the 2007- 2009 recession, which lasted 18 months. Similarly, real GDP declined by about 3 percent during the 1973-1975 and 1981-1982 recessions, both of which lasted 16 months. In contrast, real GDP declined 1.4 percent and 0.7 percent in the 1990 and 2001 recessions, respectively, both of which lasted 8 months. States are affected differently by national recessions. For example, unemployment rates have varied across states during past recessions. During the course of the 2007-2009 recession, the national unemployment rate nearly doubled, increasing from 5.0 percent to 9.5 percent. The unemployment rate in individual states increased between 1.4 and 6.8 percentage points, with a median change of 4 percentage points (figure 1). In contrast, a smaller national unemployment rate increase of 1.3 percentage points during the 1990-1991 recession reflected unemployment rate changes in individual states ranging from -0.2 to 3.4 percentage points. Recent economic research suggests that while economic downturns within states generally occur around the same time as national recessions, their timing—or entrance into and exit out of the economic downturn— and duration varies. Some states may enter or exit an economic downturn before or after a national recession. Other states’ economies may expand while the country as a whole is in recession. States can also experience an economic downturn not associated with a national recession. States’ differing characteristics, such as industrial structure, contribute to these differences in economic activity. For example, manufacturing states tend to experience economic downturns sooner than other states in a recession, while energy sector states are often out of sync with the country as a whole. The federal government has multiple policy options at its disposal for responding to national recessions, although federal policy responses are not necessarily limited to the time periods of national recession. For example, in response to the recession beginning in December 2007, the federal government and the Federal Reserve together acted to moderate the downturn and restore economic growth when confronted with unprecedented weakness in the financial sector and the overall economy. The Federal Reserve used monetary policy to respond to the recession by pursuing one of the most significant interest rate reductions in U.S. history. In concert with the Department of the Treasury, it went on to bolster the supply of credit in the economy through measures that provide Federal Reserve backing for a wide variety of loan types, from mortgages to automobile loans to small business loans. The federal government also used fiscal policy to confront the effects of the recession. Existing fiscal stabilizers, such as unemployment insurance and progressive aspects of the tax code, kicked in automatically in order to ease the pressure on household income as economic conditions deteriorated. In addition, Congress enacted legislation providing temporary tax cuts for businesses and a tax rebate for individuals in the first half of 2008 to buoy incomes and spending and created the Troubled Asset Relief Program in the second half of 2008 to give Treasury authority to act to restore financial market functioning. The federal government’s largest response to the recession to date came in early 2009 with the passage of the Recovery Act, the broad purpose of which is to stimulate the economy’s overall demand for goods and services, or aggregate demand. Fiscal stimulus programs are intended to increase aggregate demand—the spending of consumers, business firms, and governments—and may be either automatic or discretionary. Unemployment insurance, the progressive aspects of the tax code, and other fiscal stabilizers provide stimulus automatically by easing pressure on household incomes as economic conditions deteriorate. Discretionary fiscal stimulus, such as that provided by the Recovery Act, can take the form of tax cuts for households and businesses, transfers to individuals, grants-in-aid to state and local governments, or direct federal spending. In response, households, businesses, and governments may purchase more goods and services than they would have otherwise, and governments and businesses may refrain from planned workforce cuts or even hire additional workers. Thus, fiscal stimulus may lead to an overall, net increase in national employment and output. The federal government may have an interest in providing fiscal assistance to state and local governments during recessions because doing so could reduce actions taken by these governments that could exacerbate the effects of the recession. Output, income, and employment all tend to fall during recessions, causing state and local governments to collect less revenue at the same time that demand for the goods and services they provide is increasing. Since state governments typically face balanced budget requirements and other constraints, they adjust to this situation by raising taxes, cutting programs and services, or drawing down reserve funds, all but the last of which amplify short-term recessionary pressure on households and businesses. Local governments may make similar adjustments unless they can borrow to make up for reduced revenue. By providing assistance to state and local governments, the federal government may be able to forestall, or at least moderate, state and local governments’ program and service cuts, tax increases, and liquidation of reserves. The federal government has provided varied forms of assistance directly to state and local governments in response to three of the past six recessions (figure 2). States have been affected differently during each of these recessions. For example, unemployment rates, entry into, and exit out of economic downturns have varied across states during past recessions. See appendix III for a description of each piece of legislation. Congressional decisions about whether to provide fiscal assistance to state and local governments ultimately depend on what role policymakers believe the federal government should take during future national recessions. Perspectives on whether and the extent to which the federal government should provide fiscal assistance to state and local governments are far-ranging—some advocate for not creating an expectation that federal fiscal assistance will be provided, while others argue for a greater federal role in providing fiscal assistance to state and local governments in response to national recessions. Some policy analysts warn against creating an expectation that federal assistance will be available to state and local governments. These analysts contend that federal fiscal assistance can distort state and local fiscal choices and induce greater spending of scarce state funds. For example, the matching requirements of federal grants can induce state governments to dedicate more resources than they otherwise would to areas where these resources are not necessarily required. According to these analysts, federal fiscal assistance to state and local governments reduces government accountability and erodes state control by imposing federal solutions on state problems. Those who hold this perspective see little justification for insulating state governments from the same fiscal discipline that other sectors of the economy follow during a recession. In contrast, other policy analysts favor a federal role in promoting the fiscal health of state and local governments during economic downturns. Proponents of this view contend that during economic downturns, state and local governments face the dilemma that demand for social welfare benefits increases at the same time that state and local governments’ ability to meet these demands is constrained as a result of decreasing tax revenues. General revenues collected by state and local governments over the past three decades are procyclical—typically increasing when the national economy is expanding and decreasing during national recessions, relative to their long-run trend. Own-source revenues, which made up about 80 percent of state and local general revenues in 2008, and total tax revenues, which made up about 68 percent of state and local own-source revenues in 2008, display similar cyclical behavior. In addition, state and local revenue growth lagged the resumption of national economic growth after the 2001 and 2007-2009 recessions, but preceded it during the 1981-1982 and 1990- 1991 recessions. State and local governments’ current tax receipts have declined in each of the six national recessions since 1973. However, both the severity of these revenue declines and the time it has taken for revenues to recover has varied (figure 3). During the most recent recession, state and local governments experienced more severe and long-lasting declines in revenue than in past recessions. For example, over the course of the 2007- 2009 recession, current tax receipts declined 9.2 percent—from $1.4 trillion in the fourth quarter of 2007 to $1.2 trillion in the second quarter of 2009—and had not yet returned to the peak level 5 quarters after the end of the recession. In contrast, the recessions beginning in 1980, 1981, and 1990 were less severe. For example, over the course of the 1990-1991 recession, current tax receipts declined less than 1 percent—from $789 billion in the third quarter of 1990 to about $785 billion in the first quarter of 1991—and recovered as the recession ended in the first quarter of 1991. Larger revenue declines during the two most recent recessions have coincided with increased volatility in state and local government revenues during the past two decades. This increased volatility can be attributed to the fact that since 1973, states have become increasingly reliant on individual income taxes, which are usually more volatile than other revenues. Income tax receipts rose from 15 percent of current tax receipts in 1973 to 20 percent in 2009. Analysts have attributed the increase in income tax as a portion of state revenues to state policy changes favoring income taxes and changes in the ways workers are compensated. Over time, state and local government revenues have become more volatile due to an increased reliance on income tax and a decreased reliance on sales tax. Several factors have contributed to these shifts, including sales tax exemptions for certain items, such as food and medicine; an increase in the share of consumption represented by services, as services are often excluded from sales tax; and increased Internet sales, which can reduce opportunities for state tax collections. Revenue fluctuations during national recessions vary substantially across states. Analysts have reported that this is due in part to states’ differing tax structures, economic conditions, and industrial bases. The aggregate revenue levels described earlier mask varying trends among individual state and local governments, as some state and local governments experience minimal or no revenue declines during national recessions, while others face severe reductions in tax revenues. For example, the median decline in state tax collections from the first quarter of 2008 to the first quarter of 2009 was 11 percent. While variations ranged from a 72 percent decline to a 15 percent increase during this period, most individual state tax collections declined between 16 percent and 6 percent. To better understand the extent to which an individual state’s government tax revenues decline during national recessions, we estimated how responsive state government tax revenues are to changes in total wages, a proxy for the amount of economic activity. We found that, on average, state tax revenues decrease by 1 percent when wages decrease by about 1 percent. However, this effect varies substantially across individual states, with state tax revenues falling by anywhere from about 0.2 percent to about 1.8 percent in response to a 1 percent decline in wages. This means that given the same reduction in wages, one state’s tax revenues may fall at up to nine times the rate of another state. General expenditures by state and local governments are procyclical (table 2). General expenditures also tend to lag the national business cycle by one to two years, so they tend to decline relative to trend later than GDP and also to increase relative to trend later than GDP. However, general expenditures by state and local governments grew at an average annual rate of about 4 percent during the period from 1977 to 2008, so declines in general expenditures relative to trend do not necessarily correspond to absolute declines in the level of general expenditures. Both of the main components of general expenditures—capital outlays and current expenditures—are procyclical. Capital outlays, which made up about 13 percent of general expenditures in 2008, are expenditures on the purchase of buildings, land, and equipment, among other things. Current expenditures, which made up the remaining 87 percent of general expenditures in 2008, include all non-investment spending, such as supplies, materials, and contractual services for current operations; wages and salaries for employees; and cash assistance to needy individuals. Capital outlays show a stronger procyclical relationship than current expenditures, and therefore typically fall relative to trend more than current expenditures during national recessions. Trends in capital outlays and current expenditures tend to lag the national business cycle by 1 to 2 years. However, like general expenditures, both capital outlays and current expenditures by state and local government grew by approximately 4 percent per year between 1977 and 2008, so declines below their long-run trends do not imply that the levels of either capital outlays or current expenditures declined. Spending associated with social safety net programs appears to behave differently over the business cycle than other types of spending. For example, current expenditures on health and hospitals and on public welfare–expenditures associated with social safety net programs such as Medicaid and Temporary Assistance for Needy Families (TANF)— typically increase relative to trend during national recessions (i.e., these expenditures are countercyclical). In contrast, current expenditures on elementary and secondary education, higher education, highways, and police and corrections typically decrease relative to trend during economic downturns (i.e., these expenditures are procyclical). Current expenditures on health and hospitals and on public welfare may be countercyclical because the number of people living in poverty is one of the main drivers of both types of expenditures, and the number of people living in poverty tends to increase during national recessions and to decrease during national expansions. In addition, current expenditures on some functions seem to lag the business cycle more than others. For example, current expenditures on elementary and secondary education and higher education seem to lag the business cycle by 1 to 2 years, while current expenditures on other functions do not seem to lag the business cycle. Thus, while state and local governments tend to reduce total current expenditures relative to trend during national recessions, they do not do so for every service. Furthermore, current expenditures on some services, such as education, take longer to recover than others after the recession is over. However, current expenditures on all the services we analyzed grew every year on average during the period of 1977 to 2008, so declines relative to trend were not necessarily absolute declines in spending on these services. If state and local government expenditures are typically procyclical, then state and local governments may have difficulties providing services during recessions. Reduced expenditures relative to trend during recessions may be reflecting reduced revenues relative to trend rather than reduced desire for services. For example, current expenditures on elementary and secondary education tend to fall relative to trend during recessions, but the population of elementary and secondary school-age children is unlikely to vary much as a result of the business cycle. Current expenditures on higher education also tend to fall relative to trend during recessions even though enrollment in colleges and universities may increase during recessions. Furthermore, the finding that current expenditures on health and hospitals and on public welfare tend to increase relative to trend during recessions does not definitively indicate the extent to which these increases are meeting increased demand during recessions. For example, we have previously reported that economic downturns in states result in rising unemployment, which can lead to increases in the number of individuals who are eligible for Medicaid coverage, and in declining tax revenues, which can lead to less available revenue with which to fund coverage of additional enrollees. Between 2001 and 2002, Medicaid enrollment rose 8.6 percent, which was largely attributed to states’ increases in unemployment. During this same period, state tax revenues fell 7.5 percent. The extent to which state governments maintained the capacity to fund their Medicaid programs differed during past recessions. These differences reflect variations in state unemployment rate increases and varied increases in Medicaid enrollment during recession periods. As revenues decline and demand increases for programs such as Medicaid and unemployment insurance during national recessions, state governments make fiscal choices within the constraints of their available resources. These decisions typically entail raising taxes, tapping reserves, reducing spending (as described earlier), or using other budget strategies to respond to revenue declines. In our analysis of the discretionary changes state governments have made to their revenue policies since 1990, we found that—in the aggregate— state governments made policy changes to increase taxes and fees during or after every national recession since state fiscal year 1990 (figure 4). For example, tax and fee increases as a percent of state general fund revenue peaked at about 5.1 percent in state fiscal year 1992, about 1.8 percent in state fiscal year 2004, and about 3.9 percent in state fiscal year 2010. From state fiscal years 1995 to 2001, states reduced taxes and fees by amounts ranging from 0.7 percent to 1.5 percent of general fund revenues. From state fiscal years 2003 to 2008, discretionary changes in states’ taxes and fees ranged from -0.3 percent to 1.8 percent. Within these national trends, individual state revenue policy choices varied considerably during our period of analysis. For example, in state fiscal year 1992, state governments enacted changes equal to 5.1 percent of general fund revenues for all states in the aggregate. However, during that fiscal year, individual states’ policy changes ranged from reducing taxes and fees by 1.4 percent to raising taxes and fees by 21.3 percent of general fund revenues. In state fiscal year 2008, aggregate state policy changes were about 0 percent of general fund revenues, but individual state policy changes ranged from decreasing taxes and fees by 6.1 percent to increasing taxes and fees by 19.3 percent. As we have previously reported, most state governments prepare for future budget uncertainty by establishing fiscal reserves. NASBO has reported that 48 states have budget stabilization funds, which may be budget reserves, revenue-shortfall accounts, or cash-flow accounts. State governments have tapped fiscal reserves to cope with revenue shortfalls during recent national recessions, as indicated by their reported total balances, which are comprised of general fund ending balances and the amounts in state budget stabilization “rainy day” funds (figure 5). Prior to the recessions beginning in 2000 and 2007, state governments built large balance levels, in the aggregate. According to NGA and NASBO’s Fiscal Survey of States, these balance levels reached 10.4 percent of expenditures in state fiscal year 2000 and 11.5 percent in 2006. Total balances typically reached their lowest points during or just after national recessions. By state fiscal year 2003, states’ total balances dropped to 3.2 percent of expenditures, and in fiscal year 2010 they had fallen to 6.4 percent. These total balance levels appear inflated, however, because individual state governments’ reserves can vary substantially. For example, NASBO reports that for state fiscal year 2010, two states (Texas and Alaska) represented $25.4 billion—more than 64 percent—of all state governments’ total balances. Removing these states, total balances were 2.4 percent of expenditures for the remaining 48 state governments. Since 1973, state and local governments have, in general, borrowed more and saved less during national recessions. Net lending or net borrowing by state and local governments—which is comprised of total receipts minus total expenditures—has fallen after the peak of each business cycle since 1973 (figure 6). While the state and local government sector increased its borrowing substantially during recent recessions, the sector did not increase net investments to the same extent. For example, net borrowing increased from 0.2 percent of GDP in the first quarter of 2006 to 1.15 percent of GDP in the third quarter of 2008 for all state and local governments in the aggregate. In contrast, state and local government investment ranged from 1.1 percent to 1.2 percent of GDP during the same period. The level of total state and local government debt per capita varies substantially across states. Our analysis found that on average state and local government total debt per capita was $7,695 in fiscal year 2008; however, within individual states debt ranged from a minimum of $3,760 per capita to a maximum of $14,513 per capita. As a percentage of gross state product (GSP), total state and local government debt averaged 16.9 percent and ranged from 6.6 percent to 25.4 percent in fiscal year 2008. State and local government total debt levels appear to correlate with GSP, suggesting that state and local governments within states with more fiscal resources tend to hold more debt. State budget officials have used other short-term budget measures to address revenue declines while avoiding broad-based tax increases. Some of these strategies include: shifting revenues or expenditures across fiscal years, securitizing revenue streams, reducing payments or revenue sharing to local governments, deferring infrastructure maintenance, borrowing from or transferring funds from outside the general fund to address revenue shortfalls, and reducing funding levels for pensions. In addition, a number of state governments have redesigned government programs to improve efficiency and reduce expenditures. According to the National Governor’s Association Center for Best Practices (NGA Center), a recession provides state fiscal managers with an opportunity for cutting back inefficient operations. The NGA Center tracked state governments’ efforts to restructure government, and in fiscal years 2009 and 2010, a broad range of budget cuts and programmatic changes were enacted in areas such as corrections, K-12 education, higher education, and employee costs (salaries and benefits). While some of these changes were temporary, the NGA Center contends these changes reflect a “new normal” for state government in the long term. The NGA Center found that at least 15 state governments conducted governmentwide reviews to improve efficiency and reduce costs; at least 18 state governments reorganized agencies; and more than 20 state governments altered employee compensation, including enacting pension reforms. Evaluations of prior federal fiscal assistance strategies have identified considerations to guide policymakers as they consider the design of future legislative responses to national recessions. To ensure that federal fiscal assistance is effective, we and others have said that policymakers can benefit from considering the following when developing a policy strategy. Timing/triggering mechanisms—Fiscal assistance that begins to flow to state and local governments when the national economy is contracting is more likely to help state and local governments avoid actions that exacerbate the economic contraction, such as increasing taxes or cutting expenditures. Since it takes time for state and local government revenues and service demands to return to pre-recession levels, fiscal assistance that continues beyond the end of a recession may help state and local governments avoid similar actions that slow the economic recovery. Federal policy strategies specifically intended to stabilize state and local governments’ budgets may have to be timed differently than those designed to stimulate the national economy, because state budget difficulties often persist beyond the end of a recession. Securing legislative approval of fiscal assistance through Congress can result in a time lag before such assistance is available. For example, the Recovery Act was passed in February 2009, nearly five quarters after the national recession began in December 2007. There can also be a second lag that results from the time it takes for the federal government to distribute fiscal assistance to the states. Further, state governments often have to set up mechanisms for channeling the funds into the necessary programs. All of this slows the process of spending the money during a recession. In the case of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), for example, we found that the first federal funds were distributed 19 months after the end of the national recession. A trigger could automatically provide federal assistance, or it could prompt policymakers to take action. Economists at the Federal Reserve Bank of Chicago have described the ideal countercyclical assistance program as one having an automatically activated, pre-arranged triggering mechanism that could remove some of the political considerations from the program’s design and eliminate delays inherent to the legislative process. Such a trigger could also specify criteria for ending assistance. Targeting—If federal fiscal assistance to state and local governments is targeted based on the magnitude of the recession’s effect on each state’s economy, this approach can facilitate economic recovery and moderate fiscal distress at the state and local level. Targeting requires careful consideration of the differences in individual states’ downturns while also striking a balance with other policy objectives. As discussed below, effective targeting of federal fiscal assistance is dependent upon the selection of indicators that correspond to the specific purpose(s) of the particular policy strategy. Temporary—As a general principle, federal fiscal assistance provided in response to national recessions is temporary. While a federal fiscal stimulus strategy can increase economic growth in the short run, such efforts can contribute to the federal budget deficit if allowed to run too long after entering a period of strong recovery. The program can be designed so that the assistance ends or is phased out without causing a major disruption in state government budget planning. If federal assistance is poorly timed, badly targeted, or permanently increases the budget deficit, the short-term benefits of the assistance package may not offset the long-term cost. Consistency with other policy objectives—The design of federal fiscal assistance occurs in tandem with consideration of the impact these strategies could have on decision makers’ other policy objectives. Such considerations include competing demands for federal resources and an assessment of states’ ability to cope with their economic conditions without further federal assistance. As the Peterson-Pew Commission on Budget Reform recently noted in its report, current budget practices recognize the costs of economic emergencies only when these events occur. Although we do not know when recessions will occur or how severe future recessions will be, the current practice of waiting to act until these economic events occur can result in greater public costs than if policy objectives of advance preparation (such as reduced consumption and increased savings during economic upswings) were incorporated into federal fiscal assistance strategies. A standby federal fiscal assistance policy could induce moral hazard by encouraging state or local governments to expect similar federal actions in future crises, thereby weakening their incentives to properly manage risks. For example, states could have less incentive to build, maintain, and grow their rainy day or other reserve funds if they believe they may receive assistance from the federal government during future recessions. Another consideration is the policy objective of maintaining accountability while promoting flexibility in state spending. Past studies have shown that unrestricted federal funds are fungible and can be substituted for state funds, and the uses of such funds can be difficult or impossible to track. When policymakers select indicators to time and target federal fiscal assistance in response to a national recession, their selection depends on the specific purposes of the proposed assistance program. For example, during a recession, policymakers may choose to provide general fiscal assistance or assistance for specific purposes such as supporting states’ Medicaid or education programs. The indicators chosen to time and target general fiscal assistance could differ from those chosen for the purpose of supporting Medicaid or education. Indicators chosen for Medicaid could also differ from those chosen to provide assistance for education. In addition, different indicators may be needed to determine the timing (triggering on), the targeting (allocating), and the halting (triggering off) of federal fiscal assistance. For example, policymakers could use a national labor market indicator to begin assistance and a state-level indicator to halt assistance. We previously reported on a policy strategy intended to support state Medicaid programs during economic downturns. This strategy used state unemployment rates to trigger the flow of aid on and off. This strategy used state unemployment rates along with an additional indicator—relative state Medicaid costs—to determine the amount of aid each state receives. Policymakers could select indicators with the intent of responding to the effects of a particular recession. For example, if policymakers want to begin providing fiscal assistance to state and local governments as states enter an economic downturn, they are challenged by the fact that different states may enter into economic downturns at different times. Policymakers would need to select an indicator that provides information on the overall amount of economic activity in individual states, that is frequent enough to distinguish between different phases of the business cycle, and is available with relatively little lag time. Timely, state-level, publicly available indicators can be found primarily in labor market data, but are also found in housing market and personal income data. The indicators in table 3 are all commonly used measures of national macroeconomic activity that are also available at the state level. At the national level, indicators such as employment, weekly hours, and housing units authorized by building permits are procyclical, while other indicators, such as unemployment, are countercyclical. The indicators in table 3 are published either monthly or quarterly, and thus cover periods shorter than the length of the typical national recession. These indicators are available with less than a 6-month publication lag, as indicators with publication lags greater than 6 months may not reveal the downturn until it is already over and the recovery has begun. The illustrative indicators shown in the table above exclude indicators of fiscal stress (such as declines in tax receipts or budget gaps) because they are dependent on state governments’ policy choices and because state definitions and measurement techniques vary for calculations such as budget gaps. For example, the list does not include state governments’ quarterly tax receipts because this measure reflects policy decisions within each state. Data sources detailing state-level participation in intergovernmental benefit programs are also excluded because program enrollment data can understate the number of individuals eligible for the program. For example, we did not include unemployment insurance claim data from the Employment and Training Administration because BLS has reported that unemployment insurance information cannot be used as a source for complete information on the number of unemployed. We excluded this indicator because claims data may underestimate the number of unemployed because some people are still jobless when their benefits run out, some are not eligible, and some never apply for benefits. Recent research suggests that some indicators may be better able to trigger assistance on and off than other indicators, depending on the specific purpose of the assistance. Economists from the Federal Reserve Bank of Chicago found that a trigger based on the national aggregate of the Federal Reserve Bank of Philadelphia’s State Coincident Indexes— which are comprised of nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements—would turn assistance on close to the beginning of a national recession and would turn assistance off close to the end of a national recession. They found that a trigger based on the national unemployment rate also triggered the flow of assistance on close to the beginning of a national recession, but did not trigger the assistance off until well after the national economic recovery was under way, reflecting the lag in employment recovery after recessions. If the goal of aid is to maintain state and local government spending only during the recession, then the State Coincident Indexes may be an appropriate indicator. However, if the goal of aid is to maintain state and local government spending until an individual state’s economy fully recovers, the unemployment rate may be an appropriate indicator. Knowledge of the results, challenges, and unintended consequences of past policy actions can inform deliberations as policymakers determine whether and how to provide federal fiscal assistance in response to future national recessions. Federal responses to prior recessions have included providing various forms of federal fiscal assistance directly to state and local governments as well as decisions not to provide fiscal assistance in response to national recessions. When the federal government has provided fiscal assistance, such assistance has fallen into two general categories: (1) unrestricted or general purpose fiscal assistance, which can include general revenue sharing programs; and (2) federal fiscal assistance through grants for specific purposes. This second category of assistance has included funding for existing grant programs (including both categorical and formula grants) as well as funding for new grant programs to state and local governments. Unrestricted or general purpose grants to states and localities maximize spending discretion for state and local governments. This approach has included antirecession payments and general revenue sharing funds to increase state and local expenditures or forestall potential tax increases. Because there are minimal restrictions on the use of these funds, they offer the advantage of not interfering with state spending priorities as well as the opportunity to use the funds quickly. However, our past evaluations, as well as work by others, have noted that this approach also presents challenges and unintended consequences. Due to the nature of such assistance, state and local governments may use unrestricted federal funds for activities that would have otherwise been funded using non-federal sources. Also, in an example from the 1970s, federal antirecession payments were provided through the Antirecession Fiscal Assistance (ARFA) program, which distributed more than $3 billion between July 1976 and September 1978 to state and local governments. State and local governments could use the ARFA funds for the maintenance of basic services customarily provided by these governments, such as public welfare, education and police protection. The ARFA funds were intended to facilitate state spending. However, because the funds were subject to states’ standard appropriations procedures, this slowed states’ spending of the funds. In its study of ARFA, the Department of the Treasury reported that states appropriated ARFA funds on average 7 months later than the states appropriated their own revenues, thereby delaying entry of the funds into the states’ spending stream. More recently, we found similar issues in our 2004 review of the component of the JGTRRA that provided $10 billion in unrestricted, temporary fiscal relief payments to states that were allocated on a per capita basis. We found that these fiscal relief funds were not targeted to individual states based on the impact of the recession and found it doubtful that these payments were ideally timed to achieve their greatest possible economic stimulus. JGTRRA fiscal relief payments were first distributed to the states in June 2003, about 19 months after the end of the 2001 recession and after the beginning of the economic expansion. However, because employment levels continued to decline even after the economy entered an expansion period, we found that the JGTTRA fiscal relief payments likely helped resolve ongoing state budgetary problems. Some prior federal fiscal assistance strategies have included use of existing grant programs to deliver assistance to states. This approach has the advantage of targeting funding to reflect federal policy priorities while avoiding the delays involved in establishing and implementing entirely new programs. For example, an amendment to the Comprehensive Employment and Training Act of 1973 (CETA) created Title VI, Emergency Jobs Programs (Title VI), which provided federal fiscal assistance in response to the recession that began in 1973. Title VI adapted the existing CETA federal jobs program to mitigate cyclical unemployment by providing funding to temporarily hire employees in federal, state, and local governments. While policy analysts found that Title VI provided visible and useful services to communities and fiscal relief to some localities, they also found that there were unintended consequences resulting from implementation of the program. According to our prior work, and the work of others, these consequences included the practice by some state governments of laying off current employees and later rehiring the same employees using Title VI funds, instead of using their existing state government funds. The federal government’s responses to the recessions beginning in March 2001 and December 2007 provide recent examples of the use of existing grant structures to expedite the implementation of fiscal assistance. The federal response to both recessions included temporarily increasing the rate at which states are reimbursed for Medicaid expenditures through an increase to the existing Federal Medical Assistance Percentage (FMAP) formula. Both JGTRRA and the Recovery Act distributed increased FMAP funds to states through the existing Medicaid payment management system. We have reported that increased FMAP funds provided by the Recovery Act were better timed and targeted for state Medicaid needs than funds provided following the 2001 national recession. Overall, the timing of the initial provision of Recovery Act funds responded to state Medicaid needs because assistance began during the 2007 national recession while nearly all states were experiencing Medicaid enrollment increases and revenue decreases. However, state budget officials also referred to the temporary nature of the funds and the fiscal challenges expected to extend beyond the timing of funds provided by the Recovery Act. Officials discussed a desire to avoid what they referred to as the “cliff effect” associated with the dates when the funding ends. The increased FMAP funds provided by the Recovery Act were well targeted for state Medicaid enrollment growth based on changes in state unemployment rates. However, the Recovery Act did not allocate assistance based on state variation in the ability to generate revenue. As a result, the increased FMAP funding did not reflect varying degrees of decreased revenue that states had for maintaining Medicaid service. The increased FMAP funds provided to states following the 2001 recession were provided well after the recession ended and not targeted based on need. The Recovery Act also increased funding for other existing grant programs to provide fiscal assistance to state and local governments. For example, the Recovery Act provided an additional $2 billion in funds for the Edward Byrne Memorial Justice Assistance Grant (JAG) Program. Consistent with the pre-existing program, states and localities could use their Recovery Act JAG grant funds over a period of 4 years to support a range of activities in seven broad statutorily established program areas including law enforcement, crime prevention, and corrections. In a recent report, we found that of the states we reviewed, all reported using Recovery Act JAG funds to prevent cuts in staff, programs, or essential services. Recipients of Recovery Act JAG funding received their money in one of two ways— either as a direct payment from the Bureau of Justice Assistance or as a pass-through from a state administering agency (SAA)—and they reported using their funds primarily for law enforcement and corrections. Localities and SAAs that received funds directly from the Department of Justice expended their awards at varying rates, and the expenditure of Recovery Act JAG funds generally lagged behind the funds awarded by the SAAs. Federal fiscal assistance using existing grant programs can also result in the unintended consequence of hindering the countercyclical intent of the particular assistance program. This can occur because funds flow to states through existing funding formulas typically established for purposes other than providing federal fiscal assistance in response to a national recession. For example, in the case of Medicaid, the regular (base) FMAP formula is based on a 3-year average of a state’s per capita income (PCI) relative to U.S. per capita income. PCI does not account for current economic conditions in states, as lags in computing PCI and implementing regular (base) FMAP rates mean that the FMAP rates reflect economic conditions that existed several years earlier. In the case of Recovery Act JAG funding, the Bureau of Justice Assistance allocated Recovery Act JAG funds the same way it allocated non-Recovery Act JAG funds by combining a statutory formula determined by states’ populations and violent crime statistics with the statutory minimum allocation to ensure that each state and eligible territory received some funding. This approach offers expedience by relying on the existing formula. However, the purpose of the formula does not take into account states’ fiscal circumstances during national recessions. Prior federal fiscal assistance provided for specific purposes has also included funding for new grant programs. For example, the Recovery Act created a new program, the State Fiscal Stabilization Fund (SFSF), in part to help state and local governments stabilize their budgets by minimizing budgetary cuts in education and other essential government services, such as public safety. SFSF funds for education distributed under the Recovery Act had to first be used to alleviate shortfalls in state support for education to local education agencies and public institutions of higher education. States had to use 81.8 percent of their SFSF formula grant funds to support education and use the remaining 18.2 percent to fund a variety of educational or noneducational entities including state police forces, fire departments, corrections departments, and health care facilities and hospitals. In our prior work, we found budget debates at the state level delayed the initial allocation of education-related funds in some states. In contrast to these approaches to providing fiscal assistance, in three of the six recessions since 1974, the federal government did not provide fiscal assistance directly to state and local governments (Jan. to July 1980, July 1981 to Nov. 1982, and July 1990 to March 1991). Our prior report has noted that by providing state and local governments with fiscal assistance during downturns, the federal government may risk discouraging states from taking the actions necessary to prepare themselves for the fiscal pressures associated with future recessions. Other analysts have suggested that a recession provides state and local officials with an opportunity for cutting back inefficient operations. If the federal government immediately steps in with fiscal assistance, such an opportunity may be lost. Consequently, policymakers could respond to a future recession by deciding that the federal government should encourage state and local government accountability for their own fiscal circumstances by not providing federal fiscal assistance. As a possible alternative to direct federal fiscal assistance to state governments, policy analysts have also considered the concept of a federally sponsored tool to help states prepare for future recessions. We previously discussed proposals for other new programs that would help states respond to recessions but may not provide direct federal fiscal assistance. Examples of these proposed strategies include a national rainy day fund and an intergovernmental loan program that would help states cope with economic downturns by having greater autonomy over their receipt of federal assistance. None of these options have been included in federal fiscal assistance legislation to date. A national rainy day fund would require individual state governments to pay into a fund that would assist states during economic downturns, while a quasigovernmental agency would administer the fund. The concept of a national rainy day fund is based on establishing a national risk pool to provide countercyclical assistance to states during economic downturns. The national rainy day fund could be modeled on the private unemployment compensation trust fund in that states would be given experience ratings that would require larger contributions based on their individual experience using their own rainy day funds. Proponents of the national rainy day fund argue that it could reduce state governments’ fiscal uncertainty by allowing states to use national rainy day funds instead of raising taxes or modifying or cutting programs. An intergovernmental loan program could be an alternative to a national rainy day fund program. The funding for such a loan program could come from either the federal government or from the private capital market, and it could be subsidized and possibly guaranteed by the federal government. These alternative strategies to direct federal fiscal assistance to state governments face several design and implementation challenges. Convincing each state to fully fund its required contribution would be an initial challenge to the viability of a national rainy day program. With regard to an intergovernmental loan program, such a program could also delay state governments’ budget decisions, as states may need to dedicate portions of future budgets to pay for interest on loans. Determining the appropriate amount of money each state should pay into a national rainy day fund and controlling the risk and cost of any direct intergovernmental loan program would present additional challenges. In addition, representatives from the state organizations and think tanks we spoke with told us they did not see proposals for a national rainy day fund or intergovernmental loan programs as politically feasible. The skepticism regarding these programs included concerns such as accountability issues with a national rainy day program, as well as issues with states’ ability to pay back loan interest in a program patterned after the unemployment insurance trust fund. We are sending copies of this report to interested congressional committees. The report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this letter, please contact Stanley J. Czerwinski at (202) 512-6806 or [email protected], or Thomas J. McCool at (202) 512-2700 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. This appendix describes our the work w local budgets during national recessi that exist to provid governments. We also include a list of the organiza during the course of our work. The American Reinvestment and Recovery Act of 2009 (Recovery Act) required GAO to evaluate how national economic downturns have affected states over the past several decades. Pub. L. No. 111-5, Div. B, title V, § 5008, 123 Stat. 115 (Feb. 17, 2009). nance variable is procyclical if the correlation of its cyclical component To describe the cyclical behavior of state and local government revenues and expenditures, we first plotted the cyclical components of the finance variables and the cyclical component of GDP—our benchmark indicator the business cycle—to visually examine how they move in relation to one another. We then estimated the correlations of the cyclical components the finance variables with the cy clical component of GDP for the same year, for 1 to 3 years in the past, and 1 to 3 years in the future. In general, a fi with the cyclical component of GDP for the same year is positive, and a finance variable is countercyclical if the correlation of its cyclical component with the cyclical component of GDP for the same year is negative. Specifically, we correlation was greater than or equal to 0.2 and as countercyclical if the correlation was less than or equal to -0.2. The larger the correlation is in absolute value, t relationship. A maximum correlation for, say, the previous year indicates that a finance variable tends to lag the business cycle by 1 year. identified a finance variable as procyclical if the he stronger the procyclical or countercyclical e used three alternative methods to estimate the cyclical components of W the state and local government finance variables and of GDP: (1) by linearly detrending the natural logarithms of the variables, (2) by usin Baxter-King bandpass filter, and (3) by using the Christiano-Fitzgerald random walk bandpass filter. Figures 7-9 graph the cyclical compo selected finance variables and GDP as estimated by linear detrending. Table 4 shows the correlations we calculated using the cyclical components of the finance variables and GDP as estimated by linear detrending. All three methods produced similar results. nents of nd loc ver e dar y cal ye ach g ear-b ars. t financ nt’s own rting pe lly, a survey yea e vari fisca riod t ables we use are collect l ye er tha hat t, ar basis, ed n a s which governments maintain their financial records. Any attempt to standardize the time frame for more than 80,000 governments would create an insurmountable data collection challenge and would be cost prohibitive. We analyzed data from BEA NIPA table 3.3 “State and Local Government Current Receipts and Expenditures” to identify tre owing, inds in state and loca gox recvernme net borreipts,nt tanvestm nt and savings from 1e to 2010. W ed theP price in GDe usrted BEA to deflate value dex repoow revenss hars. Tes vaween states durby ue declind beter-year changes in states’ rie 2009 dollear-ov o asse the most recent recession, we calculated y quarterly tax receipt d a from the U.S. Census Bureau. We calculated at variation ment ded local gopita acrosbt per cain state ans statvern es us Census Bureau. Finally, we reviewed fiscal year 2008 data from the U.S. economic and finance literature to better understand how state budgets are affected during national business cycles. To identify strategies for providing federal assistance to state and local governments during national recessions, we reviewed federal fiscal assistance programs enacted since 1973. We identified these programs and potential considerations for designing a federal assistance program by reviewing GAO, Congressional Research Service (CRS), and Congressional Budget Office (CBO) reports and conducting a search for relevant legislation. The federal fiscal programs we selected to review for this report were designed to help state governments address the fiscal effects of national recessions. This legislation was not intended to address long- term fiscal challenges facing state and local governments. We analyzed the legislative history and statutory language of past federal assistance programs, as well as any policy goals articulated in the statutes themselves. Finally, we interviewed analysts at associations and think tanks familiar with the design and implementation of federal fiscal assistance legislation. To identify factors policymakers should consider when selecting indicators to time and target federal countercyclical assistance, we reviewed reports from GAO, CBO, CRS, Federal Reserve Banks, the U.S. Department of the Treasury (Treasury), and academic institutions. We considered indicators’ availability at the state level and timeliness (in terms of frequency and publication lag time) to identify indicators policymakers could potentially use to target and time countercyclical federal assistance during downturns. We used several decision rules to assess indicators’ availability and timeliness. In terms of availability, indicators created by private sources were excluded because they may be available only for a fee, may not produce the data in the future, or th methodology may be proprietary, making analysis of the data’s reliability difficult. In terms of timeliness, we selected indicators that were publish at least quarterly and with less than a 6-month publication lag. Quarterly publication ensures the indicator covers time periods that are shorter th the length of the typical economic downturn, as indicators that cover mor than 3 months may not be able to differentiate between phases of the business cycle. We selected indicators with a relatively short publication lag because indicators with publication lags greater than 6 months may not reveal the downturn until it is already over and the recovery has begun. For example, we did not include Treasury’s total taxable resources—a measure of states’ relative fiscal capacity—as a potential indicator because it is available on an annual basis with a 3-year lag. s’ We also excluded indicators that may be influenced by state government policy choices. This includes indicators of fiscal stress, such as declines in tax receipts or budget gaps. For example, tax receipts reflect states’ policy choices, as states may change tax rates in response to declining revenues able in a recession. We excluded state governments’ tax receipts from the tbecause this measure is heavily dependent on and reflects policy decisions within each state. In addition, by choosing an indicator independent of policy choices, policymakers may reduce the potential for unintended consequences such as discouraging states from preparing for budge uncertainty (sometimes referred to as moral hazard) when desig federal fiscal assistance program. We also excluded data intergovernmental benefit programs because program enrollment data . For may understate the number of individuals eligible for the program example, we did not include unemployment insurance claims data fr the Department of Labor’s Employment and Training Administration because the Bureau of Labor Statistics (BLS) has reported that unemployment insurance information cannot be used as a source for e complete information on the number of unemployed. This is becaus claims data may underestimate the number of the unemployed because some people are still jobless when their benefits run out, some individua are not eligible for unemployment assistance, and some individuals ne apply for benefits. sources detailing state-level participation in The indicators discussed in this report are not an exhaustive list of indicators available to time and target federal fiscal assistance to states. Depending on the specific policy strategy used, policymakers may want to combine the indicators with other information, such as data on increased demand for specific programs, to target assistance for specific programs or state circumstances. For example, GAO has reported on a policy strategy that combined information on the change in a state’s unemployment rate with an index of the average level of Medicaid expenditures by state. We contacted representatives of state and local government organizati ons and public policy and research organizations to (1) gain insight into publicpolicy strategies and potential indicators for timing and targeting assistance to states; (2) validate our selection of strategies and discuss considerations for designing federal fiscal assistance to state and local governments during national recessions; and (3) obtain views regard the feasibility and potential effects of these strategies. The o we contacted included: American Enterprise Institute, Center for State & Local Government Excellence Center on Budget and Policy Priorities, Federal Reserve Bank of Chicago, Federal Reserve Bank of St. Louis, National Association of State Budget Officers, National Governors Association, National Conference of State Legislatures, National League of Cities The Nelson A. Rockefeller Institute of Government, and The Pew Center on the States. We assessed the reliability of the data we used for this review and determined that they were sufficiently reliable for our purposes. We conducted this performance audit from February 2010 to March 2011 in accordance with generally accepted government auditing standards Those standards require that we plan and perform the audit to o btain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. . This appendix provides summaries of the U.S. Census Bureau’s definition of state and local government revenues and expenditures used in our analyses of how state and local government budgets are affected during national recessions. These summaries are adapted from U.S. Census Bureau, Government Finance and Employment Classification Manual, October 2006. We have excluded categories that were not discussed in this report. Employee and retiree health benefits and government pension contributions on behalf of current employees are accounted for in the sector (e.g., education) for which the employees work. General expenditures—All expenditures except those classified as utilit liquor store, or social insurance trust expenditures. 1. Capital outlays—Direc contract or government employee, construction of buildings and other improvements; for purchase of land, equipment, and existing structures; and for payments on capital leases. t expenditures for purchase or construction, by 2. Current expenditures—Direct expen officers and employees and for supplies, materials, and contractual services except any amounts for capital outlay (current operations), amounts paid for the use of borrowed money (interest on debt), direct cash assistance to foreign governments, private individuals, and nongovernmental organizations neither in return for goods and services nor in repayment of debt and other claims against the government (assistance and subsidies), and amounts paid to other governments for performance of specific functions or for general financial support (intergovernmental expenditure), including the following categories: ditures for compensation of own a. Elementary and secondary education—Current expenditures for the operation, maintenance, and construction of public schools and facilities for elementary and secondary education, vocational- technical education, and other educational institutions except tho for higher education; operations by independent governments (scho districts) as well as those operated as integral agencies of state, county, municipal, or township governments; and financial support of public elementary and secondary schools. b. Health and hospitals—Current expenditures for the provision of services for the conservation and improvement of public health, other than hospital care, and financial support of other governments’ health programs; for a government’s own hospitals as well as expenditures for the provision of care in other hospitals; for the provision of care in other hospitals and support of other public and private hospitals. c. Higher education—Current expenditures for higher education activities and facilities that provide supplementary services to students, faculty or staff, and which are self-supported (wholly or largely through charges for services) and operated on a commerci basis (higher education auxiliary enterprises) and for degree-grant institutions operated by state or local governments that provide academic training beyond the high school level, other than for auxiliary enterprises of the state or local institution (other higher education). d. Highways—Current expenditures for the maintenance, operation, repair, and construction of highways, streets, roads, alleys, sidewal bridges, tunnels, ferry boats, viaducts, and related non-toll structures (regular highways) and for highways, roads, bridges, ferries, and tunnels operated on a fee or toll basis (toll highways). e. Police and corrections—Current expenditures for residential institutions or facilities for the confinement, correction, and rehabilitation of convicted adults, or juveniles adjudicated, delinqu or in need of supervision, and for the detention of adults and charged with a crime and awaiting trial (correctional institutions); fo correctional activities other than federal, state and local residential institutions or facilities (other corrections); and for general police, sheriff, state police, and other governmental departments that preserve law and order, protect persons and property from illegal acts, and work to prevent, control, investigate, and reduce crime (police protection). f. Public welfare—Current expenditures associated with Supplemental Security Income (SSI), Temporary Assistance for Need Families (TANF), Medical Assistance Program (Medicaid) (public welfare—federal categorical assistance programs); cash payments made directly to individuals contingent upon their need, other than those under federal categorical assistance programs (public welfare— other cash assistance programs); public welfare payments made directly to private vendors for medical assistance and hospital or health care, including Medicaid (Title XIX), plus mandatory state payments to the federal government to offset costs of prescription drugs under Medicare Part D and payments to vendors or the federal government must be made on behalf of low-income or means-tested y beneficiaries, or other medically qualified persons (public welfare— vendor payments for medical care); payments under public welfare programs made directly to private vendors (i.e., individuals or nongovernmental organizations furnishing goods and services) for services and commodities, other than medical, hospital, and health care, on behalf of low-income or other means-tested beneficiaries (public welfare—vendor payments for other purposes); provision, construction, and maintenance of nursing homes and welfare institutions owned and operated by a government for the benefit of needy persons (contingent upon their financial or medical need veterans (public welfare—institutions); and all expenditures for welfare activities not classified elsewhere (public welfare—other). g. Other—Current expenditures for all other functions. eral revenue—General revenue is all revenue except that classified as r store, utility, or insurance trust revenue. 1. Intergovernmental revenue from the federal government—Amounts received directly from the federal government. For states, this includ fedety, reimral grants and aid, payments-in-lieu-of-taxes on federal proper tranbursements for state activities, and revenue received but later govesmitted through the state to local governments. For local rnments, this category includes only direct aid from the federal government. 2. Ow by a emp insu improvements (taxes), charges imposed for providing current services or for t t activities (cur own n-source revenue—Revenue from compulsory contributions e government for public purposes, other than for employee and loyer assessments and contributions to finance retirement and soc rance trust systems and for special assessments to pay capital he sale of products in connection with general governmen rent charges), and all other general revenue of governments from their sources (miscellaneous general revenue). CETA—Provided job training and employment for economically disadvantaged, unemployed, and underemployed persons through a system of federal, sta and local programs. grams (Added by Title 1 ub. L. No. 93-567) Titles II and VI—Provided transitional state and local government public service jobs in areas with high unemployment rates. Provided emergency financial assistance to create, maintain or expand jobs in areas suffering from unusually high levels of unemployment. Title Capital Development and Investment Act of 1976 I—Local Public Works Authorized funds to establish an antirecess and increased federal funding to states and localities to improve the nation’s public infrastructure—roads, bridges, sanitation systems, and other public facilities. Title II—Antirecession Fiscal Assistance (ARFA) ARFA intended to offset certain fiscal actio ns taken by state governments during recessions, including raising taxes and layoffs. It was designed to achieve three objectives: to maintain public employment, maintain public services, an counter the November 1973—March 1975 recession. Under the ARFA program, state governments receive third of the allocation, while local governments received two-thirds. The State and Local Fiscal Assistance Act of 1972 in to help assure the financial soundness of state and local governments through general revenue sharing. The Amendments of 1976 extended and modified this Act. For payments to the State and Local Government Fiscal Assistance Trust Fund, as authorized by The State and Local Fiscal Assistance Act of 1972, which was intended to help assure the financial soundness of state and local governments through general revenue sharing. See Antirecession Fiscal Assistance (ARFA) above. An additional amount for ARFA was to remain available until September 30, 1978. Employment And Training Made economic stimulus a Assistance and training. Made economic stimulus appropriations for CETA. Made economic stimulus appropriations for the fiscal year ending September 30, 1977, as well as for other purposes. Increased the authorization for the Local Public Works Capital Development and Investment Act of 1976 (see above) and provided funding for the im works projects which were to be performed by cont awarded by competitive bidding. Did not include federal counte governments. Federal countercyclical legislation enacted provided som assisting state and local governments. Provided (1) fiscal relief through a temporary increase in federal Medicaid funding for all states, as well as (2) general assistance divided among the states for essen government services. The funds were allocated to the states on a per capita basis, adjusted to provide for minimum payment amounts to smaller states. Division B, Title V: State Fiscal Relief Fund (FMAP) Education Jobs and Recovery Act FMAP Extension, Pub. L. No. 111- 226 (federal legislation enacted on August 10, 2010, to amend the Recovery Act.) Funds awarded to local educational agencies under this law may be used only to retain existing employees, to recall or rehire former employees, and to hire new employees, in order to provide educational and related services. These funds may not be used to supplement a rainy-day fund or reduce debt obligations incurred by the state. Provided for an extension of increased FMAP funding through June 30, 2011, but at a lower level. Stanley J. Czerwinski, Director, Strategic Issues, (202) 512-6806 or [email protected]. homas J. McCool, Direc tor, Center for Economics, (202) 512- . Michelle Sager (Assistant Director), Shannon Finnegan (Analyst-in- Charge), Benjamin Bolitzer, Anthony Bova, Amy Bowser, Andrew Ching, Robert Dinkelmeyer, Gregory Dybalski, Robert Gebhart, Courtney LaFountain, Alicia Loucks, Donna Miller, Max Sawicky, and Michael Springer also made key contributions to this report. Medicaid: Improving Responsiveness of Federal Assistance to Sta During Economic Dow 2011. nturns. GAO-11-395. Washington, D.C.: March 31, Recovery Act: Oppo Accountability over States’ and Localities’ Uses of Funds. GAO-10-999. Washington, D.C.: September 20, 2010. rtunities to Improve Management and Strengthen State and Local Governments: Fiscal Pressures Could Have Implication for Future Delivery of Intergovernmental Programs. GAO-10-899. Washington, D.C.: July 30, 2010. Recovery Act: States’ and Localities’ Uses of Funds and Actions Needed to Address Implementation Challenges and Bolster Accountability. GAO-10-604. Washington, D.C.: May 26, 2010. Recovery Act: One Year Later, States’ and Localities’ Uses of Funds and Opportunities to Strengthen Accountability. GAO-10-437. Washington, D.C.: March 3, 2010. State and Local Governments’ Fiscal Outlook: March 2010 Update. GAO-10-358. Washington, D.C.: March 2, 2010. Recovery Act: Status of States’ and Localities’ Use of Funds and Efforts to Ensure Accountability. GAO-10-231. Washington, D.C.: December 10, 2009. Recovery Act: Recipient Reported Jobs Data Provide Some Insight into Use of Recovery Act Funding, but Data Quality and Reporting Issues Need Attention. GAO-10-223. Washington, D.C.: November 19, 2009. Recovery Act: Funds Continue to Provide Fiscal Relief to States and Localities, While Accountability and Reporting Challenges Need to Be Fully Addressed. GAO-09-1016. Washington, D.C.: September 23, 2009. Recovery Act: States’ and Localities’ Current and Planned Uses of Funds While Facing Fiscal Stresses. GAO-09-829. Washington, D.C.: July 8, 2009. Recovery Act: As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential. GAO-09-580. Washington, D.C.: April 23, 2009. American Recovery and Reinvestment Act: GAO’s Role in Helping to Ensure Accountability and Transparency. GAO-09-453T. Washington, D.C.: March 5, 2009. Update of State and Local Government Fiscal Pressures. GAO-09-320R.Washington, D.C.: January 26, 2009. State and Local Fiscal Challenges: Rising Health Care Costs Drive Long- term and Immediate Pressure. GAO-09-210T. Washington, D.C.: November 19, 2008. Medicaid: Strategies to Help States Address Increased Expenditures during Economic Downturns. GAO-07-97. Washington, D.C.: October 18, 2006. Federal Assistance: Temporary State Fiscal Relief. GAO-04-736R. Washington, D.C.: May 7, 2004.

The most recent recession, which started in December 2007, is generally believed to be the worst economic downturn the country has experienced since the Great Depression. In response to this recession, Congress passed the American Recovery and Reinvestment Act of 2009 (Recovery Act), which provided state and local governments with about $282 billion in fiscal assistance. The Recovery Act requires GAO to evaluate how national economic downturns have affected states since 1974. In this report, GAO (1) analyzes how state and local government budgets are affected during national recessions and (2) identifies strategies to provide fiscal assistance to state and local governments and indicators policymakers could use to time and target such assistance. This report is being released in conjunction with a companion report on Medicaid and economic downturns to respond to a related statutory requirement in the Recovery Act. GAO analyzed economic data and states' general fund budget data; reviewed past federal fiscal assistance and related evaluations; and interviewed analysts at key associations and think tanks. GAO shared relevant findings with policy research organizations and associations representing state and local officials, who generally agreed with our conclusions. We incorporated technical comments from the Bureau of Labor Statistics. GAO identifies strategies for Congress to consider but does not make recommendations in this report. Understanding state and local government revenue and expenditure patterns can help policymakers determine whether, when, where, and how they provide federal fiscal assistance to state and local governments in response to future national recessions. In general, state and local governments' revenues increase during economic expansions and decline during national recessions (relative to long-run trends). State and local revenue declines have varied during each recession, and the declines have been more severe during recent recessions. Additionally, revenue fluctuations vary substantially across states, due in part to states' differing tax structures, economic conditions, and industrial bases. State and local government spending also tends to increase during economic expansions, but spending on safety net programs, such as health and hospitals and public welfare, appears to decrease during economic expansions and increase during national recessions, relative to long-run trends. These trends can exacerbate the fiscal conditions of state and local governments given that demand for health and other safety net programs increases during recessions, and these programs now consume larger shares of state budgets relative to prior decades. This implies that, during recessions, state and local governments may have difficulties providing services. To mitigate the effect on services from declining revenues, state and local governments take actions including raising taxes and fees, tapping reserves, and using other budget measures to maintain balanced budgets. Although every recession reflects varied economic circumstances at the national level and among the states, knowledge of prior federal responses to national recessions provides guideposts for policymakers to consider as they design strategies to respond to future recessions. Considerations include (1) Timing assistance so that the aid begins to flow as the economy is contracting, although assistance that continues for some period beyond the recession's end may help these governments avoid actions that slow economic recovery; (2) Targeting assistance based on the magnitude of the recession's effects on individual states' economic distress; and (3) Temporarily increasing federal funding (by specifying the conditions for ending or halting the state and local assistance when states' economic conditions sufficiently improve). Policymakers also balance their decision to provide state and local assistance with other federal policy considerations such as competing demands for federal resources. Policymakers can select indicators to identify when the federal government should start and stop providing aid, as well as how much aid should be allocated. Timely indicators are capable of distinguishing states' economic downturns from economic expansions. Indicators selected for targeting assistance are capable of identifying states' individual circumstances in a recession. In general, timely indicators capable of targeting assistance to states can be found primarily in labor market data. Indicators such as employment, unemployment, hourly earnings, and wages and salaries also offer the advantage of providing information on economic conditions rather than reflecting states' policy choices (a limitation of data on state revenue trends). In some cases, it may be appropriate for policymakers to select multiple indicators or select indicators to reflect their policy goals specific to a particular recession. States have been affected differently during each of these recessions. For example, unemployment rates, entry into, and exit out of economic downturns have varied across states during past recessions. Federal responses to prior recessions have included various forms of federal fiscal assistance to these governments as well as decisions not to provide direct fiscal assistance to these governments.

You are an expert at summarizing long articles. Proceed to summarize the following text: Floods continue to be the most destructive natural hazard in terms of damage and economic loss to the nation. Property damage from flooding now totals over $1 billion each year in the United States and floods occur within all 50 states. Nearly 9 of every 10 presidential disaster declarations result from natural phenomena in which flooding was a major component. Most communities in the United States can experience some kind of flooding after spring rains, heavy thunderstorms, or winter snow thaws. Not only do floods cause damage and loss, they can be deadly—flooding caused the deaths of about 900 people from fiscal year 1992 through fiscal year 2001. Tropical Storm Allison, which struck the Gulf Coast in June 2001, demonstrated the economic and social impact flooding can have, causing billions of dollars in damages and 41 deaths. As a result of the storm, FEMA paid out over $1 billion in insurance claims, the largest amount paid for a single event since 1978 when FEMA began to collect summary statistics on flood claims. More recently, Hurricane Isabel ravaged the Mid-Atlantic states in September 2003. Through November 30, 2003, FEMA had paid over $160 million in flood insurance claims and estimates that ultimately, flood insurance claim payments resulting from Isabel will be about $450 million. At least 40 deaths have been attributed to the storm. Floods can be slow or fast rising but generally develop over a period of days. Flash flood waters move at very fast speeds and can roll boulders, tear out trees, destroy buildings, and obliterate bridges. Walls of water can reach heights of 10 to 20 feet and generally are accompanied by a deadly cargo of debris. Flood damage causes both direct and indirect costs. Direct costs reflect immediate losses and repair costs as well as short-term costs such as flood fighting, temporary housing, and administrative assistance. By contrast, indirect costs are incurred in an extended time period following a flood and include loss of business and personal income (including permanent loss of employment), reduction in property values, increased insurance costs, loss of tax revenue, psychological trauma, and disturbance to ecosystems. In 1968, in recognition of the increasing amount of flood damage, the lack of readily available insurance for property owners, and the cost to the taxpayer for flood-related disaster relief, the Congress passed the National Flood Insurance Act (Pub. L. No. 90-448) that created the National Flood Insurance Program. Through the National Flood Insurance Program, FEMA has sought to minimize flood-related property losses by making flood insurance available on reasonable terms and encouraging its purchase by people who need flood insurance protection—particularly those living in flood prone areas. The program identifies flood prone areas in the country, makes flood insurance available to property owners in communities that participate in the program, and requires floodplain building standards to mitigate flood hazards. FEMA also seeks to mitigate flood hazards through a variety of mitigation grant programs. Under the flood insurance program, FEMA prepares flood insurance rate maps to delineate flood prone areas including special flood hazard areas— also known as 100-year floodplains—where enhanced building standards and insurance requirements apply. Currently, FEMA is in the initial stages of a billion dollar effort to update the nation’s flood maps. The Map Modernization program is intended to improve the accuracy of flood maps, put the maps in digital format to improve their accessibility, and provide the basis for assessing the impact of other hazards in support of DHS’s efforts to protect the nation from both man-made and natural disasters. For example, the maps could be used to assess the impact of toxic chemical spills on local waterways. At the request of the Chairman of the House Financial Services Subcommittee on Housing and Community Opportunity, we have been reviewing the Map Modernization program and plan to report on FEMA’s program strategy and the status of the program later this spring. Flood maps provide the basis for establishing floodplain building standards that participating communities must adopt and enforce as part of the program. For a community to participate in the program, any structures built within a special flood hazard area after the flood map was completed must be built according to the program’s building standards that are aimed at minimizing flood losses. A key component of the program’s building standards that must be followed by participating communities is a requirement that the lowest floor of the structure be elevated to or above the base flood level—the highest elevation at which there is a 1-percent chance of flooding in a given year. The administration has estimated that the program’s standards for new construction save about $1 billion annually in flood damage avoided. According to FEMA, buildings constructed in compliance with these standards suffer approximately 80 percent less damage annually than those not built according to these standards. Flood maps also provide the basis for setting insurance rates and identifying properties whose owners are required to purchase flood insurance. When the program was created, the purchase of flood insurance was voluntary. To increase the impact of the program, the Congress amended the original law in 1973 to require the purchase of flood insurance in certain circumstances. Flood insurance is required for structures in special flood hazard areas of communities participating in the program if (1) any federal loans or grants were used to acquire or build the structures or (2) the structures are secured by mortgage loans made by lending institutions that are regulated by the federal government. The National Flood Insurance Reform Act of 1994 that further amended the program also reinforced the objective of using insurance as the preferred mechanism for disaster assistance. The act expanded the role of federal agency lenders and regulators in enforcing the mandatory flood insurance purchase requirements. It also prohibited further flood disaster assistance for any property where flood insurance was not maintained even though it was mandated as a condition for receiving prior disaster assistance. Currently, the program provides insurance for approximately 4.4 million policyholders in the nearly 20,000 communities that participate in the program. The program has paid about $12 billion in insurance claims, primarily from policyholder premiums that otherwise would have been paid through taxpayer-funded disaster relief or borne by home and business owners themselves. FEMA also has a variety of grant programs designed to mitigate the effects of natural hazards, including flooding, on people and property. From October 1989 through July 2003, FEMA funded approximately 3,900 flood mitigation projects worth about $2 billion through the flood insurance program and a variety of other grant programs. Through these projects, FEMA mitigated over 29,000 properties. FEMA’s Flood Mitigation Assistance Program is funded through the flood insurance program and is designed to reduce claims under the program. Grants provided to states and communities are to be used for flood related mitigation activities such as elevation, acquisition, and relocation of buildings insured by the flood insurance program. In implementing this program, FEMA has encouraged states to prioritize project grant applications that include repetitive loss properties. In addition, FEMA provides funding for mitigation planning activities and projects before and after floods occur, respectively through the Pre-Disaster Mitigation Program and the Hazard Mitigation Grant Program. In implementing the Pre-Disaster Mitigation Program for 2003, FEMA specifically targeted projects designed to mitigate repetitive loss properties. Through the Hazard Mitigation Grant Program, FEMA estimates that it has mitigated over 2,500 repetitive loss properties through acquisitions, elevations, and other flood protection measures. The flood insurance program has raised financial concerns because, over the years, it has lost money and at times has had to borrow funds from the U.S. Treasury. One of the primary reasons—payments for repetitive loss properties—has been consistently identified in our past work and by FEMA. About 49,000—approximately 1 percent of the 4.4 million buildings currently insured under the program—have been flooded on more than one occasion during a 10-year period and have received flood insurance payments of $1,000 or more for each claim. These repetitive loss properties are problematic not only because of their vulnerability to flooding but also because of the costs of repeatedly repairing flood damages. For example, a 1998 study by the National Wildlife Federation noted that nearly 1 out of every 10 repetitive loss homes has had cumulative flood loss claims that exceeded the value of the house. According to FEMA, repetitive loss properties have accounted for about 38 percent of all program claim costs historically and are projected by FEMA to cost about $200 million annually. Since 1978, the total cost of these repetitive loss properties to the program has been about $4.6 billion. Nearly half of all nationwide repetitive loss property insurance payments had been made in Louisiana, Florida and Texas. For example, in Texas, since 1978 there have been approximately 45,000 flood claims totaling over $1 billion for repetitive damage. These 3 states, plus 12 others, have accounted for nearly 90 percent of the total payments made for repetitive loss properties. FEMA has developed a strategy to reduce the number of properties repeatedly flooded that, like congressional proposals, seeks to target repetitive loss properties with the greatest losses. FEMA’s strategy identifies the highest priority properties, for example those with four or more losses, that would benefit from mitigation activities designed to remove them altogether from the floodplains, elevate them above the reach of floodwaters, or apply other measures that would significantly reduce their exposure to flood risk. According to FEMA, it has paid out close to $1 billion dollars in flood insurance claims over the last 21 years for these properties. As of November 30, 2003 FEMA had identified approximately 11,000 currently insured repetitive loss properties in this target group. FEMA has set up a special direct facility for servicing these properties and provides information about these property to state and local floodplain management officials. States or communities may sponsor projects to mitigate flood losses to these properties or may be able to provide property owners technical assistance on mitigation options. To facilitate grant-funded mitigation activities for this target group, FEMA also initiated a pilot program to allow states and communities (where these properties are located) to use simplified methodology and software to establish the cost-effectiveness of proposed projects when applying for grants to mitigate these repetitive loss properties. Members of Congress have also recognized the financial burden repetitive loss properties place on the program and have proposed changing premium rates for properties with the greatest losses. Two bills introduced in 2003—H.R. 253 and H.R. 670—proposed amending the National Flood Insurance Act of 1968, to, among other things, change the premiums for repetitive loss properties. Under the proposed bills, premiums charged for such properties would reflect actuarially based rates if the property owner has refused a buyout, elevation, or other flood mitigation measure from the flood insurance program or FEMA. H.R. 253, as passed by the House, included a pilot program to allow FEMA to use flood insurance program funds to target “severe” repetitive loss properties for mitigation. Specifically, FEMA could use up to $40 million each year for the next 5 years for mitigation directed at these properties. For property owners who refuse FEMA’s mitigation offers, their premium rates would be increased by 50 percent if they subsequently made a claim to the program exceeding $1,500. In the past, we have noted that increasing policyholder premiums could cause some of the policyholders to cancel their flood insurance. H.R. 253 includes a provision that provides FEMA the flexibility of increasing the deductible, which would result in a lower premium rate, for policies where property owners refuse mitigation offers and make subsequent claims exceeding $1,500. This may provide property owners who refuse mitigation offers a means for maintaining their flood insurance without a significant increase in their premium rate. While we have not fully analyzed the potential results of FEMA’s repetitive loss strategy and mitigation actions proposed by H.R. 253, based on a preliminary assessment, they appear to have the potential to reduce the number and/or vulnerability of repetitive loss properties and, thereby, the potential to help improve the program’s financial condition. By making near term investments targeted to the most costly properties to insure, FEMA should be able to reduce annual expenditures for these properties in the long term by reducing the national inventory of repetitive loss properties. According to FEMA, there are a total of about 100,000 repetitive loss properties accounting for $4.6 billion in losses since 1978. Of these properties, FEMA reports that there are about 49,000 properties that are currently insured that have accounted for about $2.6 billion in losses since 1978. Of these currently insured properties, about 6,000 repetitive loss properties that have accounted for about $792 million in losses since 1978 could be considered for mitigation efforts funded through the pilot program proposed by H.R. 253. In accordance with the bill’s proposed criteria, each of these properties either had 4 or more separate claims each exceeding $5,000 with cumulative claims exceeding $20,000 or had at least 2 separate claims with cumulative losses exceeding the value of the property. The remaining 43,000 currently insured repetitive loss properties, accounting for $1.8 billion in losses since 1978, do not meet the criteria for the proposed pilot program. Of these properties that would not be eligible for the pilot program, about 26,000 properties, accounting for about $1.6 billion in losses since 1978, had cumulative losses greater than $20,000, but either (1) less than 4 claims had been filed or (2) each claim did not meet the $5,000 threshold. (For state by state details on the total number of repetitive loss properties, the number of currently insured repetitive loss properties, the number of currently insured repetitive loss properties that meet the criteria proposed in the H.R. 253 pilot program, and the number of currently insured repetitive loss properties that do not meet the criteria, see appendix 1, tables 1, 2, 3, and 4, respectively.) As with all federal initiatives, the success of FEMA ‘s efforts in implementing a repetitive loss strategy and any future legislated program directives will be most effectively determined by using outcome-based, rather than output-based performance measures. Such outcome-based measures could allow FEMA to assess the impact of savings to the National Flood Insurance Program resulting from its mitigation of repetitive loss properties. Mr. Chairman, this concludes my statement. I would be pleased to answer any questions that you or other members of the Subcommittee may have. For further information on this testimony, please contact William O. Jenkins at (202) 512-8777. Individuals making key contributions to this testimony include Chris Keisling, Kirk Kiester, and Meg Ullengren. This appendix contains data we obtained from FEMA’s National Flood Insurance Program Bureau & Statistical Agent on repetitive loss properties and the flood insurance losses associated with those properties. To assess the reliability of this data, we interviewed agency officials knowledgeable about the data and the system development manager responsible for maintaining the data and the systems. We determined that the data were sufficiently reliable for identifying repetitive loss properties and illustrating the potential impact of the pilot program proposed by H.R. 253 on these properties. Flood Insurance: Challenges Facing the National Flood Insurance Program. GAO-03-606T. Washington, D.C.: April 1, 2003. Major Management Challenges and Program Risks: Federal Emergency Management Agency. GAO-03-113. Washington, D.C.: January 2003. Flood Insurance: Extent of Noncompliance with Purchase Requirements Is Unknown. GAO-02-396. Washington, D.C.: June 21, 2002. Flood Insurance: Information on the Financial Condition of the National Flood Insurance Program. GAO-01-992T. Washington, D.C.: July 19, 2001. Flood Insurance: Emerging Opportunity to Better Measure Certain Results of the National Flood Insurance Program. GAO-01-736T. Washington, D.C.: May 16, 2001. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Floods have been, and continue to be, the most destructive natural hazard in terms of damage and economic loss to the nation. From fiscal year 1992 through fiscal year 2002, about 900 lives were lost due to flooding and flood damages totaled about $55 billion. Some properties have been repeatedly flooded and the subject of federal flood insurance claims. The Federal Emergency Management Agency (FEMA) within the Department of Homeland Security is responsible for assisting state and local governments, private entities, and individuals to prepare for, mitigate, respond to, and recover from natural disasters, including floods. The National Flood Insurance Program (NFIP) is the primary vehicle for FEMA's efforts to mitigate the impact of floods. The Senate Subcommittee on Economic Policy, Committee on Banking, Housing, and Urban Affairs, asked GAO to discuss (1) FEMA's approach to flood mitigation, (2) the effect of repetitive loss properties on the NFIP, and (3) recent actions taken or proposed to address the impact of repetitive loss properties on the NFIP. FEMA has taken a multifaceted approach to mitigating, or minimizing the life and property losses and disaster assistance costs that result from flooding. Through the National Flood Insurance Program, FEMA develops and updates flood maps that identify flood prone areas and makes insurance available for communities that agree to adopt and enforce building standards based upon these maps. Since its inception in 1968, the National Flood Insurance Program has paid $12 billion in insurance claims to owners of flood-damage properties that have been funded primarily by policyholders' premiums that otherwise would have been paid through taxpayer-funded disaster relief or borne by home and business owners themselves. Through a variety of grant programs, FEMA also provides funding for mitigation planning activities and projects before and after floods occur. Repetitive loss properties represent a significant portion of annual flood insurance program claims. About 1 percent of the 4.4 million properties currently insured by the program are considered to be repetitive loss properties--properties for which policyholders have made two or more $1,000 flood claims. However, about 38 percent of all program claim costs have been the result of repetitive loss properties, at a cost of about $4.6 billion since 1978. Recent federal actions to reduce program losses related to repetitive loss properties include FEMA's strategy to target severe repetitive loss properties for mitigation and congressional proposals to phase out coverage or begin charging full and actuarially based rates for repetitive loss property owners who refuse to accept FEMA's offer to purchase or mitigate the effect of floods on these buildings. FEMA's strategy and the congressional proposals appear to have the potential to reduce the number and vulnerability of repetitive loss properties and, thereby, the potential to help reduce the number of flood insurance claims.

You are an expert at summarizing long articles. Proceed to summarize the following text: Basic wireline 911 service provides an easily remembered universal number that connects the caller with an emergency response center, known as a public safety answering point (PSAP) (see fig. 1). The next step after basic wireline 911 service is “enhanced 911” (E911), which automatically routes the emergency call to the appropriate PSAP and transmits to the call taker the telephone number (the “callback number,” should the call be disconnected) and street address of the caller. Nationwide implementation of E911 by local wireline telephone companies, known as “local exchange carriers” (LEC), began in the 1970s without a federal mandate or deadlines governing the rollout. By 1987, 50 percent of the United States’ population could reach emergency services through wireline 911. Today, 99 percent of the population is covered by wireline 911 service, and 93 percent of that coverage includes the delivery of a callback number and location information. In the early 1990s, FCC took note of the rising number of mobile telephone subscribers and the resulting increase in 911 calls. In 1994, FCC requested comments on requiring wireless carriers to provide the same level of 911 service that was available from LECs. In 1996, with input from the industry and public safety community, FCC adopted rules for wireless E911 that established an approach consisting of two phases for implementation by the wireless carriers. FCC also set schedules for implementing both basic and enhanced wireless 911 services, determined accuracy requirements and deployment schedules for location technologies, and outlined the role of PSAPs. Specifically, the phases required the following: Phase I required that by April 1998, or within six months of a request from a PSAP, whichever was later, wireless carriers were to be prepared to provide the PSAP with the wireless phone number of the caller and the location of the cell site receiving the 911 call. Phase II required that by October 2001, or within 6 months of receiving a request from a PSAP, whichever was later, wireless carriers were to be prepared to provide the PSAP with Phase I information plus the latitude and longitude coordinates of the caller within certain standards of accuracy. In 1996, when these rules were established, the technology to accurately locate a caller on a mobile telephone had not yet been perfected, but a “network based” solution was anticipated. With this type of solution, a caller is located through a triangulation process using the closest cell towers. However, as location technology was being developed, a “handset based” solution (i.e., one using the wireless phone itself) was made available. The most common handset solution also relies on triangulation, but uses Global Positioning System (GPS) satellites and a GPS chip inside the handset. In recognition of this second solution, FCC issued rules in October 1999 for carriers that selected handset-based location technologies. In August 2000, FCC adopted modifications to its rules for handset-based solutions and said that even if a PSAP has not made a request for Phase II wireless E911 service, wireless carriers deploying a handset-based solution must ensure that by December 31, 2005, 95 percent of their customers have mobile phones capable of providing automatic location information. A typical wireless 911 call is routed along both wireless and wireline networks before terminating at the PSAP. See figure 2 below. While the voice call is taking place over the wireless and wireline networks, several data queries are simultaneously occurring to determine the caller’s physical location and callback number. With wireless callers, the location information may need to be updated throughout the call to achieve greater accuracy or because the caller is moving during the call. Phase II wireless E911 service is more complex to implement than Phase I because of the need to install equipment to determine the geographic coordinates of the caller, transfer that information through the telephone networks, and have a mapping system in place at the PSAP that can display the latitude and longitude coordinates of the caller as a map location for dispatching assistance. When Phase II location data is unattainable (e.g., the handset does not have line of sight to enough GPS satellites to determine the caller’s location), most wireless systems default to providing Phase I data, including the location of the cell tower and cell sector receiving the call. The increased complexity of Phase II also makes it more costly than Phase I to implement. To date, the federal government has played no role in financing the rollout of wireless E911 services. Wireless carriers must finance the implementation of a caller location solution and test equipment to verify accuracy. LECs are generally responsible for ensuring that all the necessary connections between wireless carriers, PSAPs, and databases have been installed and are operating correctly. PSAPs purchase telephone services from the LECs. Because the typical underlying wireline E911 network is unable to carry the additional wireless E911 information, PSAPs often must purchase a separate data link and connection from the LEC. In order to translate the latitude and longitude location information into a street address, PSAPs usually purchase and install mapping software. PSAPs may also need to acquire new computers to receive and display this information. In short, three parties—the wireless carriers, LECs, and PSAPs—must interconnect and install equipment in order for wireless E911 calls to be completed and the caller location information to be sent with the call. However, no single entity has regulatory authority and oversight over the entire implementation process. FCC has considerable regulatory authority over wireless carriers and has placed location accuracy standards and deployment deadlines on the wireless carriers. State public utility commissions have some authority over wireless carriers’ terms and conditions of service. The state public utility commissions also have a great deal of authority over the LECs, including authority over intrastate service rates, while FCC retains some authority over LEC interconnection agreements with wireless carriers and other issues. PSAP readiness remains a state and local issue because PSAPs serve an emergency response function that has traditionally fallen under state or local jurisdiction. The manner in which the more than 6,000 PSAPs across the country are administered and funded—at a state, county, city, or other political subdivision level—varies from state to state. According to FCC, the Commission has no authority to set deadlines for PSAPs’ deployment of the equipment they need in order to receive caller location information from the wireless carriers. Setting such deadlines on PSAPs would be a matter for states and localities. Another federal agency with an interest in this issue is DOT. According to DOT, its involvement stems from the department’s mandate to handle issues of traffic safety and from a directive from the Secretary of Transportation to become involved in wireless E911 issues. DOT officials noted that wireless phones have become crucial to reporting highway accidents and getting ambulances or other assistance to the scene. As will be discussed below, DOT is involved in several initiatives to track the progress of E911 deployment and help promote wireless E911 services, especially at the state and local level. As the original Phase II deadline of October 2001 approached, the six large national wireless carriers (which provide service to approximately 75 percent of wireless telephone subscribers) requested waivers because the location technology was not ready for implementation. In granting the waivers, FCC negotiated different deadlines with each of these carriers, based on the carrier-specific Phase II compliance plans. The FCC also required these carriers to file detailed quarterly reports regarding implementation. In July 2002, FCC also granted temporary relief from the Phase II deadlines to those non-nationwide midsize and small wireless carriers that had requested relief. Currently, all wireless carriers that have chosen to deploy a handset-based location solution remain under a deadline of having handsets containing location technologies in use by 95 percent of subscribers by December 31, 2005. Yet, despite this deadline, Phase II service is not assured in any area by any specific date. This is because all wireless carriers must respond within 6 months to a PSAP request for the delivery of wireless E911 location information. PSAPs, however, are under no federal deadlines to ever request wireless E911 services. Thus, the full rollout of wireless E911 services nationwide depends in great part on the implementation efforts of the more than 6,000 PSAPs. Based on the best data that is available, nearly 65 percent of PSAPs across the nation have implemented Phase I and 18 percent have implemented Phase II with at least one wireless carrier providing location information. However, there is still a lack of information regarding how many of the more than 6,000 PSAPs will need to upgrade their equipment, making it difficult to accurately measure the progress of wireless E911 implementation. Looking forward, our survey of state 911 contacts found that less than half of them believe that wireless E911 services will be fully in place in their state by 2005. This raises the prospect that E911 implementation will be piecemeal both within states and across the nation for an indefinite number of years to come. Currently, the single best information source for tracking the progress being made in deploying wireless E911 service at the local level comes from DOT and the National Emergency Number Association (NENA). DOT contracted with NENA to create a database of counties and the PSAPs within the counties to provide information about implementation of wireless E911. This database is updated every quarter using wireless carrier information filed with the FCC, and supplemented by data gathered directly from PSAPs. Prior to the creation of this database, the only national data available about PSAPs that existed comprised information about NENA’s membership, and that information did not include all PSAPs or track E911 deployments. Thus, the DOT/NENA initiative has provided a key instrument for measuring wireless E911 implementation. According to NENA, as of October 2003, nearly 65 percent of PSAPs nationwide had implemented Phase I wireless E911 services, which provides the call taker with the callback number and the location of the cell tower and cell sector receiving the 911 call. Phase II, which locates the caller with more precise geographic coordinates, has been implemented with at least one wireless carrier in 18 percent of PSAPs. As part of our survey of state 911 contacts, we asked respondents about their states’ progress on Phase I and Phase II deployments. The responses to our survey were not complete because some state contacts were uncertain about their state’s current status. However, for the 33 states and the District of Columbia from which we did receive responses, we found that percentages for Phase I and Phase II implementation were consistent with NENA’s data. The percentages of counties that have implemented wireless Phase I and Phase II E911 service are illustrated, by state, in figure 3. The percentages are based on GAO’s analysis of NENA data as of October 2003. Measuring the progress of wireless E911 implementation against the goal of full nationwide Phase II deployment depends on being able to compare the number of PSAPs that are receiving wireless Phase II location data with the universe of PSAPs that need to be upgraded. We found, however, that there is a lack of accurate information on the total number of PSAPs that need to be upgraded. NENA has determined that there are 6,143 PSAPs nationwide. However, this number includes both “primary” and “secondary” PSAPs. A primary PSAP is defined by NENA as a PSAP to which 911 calls are directly routed; a secondary PSAP only receives calls that have been transferred, or passed along, from a primary PSAP. Generally, primary and secondary PSAPs have been included in the total number of PSAPs that need to be capable of receiving wireless E911 information. However, our survey results of state 911 contacts, along with our case study interviews, indicate that some states do not plan to upgrade their secondary PSAPs. For example, in North Carolina, state statute only permits primary PSAPs to be funded for wireless E911; in Kentucky, Virginia, and Washington, state funds to help finance wireless E911 upgrades are only available to primary PSAPs; in Maryland, the issue is currently under discussion, although consolidating secondary PSAPs with primary ones has been considered. In addition, some secondary PSAPs are so small that they may never need wireless E911 equipment. Currently, the DOT/NENA database does not differentiate between PSAPs that will need to be upgraded and those that will not, which limits usefulness of the database in accurately assessing progress toward full wireless E911 implementation. For its part, FCC requires large and midsize wireless carriers that have filed for relief from deployment deadlines to provide information quarterly on their progress in implementing Phase I and Phase II. Until recently, the data submitted by the carriers and available from FCC were organized by carrier, not by state or county, and were not easily sorted to provide information concerning the status of wireless E911 deployment. However, as of August 1, 2003, FCC also began requiring the large and midsize wireless carriers to submit data in an electronic spreadsheet format regarding deployment of Phase I and Phase II by PSAP. Because this spreadsheet has several fields, including the state, researchers can search by field and have numerous options for organizing the data. In addition, small wireless carriers, which had also requested relief, also were required to file one interim report with FCC about their E911 progress on August 1, 2003. Based on the August filings, FCC told us that most of the large and midsize carriers appear to be making good progress toward readying their networks to respond to PSAP requests for E911 services. In our survey of state 911 contacts (which included the District of Columbia), we asked respondents to provide us with an estimate of when they believed their state would have wireless Phase II E911 fully in place for at least one wireless carrier per PSAP. Twenty-four of 51 respondents said they thought Phase II would be fully in place in their state by 2005, the last year for which there is any specific FCC deadline on wireless carriers. Six of those 24 respondents said they would be ready by 2003. Contacts in other states were either unwilling to commit to any specific year, given their current level of implementation, or estimated a date in 2006 or beyond. See figure 4. As the estimates from state contacts indicate, no clear picture is emerging on when Phase II will be fully deployed nationwide, raising the prospect of piecemeal availability of this service across the country for an indefinite number of years to come. As of October 2003, NENA estimates that over the next 5 years the nationwide cost to deploy Phase II will be between $8 billion and $9 billion, including capital and incremental operating expenses. Funding for PSAP equipment upgrades remains a major issue for many states and localities and continues to hamper nationwide deployment. Not all states have implemented a funding mechanism for wireless E911, and of those that have, some have redirected E911 funds to unrelated uses. In addition, poor coordination among the parties is a factor affecting wireless E911 deployment, although some states and localities have eased this problem with active and knowledgeable state 911 coordinators who help oversee the process and work with all the parties. Technologically, the main hurdle of developing wireless location equipment for mobile phones has been solved, but the continuing emergence of new wireless devices and services has the potential to overburden the current 911 infrastructure. It is costly to implement wireless E911 services. PSAPs need money to upgrade their systems and equipment and to purchase new software to receive and display caller location information. Wireless carriers incur costs associated with handset and network upgrades, engineering design, upgrading hardware and software, and maintaining the system. The LECs also incur costs, but generally these are paid for by the PSAPs as they purchase 911 services and upgrades from the LECs. Currently, funding must come from sources other than the federal government, which has not provided funding to PSAPs or wireless carriers for wireless E911 or established guidelines on how wireless E911 should be funded. At present, it is up to state and local governments to determine how to pay for PSAP wireless E911 upgrades. To cover the costs associated with implementing wireless E911, responses to our survey showed that the majority of states (39 states plus the District of Columbia) require wireless carriers to collect funds from their subscribers through a surcharge included on subscribers’ monthly wireless phone bills. The amount of the surcharge is usually determined by the state; responses to our survey showed the surcharges ranged from 5 cents to $1.50 per month. Generally, the wireless carriers submit the funds to the states, and the states have the discretion to determine how the funds will be managed. For example, some states have established E911 boards that oversee the funds, while other states allow the funds to be managed at the county or PSAP level. Methods of disbursement also varied. Some states allocated wireless E911 funds to PSAPs based on their jurisdictional population, while some based it on the number of wireless subscribers in the jurisdiction. Other states evenly divided the funds among counties or PSAPs. Although the majority of states have established some type of funding mechanism, problems with funding PSAP equipment upgrades persist. For example, NENA maintains that many communities are not in a position to implement wireless E911 service because funds collected for E911 deployment are not being allocated for that purpose. Our survey of state E911 contacts found that 13 states and the District of Columbia had used wireless E911 funds for expenditures unrelated to wireless E911 implementation, and 9 other states had attempted to do so. For example, in one state, more than $40 million was taken from the E911 fund for unrelated purposes, and an additional $25 million is expected to be taken in 2004. The state contact said that if the redirection of funds continues, it would bring E911 upgrades to a halt. Another state E911 contact told us that the use of some E911 funds for other purposes had hindered the ability of PSAPs to purchase necessary computer upgrades and mapping software. In another state, funds had not been redirected to other purposes, but the E911 funds were “frozen” by the state’s legislature and could not be used by the PSAPs to implement Phase II. The state E911 coordinator told us that the state’s E911 fund had sufficient monies to implement Phase II statewide, but many PSAPs could not move forward until the state’s legislature allocated funds for E911 initiatives, and it was unclear when or if that would occur. In addition to the redirection of E911 funds, our survey of state contacts found that eight states have never instituted a statewide system for collecting funds for wireless E911 purposes. In one state, for example, any fee or tax proposed to be placed on the public must be approved by the state’s voters, and legislation creating an E911 funding mechanism did not receive voter approval. The state’s E911 contact told us that the proposed legislation would have generated sufficient funds for deploying wireless E911 statewide, but without the funding, most counties in the state will not have Phase II implemented by 2005. Some of the other eight states have experienced opposition to E911 funding because it is perceived as a tax; another state has not addressed the issue of wireless E911 implementation at all. Another funding issue raised by survey respondents and by others we interviewed was that rural PSAPs in particular face funding problems for E911. For example, some states allocate funds to the PSAPs based on their jurisdictional population, which may cause PSAPs serving small or rural communities in those states to receive insufficient funds to implement E911. While many of the costs involved in purchasing upgraded equipment and mapping software are similar for PSAPs serving large and small communities, PSAPs that receive fewer E911 funds because of their smaller population base may not have adequate funds to purchase the necessary equipment and software. Two wireless carriers told us that numerous PSAPs they serve had either withdrawn or suspended their request to wireless carriers for Phase II service because of funding constraints. Wireless carriers also incur various costs to implement E911. For example, two wireless carriers told us they had spent about $50 million each to date to deploy E911, and three others said their costs would exceed $100 million each. Several of the small wireless carriers we interviewed in our case studies said that funding E911 technologies is particularly difficult for them because of their limited revenues and that raising their rates would risk their competitiveness in the market. While FCC requires wireless carriers to implement E911, the Commission has not mandated as a prerequisite to implementation that the carriers be reimbursed for their E911 expenses.Although responses to our survey showed that 32 states and the District of Columbia allow wireless carriers to recover their E911 costs from the state funding mechanism, state E911 contacts sometimes reported that it might be difficult for the carriers to recoup all of their E911 costs. For example, some states only allow the wireless carriers to be reimbursed if funds were appropriated for that purpose, and other states told us that only certain wireless carrier expenditures could be reimbursed. The wireless carriers we contacted said it was unlikely that all of their costs would be fully recovered, especially since cost recovery mechanisms are not available in all states. One wireless carrier told us that in some states, the E911 surcharges imposed on customers do not generate sufficient revenue to pay for both PSAP and carrier costs incurred in E911 deployment. Another wireless carrier said that some states make it so difficult for the wireless carrier to recover its costs that the carrier will not even attempt to get funds from those states. Since it is unlikely that all E911 implementation costs can be recovered through the states, several of the wireless carriers we contacted have chosen to charge their subscribers an additional monthly fee to help pay for E911 costs. As noted earlier, the deployment of wireless E911 systems requires wireless carriers, LECs, and PSAPs to work together in distinct yet interdependent roles. However, according to some contacts we interviewed, delays sometimes occur because the various parties have difficulty coordinating their activities or working together. There was no consistency across the interviews as to which party (or parties)—wireless carriers, LECs, or PSAPs—was most hindering wireless E911 deployment. The difficulties in coordination between the parties at times caused frustration, according to some contacts we interviewed. For example, representatives from two of the PSAPs we contacted noted that just determining the number of wireless carriers providing service in their PSAP’s jurisdiction can be difficult. One PSAP administrator told us that in order to get a complete list of providers before sending out his request letters for Phase I, a PSAP employee drove around the county to identify the cell tower owners and contacted them to obtain the names of the wireless carriers leasing space on the towers. The PSAP administrator noted as well that tracking down the right contact person at the wireless carrier was difficult. In another example, representatives from several wireless carriers said that some PSAPs had requested E911 service from the wireless carriers even though the PSAPs’ call centers were not yet ready to receive caller location information because the proper equipment had not yet been installed. This might occur because some PSAPs fail to understand what is required of them technologically and what tasks they need to complete prior to requesting E911 service. Traditionally, PSAP administrators have focused on public safety and emergency response, not telecommunications. The complexity of implementing wireless E911, however, has forced PSAP administrators to become telecommunications project managers and to learn about the technology involved. We also were told that LECs have contributed to implementation delays. One PSAP representative told us that difficulties encountered with the LEC were a major obstacle to implementing wireless E911 and that the LEC delayed installing lines necessary for wireless E911 for 4 months, which greatly slowed the process. Because of continuing problems with the LEC in this location, the PSAP purchased its own call routing equipment. Similarly, another PSAP representative told us the main obstacle they faced in implementing E911 was working with the LEC. The PSAP representative noted that no one contemplated the role the LEC would play in the implementation of E911 and that this has led to problems and delays. A number of stakeholders we interviewed believed that FCC needs to be more involved with the LECs to ensure they are an active player in wireless E911 implementation. For example, an official representing a public safety association stated that FCC should closely monitor the role that the LECs play in wireless E911 implementation and should employ its oversight role to facilitate corrective action to expedite wireless E911 compliance. Several of those we interviewed in our case studies suggested that FCC take on greater enforcement of the LEC role in E911 implementation, and perhaps consider placing deadlines on LECs to respond to PSAP requests for E911 upgrades. According to FCC, the Commission does not have clear jurisdiction over wireline carriers with regard to wireless E911 implementation, and the Commission looks to the state public utility commissions, which have clear and sufficient authority to take the lead. However, FCC has indicated that it is committed to monitoring the LECs’ implementation role to ensure that they are meeting their responsibilities with regard to E911 deployment. In response to these problems with coordination, many industry representatives and affected parties we contacted noted that a strong, knowledgeable state E911 coordinator was the key to helping to coordinate the parties and successfully implement wireless E911 services within the state. Many believed that those states with strong state E911 coordinators had made the most progress with wireless E911 implementation. These state coordinators perform tasks such as educating PSAPs about their wireless E911 responsibilities, providing technical assistance to PSAPs, bringing all parties together early on to discuss implementation issues and providing a single point of contact for all the parties, and lobbying for E911 funding and protecting the funding from being used for purposes unrelated to wireless E911 implementation. Besides voicing support for effective state coordinators, those we interviewed provided several illustrations of actions their states were taking to facilitate wireless E911 implementation: Several parties we spoke with mentioned that they had had a conference call or meeting early on between the wireless carrier, LEC, and PSAP to talk through the process and try to identify problems. Kentucky requires all PSAPs to go through a certification process with the state board to ensure preparedness for both wireline and wireless E911 implementation. This certification process was created to establish an overall uniformity for the state’s PSAPs. By using a checklist for upgrades and an inspection process, Kentucky expects all of its PSAPs that go through the certification process will be Phase II operational by January 2005. California purchases equipment at the state level to create advantages in negotiating contracts with vendors and to create economies of scale in equipment purchases. Indiana has an elected official in charge of funding, which provides for greater visibility of the E911 issue in the state and helps protect against redirection of E911 funds to other uses. Virginia contracts with several technical consulting firms for wireless E911 implementation. The PSAPs are allowed to use contractors from this pool and can use the wireless E911 funding they receive from the state to pay for contractors’ services. This arrangement provides needed technical assistance for PSAPs while allowing greater oversight of the contractors. During our interviews, we were told that the basic technology for accurately determining the location of a wireless caller and systematically providing that data to PSAPs has now been developed. Some noted that although occasional problems still arise due to a particular wireless carrier/LEC/PSAP equipment configuration, these problems are lessening as the parties gain experience with E911 implementation. A representative of one LEC noted that the “challenging years” of coordinating interconnection between the LEC and the wireless carrier seem to be behind them and that implementation now generally tends to proceed more smoothly. We asked the officials we interviewed what they saw as the remaining technical issues affecting wireless E911 implementation. Several parties mentioned a variety of technical problems that might slow wireless E911 implementation or affect the quality of 911 services in general. Problems that were mentioned include the following: Because the United States never adopted a single standard for mobile phone transmissions, the different systems used by wireless carriers are not always compatible with one another, which can affect the ability of a particular subscriber to reach 911 in the first place if they do not have a phone that can be used with multiple systems. While GPS can provide more accurate location data, concerns exist over the time it takes for location data to be calculated and delivered to the PSAP. In the context of an emergency call, even a wait of 10 or 20 seconds for the location data to be processed is considered a loss of valuable time. For rural wireless carriers that have selected a network-based solution, cell towers often are placed in a straight line and spaced widely apart along highways or other roads. This can make the determination of location difficult because the towers cannot accurately triangulate the location of the caller. Additionally, the handset-based solution may not be immediately available due to equipment issues. Another problem was raised by some of those we interviewed: the antiquated wireline 911 infrastructure that conveys many E911 calls from the wireless carrier to the PSAP. This issue was also raised by Dale Hatfield, former chief of FCC’s Office of Engineering and Technology. In 2001, FCC asked Mr. Hatfield to conduct an inquiry into the technical and operational issues associated with wireless E911 deployment. His October 2002 report to FCC noted that the wireline 911 network is fundamentally unchanged since its inception in the 1970s and that the existing 911 infrastructure “is in no condition to accommodate the pervasive use of wireless technologies, the Internet, or the many other product offerings that invite or demand access to 9-1-1 services.” Those offerings include new wireless technologies that could send E911 calls (e.g., automatic crash notification systems on cars that would also be able to send information to the 911 call taker about whether air bags have deployed or whether the car has flipped over), and the 911 services may need to be expanded to encompass such technologies. Many of those with whom we spoke believed that such new technologies should be considered now, rather than later. Some were critical of the LECs’ failures to upgrade to modern digital technologies that would facilitate the rollout of wireless E911 technologies and improve 911 services. FCC released a notice of proposed rulemaking to reevaluate the scope of communications services that should provide access to 911 and has received comments and reply comments from interested parties. NENA is also trying to address the issue of new technologies and of a “future path plan” for the 911 network. FCC and DOT have been involved in the implementation of wireless E911, but federal authority in overseeing the deployment is limited because of the traditional state and local jurisdiction over emergency response services. The primary federal agency involved in wireless E911 deployment is FCC. One of FCC’s goals is to ensure the wireless carriers comply with their current implementation schedules. As noted earlier, FCC in the past had granted waivers to many of the wireless carriers in order to give them more time to resolve technical issues associated with developing wireless location technologies. Because many of these hurdles have now been overcome, FCC has stated that it will not hesitate to use its enforcement power when the wireless carriers fail to meet their current deployment timetables. For example, FCC officials noted that three wireless carriers agreed to pay nearly $4 million to the U.S. Treasury for failure to comply with intermediate deadlines in their E911 deployment timetables. Beyond enforcing deadlines on wireless carriers, FCC has taken actions to identify both roadblocks and best practices in wireless E911 implementation. For example, the Hatfield report made a number of findings regarding obstacles to wireless E911 implementation. Those findings involve wireless carrier implementation issues, cost recovery and PSAP funding issues, and the lack of comprehensive stakeholder coordination. Public comment was sought on the report in late 2002 and, according to FCC, the Commission is currently considering both the recommendations contained in the report and the comments received.FCC also conducted its first Enhanced 911 Coordination Initiative meeting in April 2003. The meeting brought together representatives from the federal government, the public safety community, wireless carriers, LECs, and other interested stakeholders to share experiences and devise strategies for expediting wireless E911 deployment. According to FCC, lessons learned from the initiative include the following: Strong leadership and vision are essential to ensure swift wireless E911 deployment. State or regional points of contact are critical for prompt wireless carrier deployment. Wireless E911 in rural areas may pose additional challenges such as financial hurdles and accuracy concerns. Additionally, in August 2003, FCC announced the establishment of a wireless E911 technical group to focus on network architecture and technical standards issues. The group will be a subcommittee of the Commission’s Network Reliability and Interoperability Council. Also in August 2003, FCC announced a wireless E911 public awareness campaign emphasizing coordination, outreach, and education. One of the first outcomes of the campaign was an FCC advisory published for consumers providing information on what people need to know about calling 911 from a mobile phone. A copy of this consumer advisory is found in appendix II of this report. DOT also has efforts under way to promote wireless E911 implementation, focusing on implementation issues at the state and local level. DOT partnered with NENA to develop a Wireless Implementation Plan. One major aspect of this plan is the creation of a clearinghouse of wireless E911 planning, implementation, and operations resources. The clearinghouse is an attempt to gather and organize the best examples of information from various states, work groups, and ongoing development efforts. The clearinghouse also includes various forms used by parties across the nation in implementing E911 agreements. As discussed earlier, another major component of DOT’s efforts is the sponsorship of a PSAP database (under contract with NENA) that tracks the current status of wireless E911 implementation across the country. DOT also convened a Wireless E911 Steering Council to develop a Priority Action Plan, released in May 2003, that outlines six priorities for wireless E911 implementation: 1. Establish support for statewide coordination of wireless E911 technology, and identify points of contact within each state for each of the stakeholders. 2. Help to convene stakeholders in appropriate 911 regions in order to facilitate more comprehensive, coordinated implementation of wireless location technologies. 3. Examine cost recovery and funding issues at the state level. 4. Initiate a knowledge transfer and outreach program to educate PSAPs, wireless carriers, and the public about wireless location issues. 5. Develop a coordinated deployment strategy encompassing both rural and urban areas. 6. Implement a “model location program” to identify and isolate potential barriers to wireless E911 deployment. Work on implementing this plan was in its early stages at the time we concluded our review. However, DOT had subdivided each priority into a number of action items, identified lead agencies or associations for each action item, and established a time frame for completion of each action item. FCC and DOT staff told us that the agencies coordinate their wireless E911 activities to avoid duplication of effort. An FCC representative attends DOT meetings and events on wireless E911 to stay current with the department’s activities; similarly, a DOT representative attends FCC meetings and initiatives on wireless E911. DOT officials noted that their efforts have been concentrated on providing assistance at the PSAP level since FCC has authority over the wireless carriers and LECs. While the agencies do not currently jointly staff or fund any wireless E911 projects, FCC officials noted that more formalized coordination is possible in the future. Without the readiness of all parties—wireless carriers, LECs, and PSAPs— there can be no wireless E911 service. Efforts by FCC to monitor the progress of the wireless carriers in meeting their timetables and take enforcement actions, as warranted, will continue to be an important part of the implementation process. Still, given current E911 funding and coordination problems related to upgrading PSAPs at state and local levels, the pace of wireless E911 deployment could be similar to what happened with wireline E911, which took many years to implement nationwide. If this holds true, consumers and emergency management officials will be faced with a geographic patchwork of wireless E911 areas: Some will have service; some will not. As Americans travel across the country, they will be uncertain as to whether their 911 calls will convey their location. However, successful wireless E911 deployment is possible, as illustrated in some areas of the country. States and localities can benefit from the experiences and best practices of others and adapt them to their own situations. Continued efforts by the FCC, DOT, and the public safety community to identify and publicize these successes will be a valuable means of facilitating the deployment. During this transition period, it is important to accurately measure progress in wireless E911 deployment so that federal, state, and local officials can assess whether problems are arising in parts of the country that may require additional actions. This information would also help build public awareness of where this service is available and may stimulate action at the state and local level. Measuring the progress of wireless E911 implementation against the goal of full nationwide Phase II deployment depends on being able to compare the number of PSAPs that are receiving wireless Phase II location data with the total number of PSAPs that need to be upgraded. We found, however, that there is a lack of information on the total number of PSAPs that need to be upgraded. While FCC and DOT have taken important actions to track wireless E911 deployment, additional work is needed to create reliable data on how many of the more than 6,000 PSAPs will need to be upgraded. In order to provide the Congress and federal and state officials with an accurate assessment of the progress being made toward the goal of full deployment of wireless E911, we recommend that the Department of Transportation work with state-level E911 officials, the National Emergency Number Association, and other public safety groups to determine which public safety answering points will need to have their equipment upgraded. This information should then be reflected in the PSAP database managed by NENA under contract with DOT. This will provide the baseline needed to measure progress toward the goal of full nationwide deployment of wireless E911 service. We provided a draft of this report to DOT and FCC for review and comment. DOT stated that it generally agreed with our recommendation, and FCC offered some technical comments that we incorporated into the report where appropriate. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 14 days after the date of this letter. At that time, we will send copies to interested congressional committees; the Chairman, FCC; the Secretary, Department of Transportation; and other interested parties. We also will make copies available to others upon request. In addition, this report will be available at no cost on the GAO Web site at http://www.gao.gov. If you have any questions about this report, please contact me at (202) 512-6670 or [email protected]. Key contacts and major contributors to this report are listed in appendix III. To provide information on the progress made in deploying wireless E911 services throughout the country, we conducted a telephone survey of the state E911 contacts. We completed surveys for 50 states and the District of Columbia. We pretested the questions with five state contacts from states we had spoken with earlier in our research. We revised the survey as appropriate based on responses during pretesting. For each state and the District of Columbia, we began by contacting the person named on the FCC’s Web site at http://www.fcc.gov/911/stateplans/contacts.html as the point of contact for that state.In 25 states, the person named on FCC’s Web site did complete the survey. In the remainder of our surveys, we were directed to another person. The survey contained 17 questions about the state’s progress in implementing Phase I and Phase II, problems encountered, funding mechanisms in place, and the role of the state coordinator or any state offices involved in wireless E911 implementation. The questions were open-ended and were read to the respondents. Surveys were completed between June 11 and September 12, 2003. In addition to our survey results, we used data from the National Emergency Number Association (NENA) to illustrate the progress of wireless E911 implementation as of October 2003. To assess the reliability of NENA’s data regarding information on total costs to upgrade PSAPs to Phase II readiness and the number of PSAPs receiving Phase II data as of the August 1, 2003, FCC quarterly filings, we interviewed knowledgeable officials from NENA about their data collection methods and reviewed any existing documentation relating to the data sources. We determined that the data were reliable enough for the purposes of this report. To provide information on the factors affecting wireless E911 rollouts across the country, we selected nine states (California, Idaho, Indiana, Kentucky, Maryland, Missouri, South Carolina, Texas, and Virginia) and the District of Columbia for case studies. We selected states that were spread geographically across the U.S. and that appeared to be having various levels of success with wireless E911 implementation based on early research. In particular, we selected at least one rural state and at least one state known to have redirected funds collected for E911 implementation to other uses. For each case study, we interviewed (in person or by telephone) the state coordinator, a small wireless carrier serving that state, and one urban PSAP and one rural PSAP within the state. In addition to our case studies, we interviewed representatives from four public safety associations and two wireless industry associations. We interviewed representatives from five large national wireless carriers and received written responses to our questions from a sixth large national wireless carrier. We also interviewed representatives from six local exchange carriers and one manufacturer of mobile phones. To provide information on current federal government actions to promote the deployment of wireless E911 services, we spoke with officials at FCC and DOT about their involvement in wireless E911 implementation. We reviewed relevant orders, filings, and other materials from FCC docket number 94-102 on E911 implementation. We researched relevant materials from both FCC and DOT, such as DOT’s Priority Action Plan. We attended FCC’s daylong Enhanced 911 Coordination Initiative in April 2003. Statistics presented in the first paragraph of the report are from the Cellular Telecommunication & Internet Association, unless otherwise noted. Statistics presented in the first paragraph of the background section are from NENA. All of these statistics are presented for background purposes and were not verified by GAO. We conducted our review from January 2003 through October 2003 in accordance with generally accepted government auditing standards. Among other responsibilities, FCC’s Consumer & Governmental Affairs Bureau educates and informs consumers about telecommunications services. To this end, the Bureau has produced a number of consumer alerts and fact sheets. Among these is a new consumer advisory entitled “What You Need to Know about Calling 911 from Your Wireless Phone.” This consumer advisory is reprinted on the following pages and can be accessed at FCC’s Web site at www.fcc.gov/cgb/consumerfacts/e911.html. In addition to those named above, Michele Fejfar, Deepa Ghosh, Sally Moino, Mindi Weisenbloom, Alwynne Wilbur, and Nancy Zearfoss made key contributions to this report. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older products. The Web site features a search engine to help you locate documents using key words and phrases. You can print these documents in their entirety, including charts and other graphics. Each day, GAO issues a list of newly released reports, testimony, and correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site daily. The list contains links to the full-text document files. 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When an emergency call is placed to 911, prompt response depends on knowing the location of the caller. Enhanced 911 (E911) service automatically provides this critical information. E911 is in place in most of the country for traditional wireline telephone service, where the telephone number is linked to a street address. Expanding E911 capabilities to mobile phones is inherently more challenging because of the need to determine the caller's geographic location at the moment the call is made. Concerns have been raised about the pace of wireless E911 implementation and whether this service will be available nationwide. GAO reviewed the progress being made in implementing wireless E911 service, the factors affecting this progress, and the role of the federal government in facilitating the nationwide deployment of wireless E911 service. Implementation of wireless E911 is several years away in many states, raising the prospect of piecemeal availability of this service across the country for an indefinite number of years to come. Successful implementation depends on coordinated efforts by wireless carriers, local telephone companies, and more than 6,000 public safety answering points (PSAPs)--the facilities that receive 911 calls and dispatch assistance. According to a database sponsored by the Department of Transportation (DOT), as of October 2003, nearly 65 percent of PSAPs had Phase I wireless E911 service, which provides the approximate location of the caller, while only 18 percent had Phase II, which provides a more precise location and is the ultimate goal of wireless E911 service. Though valuable, the database does not differentiate between PSAPs that will require equipment upgrades and those that will not, thereby limiting its usefulness in accurately assessing progress toward full implementation. Looking forward, 24 state 911 contacts said in response to a GAO survey that their state will have Phase II implemented by 2005 or sooner; however, all other state contacts estimated dates beyond 2005 or were unable to estimate a date. Key factors hindering wireless E911 implementation involve funding and coordination. The wireless carriers, states, and localities must devise the means to fund more than $8 billion in estimated deployment costs over the next 5 years. Some states and localities have established funding mechanisms (such as E911 surcharges on phone bills), but others have not done so or have used their E911 funds for unrelated purposes. In addition, there is also a lack of coordination in some cases among the wireless carriers, local telephone companies, and PSAPs that can lead to delays in wireless E911 implementation. States with knowledgeable and involved coordinators were best able to work through these coordination issues. The Federal Communications Commission (FCC) and DOT are involved in promoting wireless E911, but their authority in overseeing its deployment is limited because PSAPs traditionally fall under state and local jurisdiction. FCC has set deadlines on the wireless carriers' E911 responsibilities and has taken actions to identify best practices and improve coordination among the parties. DOT is developing an action plan and clearinghouse for wireless E911 planning, implementation, and operations.

You are an expert at summarizing long articles. Proceed to summarize the following text: According to the Coast Guard, the COP became operational in 2003 and is comprised of four elements: Track data feeds: The primary information included in the Coast Guard’s COP is vessel and aircraft position information—or tracks— and descriptive information about the vessels, their cargo, and crew. Track information may be obtained from a variety of sources depending on the type of track. For example, the COP includes track information or position reports of Coast Guard and port partner vessels. Information data sources: The information data sources provide supplementary information on the vessel tracks to help COP users and operational commanders determine why a track might be important. The COP includes data from multiple information sources that originate from the Coast Guard as well as from other government agencies and civilian sources. Command and control systems: These systems collect, fuse, disseminate, and store information for the COP. Since the COP became operational in 2003, the Coast Guard has provided COP users with various systems that have allowed them to view, manipulate and enhance their use of the COP. These systems have included the Global Command and Control System (GCCS), Command and Control Personal Computer (C2PC), and Hawkeye. In addition to the technology needed to view the COP, the Coast Guard has also developed technology to further enhance the information within the COP and its use to improve mission effectiveness. This has occurred in part through its former Deepwater Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR) program system improvements. COP management procedures: These procedures address the development and the use of the COP. This would include, for example, the Concept of Operations document, which identifies the basic components, use, and exchange of information included in the COP and the requirements document, which identifies the essential capabilities and associated requirements needed to make the COP function. These procedures also include other documents such as standard operating procedures on how the Coast Guard uses the COP, agreements with others using the COP on how information is to be shared or exchanged, and rules for how data are correlated and how vessels are flagged as threats or friends. Figure 1 depicts the Coast Guard’s vision of the COP with Coast Guard internal and external users. In April 2013, we reported that since the COP became operational in 2003, the Coast Guard has made progress in adding useful data sources and in increasing the number of users with access to the COP. In general, the COP has added internal and external data sources and types of vessel-tracking information that enhance COP users’ knowledge of the maritime domain. Vessel tracking information had been available previously to Coast Guard field units located in ports through a Vessel Tracking Service—that is, a service that provides active monitoring and navigational advice for vessels in confined and busy waterways to help facilitate maritime safety. However, adding it to the COP provided a broader base of situational awareness for Coast Guard operational commanders. For example, before automatic identification system (AIS) vessel-tracking information was added to the COP, only Coast Guard units specifically responsible for vessel-tracking, were able to easily track large commercial vessels’ positions, speeds, courses, and destinations. According to Coast Guard personnel, after AIS data were added to the COP in 2003, any Coast Guard unit could access such information to improve strategic and tactical decision making. In 2006, the ability to track the location of Coast Guard assets, including small boats and cutters, was also added to the COP. This capability—also known as blue force tracking—allows COP users to locate Coast Guard vessels in real time and establish which vessels are in the best position to respond to mission needs. Similarly, blue force tracking allows the Coast Guard to differentiate its own vessels from commercial or unfriendly vessels. Another enhancement to the information available in the COP was provided through the updating of certain equipment on Coast Guard assets that enabled them to collect and transmit data. Specifically, the Coast Guard made some data collection and sharing improvements, including the installation of commercial satellite communications equipment and AIS receivers, onboard its older cutters. This added capability made the COP information more robust by allowing Coast Guard vessels at sea to receive, through AIS receivers, position reports from large commercial vessels and then transmit this information to land units where it would be entered into the COP. This equipment upgrade on older Coast Guard cutters added information into the COP that is generally not available through other means. According to Coast Guard officials, in addition to adding information to the COP, the Coast Guard has also made the information contained in the COP available on more computers and on more systems, which, in turn, has increased the number of users with access to the COP. One of the key steps toward increasing the number of users with COP access occurred in 2004 with the implementation of C2PC, which made both the classified and unclassified COP available to additional Coast Guard personnel. According to Coast Guard officials, the advent of C2PC allowed access to the COP from any Coast Guard computer connected to the Coast Guard data network. Prior to C2PC, Coast Guard personnel had access to the COP through Coast Guard GCCS workstations. We previously reported that the Coast Guard has experienced challenges with COP-related technology acquisitions that resulted from the Coast Guard not following its own information technology acquisition guidance and processes. These challenges included poor usability and the inability to share information as intended, and ultimately resulted in the Coast Guard not meeting its goals for multiple COP-related systems. For example, four COP-related systems have been affected by the Coast Guard not closely following its acquisition processes. C4ISR project. The C4ISR project was designed to allow the Coast Guard’s newly acquired offshore vessels and aircraft to both add information to the COP using their own sensors as well as view information contained within the COP, thereby allowing these assets to become both producers and consumers of COP information. However, in July 2011, we reported that the Coast Guard had not met its goal of building the $2.5 billion C4ISR system. Specifically, we reported that the Coast Guard had repeatedly changed its strategy for achieving C4ISR’s goal of building a single fully interoperable command, control, intelligence, surveillance, and reconnaissance system across the Coast Guard’s new vessels and aircraft. Further, we found that not all aircraft and vessels were operating the same C4ISR system, or even at the same classification level, and hence could not directly exchange data with each other. For example, an aircraft operating with a classified system had difficulty sharing information with others operating on unclassified systems during the Deepwater Horizon oil spill incident. In addition, we reported at that time that the Coast Guard may shift away from a full data- sharing capability and instead use a system where shore-based command centers serve as conduits between assets while also entering data from assets into the COP. This approach could increase the time it takes for COP information, for example, gathered by a vessel operating with a classified system to be shared with an aircraft operating with an unclassified system. Because aircraft and vessels are important contributors to and users of COP information, a limited capability to quickly and fully share COP data could affect their mission effectiveness. We concluded that given these uncertainties, the Coast Guard did not have a clear vision of the C4ISR required to meet its missions. We also reported in July 2011 that the Coast Guard was managing the C4ISR program without key acquisition documents. At that time, the Coast Guard lacked an acquisition program baseline that reflected the planned program, a credible life-cycle cost estimate, and an operational requirements document for the entire C4ISR acquisition project. According to Coast Guard information technology officials, the abundance of software baselines could increase the overall instability of the C4ISR system and complexity of the data sharing among assets. We recommended, and the Coast Guard concurred, that it should determine whether the system-of-systems concept for C4ISR is still the planned vision for the program, and if not, ensure that the new vision is comprehensively detailed in the project documentation. In response to our recommendation, the Coast Guard reported in 2012 that it was still supporting the system-of-systems approach, and was developing needed documentation. We will continue to assess the C4ISR program through our ongoing work on Coast Guard recapitalization efforts. Development of WatchKeeper. Another mechanism that was expected to increase access to COP information was the DHS Interagency Operations Center (IOC) program, which was delegated to the Coast Guard for development. This $74 million program began providing COP information to Coast Guard agency partners in 2010 using WatchKeeper software. The IOCs were originally designed to gather data from sensors and port partner sources to provide situational awareness to Coast Guard sector personnel and to Coast Guard partners in state and local law enforcement and port operations, among others. Specifically, WatchKeeper was designed to provide Coast Guard personnel and port partners with access to the same unclassified GIS data, thereby improving collaboration between them and leveraging their respective capabilities in responding to cases. For example, in responding to a distress call, access to WatchKeeper information would allow both the Coast Guard unit and its local port partners to know the location of all possible response vessels, so they could allocate resources and develop search patterns that made the best use of each responding vessel. In February 2012, we reported that the Coast Guard had increased access to its WatchKeeper software by allowing access to the system for Coast Guard port partners. However, the Coast Guard had limited success in improving information sharing between the Coast Guard and local port partners and did not follow its established guidance during the development of WatchKeeper—a major component of the $74 million Interagency Operations Center acquisition project. By not following its guidance, the Coast Guard failed to determine the needs of its users, define acquisition requirements, or determine cost and schedule information. Specifically, prior to the initial deployment of WatchKeeper, the Coast Guard had made limited efforts to determine port partner needs for the system. For example, we found that Coast Guard officials had some high level discussions, primarily with other DHS partners, but that port partner involvement in the development of WatchKeeper requirements was primarily limited to Customs and Border Protection because WatchKeeper had grown out of a system designed for screening commercial vessel arrivals—a Customs and Border Protection mission. However, according to the Interagency Operations Process Report: Mapping Process to Requirements for Interagency Operations Centers, the Coast Guard identified many port partners as critical to IOCs, including other federal agencies (e.g., the Federal Bureau of Investigation) and state and local agencies. We also determined that because few port partners’ needs were met with WatchKeeper, use of the system by port partners was limited. Specifically, of the 233 port partners who had access to WatchKeeper for any part of September 2011 (the most recent month for which data were available at the time of our report), about 18 percent had ever logged onto the system and about 3 percent had logged on more than five times. Additionally, we reported that without implementing a documented process to obtain and incorporate port partner feedback into the development of future WatchKeeper requirements, the Coast Guard was at risk of deploying a system that lacked needed capabilities, which would continue to limit the ability of port partners to share information and coordinate in the maritime environment. We concluded, in part, that the weak management of the IOC acquisition project increased the program’s exposure to risk. In particular, fundamental requirements-development and management practices had not been employed; costs were unclear; and the project’s schedule, which was to guide program execution and promote accountability, had not been reliably derived. Moreover, we reported that with stronger program management, the Coast Guard could reduce the risk that it would have a system that did not meet Coast Guard and port partner user needs and expectations. As a result, we recommended, and the Coast Guard concurred, that it collect data to determine the extent to which (1) sectors are providing port partners with WatchKeeper access and (2) port partners are using WatchKeeper; then develop, document, and implement a process to obtain and incorporate port-partner input into the development of future WatchKeeper requirements; and define, document, and prioritize WatchKeeper requirements. As of April 2013, we had not received any reports of progress on these recommendations from the Coast Guard. Coast Guard Enterprise Geographic Information System (EGIS). In April 2013, we also reported that Coast Guard personnel we interviewed who use EGIS--an important component, along with its associated viewer, for accessing COP information—stated that they had experienced numerous challenges with the system after it was implemented in 2009. Our site visits to area, district, and sector command centers in six Coast Guard field locations, and discussions with headquarters personnel, identified numerous examples of user concerns about EGIS. Specifically, the Coast Guard personnel we interviewed who used EGIS stated that it was slow, did not always display accurate and timely information, or degraded the performance of their computer workstations—making EGIS’s performance generally unsatisfactory to them. For example, personnel from one district we visited reported losing critical time when attempting to determine a boater’s position on a map display because of EGIS’s slow performance. Similarly, personnel at three of the five districts we visited described how EGIS sometimes displayed inaccurate or delayed vessel location information, including, for example, displaying a vessel track indicating a 25-foot Coast Guard boat was located off the coast of Greenland—a location where no such vessel had ever been. Personnel we met with in two districts did not use EGIS at all to display COP information because doing so caused other applications to crash. In addition to user-identified challenges, we reported in April 2013 that Coast Guard information technology (IT) officials told us they had experienced challenges largely related to insufficient computational power on some Coast Guard work stations, a lack of training for users and system installers, and inadequate testing of EGIS software before installation. For example, according to Coast Guard IT officials, Coast Guard computers are replaced on a regular schedule, but not all at once, and EGIS’s viewer places a high demand on the graphics capabilities of computers. They added that this demand was beyond the capability of the older Coast Guard computers used in some locations. Moreover, Coast Guard IT management made EGIS available to all potential users without performing the tests needed to determine if capability challenges would ensue. In regard to training, Coast Guard officials told us that they had developed online internal training for EGIS, and classroom training was also available from the software supplier. However, Coast Guard IT officials stated that they did not inform users that this training was available. This left the users with learning how to use EGIS on the job. Similarly, the installers of EGIS software were not trained properly, and many cases of incomplete installation were later discovered. These incomplete installations significantly degraded the capabilities of EGIS. Finally, the Coast Guard did not pre-test the demands of EGIS on Coast Guard systems in real world conditions, according to Coast Guard officials. Tests conducted later, after users commented on their problems using EGIS, demonstrated the limitations of the Coast Guard network in handling EGIS. According to Coast Guard officials, some of these challenges may have been avoided if they had followed established acquisition processes for IT development. If these problems had been averted, users may have had greater satisfaction and the system may have been better utilized for Coast Guard mission needs. Poor communication by, and among, Coast Guard IT officials led to additional management challenges during efforts to implement a simplified EGIS technology called EGIS Silverlight. According to Coast Guard officials, the Coast Guard implemented EGIS Silverlight to give users access to EGIS data without the analysis tools that had been tied to technical challenges with the existing EGIS software. Coast Guard personnel from the Office of the Chief Information Officer (CIO) stated that EGIS Silverlight was available to users in 2010; however, none of the Coast Guard personnel we spoke with at the field units we visited mentioned awareness of or use of this alternative EGIS option when asked about what systems they used to access the COP. According to CIO personnel, it was the responsibility of the system sponsor’s office to notify users about the availability of EGIS Silverlight. However, personnel from the sponsor’s office stated that they were unaware that EGIS Silverlight had been deployed and thus had not taken steps to notify field personnel of this new application that could have helped to address EGIS performance problems. These Coast Guard officials were unable to explain how this communication breakdown had occurred. Coast Guard One View (CG1V). In April 2013, we reported that the Coast Guard had not followed its own information technology development guidance when developing its new COP viewer, known as Coast Guard One View, or CG1V. The Coast Guard reported that it began development of CG1V in April 2010 to provide users with a single interface for viewing GIS information, including the COP, and to align the Coast Guard’s viewer with DHS’s new GIS viewer. However, in 2012, during its initial development of CG1V, the agency did not follow its System Development Life Cycle (SDLC) guidance which requires documents to be completed during specific phases of product development. Specifically, 9 months after CG1V had entered into the SDLC the Coast Guard either had not created certain required documents or had created them outside of the sequence prescribed by the SDLC. For example, the SDLC-required tailoring plan is supposed to provide a clear and concise listing of SDLC process requirements throughout the entire system lifecycle, and facilitate the documentation of calculated deviations from standard SDLC activities, products, roles, and responsibilities from the outset of the project. Though the SDLC clearly states that the tailoring plan is a key first step in the SDLC, for CG1V it was not written until after documents required in the second phase were completed. Coast Guard officials stated that this late completion of the tailoring plan occurred because the Coast Guard’s Chief Information Officer had allowed the project to start in the second phase of the SDLC because they believed CG1V was a proven concept. However, without key phase one documents, the Coast Guard may have prematurely selected CG1V as a solution without reviewing other viable alternatives to meet its vision, and may have dedicated resources to CG1V without knowing project costs. In October 2012, Coast Guard officials acknowledged the importance of following the SDLC process and stated their intent to complete the SDLC-required documents. Clarifying the application of the SDLC to new technology development would better position the Coast Guard to maximize the usefulness of the COP. In our April 2013 report, we recommended that the Commandant of the Coast Guard direct the Coast Guard Chief Information Officer to issue guidance clarifying the application of the SDLC for the development of future projects. The Coast Guard concurred with the recommendation and reported that it planned to mitigate the risks of potential implementation challenges of future technology developments for the COP by issuing proper guidance and clarifying procedures regarding the applicability of the SDLC. The Coast Guard estimated that it would implement this recommendation by the end of fiscal year 2013. Chairman Hunter, Ranking Member Garamendi, and Members of the Subcommittee, this completes my prepared statement. I would be happy to respond to any questions. For questions about this statement, please contact Stephen L. Caldwell at (202) 512-9610 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include Dawn Hoff (Assistant Director), Jonathan Bachman, Jason Berman, Laurier Fish, Bintou Njie, Jessica Orr, Lerone Reid, and Katherine Trimble. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

To facilitate its mission effectiveness through greater maritime situational awareness, the Coast Guard developed its COP--a map-based information system shared among its commands. The COP displays vessels, information about those vessels, and the environment surrounding them on interactive digital maps. COP information is shared via computer networks throughout the Coast Guard to assist with operational decisions. COP-related systems include systems that can be used to access, or provide information to, the COP. This statement summarizes GAO's work on (1) the Coast Guard's progress in increasing the availability of data sources and COP information to users and (2) the challenges the Coast Guard has experienced in developing and implementing COP-related systems. This statement is based on GAO's prior work issued from July 2011 through April 2013 on various Coast Guard acquisition and implementation efforts related to the COP, along with selected updates conducted in July 2013. To conduct the selected updates, GAO obtained documentation on the Coast Guard's reported status in developing COP-related acquisition planning documents. The Coast Guard, a component of the Department of Homeland Security (DHS), has made progress in developing its Common Operational Picture (COP) by increasing the information in the COP and increasing user access to this information. The Coast Guard has made progress by adding internal and external data sources that allow for better understanding of anything associated with the global maritime domain that could affect the United States. The COP has made information from these sources available to more COP users and decision makers throughout the Coast Guard. For example, in 2006, the ability to track the location of Coast Guard assets, including small boats and cutters, was added to the COP. This capability--also known as blue force tracking--allows COP users to locate Coast Guard vessels in real time and establish which vessels are in the best position to respond to mission needs. In addition to adding information to the COP, the Coast Guard has also made the information contained in the COP available on more computers and on more systems, which, in turn, has increased the number of users with access to the COP. The Coast Guard has also experienced challenges in developing and implementing COP-related systems and meeting the COP's goals for implementing systems to display and share COP information. These challenges have affected the Coast Guard's deployment of recent COP technology acquisitions and are related to such things as the inability to share information as intended and systems not meeting intended objectives. For example, in July 2011, GAO reported that the Coast Guard had not met its goal of building a single, fully interoperable Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance program (C4ISR) system--a $2.5 billion project intended to enable the sharing of COP and other data among its new offshore vessels and aircraft. Specifically, GAO noted that the Coast Guard: (1) repeatedly changed its strategy for achieving the goal of the C4ISR system and (2) that not all vessels and aircraft were operating the same C4ISR system, or even at the same classification level and hence could not directly exchange data with one another as intended. GAO found similar challenges with other Coast Guard COP-related systems not meeting intended objectives. For example, in February 2012, GAO reported that the intended information-sharing capabilities of the Coast Guard's WatchKeeper software--a major part of the $74 million Interagency Operations Center project designed to gather data to help port partner agencies collaborate in the conduct of operations and share information, among other things--met few port agency partner needs, in part because the agency failed to determine these needs when developing the system. Further, in April 2013, GAO reported that, among other things, the Coast Guard experienced challenges when it deployed its Enterprise Geographic Information System (EGIS), a tool for viewing COP information that did not meet user needs. The challenges Coast Guard personnel experienced with EGIS included system slowness and displays of inaccurate information. GAO has made recommendations in prior work to enhance the Coast Guard's development and implementation of its COP-related systems. DHS generally concurred with the recommendations and has reported actions under way to address them.

You are an expert at summarizing long articles. Proceed to summarize the following text: The United Nations comprises six core bodies: the General Assembly, the U.N. Secretariat, the Security Council, the Economic and Social Council, the Trusteeship Council, and the International Court of Justice. In addition, the U.N. system has 12 funds and programs and 14 specialized agencies. Article 101 of the U.N. Charter calls for staff to be recruited on the basis of “the highest standards of efficiency, competence, and integrity” as well as from “as wide a geographical basis as possible.” Thus, to employ the nationals of U.N. members in an equitable manner, the Secretariat and several associated U.N. organizations have quantitative formulas that establish targets for equitable geographical representation. Geographic representation targets do not apply to all staff positions in the organizations that have established them. These organizations set aside a certain number of positions that are subject to geographic representation from among the professional and high-level positions. There also are some professional positions that are typically exempt from being counted geographically, including linguist and peacekeeper positions and positions of 1 year or less in duration. For example, in 2000, the U.N. Secretariat had a total of 14,312 staff—5,854 of whom were in professional positions. Of those professional positions, 2,389 were subject to geographic representation. Table 1 provides information for 2000 on the total number of staff in the U.N. system compared with the total number of American staff. U.N. organizations use a standard pay scale known as the U.N. Common System base salary scale to compensate their staff. (See app. VII for the salary scales for U.N. staff in professional, senior-level, and policymaking positions.) However, each U.N. organization has its own personnel policies, procedures, and staff rules. Table 2 shows the U.N. grade scale and the approximate U.S. government equivalent as determined by the International Civil Service Commission. The State Department is the U.S. agency primarily responsible for leading U.S. efforts toward achieving equitable U.S. representation in employment in U.N. organizations. In doing so, State works in cooperation with at least 17 federal agencies that have interests in specific U.N. organizations. A 1970 executive order assigns the U.S. Secretary of State responsibility for leading and coordinating the federal government’s efforts to increase and improve U.S. participation in international organizations through transfers and details of federal employees. The order further calls for each agency in the executive branch to cooperate “to the maximum extent feasible” to promote details and transfers through measures such as (1) notifying well- qualified agency employees of vacancies in international organizations and (2) providing international organizations with detailed assessments of the qualifications of employees being considered for specific positions. In addition, under the 1991 U.S. law, the Secretary of State is required to report to the Congress on whether each international organization with a geographic distribution formula is making “good faith efforts” to increase U.S. staff as well as meeting its own geographic targets. State’s Bureau of International Organization Affairs is responsible for implementing these requirements. While State is responsible for promoting and seeking to increase U.S. representation in the U.N. organizations, the U.N. entities themselves are ultimately responsible for achieving equitable representation. Since 1992, some of the U.N. organizations in our study have made gains in employing Americans, but most of the organizations we reviewed continue to fall short of their own targets for employing U.S. citizens. Moreover, compared with relative financial contributions, American representation in senior-level and policymaking positions is below several major contributors in a number of U.N. organizations. Of the six U.N. organizations in our study with geographic employment targets, only the U.N. Secretariat employed Americans in sufficient numbers to consistently satisfy its goal of equitable representation of Americans from the period of 1992 to 2000. These targets and the methodology for calculating them are different for each U.N. organization and are based on factors such as the level of the country’s U.N. contribution and population. UNDP does not have geographical representation targets for member states; however, representation of Americans at UNDP is close to the percentage of U.S. contributions, and thus it appears that the United States is equitably represented at UNDP. Although several U.N. organizations have established overall geographical representation targets, none of the U.N. organizations has developed numerical targets for senior-level and policymaking positions among the nationals of its member states. Furthermore, of the four organizations in our analysis with formal targets for overall geographic representation, only the Secretariat employed Americans in senior-level and policymaking positions at levels commensurate with those of selected major contributors relative to their contribution level. The charters and governing documents of most organizations in the U.N. system articulate the principle of equity, which requires that due regard be given to the importance of employing staff members from as wide a geographical basis as possible, and many U.N. organizations have developed formal or informal targets to achieve this objective. In the Secretariat, FAO, ILO, and WHO, where members pay regular assessments and may make additional voluntary contributions, a formal target or range is established to calculate geographic targets for employing the nationals of each member state. These targets are expressed in terms of a range of positions to provide organizations with some flexibility in meeting these targets, but the midpoint of the range is generally viewed as the ideal level of representation. A member country is regarded as “underrepresented” when it falls below the minimum range and “overrepresented” when it exceeds the maximum range. The remaining three organizations in our study—UNDP, UNHCR, and WFP—generally follow the principle of equitable geographic representation but have not adopted formal targets that are based on nationality because their funding comes from voluntary contributions rather than annual assessments. However, UNHCR and WFP have established informal targets for representation of Americans since the United States is the largest contributor to both organizations. UNDP officials, on the other hand, said that while the program does not have targets for individual countries, it seeks to achieve a “reasonable geographic balance” of international staff between donors and program countries as well as “equity within contribution levels.” The organizations in our analysis with formal geographic targets for individual countries have similar approaches to determining which positions are subject to these targets. For example, these organizations exclude general service positions (e.g., clerical positions), appointments of less than a year, and language-related positions (such as translators and interpreters). In addition, all organizations except WHO disregard positions that are financed from voluntary contributions in the formula for calculating equitable geographic distribution targets. Unlike the Secretariat and the specialized agencies, UNHCR and WFP do not set aside positions subject to geographic distribution and apply their informal targets to all professional positions. Figure 1 provides a summary of the targets for equitable U.S. representation established by the U.N. organizations that we covered in our study, expressed both in numerical and in percentage terms. The figure also lists the factors used by these organizations to determine their geographical representation targets. Member contributions, population size, and membership status are three factors that are used to determine equitable representation targets for U.N. organizations’ member states. However, not all of these factors are used by each of the organizations in our analysis. For example, ILO uses the contribution and membership factors to calculate its geographic targets, while FAO uses only the contribution factor. FAO also differs from the other organizations in that the level of position that a country’s citizens hold, in addition to the number of positions, is considered in determining that country’s representation status. FAO operates on the principle that a position low on the hierarchical scale ought not to count as much as one at the top of the scale. Thus, FAO uses a position-weighting system in which points are attributed to a position’s grade level, with a country’s quota expressed as a number of points, not positions. Appendix I provides more detailed information on the different methods used by the Secretariat and the three specialized agencies to calculate their formal targets for the equitable representation of member countries. Although some of the U.N. organizations have made gains toward employing Americans, most of the U.N. organizations in our study continue to fall short of their own targets for employing Americans. Almost a decade after the Congress first required the State Department to report on American representation in the U.N. system, the United States was equitably represented in only one of the six U.N. organizations in our study with either formal or informal targets—the U.N. Secretariat. Americans were underrepresented in the three specialized agencies—FAO, ILO, and WHO—and in two of the U.N. funds and programs—UNHCR and WFP. While UNDP does not have a target for U.S. representation, the level of Americans in UNDP is close to the percentage level of U.S. contributions. The summary in table 3 provides the overall representation status of Americans in the U.N. organizations in our study for 2000. Appendix II provides more detailed information on the trends in U.S. representation for each of the organizations in our study since 1992. We compared the relative financial contributions of the United States and the representation levels of Americans in senior and policymaking positions with those of four major contributors in the four U.N. organizations with geographic targets. We found that only the U.N. Secretariat employed Americans in senior-level and policymaking positions at levels commensurate with the average of selected major contributors relative to their contribution level. (See table 4.) While some U.N. organizations have created overall targets for equitable representation of member countries, they do not set quantitative targets for distributing positions by grade level—including senior-level and policymaking positions—among member states. Both U.S. and U.N. officials indicated that determining equitable distribution among member states for these high-level positions can be very subjective. There are no standard recruitment procedures for these positions nor is there a formal policy for rotating policymaking positions among member states. Traditionally, these policymaking appointments are made by the Secretary-General or the respective U.N. agency heads. The U.N. General Assembly in several resolutions has emphasized that “no post shall be considered the exclusive preserve of any member state or group of states.” The summary in table 4 shows the 3-year average (1998-2000) for the U.S. assessment to the four U.N. organizations and the representation of Americans in senior-level and policymaking positions, and a calculated comparative representation level if U.S. representation in senior-level and policymaking positions were proportionate to the average for major contributors given their level of contributions. In table 4, we multiplied the four-country average representation by the U.S. assessment to derive a hypothetical comparative representation level, under the assumption that U.S. representation in senior-level and policymaking positions was proportionate to the average of these four major contributors. (This analysis is not meant to suggest criteria or a methodology for determining equitable representation in these positions. It is for comparison purposes only, to show U.S. representation in senior and policymaking positions relative to the average of four major contributors.) For example, if the United States, given its 25-percent assessment at FAO, were to have representation proportionate to the 0.76 average ratio for the four selected countries, then its representation would be 19.1 percent. For details on the average ratio of the four contributors for each U.N. organization, refer to appendix II. As shown in table 4, only the U.N. Secretariat employs Americans in senior-level and policymaking positions commensurate to the average representation levels for the four major U.N. contributors we included in this study. While acknowledging that U.S. representation may appear to be less than ideal, several U.S. officials told us that U.S. influence in certain organizations is not lacking given its voice and leadership in the governing bodies and the size of U.S. contributions. Nonetheless, these officials recognize the importance of placing highly qualified Americans in high- level positions, particularly in areas considered critical to U.S. interests. While several U.N. organizations in our study are undertaking various human resource management initiatives, none of them has a long-range workforce planning strategy nor a formal recruiting and hiring action plan for achieving equitable representation within a specified time frame. However, several U.N. organizations did tailor some approaches to address underrepresentation of member countries, such as targeting entry-level programs to nationals from underrepresented countries. U.N. officials and documents emphasized that the most important criterion for appointing staff is merit in order to ensure the highest standards of efficiency and competence—with due consideration to recruiting staff from as wide a geographical basis as possible. But in selecting staff, nationality is weighed against other competing factors because U.N. officials are also asked to give priority consideration to gender. Although some organizations have specific guidelines that provide a preference for hiring qualified nationals from unrepresented and underrepresented countries, our analysis of actual hiring statistics shows that several U.N. agencies hired more nationals from equitably represented and overrepresented countries than those from unrepresented and underrepresented countries. As part of U.N.-wide reform, several U.N. organizations have a number of human resource management initiatives under way—including measures that begin to address some workforce planning issues, hold managers accountable for staff selection decisions, and provide placement and promotion opportunities for staff that are merit-based—and give due regard to geographical representation and gender balance considerations. For example, in 1997, the U.N. Secretary-General proposed a reform program that included, as one of its core elements, developing a performance-based human capital system. In May 2000, we testified that the United Nations had made some progress in such areas as implementing a merit-based appraisal system, although overall reform objectives had not yet been achieved. According to human resources directors with whom we met, addressing these broad human capital issues—including competitive compensation packages, aging of the workforce, spousal employment, and work-life balance—could in the long run help to attract and retain Americans for U.N. employment in greater numbers. (For a discussion of some of these human capital issues and related factors that may affect recruiting Americans for U.N. organizations, see app. VI.) Although some human resource management initiatives are under way, U.N. organizations have not yet developed long-range workforce planning strategies to guide recruitment and hiring efforts, nor have U.N. organizations formulated specific action plans and time frames for achieving equitable representation for underrepresented countries, including in some cases the United States. A hallmark of high-performing organizations is that human resource policies, procedures, and programs should be directly linked to achieving organizational objectives. Specifically, it is important that such organizations have a formal recruiting and hiring action plan targeted to fill short- and long-term human capital needs identified through workforce planning efforts. The U.N. organizations we examined had not systematically collected essential human capital data that could help identify factors contributing to difficulties in achieving equitable representation. For example, we asked U.N. officials about exit interviews of and feedback from American staff leaving the U.N. system as well as reasons why Americans had declined offers of U.N. employment. However, we were told that these organizations do not collect such information, which could help tailor appropriate strategies for recruiting and retaining Americans. The Secretariat and WFP recently have begun collecting this information but have not yet reported their findings. Each U.N. organization has its own processes and procedures for recruiting, assessing, and selecting candidates for employment, and many of their efforts focus on entry-level recruitment. In addition, these entry- level recruiting programs—including the U.N. Secretariat’s national competitive recruitment examinations and the other U.N. entities’ young professional programs—specifically target underrepresented member countries. Another program for junior professional officers is funded by donor countries and used as a recruitment strategy, but this program does not focus specifically on nationals from underrepresented member states. To address concerns that the United States was nearing underrepresentation in the Secretariat due to anticipated retirements, the national competitive recruitment exam, which is a prerequisite for P1 and P2 positions, was held in New York in February 2001. However, the State Department and the U.S. mission to the United Nations in New York did not widely publicize this examination. Only 40 American applicants took the examination—according to U.N. officials, this turnout was disappointingly low compared with the last examination in 1992 when 333 American applicants took the test in 3 major U.S. cities. Twenty-one of these applicants from the 1992 examination were eventually employed. A U.N. official told us that the U.N. Secretariat relies on the member states to publicize the exam, which, with the exception of the February exam, is usually conducted in capital cities. According to the U.N. official, it was not feasible to conduct the most recent exam at more U.S. sites because of resource constraints. Notice of the 2001 examination was posted on the U.N. Web site and advertised in an August 2000 issue of The Economist and in two September 2000 issues of the International Career Employment Weekly, which is a publication offering free advertising that was used by the State Department. According to a U.S. mission officer in New York, another examination will be scheduled for the United States in early 2002. Over the past few years, several U.N. organizations have developed entry- level programs and have used these programs to hire citizens from underrepresented countries. In 2000, WFP initiated a New Graduates Program to give young graduates an opportunity to join the U.N. system. Exclusively targeted at underrepresented countries, 3 of the 10 graduates selected in 2000 were from the United States. Similarly, ILO launched a Young Professionals Career Entrance Program in January 2001 to identify and hire young, highly qualified persons with the potential to become future managers within the organization. Although these positions are open to nationals of all member states, the program offers a vehicle for hiring citizens from underrepresented countries, who we were told were given preference. Three of the 10 positions filled earlier this year went to Americans. In addition, in March 2001, the first 20 recruits started training under UNDP’s Leadership Development Program, which, UNDP officials told us, takes demographic balance as well as technical competence into account in screening applicants. With assistance from their liaison offices in Washington, D.C., these organizations have organized some recruitment missions on U.S. college and university campuses. ILO, in particular, made a concerted effort to recruit new graduates, conducting five recruiting missions during the past year to visit several American colleges and universities, including Harvard, Massachusetts Institute of Technology, Cornell, Tufts, Columbia, and Stanford, among others. For many years, U.N. organizations have operated junior professional officers programs that were funded by donor countries for training young professionals who serve, usually for 2 or 3 years, in various areas. Countries that sponsor these junior professional officers pay their full costs, which range from $70,000 to $150,000 per year depending on an officer’s grade level, duty station, and marital status. At the end of their terms, these officers are often recruited as regular international staff, and donor countries have used the program as a way to promote their nationals for entry-level positions, although officers who complete the program are not guaranteed U.N. employment. As shown in table 5, the U.S. government sponsors a small number of junior professional officers. Since 1984, State’s Bureau of Population, Refugees, and Migration has sponsored 49 junior officers at UNHCR at an average cost of $110,000 per officer annually. In supporting the junior professional officers program at UNHCR, State seeks to assist U.N. organizations in implementing programs of priority interest to the United States while increasing the pool of American candidates for recruitment in U.N. organizations. According to State officials, about half of the junior officers that State has sponsored have been hired by UNHCR. Of the current American employees at UNHCR, 17 are former U.S. junior professional officers. Over the years, the U.S. Department of Agriculture has also supported a limited number of junior professional officers in the Rome-based international food and agricultural agencies at an average cost of $90,000 to $100,000 per year. While U.N. officials and documents emphasize that the most important criterion for filling positions is merit, U.N. organizations’ policies generally call for giving additional consideration to hiring qualified nationals from unrepresented or underrepresented member states. A resolution on human resources management adopted by the General Assembly in 1999 requests the Secretary-General to ensure that “among equally qualified candidates, preference is given to candidates from underrepresented member states.” Nevertheless, U.N. organizations generally weigh nationality against other competing factors in appointing staff in accordance with policies that aim to achieve gender balance and to recruit from qualified staff already within the U.N. system. Following the 1995 Fourth World Conference on Women, the U.N. General Assembly requested a 50/50 gender balance by the year 2000, a target date the United Nations now says will not be met until 2012. (Specific gender balance goals adopted by various U.N. entities are discussed in app. VI.) Although the principle of merit as the overriding criterion is clearly established, the priority placed on secondary factors, such as nationality and gender, is not as clear. For instance, while the Secretariat’s hierarchy places nationality second and gender third, ILO gives nationality and gender equal consideration, while FAO has no established hierarchy after merit. A 1998 report of the International Civil Service Commission acknowledged that, in some cases, U.N. organizations have to balance the priorities of gender and geography. Table 6 shows that several U.N. agencies in our study continue to hire more nationals from equitably represented and overrepresented countries than from unrepresented and underrepresented countries. Although U.N. organizations “encourage” hiring managers to recruit candidates from unrepresented and underrepresented countries, they do not generally restrict eligibility of candidates on the basis of nationality. A major variation is ILO’s practice—that is, competitions are usually open only to nationals of unrepresented and underrepresented countries, which are listed in each vacancy announcement. Even so, according to an ILO official, when it is difficult to find suitable candidates from one of the unrepresented or underrepresented countries, applications from nationals of equitably represented or overrepresented countries may be considered. In the case of WHO, its executive board adopted a resolution in 1997 to maintain a recruitment target of 60 percent for nationals from unrepresented and underrepresented countries and those that are considered equitably represented but fall below the midpoint of the range while limiting recruitment from overrepresented countries to 20 percent of all new appointments. Nonetheless, WHO officials told us that the organization does not restrict eligibility of applicants on the basis of nationality. Although human resources directors indicated that they give priority consideration to hiring qualified nationals from unrepresented and underrepresented countries, our analysis of the statistics they provided showed that the number of nationals hired from overrepresented countries remains relatively high. As of 2000, FAO had 85 overrepresented countries, up from 72 in 1998; ILO had 45 overrepresented countries, down from 49 in 1998; and WHO had 22 overrepresented countries, compared with 12 in 1998. For a list of the top five countries whose nationals are most overrepresented at these U.N. entities, see appendix III. We asked human resources directors whether U.N. organizations face a shortage of qualified American applicants interested in U.N. employment. On the basis of the data they provided, in general this does not appear to be the case. For instance, at the U.N. Secretariat, nearly 30,000 applications were received for 649 positions that were announced in 2000. Of those applications, more than 2,000 were Americans—of whom 410 were listed among the best qualified candidates. Six Americans were eventually hired. FAO reported receiving 11,670 applications for 130 vacancy announcements for professional positions it issued in 2000. More than 8,000 of the applications had been evaluated as of March 2001, of which 1,279 were deemed qualified—115 of them Americans. Of these, seven Americans were hired. However, FAO officials noted, recent statistics show that while the number of applications from Americans steadily increased between 1997 and 1999, there was a significant decline in 2000. FAO has not yet conducted a study examining the reasons for this decline. The State Department has written policies stating that equitable representation of Americans employed by U.N. organizations is a “high priority” and has mechanisms in place to support American employment in these bodies. Nevertheless, State’s level of effort in achieving this objective does not reflect the stated priority. Despite only minimal progress in improving representation of Americans in the U.N. system, State has reduced resources aimed at recruitment of qualified professionals and has curtailed other related activities without assessing how these reductions will affect recruitment. State’s reduction in resources resulted in its scaling back activities to support recruitment for professional positions—the pipeline for senior-level positions. Although State’s policies seek an equitable share of high-level positions for Americans, and much of the Department’s recruitment efforts are aimed toward this goal, State has not developed guidelines that define “equitable” or a mechanism for assessing progress in this area. Moreover, State also has not developed recruiting and hiring strategies or action plans to support U.N. employment of Americans. In addition, while State and other U.S. government officials with whom we spoke view promotion of Americans for U.N. employment as a collaborative effort between the State Department and other federal agencies, there has been little interagency coordination in this area. Efforts by other U.S. government agencies—such as providing federal employees with opportunities for international assignment—are not systematically organized or coordinated with State to provide assurances that the United States employs the best strategies to place Americans in the U.N. system. In a July 1999 cable to the U.S. missions to U.N. agencies, the State Department articulated the U.S. government’s goal to achieve equitable representation of Americans in all international organizations, stating that participation of Americans on the staffs of these organizations is a “high priority.” The cable established specific guidelines for supporting individuals and promoting the hiring of American citizens for senior-level and professional positions. This issue was again addressed in the October 2000 Government Performance and Results Act performance plan for State’s Bureau of International Organization Affairs. The plan states that the Bureau will seek to increase the number/percentage of Americans employed in international organizations, especially those in which the United States is underrepresented, including FAO, ILO, UNHCR, WFP, and WHO. The State Department has a variety of mechanisms in place to carry out its objectives of recruiting Americans for positions in the U.N. system. The primary mechanism is the Bureau of International Organization Affairs’ U.N. Employment Information and Assistance Unit, which helps qualified candidates from both the private and public sectors find employment in the U.N. system. In addition, high-ranking U.S. officials (such as the Secretary of State, ambassadors, and assistant secretaries) and U.N. officials have discussed American candidates for key U.N. positions and U.S. underrepresentation. The U.N. Employment Information and Assistance Unit relies on wide-ranging as well as targeted distribution of employment information as the primary vehicle for increasing recruitment. Figure 2 lists the main activities that the unit conducts to promote Americans for positions in the U.N. system. Once a year, State’s U.N. Employment Information and Assistance Unit, in collaboration with other federal agencies and the U.S. missions, compiles lists of key senior-level and policymaking U.N. positions targeted for recruitment. However, several State and other U.S. officials whose duties include recruiting American citizens for U.N. employment told us that they were not aware that such lists existed. Initiated in 1998, the lists identify positions by three rankings: (1) top priority for recruitment because they are critical to U.S. interests, (2) important because the functions of the position could impact U.S. interests, and (3) less significant. The lists include, where applicable, the expiration date of the incumbent’s position so that U.S. agencies can be notified when positions are expected to become vacant in order to find the most qualified candidates. U.S. missions to U.N. agencies, such as those we visited in Geneva, Rome, and New York, have a designated officer as the focal point for U.N. personnel and other management issues. These mission officials are the U.S. representatives on the ground with day-to-day contact with U.N. officials. According to these designated mission officers, they spend about 10 percent of their time on U.N. employment matters, including responding to inquiries and requests for support from American citizens applying for U.N. employment. They also help identify positions that are vacant or are expected to become vacant, which could be of particular interest to the United States. Although State’s guidelines urge U.S. missions to maintain active communications with U.S. citizens employed by international organizations, American citizens at every U.N. agency we visited expressed a desire to have more interaction with State staff at the U.S. missions in New York, Geneva, and Rome. Without compromising their status as international civil servants, American employees believe that they can provide U.S. officials with information and insights on substantive policy and management issues of interest to the United States. For instance, in Geneva, American employees at ILO cited a meeting held last year with a visiting high-level official from the U.S. Department of Labor that provided a forum for exchanging views on policy matters and issues of common concern, such as U.S. government and American employees’ views on various management reforms. Many of the American employees in the U.N. agencies we visited also expressed uncertainty about the type of support they can expect from the U.S. mission. Even though Americans remain underrepresented in many U.N. organizations, State has reduced its level of effort overall to recruit Americans in the U.N. system without analyzing and assessing the potential impact these curtailed and/or reduced functions could have had on recruitment. These changes included, among other things, (1) decreasing the number of staff resources assigned to carry out recruitment efforts, which required State to focus resources to support primarily senior-level and policymaking positions rather than all positions; (2) reducing the frequency of scheduled visits with U.N. human resources directors; and (3) not updating an electronic roster from which candidates are recommended to U.N. organizations for employment. In 1992, the State Department had five professionals assigned to the U.N. Employment Information and Assistance Unit, which is the unit responsible for recruitment and monitoring of American employment in numerous international organizations. Since then, State has reduced the number of staff assigned to this unit. In 1993, staff were reduced to four professionals, and 2 years later staff were further reduced to three professionals. Since 2000, two staff have been carrying out the functions assigned to the unit. In 1995, State ended its practice of supporting Americans for U.N. employment at professional levels and instead focused on senior-level and policymaking positions, which include D1 and above positions. While State’s policies call for obtaining an equitable share of high-level positions for Americans, and much of its recruitment efforts are aimed toward this goal, the Department has not developed guidelines that define “equitable” nor does it have a mechanism for assessing progress in this area. The redirection of State’s efforts to focus only on high-level positions may have the effect of reducing the pipeline of Americans in the lower ranks who could advance to high-level positions through internal promotions, which our analysis showed was the primary source for senior-level positions at U.N. organizations. For example, at WFP, out of 37 senior positions filled from 1998 to 2000, 31 (83 percent) were internal promotions, while only 6 were recruited externally. Seven of the internal promotions and two of the external hires were Americans. This demonstrates the importance of maintaining an adequate “pipeline” of qualified entry- and mid-level Americans to be considered for senior positions. Agriculture officials said that a long-term 10- to 15-year strategy aimed at entry-level recruitment to create a pool of qualified American candidates within the international organizations may be necessary in order to improve representation levels. With support from the U.S. missions, the U.N. Employment Information and Assistance Unit is State’s primary liaison with the human resources offices of the different U.N. organizations. But due to funding constraints, the director of the unit had not met with the human resources directors of U.N. organizations in the last 3 years. Human resources directors at the U.N. agencies told us that a planning session once a year with a U.S. government representative would be very useful, especially with the large number of retirements expected in the next several years. Several human resources directors told us that due to the age profiles of their staffs, they need to formulate and implement plans to address this and other workforce planning issues. For example, the U.N. Secretariat projects that up to one- fourth of the 400 staff retiring each year for the next 5 years are in positions subject to geographic distribution. Moreover, the number of Americans who left the Secretariat from 1997 to 2000 exceeded the number of Americans hired, resulting in a net loss of 50 American staff over the last 4 years. In its strategic framework for 2000 to 2015, FAO projected a staff turnover of 70 percent in the next 15 years. In light of this expected turnover, FAO’s medium-term plan for 2002 to 2007 called for effective workforce planning and recruitment efforts to ensure that skills and competencies of staff who are retiring are not lost. The U.N. Employment Information and Assistance Unit has maintained a roster of highly qualified American citizens who wish to be considered for senior positions but, according to State officials, updating the roster was put on hold earlier this year due to resource constraints. More than 2,000 names were on the roster before 1995 when State fielded candidates for both professional and senior-level positions. In 1991, when the roster was actively used, State submitted approximately 600 applications for 293 professional positions throughout the United Nations. However, in 1995 State decided to stop maintaining a central roster of candidates for most professional or technical positions and to stop screening, nominating, and offering support to American candidates for these positions. About 300 names for senior positions are currently registered on the roster. Over the past 3 years, State has used the roster to submit slates of 3 or 4 candidates for about 40 senior positions. The State Department has no recruiting strategy or action plan to guide its efforts to support Americans for employment in the United Nations and against which to measure its performance. The Bureau of International Organization Affairs’ performance plan includes the employment of American citizens in U.N. organizations as an important objective, but this objective is not included in State’s overall annual performance report prepared in response to the Government Performance and Results Act. The act requires agencies to pursue performance-based management, including strategic planning and goal-setting, that is results-oriented and measures performance. State does report annually to the Congress on efforts by international organizations to improve U.S. representation levels, but the report is limited to actions taken by the U.N. organizations and does not include the Department’s own efforts. The annual report includes information on those agencies that have established geographic distribution formulas, as well as a few other organizations that are of particular interest to the United States due to the size of U.S. contributions and level of representation. State does not officially provide the report to the heads of U.N. agencies to press those organizations with persistent U.S. underrepresentation to respond with appropriate targeted strategies to improve levels of U.S. representation. A State official told us that while some State and U.S. mission officials use the Department’s annual report to the Congress in discussions with U.N. agencies about underrepresentation, this practice does not occur consistently. Although State officials acknowledge that promoting U.S. representation at U.N. and other international organizations must be a collaborative effort between State and other federal agencies, coordination of U.S. governmentwide efforts over the last several years has largely been done on an informal, ad hoc basis. In a special report to State’s Bureau of International Organization Affairs in August 1992, State’s Office of Inspector General found a lack of understanding among U.S. agencies on what they can do to help with the recruitment effort. Accordingly, the Inspector General recommended that the Bureau develop memorandums of understanding between State and other U.S. government agencies to facilitate better cooperation, support, and effectiveness in recruitment. In its November 1994 response to the Inspector General’s recommendations, the Bureau stated that this was an excellent recommendation and began to work with the various federal agencies to develop memorandums of understanding with at least 13 of them. The memorandums were to have been completed by the end of 1994. However, when we asked State officials about them, they could not provide evidence that any memorandums were in place. We found that U.S. governmentwide efforts to recruit and place Americans in specific areas within the U.N. system that are of particular importance to U.S. interests are done primarily on an ad hoc, case-by-case basis, such as when a key post critical to the United States needs to be filled. It appears that formal mechanisms to organize and coordinate U.S. government activities in the past have not worked without consistent high-level management attention and support. For instance, an Inter-agency Contact Group of working-level agency staff has not been active for many years. Instead, various U.S. government agencies, particularly those that deal regularly with international organizations, have staff assigned to serve as the liaison for international recruitment activities. These include, among others, staff from the Foreign Agricultural Service within Agriculture; the Bureau of International Labor Affairs within Labor; and the Office of International and Refugee Health within the U.S. Department of Health and Human Services (HHS). However, related activities within each of the U.S. agencies are often decentralized to several offices and units that work with international organizations on specific areas. Furthermore, staff assigned as liaisons typically have other duties and responsibilities, and they told us that they are unable to devote the attention necessary to address U.N. employment matters in a comprehensive, systematic way because of resource constraints and other limitations within their own departments. Nonetheless, on a specific area—in this case, food and agricultural issues— Agriculture has recently taken the initiative to reconstitute an informal, interagency international recruitment network, primarily for information- sharing purposes and to help identify qualified candidates for key vacancies. Executive Order 11552 of August 24, 1970, calls on executive branch agencies to assist in and encourage details and transfers of federal employees to international organizations to the maximum extent possible and with due regard to the agencies’ manpower requirements. According to U.S. agency officials, placing federal employees on details and transfers to international organizations can be an effective way to provide significant input on policy and technical issues of interest to the United States. In fiscal year 2000, 17 federal agencies had 165 employees on detail or transferred to the United Nations and other international organizations, according to State Department records. Of this total, the agencies with the largest number of federal employees assigned to international organizations were: HHS, 59 employees; the State Department, 20; the Departments of Transportation and the Treasury, 18 each; Agriculture, 15; the Department of Energy, 6; and Labor, 4. An official from HHS attributed that Department’s level of participation to the fact that the agency considers its contributions to international organizations an integral part of the Department’s mission to combat diseases such as polio and Acquired Immune Deficiency Syndrome. According to this official, public health specialists in HHS vigorously vie for opportunities to gain international work experience, which they view to be not only meaningful and important but also career-building. However, several Americans we interviewed, particularly those from other federal agencies, suggested that executive agencies can do more to promote opportunities and provide incentives for work in international organizations and to help employees apply for these jobs. In 2000, the representation levels of other major contributors to the United Nations varied in the four organizations in our study that had formal geographic targets—the Secretariat, FAO, ILO, and WHO. The five countries for which we identified representation levels were Canada, France, Germany, Japan, and the United Kingdom. Japan, which is the second largest contributor to the United Nations, was significantly underrepresented in each of the four organizations. Germany, the third largest contributor, was underrepresented in three organizations and equitably represented in one organization. Canada, France, and the United Kingdom were either equitably represented or overrepresented in the four organizations. For more information on the representation trends for these selected countries, see appendix IV. Japan and Germany, which have higher representation targets because of their higher contributions, devote more resources toward achieving equitable representation than France, the United Kingdom, and Canada, which are within equitable levels or are overrepresented. For example, Germany has established formal mechanisms, including a high-level Office of the Coordinator for International Personnel, to organize and coordinate efforts to place its nationals in key positions within the U.N. system and other international organizations. Japan—which has historically been significantly underrepresented—has full-time staff at its mission in Geneva dedicated to promoting U.N. employment of Japanese nationals. The United States, like Japan and Germany, is generally underrepresented but is not as active as these two countries in promoting its citizens for U.N. employment. As the largest contributor to the United Nations, the United States has higher representation targets to fill than Japan or Germany, but it takes a less active approach in assisting its citizens to gain U.N. employment. Ultimately, responsibility for hiring decisions and achieving equitable representation rests with U.N. officials. However, it does not appear that given the slow progress in improving U.S. representation over nearly 10 years, U.S. representation levels will significantly improve without changes in the United Nations’ and United States’ actions. For a more detailed presentation of selected member states’ efforts to promote U.N. employment for their nationals, see appendix V. The United Nations and its affiliated entities face the dual challenge of attracting and retaining staff who meet the highest standards of efficiency, competence, and integrity while maintaining the international character of the organizations by ensuring equitable geographic balance in the workforce. Nevertheless, U.N. organizations have made slow progress in addressing U.S. concerns about underrepresentation, and except for the U.N. Secretariat in New York, the organizations with representation targets that we studied have not achieved equitable employment of Americans since 1992. Although the U.N. organizations are ultimately responsible for achieving fair geographic balance among its member countries, the State Department, in coordination with other U.S. agencies, plays a role in ensuring that the United States is equitably represented. U.N. organizations have not fully developed long-range workforce planning strategies, and neither State nor the U.N. agencies have formal recruiting and hiring action plans to improve U.S. representation in the U.N. system. Without these measures, the United States’ ability to even maintain the number of Americans employed in the United Nations could be hampered. Regular planning sessions with human resources directors could help State identify areas in which to focus its recruitment of American candidates and ensure that U.S. levels of representation do not decline as a result of American retirements without corresponding increases in new hires. High-level State Department attention and intervention is needed to elevate the importance of this matter to the United States and to reemphasize the seriousness of this concern to State, U.S., and U.N. officials. Finally, sustained efforts and actions by State to facilitate employment of Americans for professional- level positions, as well as senior-level and policymaking positions, will be required to ensure progress toward the goal of equitable U.S. representation. Because equitable representation of Americans employed at the U.N. organizations has been determined to be important to U.S. interests, we recommend that the Secretary of State: develop, with other U.S. government agencies, a comprehensive U.S. strategy for achieving equitable representation of Americans in U.N. employment that includes efforts to improve interagency coordination and specifies performance goals, time frames, and resource requirements, and incorporate these goals and progress achieving them into State’s Annual Performance Plan and Annual Performance Report, respectively; work with human resources directors of U.N. organizations in which Americans are underrepresented or are close to being underrepresented, particularly in light of anticipated retirements in the next several years, to help ensure that long-range workforce planning efforts include measures targeted to achieve equitable U.S. representation within a specified time frame; develop guidelines that define State’s goal of securing an equitable share of senior-level and policymaking posts, and use these guidelines to assess whether the United States is equitably represented in high- ranking positions in U.N. organizations; and provide heads of U.N. agencies, for their appropriate attention and action, with copies of State’s annual report to the Congress on efforts by the United Nations and other international organizations to employ Americans. In commenting on a draft of this report, State generally agreed with our findings and conclusions, and agreed with most of our recommendations. However, State disagreed that it should develop guidelines that define its goal for obtaining an equitable share of high-level positions for Americans and use these guidelines to help assess whether the United States is equitably represented. State said it should not develop separate guidelines for defining its goal of obtaining an equitable share of Americans in senior- level and policymaking positions but rather that it should focus on equitable representation at all levels. While we agree that State should be concerned about achieving equitable employment for Americans at all levels in U.N. organizations, we believe it is important to emphasize achieving an equitable share of senior-level and policymaking positions. We further believe that without guidelines defining equitable share, State lacks a mechanism for assessing whether its top recruitment priority— equitable representation of Americans in high-level positions—is being achieved. In addition, the Department of State’s Bureau of International Organization Affairs and officials from the Departments of Agriculture, Health and Human Services, and Labor who deal with international recruitment provided technical comments on this report, which we incorporated as appropriate. U.N. human resources offices also reviewed a draft of this report for technical accuracy. (State’s written comments, along with our evaluation of them, are in app. IX.) To analyze trends in the overall representation levels of Americans and nationals of other selected countries and Americans in senior-level and policymaking U.N. positions, we performed various statistical analyses of personnel data provided by the State Department and the U.N. entities that fully cooperated with our review—the U.N. Secretariat and UNDP in New York; ILO, UNHCR, and WHO in Geneva; and FAO and WFP in Rome. These organizations represent about 60 percent of the professional staff in the U.N. system and have about 80 percent of the positions in the U.N. system that are subject to geographic distribution. We did not independently verify the accuracy of the data provided to us. In some cases, the data in the State Department’s annual report to the Congress were not the same as data that the U.N. organizations provided to us. (For a detailed discussion of the statistical methods we used, see app. VIII.) To assess U.N. efforts to employ nationals of countries that are underrepresented or close to becoming underrepresented, we reviewed various U.N. documents and met with the human resources directors at the headquarters of the U.N. entities we reviewed. In addition, we met with officials from the U.N. Joint Inspection Unit, the International Civil Service Commission, the Administrative Committee on Coordination, the U.N. Office of Internal Oversight Services, and the U.N. Board of Auditors. We also met with representatives of the Washington, D.C., liaison offices of FAO, ILO, UNHCR, WFP, and WHO. To examine State’s and other U.S. agencies’ efforts and resources devoted to assisting the United Nations in achieving equitable U.S. representation, we met with State Department officials from the Bureau of International Organization Affairs and the U.S. missions in New York, Geneva, and Rome. We also spoke with officials from the U.S. Departments of Agriculture, Labor, and Health and Human Services who deal with international recruitment. To describe other member countries’ activities to assist employing their nationals in the U.N. system, we met with representatives of the British, Canadian, French, German, and Japanese missions to the United Nations in New York, Geneva, and Rome. In addition, we met with several American citizens employed in each of the U.N. organizations in our study to obtain their views about U.N. and U.S. efforts to recruit Americans. We conducted our review from December 2000 to June 2001 in accordance with generally accepted government auditing standards. We are sending copies of this report to the Chairman, Senate Committee on Foreign Relations; the Chairman and Ranking Minority Member, Subcommittee on Commerce, Justice, State, and the Judiciary, Senate Committee on Appropriations; the Ranking Minority Member, House Committee on International Relations; the Ranking Minority Member, Subcommittee on the Middle East and Asia, House Committee on International Relations; and the Chairman and Ranking Minority Member, Subcommittee on Commerce, Justice, State, the Judiciary, and Related Agencies, House Committee on Appropriations. We are also sending copies of this report to the Honorable Colin Powell, Secretary of State. Copies will be made available to others upon request. If you or your staff have any questions about this report, please contact me on (202) 512-4128. Other GAO contacts and staff acknowledgments are listed in appendix X. This appendix provides information on the methods that the U.N. Secretariat, Food and Agriculture Organization (FAO), International Labor Organization (ILO), and World Health Organization (WHO) used to calculate equitable representation targets for member countries and thus determine the representation status of each organization’s member countries. The other organizations in our study—the United Nations Development Program (UNDP), United Nations High Commissioner for Refugees (UNHCR), and World Food Program (WFP)—do not calculate or use equitable representation ranges to determine a country’s representation status. The Secretariat takes into consideration three factors—assessed contribution, membership, and population—in calculating the equitable representation targets for member countries. In determining the number of positions attributed to each of these factors, the Secretariat uses a base number as the total number of positions, rather than the actual number of filled positions. In 2000, the base number used was 2,600, while the number of filled positions subject to geographic distribution was 2,389. Table 7 shows the weight assigned to each of the three factors and the number of positions assigned to each factor when multiplied by the base number. For each member country: The number of positions allocated for the assessed contribution factor (1,430) is multiplied by the member country’s percentage assessment to the Secretariat. The number of positions allocated for the membership factor (1,040) is divided by the number of member states (189). The number of positions allocated for the population factor (130) is divided by the world population and multiplied by the member country’s population. For each country, the resulting numbers of positions attributed to each factor are added together to produce the midpoint of that country’s equitable representation range. The upper and lower limits of each range are 15 percentage points above and below the midpoint, respectively, or a minimum of 4.8 positions from the midpoint. The minimum range for member countries is 1 to 14. In 2000, the midpoint for the United States was 369, and the upper and lower limits of the U.S. range were 424 and 314, respectively. In 2000, there were 325 Americans in positions subject to geographic representation. FAO determines each member country’s representation status using a system that weighs the level of positions, rather than focusing on the number of positions targeted for each country. In this system, point values are assigned to grade levels, with the higher grades being worth more points. This system, therefore, attempts to measure a country’s level of influence rather than just the number of positions it holds. Table 8 shows the point values that FAO assigns to each grade level. A country’s representation status is determined by dividing the number of points from the positions held by that country’s nationals by the total number of points of all filled regular budget positions. The resulting percentage then is compared with the country’s equitable representation range, which is also expressed as a percentage. In calculating the equitable representation targets for member countries, FAO takes into consideration only one factor—contribution. The contribution factor is used as follows: If a country contributes 10 percent or less of the budget, it is considered equitably represented if its representation ranges from 25 percent below to 50 percent above its contribution percentage. If a country contributes between 10 percent and 20 percent of the budget, it is considered equitably represented if its representation ranges from 25 percent below to 25 percent above its contribution percentage. If a country contributes more than 20 percent of the budget, it is considered equitably represented if its representation ranges from 25 percent below to 0 percent above its contribution percentage. In 2000, the United States was in the third category, with a target representation range of 18.75 percent to 25 percent. The actual U.S. representation level was 12.5 percent. ILO takes two factors into consideration—contribution and membership— in determining the equitable representation targets for member countries. For the membership factor, ILO uses an equitable range of one to two positions for countries that contribute 0.2 percent or less of the ILO budget. In 2000, 142 of ILO’s member countries contributed 0.2 percent or less of the budget, and their total budget contribution was 4.03 percent. The number of positions set aside for these minimum contribution countries can vary from year to year, depending on the number of countries that fit the criteria. For countries that contribute more than 0.2 percent of the budget, equitable geographic targets are determined by the contribution factor. For these countries there is one further differentiation: In 2000, for countries that contributed between 0.2 percent and 10 percent of the budget, a midpoint was calculated using the following formula: After the midpoint is calculated, the equitable range is obtained by adding and subtracting 25 percent from the midpoint. The formula presented above is also used for countries that contribute 10 percent or more of the budget. However, the number that is calculated using the formula becomes the maximum of the country’s range. The minimum of the range is obtained by subtracting 25 percent from the maximum number. Because the United States contributed 25 percent of the ILO budget in 2000, its geographic range was calculated using the latter method. The equitable range for the United States in 2000 was 101 to 135, and there were 87 American staff in geographically counted positions during that year. WHO’s method for determining member countries’ representation status is based on the system used by the U.N. Secretariat, although there are some differences. As with the Secretariat, WHO uses three factors (contribution, membership, and population), with 55 percent of the positions being tied to the contribution factor, 40 percent tied to the membership factor, and 5 percent tied to the population factor. The midpoint for each country is obtained by adding the number of positions attributed to each of these factors. The minimum and maximum of the range are set by subtracting and adding 15 percent to the midpoint. Like the Secretariat, WHO also uses a base number for the total number of positions subject to geographic distribution rather than using the number of filled positions. In 2000, WHO used a base number of 1,450, while there were 1,138 filled positions subject to geographic distribution. A major difference between the systems used by the Secretariat and WHO is that WHO includes positions financed by extrabudgetary resources as geographically counted positions. However, the contribution factor includes only contributions made to the regular budget, not extrabudgetary contributions. The number of positions assigned to each factor was as follows: 580 positions were set aside for the membership factor (3.02) per 797.5 positions were set aside for the contribution factor (7.975 positions for each 1 percent contributed); and 72.5 positions were set aside for the population factor (0.012 positions for each 1 million of population). The United States’ equitable range was 174 to 237, and there were 152 American staff in positions subject to geographic distribution. This appendix details the U.S. staffing situation at each of the seven U.N. organizations we examined—the U.N. Secretariat, FAO, ILO, WHO, UNDP, UNHCR, and WFP. The Secretariat, located in New York, has met its targets for employing Americans each year from 1992 to 2000, and Americans are represented in senior-level and policymaking positions at a level commensurate with the average of selected major contributors relative to their contributions to the Secretariat. From 1992 through 1997, the number of Americans in geographically targeted positions was near the midpoint of the range, which the Secretariat describes as the desirable representation, until about 3 years ago when the number of Americans declined to the minimum portion of the range (see fig. 4). During this period, hiring rates did not compensate for the number of separations of Americans in the Secretariat. From 1992 through 2000, the total number of geographically targeted positions in the Secretariat decreased by more than 200 positions to about 2,400, representing about an 8.4 percent decline. The United States’ assessed contribution to the Secretariat from 1998 through 2000 averaged 25 percent of total contributions. In 2001, the range for the United States was lowered as a result of the decrease in the U.S. assessment to 22 percent. Because of the lowered range, it is expected that in 2001 Americans will remain represented in the lower portion of the geographic range. Americans are represented in senior-level and policymaking positions at a level commensurate with the average for selected major contributors relative to their contributions to the Secretariat. Combining the percentages of Americans in policymaking (Assistant Secretary-General (ASG) and Under Secretary-General (USG)) positions and senior-level (D1- D2) positions for the periods ending 1994, 1997, and 2000 shows Americans holding 11.5 percent, 14 percent, and 13.6 percent of these positions, respectively. (Fig. 5 provides information, by grade category, on the percentage of the total number of positions held by Americans. The period covered is from 1992 to 2000, with each bar representing staffing grade information as an average over a separate 3-year period between 1992 and 2000. The number in the 1998 to 2000 bar is the average annual number of staff positions during 1998 to 2000 for each grade level.) For the period of 1998 to 2000, the United States had its highest representation at grade levels equivalent to middle management positions (P4-P5 equivalencies). Table 9 shows the financial contributions and senior-level and policymaking representation of the United States and four other selected countries with regard to the Secretariat. This table also shows the ratio of each country’s representation to its assessment, and the average ratio for the four other selected countries. As shown in table 9, the U.S. representation-to-assessment ratio is approximate to the average ratio for the four selected countries. Although modest progress in employing Americans has been made in recent years at FAO, headquartered in Rome, Americans continue to be significantly underrepresented overall and are represented in senior and policymaking positions at levels that are below the average for four major contributors, given their contribution to FAO. (Fig. 6 provides information on the trends in overall U.S. representation compared with FAO’s geographic representation range for the United States.) Since 1992, FAO has increased its staff by 42 to 992, which is equivalent to an annual average growth rate of 0.5 percent compared with an annual average growth rate of 4.5 percent for the United States. During this period, the number of Americans in geographically targeted positions increased by 38 to 126. Because FAO uses a position-weighting system to calculate each member country’s representation percentage, the equitable ranges were derived using this weighting system. The United States’ assessed contribution to FAO from 1998 through 2000 averaged 25 percent of total contributions. Although the minimum range for the United States decreased in 2001 as a result in the decrease in the U.S. assessment, the United States is still expected to remain significantly below the minimum range. In contrast to the high level of underrepresentation of Americans, about 80 countries were overrepresented in FAO over the last 3 years. (Refer to app. III for a list of the top five overrepresented countries.) Americans are represented in senior and policymaking positions at levels that are below the average of four major contributors, given their contribution to FAO. (Fig. 7 provides information, by grade category, on the percentage of the total number of positions held by Americans. The number in the 1998 through 2000 bar is the average annual number of staff positions during 1998 through 2000 for each grade level.) Combining the percentages of Americans in policymaking positions—the Assistant Director-General (ADG) and the Deputy Director-General (DDG)—and senior-level positions for the periods ending 1994, 1997, and 2000 shows that Americans held 11.1 percent, 9.5 percent, and 9.4 percent of these positions, respectively. Table 10 shows the financial contributions and senior-level and policymaking representation of the United States and four other selected countries with regard to FAO. This table also shows the ratio of each country’s representation to its assessment and the average ratio for the four other selected countries. As shown in table 10, the U.S. representation-to- assessment ratio is below the average ratio for the four selected countries. Progress toward achieving equitable representation of Americans has been made at ILO, located in Geneva, where the United States has been underrepresented during the period under review, 1992 to 2000. Nonetheless, U.S. representation in high-ranking positions has declined. Americans continue to be underrepresented overall and are represented in senior-level and policymaking positions at levels that are below the average of four major contributors given their contribution. (Fig. 8 provides information on the trends in overall U.S. representation from 1992 to 2000, compared with ILO’s geographic representation range for the United States.) Overall, since 1992, geographic positions in ILO have increased by 5 to 659. With the average annual growth rate for the United States (about 3 percent) exceeding the ILO’s (about -0.3 percent), the number of Americans in geographic positions has increased and accordingly brought the United States closer to its minimum geographic range in 2000. By contrast with historical U.S. underrepresentation, 45 member states are overrepresented. (Refer to app. III for a list of the top five overrepresented countries.) The United States’ assessed contribution to ILO from 1998 to 2000 averaged 25 percent of total contributions. Beginning in January 2002, the geographic representation range for the United States is expected to be lowered, from 101 through 135 to 89 through 119 positions, as a result of the decrease in the U.S. assessment to 22 percent effective in the next biennium. U.S. representation in senior levels (D1-D2) has declined and U.S. representation in senior-level and policymaking positions (ADG-DDG) is below that of the average of four major contributors given their contribution. (Fig. 9 provides information, by grade category, on the percentages of the total number of positions held by Americans. The period covered is from 1995 to 2000, with each bar representing staffing grade information as an average over a 3-year period.) Combining the percentages of Americans in policymaking positions and senior-level positions for the periods ending 1997 and 2000 shows Americans holding 12.1 percent and 9.7 percent of these positions, respectively. Table 11 shows the financial contributions and senior-level and policymaking representation of the United States and four other selected countries with regard to ILO. This table also shows the ratio of each country’s representation to its assessment and the average ratio for the four other selected countries. As shown in this table, the U.S. representation-to- assessment ratio is below the average ratio for the four selected countries. WHO, based in Geneva, continues to have Americans represented below the equitable geographic targets for the United States, which has been underrepresented there since 1993. In addition, there has been a decline in policymaking positions, and combined U.S. representation in senior-level and policymaking positions is below the average of the four major contributors, given their contributions. (Fig. 10 provides information on the trends in overall U.S. representation levels from 1992 to 2000 compared with WHO’s geographic representation range for the United States.) In 1992, U.S. representation was at the minimum level of the equitable range. However, since that time, there have been declines in the level of U.S. representation; in 2000, the United States was underrepresented. In contrast to U.S. underrepresentation at WHO, 22 countries were overrepresented in 2000. (Refer to app. III for a list of the top five overrepresented countries.) By and large, from 1992 to 2000, the total number of geographic positions decreased by 174, or 13 percent, to 1,138, for WHO, and similarly the number of geographic positions filled by Americans declined by 14 percent. In 2001, the U.S. assessment decreased from 25 percent to 22 percent, and accordingly, the geographic target for the United States will be reduced for 2002. There has been a decrease in U.S. representation at the top policymaking positions (Ungraded (UG) is equivalent to the ASG and USG positions) and U.S. representation in senior-level and policymaking positions is below the average for four of WHO’s major contributors, given their contribution level. (Fig. 11 provides information, by grade category, on trends in U.S. representation by grade, compared with WHO’s U.S. geographic representation target. The time period covered is from 1992 through 2000, with each bar representing staffing grade information as an average over a 3-year period.) While the percentage of Americans in D1 to D2 positions has been relatively constant from 1992 through 2000, there has been a significant decline in the percentage of Americans in policymaking positions. The most recent year that an American held a top-ranking position in WHO was in 1998. Combining the percentages of Americans in policymaking and senior-level positions for the periods ending 1994, 1997, and 2000 shows Americans holding 8.1 percent, 8.0 percent, and 8.0 percent of these positions, respectively. Table 12 shows the financial contributions and senior-level and policymaking representation of the United States and four other selected countries with regard to WHO. This table also shows the ratio of each country’s representation to its assessment, and the average ratio for the four selected countries. As shown in table 12, the U.S. representation-to- assessment ratio is below the average ratio of the four selected countries. The United States appears to be equitably represented at UNDP. Because UNDP, headquartered in New York, does not have a geographic representation target for the United States, we did not have an established criterion with which to assess U.S. representation there. However, when comparing U.S. representation with U.S. contributions to UNDP, from 1995 to 2000, the U.S. representation percentage at UNDP was higher than the U.S. contribution percentage for most of these years. As shown in figure 12, from 1995 to 2000, the percentage of Americans in professional positions remained relatively constant, declining slightly. Over the broader 9-year period, the U.S. contribution to UNDP varied, ranging from a high of 14 percent of the budget in 1993 to a low of 6 percent in 1996. Figure 13 provides information, by grade category, on the percentage of the total number of positions held by Americans and presents this information as a 3-year average. The percentage of Americans in senior-level positions (D1-D2) and lower level professional positions (P1-P3) remained close to 14 percent throughout the period we covered. Although an American held the top position at UNDP from 1993 through 1999, beginning in 2000, no Americans were represented in policymaking positions (equivalent to ASG and USG). Combining the percentages of Americans in policymaking and senior-level positions for the periods ending 1997 and 2000 shows Americans holding 13.9 percent and 14.2 percent of these positions, respectively. Overall, Americans have been underrepresented at UNHCR. Moreover, little progress has been made in hiring Americans. Because voluntary contributions by member states provide the funding for UNHCR, it does not have formal targets for achieving equitable geographic representation of the nationals of its member states. However, since 1995, UNHCR has had an informal target of 13 percent of its international professional positions for the United States, from which it received about one-third of its resources over the last 3 years. (Refer to fig. 14 for the trend in the level of representation of Americans.) Despite the existence of this informal target, UNHCR has not come close to meeting it, and, for almost a decade, the percentage of Americans employed by UNHCR compared with the total of its international professional positions has not improved. During 1992 through 2000, UNHCR staffing levels have grown by 380 to 1,159, an annual growth rate of 4.1 percent. The annual average growth rate for the United States has been virtually the same at 4.3 percent. For the period 1993 to 1998, not one American was at the policymaking level, although subsequently, an American was hired for one of these three high-ranking positions at UNHCR. (Refer to fig. 15, which provides information, by grade category, for the percentage of the total number of positions held by Americans and presents this information as a 3-year average.) Combining the percentages of Americans in policymaking positions (High Commissioner, Deputy High Commissioner, and Assistant High Commissioner) and senior-level positions for the periods ending 1994, 1997, and 2000 shows Americans holding 10.6 percent, 10.8 percent, and 9.2 percent of these positions, respectively. Americans have been underrepresented at WFP, located in Rome, but gains have been made in hiring more Americans in senior-level and policymaking positions. Because voluntary contributions by member states provide the funding for WFP, it does not have formal targets for achieving equitable geographic representation of its member states. However, in 1997, WFP established informal targets for donor countries in order to address an imbalance in the representation levels between donor countries and program countries. Accordingly, WFP set an informal target of 20 percent of its international professional positions for the United States from which it received almost one-half of its resources over the last 3 years. Despite establishing an informal target in 1997, the percentage of Americans employed as international professional staff has not improved. (Refer to fig. 16, which presents data on U.S. contributions, percentage of Americans, and the informal target for the United States.) From 1996 through 2000, annual employment growth rates for WFP and the United States were 10.5 percent and 5.5 percent, respectively, with the size of WFP’s international staff increasing by 255 positions to 831. WFP has made progress in hiring Americans in senior-level (D1-D2) positions since 1996. (Fig. 17 provides information, by grade category, on the percentage of the total number of positions held by Americans.) Combining the percentages of Americans in policymaking positions (equivalent to ASG and USG) and senior-level positions for the periods ending 1997 and 2000 shows Americans holding 14.1 percent and 24.1 percent of these positions, respectively. For each organization, the top five overrepresented countries for 1998 to 2000 are listed on the basis of the number of staff exceeding the maximum of the country’s equitable range. The total numbers of overrepresented countries at each organization are also listed for the years 1998 to 2000. (See tables 13-20.) The use of a base number, rather than actual employment figures, to calculate target ranges may tend to reduce the number of countries that are classified as underrepresented. The larger upper targets for the Secretariat and WHO may partially explain why they have fewer overrepresented countries than FAO and ILO (see app. VIII). Figures 17 to 22 provide information on trends in staffing levels for selected countries at the seven U.N. organizations we studied—the U.N. Secretariat, FAO, ILO, WHO, UNDP, UNHCR, and WFP. The selected countries are Japan, Germany, France, the United Kingdom, and Canada, which are all major contributors. We also present combined staffing data for the European Union countries. The figures provide information on the trends in each country’s total staff compared with its geographic target and contribution to the U.N. organization, as well as the trends in that country’s representation at different grade levels. The grade level groupings used in the figures are P1 to P3 (entry-level and mid-level professionals, equivalent to GS-9 to GS-13); P4 to P5 (mid-level professionals, equivalent to GS-13 to GS-15); D1 to D2 (equivalent to Senior Executive Service positions); and Assistant Secretary-General to Under Secretary-General (ASG-USG) (policymaking positions). In the figures, grade level employment percentages are presented as 3-year averages for the non-overlapping periods 1992 to 1994, 1995 to 1997, and 1998 to 2000. The numbers in the 1998 to 2000 bars are the 3-year average of the number of nationals employed at the respective U.N. organization for the designated grade levels. The line that represents a country’s financial assessment or contribution percentage share is a 3-year average for 1998 to 2000. Similarly, the target range is a 3-year average for 1998 to 2000. This appendix describes the overall representation status of selected major contributors in the U.N. Secretariat and the specialized agencies in our study and discusses some of the approaches they employ to support their citizens seeking U.N. employment. In this study, we included Japan, which was admitted to the United Nations in 1956; Germany, which became a member in 1973; and France, the United Kingdom, and Canada, all original members of the United Nations. Japan is the second largest contributor to the U.N. secretariat and the specialized agencies in our study but is significantly underrepresented in each of these U.N. organizations. (See table 21.) According to a Japanese mission representative, the government of Japan seeks to achieve representation levels that reflect its financial contributions to these organizations, which are about 20 percent, second only to the United States. Japanese officials with whom we met noted that although seriously underrepresented in U.N. organizations, Japan has made slow progress in improving its representation. Within its foreign ministry in Tokyo, Japan has a recruitment center for international organizations with about a half dozen staff. In addition, in Geneva there is an officer in the Japanese mission who works full time on personnel management issues, including promoting the employment of Japanese citizens in U.N. organizations. This officer and her counterparts in Japan’s missions in Rome and New York spend a substantial amount of their time prescreening résumés of Japanese citizens interested in U.N. employment, providing interested parties with information and advice about employment in international organizations, and following up with U.N. officials on behalf of individual applicants. The Japanese government uses the junior professional officers program systematically because it is viewed to be an effective recruitment tool for entry-level positions. Japan sponsors about 50 to 60 junior professional officers annually for 2- to 3-year terms; therefore, there are about 160 junior officers working in various U.N. organizations at any given time. Germany, which is the third largest contributor in these organizations, generally falls short of its representation targets in most of the U.N. entities we reviewed. (See table 22.) Concerned about its overall representation status in international organizations, the German government addresses the issue on various levels, starting with a high-level working group of top officials from several ministries, which meets regularly at the Chancellor’s Office to discuss German participation in international organizations. In light of continuing concerns, Germany has in the past year established a new office within the foreign ministry—the Office of the Coordinator for International Personnel—to organize its recruitment efforts. The new office focuses its efforts on junior and senior-level positions alike. The Coordinator for International Personnel is ranked at the ambassador level. In addition, Germany’s Federal Employment Agency has an office that deals with promoting the employment of German citizens in international organizations, mostly for professional and technical positions. The German government also provides support for junior professional officers programs, annually funding anywhere from 25 to 30 new officers, who serve for 2 to 3 years. As shown in table 23, France, the fourth largest contributor, is equitably represented across all of the U.N. organizations we examined. The French foreign ministry has an office in Paris that promotes employment in international organizations. This office prescreens candidates and forwards applicants’ files to the French missions that have responsibility for U.N. organizations. In some cases, Mission officials may support French applicants by sending a letter in support of the candidate to, or meeting in person with, the relevant U.N. hiring official. In addition to funding about 40 junior professional officers per year, mostly in field locations, the French government has also agreed to sponsor a limited number of junior officers from developing countries. As shown in table 24, the United Kingdom is generally well-represented, falling within or exceeding its desirable levels of representation in major U.N. agencies. According to representatives of the British missions with whom we met, geographic representation is not a particularly important concern to their government, especially in light of U.K. representation levels. These officials told us they are primarily concerned about efficient management of the United Nations and a competent workforce and do not consider geographic representation a key issue. For this reason, the United Kingdom generally makes no special effort to promote the employment of its citizens. Canada, as shown in table 25, is generally well-represented in the United Nations. The Public Service Commission of Canada is responsible for coordinating the Canadian government’s efforts to identify professional Canadians for jobs in international organizations. The Commission’s international programs office works in concert with the Department of Foreign Affairs and International Trade in targeting key positions considered attainable and of strategic interest to Canada and identifying Canadian candidates for them. According to Canadian mission representatives, the Director of International Programs visits the human resources directors of U.N. organizations about once a year to establish contacts, verify information, and plan to search for suitable candidates. Although Canada provides only limited support for junior professional officers programs, Canada’s Department of Foreign Affairs and International Trade has a Youth International Internship Program that provides young people, ages 18 to 29, with an opportunity for international work experience for a period of 6 to 8 months. Several U.N. organizations have recently developed human resource management strategies to address a broad range of human capital issues they face, some of which affect their efforts to achieve equitable geographic balance. The following section discusses selected human capital issues that provide insight into some factors that may affect recruiting qualified Americans in greater numbers for U.N. employment. Many of the American citizens with whom we met cited these among the contributing factors to difficulties recruiting and retaining Americans in the U.N. system. Following the Fourth World Conference on Women in September 1995, the U.N. Secretary-General established a goal that the United Nations will strive to achieve 50-percent representation of women in its workforce by 2000. The United Nations has since determined that this target will not be met until 2012. In accordance with this goal, some U.N. organizations have similarly adopted policies to reach specific gender balance targets. For example, in 1997, WHO established a target of 50-percent employment of women on its staff. UNDP expects that by the end of this year, the gender ratio for senior management positions at headquarters will be at least 4 women to 6 men, and that 38 percent of resident representative positions and 40 percent of the deputy resident representative positions will be occupied by women. In its written personnel policies, UNHCR aims to ensure that women constitute two-thirds of recruits until equal representation of women is achieved. Several U.N. officials with whom we met noted that the United States may have an advantage in recruiting qualified women candidates. State officials acknowledged that, to the extent possible, the State Department tries to make qualified American women aware of U.N. vacancies and assists in forwarding their applications. All of the U.N. entities we examined follow the U.N. Common System of Salaries, Allowances, and Benefits established by the International Civil Service Commission (ICSC). Salaries and benefits are based on the application of the Noblemaire principle, which states that compensation be set on the basis of the highest paid civil service—historically, the United States. The Commission is currently undertaking a major review of the pay and benefits system and is expected to propose recommendations to the General Assembly in 2002. According to ICSC documents and Commission officials with whom we met, the objective of the review is to devise a compensation system, more flexible than the current one, that will, among others, (1) enable U.N. organizations to attract and retain highly qualified staff, including senior management personnel and professional and technical staff that are in short supply, and (2) provide staff with career progression opportunities. U.N. officials and many of the American citizens with whom we met suggested that certain studies have shown that the United States civil service may no longer be the highest paid civil service. A 1995 study of the ICSC reported that the compensation package for the German civil service was 15.2 percent higher than the U.S. civil service—primarily because, although U.S. salaries were generally higher, German compensation was superior in terms of retirement and health insurance, leave, and other benefits. However, ICSC officials told us that Germany’s standing has since slipped due to significant budgetary obligations facing the government, and the Commission will be scheduling the next Noblemaire study shortly. Although noncompetitive compensation was a common concern among American employees, there were other compensation issues raised by certain groups. For example, Americans who were transferred or detailed to U.N. agencies expressed concerns about pension and related benefits. They believed that the U.S. government could be more supportive of those who accept a detail or transfer to an international organization by allowing them to continue as active members of the Thrift Savings Plan for U.S. federal employees, thereby allowing them to continue making regular payments and choosing their own investment options. American employees in New York called for extending education grant benefits to U.S. professional staff at U.N. headquarters and proposed several methods to do so without costing the organization more money. These employees argued that the system—originally designed to provide equality for staff serving at foreign duty stations away from their home countries—has evolved into one that discriminates against professional staff at headquarters by virtue of their nationality. Because of the rise in dual income families and dual career couples, employment opportunities for spouses are an important factor in recruiting and retaining staff, according to U.N. documents and many people with whom we met. In the last several years, a number of organizations, including ILO, UNDP, and WFP, have taken steps to address the issue of spousal employment, including adopting policies and programs to facilitate employment of spouses. This issue appeared to be of particular concern to American citizens employed at FAO in Rome because, unlike the other U.N. organizations we examined—including WFP, which also is in Rome—FAO still prohibits spouses from employment within the organization. According to American staff with whom we met, while the association of professional staff at FAO favors spousal employment, the issue has been extremely contentious because the union for the general services staff strongly opposes allowing spousal employment. General service staff are concerned that their positions, which include secretaries and file clerks, would be taken by spouses. Thus, FAO management has not made the policy changes for spousal employment that other U.N. organizations have. To ensure the international character of U.N. organizations, fluency in a second U.N.-designated language is typically a requirement for employment. Many view this requirement as an obstacle for Americans and certain other nationals who are less likely than the French, Canadians, and others to be multilingual. However, human resources directors told us that waivers may be granted for candidates viewed to be best qualified in all areas except for the second language requirement. American citizens employed in the United Nations had mixed reactions regarding the need for a second language. Along with some U.N. officials, many of the American citizens with whom we spoke told us that English is the language commonly used within agencies and that at certain locations, such as Geneva, one can get by without fluency in a second language such as French. Although the requirement for a second language may be waived, this practice is not widely known; therefore, it is unclear how many Americans interested in U.N. employment choose not to even apply because they do not meet the requirement. Many of the American citizens with whom we spoke expressed the need to advance reforms that promote greater transparency and accountability in the human resource management practices of U.N. agencies. While citing some progress in recent years, American staff characterized the organizational culture within several of the agencies to be “very bureaucratic,” “highly centralized,” and “authoritarian.” According to these staff, this organizational attitude can lead to a high level of frustration among Americans, who are accustomed to greater organizational efficiency and more participatory management styles. A particular problem mentioned by some Americans we interviewed was the need to expedite the lengthy recruitment and selection process, which can take as long as 1 year. Recognizing this impediment, several human resources directors told us they are taking steps to streamline the recruitment process. For example, at FAO and WFP, officials claimed they cut the recruitment time for professional positions by half in the last few years—reducing it from 1 year to 6 months for FAO and from 8 to 10 months to 4 to 5 months for WFP. The methodology section describes the data used in our analysis and highlights some of the methodological issues and approaches that we use. It also includes a discussion of the use of a base number by some U.N. organizations to calculate a country's representation target range and possible implications. Most U.N. organizations included in our study provided the annual total number of geographic staff positions filled for the organization and for selected countries for 1992 to 2000. Annual financial country assessments or contributions and the organization’s regular budget were also supplied. Information was provided for the United States, Canada, Japan, and each of the 15 member countries of the European Union. The four organizations that have formal geographic equitable staff representation targets–the U.N. Secretariat, FAO, ILO, and WHO–provided these annual targets. Employment data generally refer to the end of the calendar year, except for the Secretariat, which was for June 30. Four organizations provided annual data on the number of geographic staff employed by grade level for the organization as a whole and for the selected nationalities for the 9-year period. ILO and UNDP provided these data for 1995 to 2000 and WFP for 1996 to 2000. To facilitate comparisons across time and across countries, financial assessments/contributions, equitable representation targets, and grade level staff are expressed as percentages. For example, the high and low equitable representation target staff numbers for each country are divided by the respective organization's total number of geographic staff used in the calculation of these targets. For the Secretariat and WHO, this is a specified base number, which includes actual filled positions and vacancies. For ILO, it is the number of filled positions. FAO provides its targets as a position-weighted percentage. In order to compare a country's actual employment to the target range, the total number of national staff employed is divided by the organization's total number that was used to calculate the annual targets. For organizations that do not have formal targets–UNDP, UNHCR, and WFP–the organization's total number of filled international professional positions is used. For the figures in appendixes II and IV, grade level employment percentages are presented as 3-year averages for the non-overlapping periods of 1992 to 1994, 1995 to 1997, and 1998 to 2000. Only 5 years of grade level data are available for WFP, 1996 to 2000. For this organization, the black bar in the figures describing country representation is a 2-year average, 1996 to 1997. The numbers in the 1998 to 2000 bars are the 3-year average of the number of nationals employed at the respective U.N. organization for the designated grade levels during 1998 to 2000. The sum of grade level employment numbers may not equal the total number due to rounding. The line that represents a country’s financial assessment or contribution percentage share is a 3-year average for 1998 to 2000. Similarly, the target range is a 3-year average for 1998 to 2000. To calculate the grade level representation percentage, a country’s grade level employment is divided by the organization’s total employment for the corresponding grade level. For the Secretariat and WHO, the organization’s grade level employment number is scaled up by the ratio of base number employment to actual total employment for each year. Thus, grade level employment percentages are constructed in a comparable fashion to actual total representation percentages and target range percentages. We compared U.S. representation in senior-level and policymaking positions with those of four major contributors—Japan, Germany, France, and the United Kingdom. For the period of 1998 to 2000, we calculate the average ratio of each country's percentage representation of these high- level positions to the country's annual average assessment at the four U.N. organizations with formal geographic targets. The resulting number can be interpreted as the country's percentage representation at senior-level and policymaking positions per 1 percent of its assessment. For illustrative purposes, consider table 10 in appendix II describing representation at senior-level and policymaking positions at FAO. U.S. representation in these high-level positions is 9.4 percent, and its average assessment is 25 percent. Dividing 9.4 by 25 results in 0.38 percent, the U.S. representation of high-level positions per 1 percent of U.S. assessment. In a similar fashion, 0.14 percent is the Japanese representation per 1 percent of its assessment, and 1.48 percent is the French representation per 1 percent of its assessment. The average representation for the four selected countries is 0.76 percent per 1-percent assessment. In table 4, in the report we multiplied this four-country average representation by the U.S. assessment to derive a hypothetical comparative representation level, under the assumption that U.S. representation in senior-level and policymaking positions was proportionate to the average of these four major contributors. For example, if the United States, given its 25-percent assessment at FAO, were to have representation proportionate to the 0.76 average ratio for the four selected countries, then its representation would be 19.1 percent. To describe U.S. representation over time, both the actual number and relative number of American staff in each organization are presented. For example, see figures 4 and 5 in appendix II, which describe U.S. representation at the U.N. Secretariat. A relative number, a ratio of the number of total country staff employed expressed as a percentage of the organization's total staff, allows the reader to examine the change in country staff size over time while taking into consideration the change in the total organization staff size. However, because of different means of measuring an organization's total staff size, care should be taken when interpreting this information. For U.N. organizations that use a base number rather than the actual number of filled staff positions, there may be a significant difference in national representation trends and the trend of total national employment as a percentage of total actual organization employment. In some situations, as described below for WHO, one trend may be positive and the other negative. For example, annual U.S. representation at WHO during 1998 to 2000 can be interpreted as follows: As shown in figure 10 in appendix II, the gap between U.S. employment and the lower target range, which is calculated using a base number, is narrowing which indicates an improvement in U.S. representation. During this period, U.S. employment grew at an annual rate of 1.8 percent, while the WHO employment base number remained constant at 1,450. Thus, U.S. representation increased relative to its target range. However, during this period total actual employment at WHO grew at an annual rate of 2.9 percent. Employment of non-Americans increased at a faster rate than for Americans. The percentage of Americans actually employed declined. However, based on the representation methodology employed by WHO, U.S. representation is shown as increasing. The criteria to judge whether a country is underrepresented, overrepresented, or equitably represented at an organization are to compare the actual number of nationals employed to the target range numbers. That is the approach used for organizations with formal targets in the first of each U.N. organization’s figures for U.S. representation in appendix II. The second figure for each organization in appendix II and all of the figures in appendix IV use a percentage measure to compare actual country employment with representation targets. Except for FAO, which uses a position-weighted percentage to calculate target ranges and actual representation, our percentage approach is not the official method used by the U.N. organizations. Our approach enables one to compare a country’s total employment as well as grade level employment with representation target ranges. The use of a base number rather than actual employment figures to calculate target ranges tends to reduce the number of countries that are classified as overrepresented. The base number includes actual filled positions and vacancies. Since the annual base numbers for the Secretariat and WHO are greater than each organization’s respective actual number employed, the upper target figure is larger than would be derived if the actual employment number were used in the target range formula. For example, the Secretariat’s target range for the United States in 2000 is 424 to 314 when a base number employment figure of 2,600 is used. If the actual employment number of 2,389 were to have been used in the target range formula, the target range would have been 390 to 289. In this case, the United States still would have been equitably represented. However, if actual employment numbers had been used in the target range formula, Canada and the United Kingdom would have been classified as overrepresented. The larger, upper target may partially explain why the Secretariat and WHO have fewer overrepresented countries than FAO or ILO (see apps. III and V). The following are GAO's comments on the Department of State's letter dated July 19, 2001. 1. While State commented that it places a high priority on efforts to ensure the United States is represented, at all levels, in U.N. organizations, we found that its actions to achieve equitable representation do not reflect this stated priority. For example, as discussed in this report, State has reduced many of its recruitment efforts without assessing how these reductions will affect recruitment and does not have recruiting or action plans in place to support U.N. employment of Americans. 2. State disagreed with our recommendation to develop guidelines that define its goal for obtaining an equitable share of senior-level and policymaking positions for Americans and use these guidelines to help assess whether the United States is equitably represented. State said it should not develop separate guidelines for defining its goal of obtaining an equitable share of Americans in these high-level positions but rather that it should focus on equitable representation at all levels. While we agree that State should be concerned about achieving equitable employment for Americans at all levels in U.N. organizations, we believe it is important to emphasize achieving an equitable share of high-level positions. We further believe that without guidelines defining equitable share, State lacks a mechanism for assessing whether its top recruitment priority—equitable representation of Americans in high-level positions—is being achieved. In addition to the person named above, Joy Labez, Jeremy Latimer, Bruce Kutnick, Janey Cohen, Mark Speight, Mary Moutsos, and Rick Barrett made key contributions to this report. The first copy of each GAO report is free. Additional copies of reports are $2 each. A check or money order should be made out to the Superintendent of Documents. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Orders by visiting: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders by phone: (202) 512-6000 fax: (202) 512-6061 TDD (202) 512-2537 Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. 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The United Nations (U.N.) and its affiliated entities face the dual challenge of attracting and retaining staff who meet the highest standards of efficiency, competence, and integrity while maintaining the international character of the organizations by ensuring equitable geographic balance in the workforce. Nevertheless, U.N. organizations have made slow progress in addressing U.S. concerns about underrepresentation, and, except for the U.N. secretariat in New York, the organizations with representation targets that GAO studied have not achieved equitable employment of Americans since 1992. Although the U.N. organizations are ultimately responsible for achieving fair geographic balance among its member countries, the State Department, in coordination with other U.S. agencies, plays a role in ensuring that the United States is fairly represented. U.N. organizations have not fully developed long-range workforce planning strategies, and neither State nor the U.N. agencies have formal recruiting and hiring action plans to improve U.S. representation in the U.N. system. Without these measures, the United States' ability to even maintain the number of Americans employed in the United Nations could be hampered.

You are an expert at summarizing long articles. Proceed to summarize the following text: Our review of the pilot test identified several challenges related to pilot planning, data collection, and reporting, which affected the completeness, accuracy, and reliability of the results. DHS did not correct planning shortfalls that we identified in our November 2009 report. We determined that these weaknesses presented a challenge in ensuring that the pilot would yield information needed to inform Congress and the card reader rule and recommended that DHS components implementing the pilot—TSA and USCG—develop an evaluation plan to guide the remainder of the pilot and identify how it would compensate for areas where the TWIC reader pilot would not provide the information needed. DHS agreed with the recommendations; however, while TSA developed a data analysis plan, TSA and USCG reported that they did not develop an evaluation plan with an evaluation methodology or performance standards, as we recommended. The data analysis plan was a positive step because it identified specific data elements to be captured from the pilot for comparison across pilot sites. If accurate data had been collected, adherence to the data analysis plan could have helped yield valid results. However, TSA and the independent did not utilize the data analysis plan. According to officials test agentfrom the independent test agent, they started to use the data analysis plan but stopped using the plan because they were experiencing difficulty in collecting the required data and TSA directed them to change the reporting approach. TSA officials stated that they directed the independent test agent to change its collection and reporting approach because of TSA’s inability to require or control data collection to the extent required to execute the plan. We identified eight areas where TWIC reader pilot data collection, supporting documentation, and recording weaknesses affected the completeness, accuracy, and reliability of the pilot data 1. Installed TWIC readers and access control systems could not collect required data on TWIC reader use, and TSA and the independent test agent did not employ effective compensating data collection measures. The TWIC reader pilot test and evaluation master plan recognizes that in some cases, readers or related access control systems at pilot sites may not collect the required test data, potentially requiring additional resources, such as on-site personnel, to monitor and log TWIC card reader use issues. Moreover, such instances were to be addressed as part of the test planning. However, the independent test agent reported challenges in sufficiently documenting reader and system errors. For example, the independent test agent reported that the logs from the TWIC readers and related access control systems were not detailed enough to determine the reason for errors, such as biometric match failure, an expired TWIC card, or that the TWIC was identified as being on the list of revoked credentials. The independent test agent further reported that the inability to determine the reason for errors limited its ability to understand why readers were failing, and thus it was unable to determine whether errors encountered were due to TWIC cards, readers, or users, or some combination thereof. 2. Reported transaction data did not match underlying documentation. A total of 34 pilot site reports were issued by the independent test agent. According to TSA, the pilot site reports were used as the basis for DHS’s report to Congress. We separately requested copies of the 34 pilot site reports from both TSA and the independent test agent. In comparing the reports provided, we found that 31 of the 34 pilot site reports provided to us by TSA did not contain the same information as those provided by the independent test agent. Differences for 27 of the 31 pilot site reports pertained to how pilot site data were characterized, such as the baseline throughput time used to compare against throughput times observed during two phases of testing. However, at two pilot sites, Brownsville and Staten Island Ferry, transaction data reported by the independent test agent did not match the data included in TSA’s reports. Moreover, data in the pilot site reports did not always match data collected by the independent test agent during the pilot. 3. Pilot documentation did not contain complete TWIC reader and access control system characteristics. Pilot documentation did not always identify which TWIC readers or which interface (e.g., contact or contactless interface) the reader used to communicate with the TWIC card during data collection.different readers were tested. However, the pilot site report did not identify which data were collected using which reader. For example, at one pilot site, two 4. TSA and the independent test agent did not record clear baseline data for comparing operational performance at access points with TWIC readers. Baseline data, which were to be collected prior to piloting the use of TWIC with readers, were to be a measure of throughput time, that is, the time required to inspect a TWIC card and complete access-related processes prior to granting entry. However, it is unclear from the documentation whether acquired data were sufficient to reliably identify throughput times at truck, other vehicle, and pedestrian access points, which may vary. 5. TSA and the independent test agent did not collect complete data on malfunctioning TWIC cards. TSA officials observed malfunctioning TWIC cards during the pilot, largely because of broken antennas. If a TWIC with a broken antenna was presented for a contactless read, the reader would not identify that a TWIC had been presented, as the broken antenna would not communicate TWIC information to a contactless reader. In such instances, the reader would not log that an access attempt had been made and failed. 6. Pilot participants did not document instances of denied access. Incomplete data resulted from challenges documenting how to manage individuals with a denied TWIC across pilot sites. Specifically, TSA and the independent test agent did not require pilot participants to document when individuals were granted access based on a visual inspection of the TWIC, or deny the individual access as may be required under future regulation. This is contrary to the TWIC reader pilot test and evaluation master plan, which calls for documenting the number of entrants “rejected” with the TWIC card reader system operational as part of assessing the economic impact. Without such documentation, the pilot sites were not completely measuring the operational impact of using TWIC with readers. 7. TSA and the independent test agent did not collect consistent data on the operational impact of using TWIC cards with readers. TWIC reader pilot testing scenarios included having each individual present his or her TWIC for verification; however, it is unclear whether this actually occurred in practice. For example, at one pilot site, officials noted that during testing, approximately 1 in 10 individuals was required to have his or her TWIC checked while entering the facility because of concerns about causing a traffic backup. Despite noted deviations in test protocols, the reports for these pilot sites do not note that these deviations occurred. Noting deviations in each pilot site report would have provided important perspective by identifying the limitations of the data collected at the pilot site and providing context when comparing the pilot site data with data from other pilot sites. 8. Pilot site records did not contain complete information about installed TWIC readers’ and access control systems’ design. TSA and the independent test agent tested the TWIC readers at each pilot site to ensure they worked before individuals began presenting their TWIC cards to the readers during the pilot. However, the data gathered during the testing were incomplete. For example, 10 of 15 sites tested readers for which no record of system design characteristics were recorded. In addition, pilot reader information was identified for 4 pilot sites but did not identify the specific readers or associated software tested. According to TSA, a variety of challenges prevented TSA and the independent test agent from collecting pilot data in a complete and consistent fashion. Among the challenges noted by TSA, (1) pilot participation was voluntary, which allowed pilot sites to stop participation at any time or not adhere to established testing and data collection protocols; (2) the independent test agent did not correctly and completely collect and record pilot data; (3) systems in place during the pilot did not record all required data, including information on failed TWIC card reads and the reasons for the failure; and (4) prior to pilot testing, officials did not expect to confront problems with nonfunctioning TWIC cards. Additionally, TSA noted that it lacked the authority to compel pilot sites to collect data in a way that would have been in compliance with federal standards. In addition to these challenges, the independent test agent identified the lack of a database to track and analyze all pilot data in a consistent manner as an additional challenge to data collection and reporting. The independent test agent, however, noted that all data collection plans and resulting data representation were ultimately approved by TSA and USCG. As required by the SAFE Port Act and the Coast Guard Authorization Act of 2010, DHS’s report to Congress on the TWIC reader pilot presented several findings with respect to technical and operational aspects of implementing TWIC technologies in the maritime environment. However, DHS’s reported findings were not always supported by the pilot data, or were based on incomplete or unreliable data, thus limiting the report’s usefulness in informing Congress about the results of the TWIC reader pilot. For example, reported entry times into facilities were not based on data collected at pilot sites as intended. Further, the report concluded that TWIC cards and readers provide a critical layer of port security, but data were not collected to support this conclusion. Because of the number of concerns that we identified with the TWIC pilot, in our March 13, 2013, draft report to DHS, we recommended that DHS not use the pilot data to inform the upcoming TWIC card reader rule. However, after receiving the draft that we sent to DHS for comment, on March 22, 2013, USCG published the TWIC card reader notice of proposed rulemaking (NPRM), which included results from the TWIC card reader pilot. We subsequently removed the recommendation from our final report, given that USCG had moved forward with issuing the NPRM and had incorporated the pilot results into the proposed rulemaking. In its official comments on our report, DHS asserted that some of the perceived data anomalies we cited were not significant to the conclusions TSA reached during the pilot and that the pilot report was only one of multiple sources of information available to USCG in drafting the TWIC reader NPRM. We recognize that USCG had multiple sources of information available to it when drafting the proposed rule; however, the pilot was used as an important basis for informing the development of the NPRM, and the issues and concerns that we identified remain valid. Given that the results of the pilot are unreliable for informing the TWIC card reader rule on the technology and operational impacts of using TWIC cards with readers, we recommended that Congress should consider repealing the requirement that the Secretary of Homeland Security promulgate final regulations that require the deployment of card readers that are consistent with the findings of the pilot program; and that Congress should consider requiring that the Secretary of Homeland Security complete an assessment that evaluates the effectiveness of using TWIC with readers for enhancing port security. This would be consistent with the recommendation that we made in our May 2011report. These results could then be used to promulgate a final regulation as appropriate. Given DHS’s challenges in implementing TWIC over the past decade, at a minimum, the assessment should include a comprehensive comparison of alternative credentialing approaches, which might include a more decentralized approach, for achieving TWIC program goals. Chairman Mica, Ranking Member Connolly, and members of the subcommittee, this concludes my prepared statement. I would be happy to respond to any questions that you may have. For questions about this statement, please contact Steve Lord at (202) 512-4379 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include Dave Bruno, Assistant Director; Joseph P. Cruz; and James Lawson. Key contributors for the previous work that this testimony is based on are listed within each individual product. 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This testimony discusses GAO's work examining the Department of Homeland Security's (DHS) Transportation Worker Identification Credential (TWIC) program. Ports, waterways, and vessels handle billions of dollars in cargo annually, and an attack on our nation's maritime transportation system could have serious consequences. Maritime workers, including longshoremen, mechanics, truck drivers, and merchant mariners, access secure areas of the nation's estimated 16,400 maritime-related transportation facilities and vessels, such as cargo container and cruise ship terminals, each day while performing their jobs. The TWIC program is intended to provide a tamper-resistant biometric credential to maritime workers who require unescorted access to secure areas of facilities and vessels regulated under the Maritime Transportation Security Act of 2002 (MTSA). TWIC is to enhance the ability of MTSA-regulated facility and vessel owners and operators to control access to their facilities and verify workers' identities. Under current statute and regulation, maritime workers requiring unescorted access to secure areas of MTSA-regulated facilities or vessels are required to obtain a TWIC, and facility and vessel operators are required by regulation to visually inspect each worker's TWIC before granting unescorted access. Prior to being granted a TWIC, maritime workers are required to undergo a background check, known as a security threat assessment. This statement today highlights the key findings of a report GAO released yesterday on the TWIC program that addressed the extent to which the results from the TWIC reader pilot were sufficiently complete, accurate, and reliable for informing Congress and the TWIC card reader rule. For the report, among other things, GAO assessed the methods used to collect and analyze pilot data since the inception of the pilot in August 2008. GAO analyzed and compared the pilot data with the TWIC reader pilot report submitted to Congress to determine whether the findings in the report are based on sufficiently complete, accurate, and reliable data. Additionally, we interviewed officials at DHS, TSA, and USCG with responsibilities for overseeing the TWIC program, as well as pilot officials responsible for coordinating pilot efforts with TSA and the independent test agent (responsible for planning, evaluating, and reporting on all test events), about TWIC reader pilot testing approaches, results, and challenges.

You are an expert at summarizing long articles. Proceed to summarize the following text: Breast cancer is the second leading cause of cancer deaths among American women. The American Cancer Society estimates that there will be 184,300 new cases of breast cancer diagnosed in U.S. women in 1996 and that 44,300 women will die from the disease. One in eight women will develop breast cancer during her lifetime. Breast cancer is generally classified into four main stages based on the size of the tumor and the spread of the cancer at the time of diagnosis. Mortality rates are strongly related to the stage of the disease at the time of detection. Stage I patients have an excellent chance of long-term survival, while stage IV (metastatic) breast cancer is usually fatal. A wide variety of treatments exists for breast cancer patients, including surgery, chemotherapy, radiation therapy, and hormone therapy. The particular treatments used depend on the stage and characteristics of the cancer and other aspects of the patient and her health. ABMT is a therapy that allows a patient to receive much higher dosages of chemotherapy than is ordinarily possible. Because high-dose chemotherapy is toxic to the bone marrow (which supports the immune system), methods have been developed for restoring the bone marrow by reinfusing stem cells (the bone marrow cells that mature into blood cells) taken from the patient before chemotherapy. Stem cells are removed from the patient’s blood or bone marrow, then concentrated, frozen, and sometimes purged in an attempt to remove any cancerous cells. The patient then undergoes chemotherapy at dosages 2 to 10 times the standard dosage. To restore the ability to produce normal blood cells and fight infections, the patient’s concentrated stem cells are thawed and reinfused after chemotherapy. When the transplant is done from the blood rather than the bone marrow, the procedure is often referred to as peripheral blood stem cell transplantation. ABMT is an expensive treatment although the cost per patient has been falling in recent years. Aside from financial costs, the treatment is usually very unpleasant for the patient and may pose significant risks. The high doses of chemotherapy are very toxic, leading to treatment-related morbidity and mortality rates that, while declining, are still higher than for conventional chemotherapy. There may also be problems in restoring the patient’s ability to produce normal blood cells and thereby fight infections. ABMT is being evaluated in the treatment of a number of types of cancer other than breast cancer and is considered standard therapy for treating certain types of leukemia and lymphoma under certain conditions. Many clinical trials have been conducted to assess ABMT for breast cancer, but most of these studies have been phase I and phase II trials, which most experts agree have been of limited use in firmly establishing the effectiveness of ABMT compared with conventional therapy. NCI is currently sponsoring three randomized clinical trials that seek to determine whether ABMT is better than current standard therapy in comparable breast cancer patients. These trials seek to ultimately involve a total of about 2,000 women at more than 70 institutions around the country. Although most experts believe the clinical research has not yet established that ABMT is superior to conventional therapy, and for which patients, insurance coverage of the treatment has become relatively common and use of the treatment is diffusing rapidly. According to the Autologous Blood and Marrow Transplant Registry-North America, the number of breast cancer patients receiving ABMT has increased rapidly, growing from an estimated 522 in 1989 to an estimated 4,000 in 1994. About one-third of all ABMTs reported to the Registry in 1992 were for breast cancer, making it the most common cancer being treated with this therapy. The Registry reports that although the treatment is most commonly used in women with advanced disease, there is a growing trend to use it more frequently on patients with earlier stages of breast cancer. There has also been a dramatic increase in the number of patients undergoing this treatment in Europe. Many insurers, including some of the nation’s largest, now routinely cover ABMT for breast cancer both inside and outside of clinical trials, although some still deny coverage for the treatment because they consider it experimental. One study looked at 533 breast cancer patients in clinical trials who requested coverage for ABMT from 1989 through 1992. It found that 77 percent of them received approval for coverage of the treatment after their initial request. We reviewed the current medical literature and spoke with several leading oncologists and technology assessment experts regarding ABMT for breast cancer. While there were differences of opinion, the consensus of most of the experts and the literature was that current data indicate ABMT may be beneficial for some breast cancer patients but that there is not yet enough information to establish that it is more effective than standard chemotherapy. The medical literature includes several studies showing longer periods before relapse and improved survival for some poor prognosis, high-risk breast cancer patients receiving ABMT rather than conventional therapy.However, it is unclear whether the superior outcomes of patients receiving ABMT in these studies were the result of the treatment itself or the result of bias caused by the selection of patients chosen to receive the treatment. Most of the medical literature and nearly all of the experts we spoke with said that the current data are not yet sufficient to make definitive conclusions about the effectiveness of ABMT and about which groups of breast cancer patients would be most likely to benefit. Although there are wide differences of opinion about the appropriate use of ABMT, nearly all sides of the debate agree that the results of randomized clinical trials are needed to provide definitive data on the treatment’s effectiveness. Several studies have reviewed and analyzed the extensive medical literature related to ABMT for breast cancer. In 1995, ECRI, an independent, nonprofit technology assessment organization, published an analysis stating that the weight of the evidence in the medical literature did not indicate greater overall survival for metastatic breast cancer patients receiving ABMT compared with conventional therapy. The Blue Cross and Blue Shield Association’s Technology Evaluation Center, after reviewing the available data in 1994, concluded that the evidence was not yet sufficient to draw conclusions about the effectiveness of ABMT compared with conventional therapy for breast cancer patients. Similarly, NCI, at a congressional hearing, said that while ABMT has shown promise in some clinical studies, the results of the NCI randomized clinical trials were needed before conclusions could be reached about whether and for whom the treatment is more beneficial than conventional therapy. We interviewed the medical director, or another official who makes coverage decisions, at 12 U.S. health insurance companies. We discussed the insurer’s coverage policies and the factors that influenced their coverage policy with regard to ABMT for breast cancer. The insurers’ coverage policies regarding ABMT for breast cancer reflected some incongruity. In general, the insurers said they did not normally cover experimental or unproven treatments and that they believed ABMT for breast cancer fell into this category. Yet, with some restrictions, all 12 insurers nonetheless covered ABMT for breast cancer with only one requiring that patients enroll in clinical trials. In explaining this, most cited as the primary influence the fact that although until recently the treatment had not been tested in randomized trials, it has become widely used and that the existing research suggests it may be beneficial to certain patients. But insurers told us that a variety of nonclinical factors also strongly influenced their coverage policy, such as the threat of litigation, public relations concerns, and government mandates. All health insurers must decide whether and when they will cover a new or experimental treatment. To do this, they engage in some form of technology assessment, a process that seeks to assess the safety and effectiveness of a medical technology based on the best available information. For the most part, health insurers do not gather primary data but, rather, rely heavily on peer-reviewed medical literature and on the assessment of experts inside and outside of their companies. Some large health insurers have elaborate technology assessment units. One example is the Technology Evaluation Center, a collaboration of the Blue Cross and Blue Shield Association and Kaiser Permanente. The Center’s staff includes physicians, research scientists, and other experts who review and synthesize existing scientific evidence to assess the safety and efficacy of specific medical technologies. The Center has published assessments for over 200 technologies since 1985, including several for ABMT for breast cancer. Other large insurers, including Aetna and Prudential, also have special programs that do formal assessments of specific technologies. Smaller insurers also do technology assessment, but on a smaller scale; for instance, they may have a small office that does literature searches or reviews the findings of larger technology assessment organizations. Using their assessments, insurers then decide whether they will cover a particular treatment and under what conditions. Whatever the overall policy, coverage of costly and complicated procedures may require special preapproval before they are covered. Among the insurers we spoke with, preapproval for ABMT was generally required by the office of the medical director or some other office that reviews claims for medical appropriateness. They said they wanted to ensure that a case meets any coverage restrictions and that ABMT is medically appropriate for that particular patient. For certain difficult cases, some insurers also use an outside panel of experts, serving as a mediation service, to determine whether ABMT is the appropriate treatment. Seven of the 12 insurers we spoke with explicitly characterized ABMT for breast cancer as experimental. Four others did not specifically term the treatment “experimental” but nonetheless said that ABMT for breast cancer should not yet be considered standard therapy since its effectiveness over conventional therapy had not yet been proven. One insurer did not express an opinion on the issue. Yet while the insurers said they typically do not cover experimental therapies, many said that in this case there was enough preliminary evidence that ABMT may be effective to justify covering it. Seven of the 12 insurers cited the clinical evidence as one of the primary reasons that they decided to cover ABMT. These insurers said that the existing data indicate that ABMT may hold promise for certain breast cancer patients and that flexibility was needed in paying for experimental treatments for seriously or terminally ill patients. Two insurers also said that they cover ABMT for breast cancer since, although its efficacy has not been established, it has become generally accepted medical practice in that it has become a common treatment for breast cancer throughout the United States and is covered by many other insurers. They said they would receive pressure from their beneficiaries if they were to deny coverage for a treatment that other insurers cover. While the medical evidence was an important factor in the coverage policy of a majority of the insurers, other factors were also clearly at work, with the threat of litigation being among the most important. When an insurer refuses to pay for a treatment requested by the patient or the patient’s physician, coverage may ultimately be decided in the court system. Over the past several years, many breast cancer patients have sued their insurers after being denied coverage for ABMT. Nine of the 12 insurers that we spoke with specifically mentioned litigation, or the threat of litigation, as a factor in their ABMT coverage policy. For five of these insurers, legal concerns were characterized as among the most important reasons for choosing to cover ABMT for breast cancer. Before changing their policies to cover ABMT for breast cancer, six of the insurers we spoke with had been sued after denying coverage for the treatment. Overall, the insurers had not been very successful in these cases and had often either settled before judgment was rendered or had a judgment rendered against them. The insurers who had been sued on the issue said the financial costs of legal fees, settlements, and damages were high. For the most part, the insurers said they found different courts to be widely inconsistent in ruling whether ABMT is experimental and should be covered, a point also made in reviews of case law on the issue. In addition to the financial costs, insurers said the lawsuits were harmful to their public relations. Publicity of their coverage policy led to the impression that they were denying a gravely ill patient a beneficial therapy for economic reasons. The insurers we spoke with no longer face many lawsuits on the issue since they now generally cover ABMT. Court decisions on health insurance coverage disputes have usually turned on the language of the insurance contracts, which generally bar coverage for experimental treatments but are often ambiguous with regard to what is defined as “experimental.” A recent review of such litigation noted that state courts have tended to favor policyholders in these coverage disputes, although federal courts, where disputes for self-insured companies are often decided, have been split on whether insurers must cover ABMT for breast cancer. The courts, in ruling whether an insurer must provide coverage for ABMT for breast cancer, have based their decisions on a number of factors. These have included whether ABMT is generally accepted in the medical community for the treatment of breast cancer, whether “experimental treatment” is defined clearly in the insurance policy, whether the treatment was intended primarily to benefit the patient or to further medical research, and whether the insurer’s denial of coverage was influenced by its own economic self-interest. This last argument was the focus of Fox v. Health Net of California, a highly publicized case in which a California jury awarded $89 million in damages to a policyholder whose deceased wife had been denied coverage of ABMT for breast cancer.Plaintiffs in a number of recent cases have alleged that denial of coverage for ABMT constitutes discrimination against women in violation of civil rights laws or discrimination against a specific disease in violation of the Americans With Disabilities Act. Most of these cases are still pending. Insurers have had some success in court as well. Some state courts have ruled that ABMT is still widely considered to be experimental and that the health insurance contract clearly precluded coverage of experimental treatments. Courts in at least three federal circuits have also upheld insurers’ coverage denials for ABMT to treat breast cancer. Courts in many of these cases permitted insurers wide discretion in making coverage decisions as long as the decisions were not arbitrary or capricious. The controversy over access to ABMT for breast cancer patients has led several states to propose or enact legislation regarding insurance coverage of the treatment. As of June 1995, at least seven states had enacted legislation that, under certain parameters, requires that insurers provide coverage for ABMT for breast cancer. At least seven additional states have similar legislation pending. Some of these laws are mandates requiring that coverage of ABMT for breast cancer be part of any basic package of health insurance. Other laws simply require that the treatment be made available as a coverage option, at perhaps a higher premium. The laws in six of the states require coverage whether or not the patient is enrolled in a clinical trial, while one state requires patients with certain types of breast cancer to join well-designed randomized or nonrandomized trials. Three of the 12 insurers we spoke with said they were required by a state mandate to cover ABMT for breast cancer for most of their beneficiaries. One of these three said it would not cover the treatment if it were not for the mandate. Those who advocate passage of the state laws argue that they are necessary to make a promising therapy available to breast cancer patients. Among the arguments used is that insurers classified ABMT for breast cancer as “experimental” as much for economic as medical reasons because ABMT is an expensive treatment. Insurers respond that ABMT for breast cancer is an experimental treatment still being evaluated in clinical trials and they should not be in the business of paying for research. Furthermore, insurers say that legislation mandating coverage of specific treatments is a poor way to make medical policy and that it distorts the market because self-funded plans are exempt from state mandates. The National Association of Insurance Commissioners (NAIC) is considering a model act for states that would set minimum standards of coverage for health insurers. The model act, which has not yet been approved by the full NAIC membership, would require insurers to cover an experimental treatment if the peer-reviewed medical literature has established that the treatment is an effective alternative to conventional treatment. A representative from NAIC told us that in a state that passed such an act, insurers would normally be required to cover ABMT for breast cancer if the treating physician considered it the medically appropriate treatment. Programs such as Medicaid, Medicare, and the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) have varying policies regarding coverage of ABMT for breast cancer. Coverage criteria for Medicaid, a jointly financed federal and state program that provides medical care to the poor, varies by state, but some states’ Medicaid programs will cover ABMT for breast cancer under at least some circumstances. Of nine state Medicaid programs we contacted, five provided coverage for ABMT for breast cancer. The Medicare program, which provides health coverage primarily for the elderly, specifically excludes ABMT coverage for solid tumors such as breast cancer because the Health Care Financing Administration, which administers the Medicare program, considers the treatment experimental. The practical impact of the Medicare policy is limited since the elderly are not normally appropriate candidates for ABMT treatment. CHAMPUS, the Department of Defense’s health care program for active duty and retired military personnel, and their dependents and survivors, considers ABMT for breast cancer experimental but provides coverage through a demonstration project in which beneficiaries may receive ABMT by enrolling in one of three NCI randomized clinical trials. The Federal Employees Health Benefits Program (FEHBP), run by OPM, provides health insurance coverage for over 9 million federal employees, retirees, and dependents through over 300 independent health plans. In September 1994, OPM imposed a requirement that participating health insurers must cover ABMT for breast cancer for all FEHBP beneficiaries both in and outside of clinical trials. OPM acknowledged to us that the evidence is mixed on the effectiveness of ABMT for breast cancer. They said they decided to mandate coverage largely because so many insurers were already covering the procedure and they wanted to make the benefit uniform across all of their carriers. Insurers we spoke with said they complied with the OPM mandate, although they criticized the mandate as a political rather than clinical decision. Two of the 12 insurers we spoke with specifically mentioned the OPM decision as having influenced their own coverage policy, largely because it brought so much publicity to the issue. Medical experts, insurers, and others have debated whether ABMT has become too widely used before there is convincing evidence of its efficacy. While the medical community seeks to learn whether ABMT is more effective for some breast cancer patients than conventional chemotherapy, the number of patients receiving the treatment and the number of facilities providing it continue to grow. If ABMT were a new drug, it would be restricted mostly to patients on clinical trials until its efficacy were established and the Food and Drug Administration (FDA) had approved its use in general medical practice. Yet because ABMT is a procedure, rather than a drug, it does not require approval from FDA, making it easier for it to be widely used while its effectiveness is still being tested in clinical trials. The rapid diffusion of ABMT for breast cancer has implications for patient care, health care costs, and research. There is debate over whether patients benefit from the rapid diffusion of a new technology that is still being tested in clinical trials. In the case of ABMT, the high doses of chemotherapy administered in conjunction with the treatment can make it a particularly difficult treatment for patients. This is evidenced both by the extreme sickness and side effects that patients may experience and by the higher rate of treatment mortality for ABMT than for conventional chemotherapy. If the clinical research ultimately shows ABMT to be preferable than conventional therapy for some groups of patients, then some of those patients will have benefited from the early diffusion of this technology. If it is shown not to be more effective, however, or if it is shown to be effective for a much smaller subset of patients than are currently being treated with the therapy, then many patients will have been unnecessarily subjected to an aggressive treatment that can be risky and produce many severe side effects. In addition, while ABMT formerly was available only at a select number of cancer research centers across the country, it is now being performed by a rapidly growing number of smaller hospitals and bone marrow transplant centers. Many physicians we talked with, including researchers and insurance company medical directors, expressed concerns that there may be some facilities that perform too few transplants to ensure sufficient staff expertise or that do not have the infrastructure needed to support this complicated procedure. Partly to address these concerns, several medical societies have developed guidelines that set out specific criteria for facilities that perform bone marrow transplants. ABMT is an expensive treatment, costing anywhere from $80,000 to over $150,000 per treatment, depending on the drugs used, any medical complications, and the length of hospital stay required. Conventional chemotherapy, by contrast, typically costs between about $15,000 and $40,000. The cost of ABMT has been decreasing over the years and is expected to decrease further as the technology is refined and becomes more common. Some medical centers have already been able to reduce the cost of the procedure by offering the treatment on more of an outpatient basis. While the cost per individual treatment is likely to decrease, total spending nationwide on the procedure is likely to increase. More patients in different stages of breast cancer are being treated with ABMT, a trend that is expected to continue. The fact that ABMT can be a highly profitable procedure for the institution that performs it, many experts say, has created further incentive for the diffusion of the treatment. Virtually all sides of the debate agree that ABMT is worth the cost if it is shown to be the best available treatment. But some worry that the research has not yet established which breast cancer patients, if any, are likely to benefit from ABMT and that the rapid diffusion of this costly treatment outside of research settings before its effectiveness has been proven may not be the best use of health care resources. There is clear consensus among the scientific community that, if possible, the best way to compare the effectiveness of a new treatment with conventional treatment is through randomized clinical trials. A randomized trial assigns patients either to a control group receiving conventional treatment or to one or more experimental groups receiving the treatment being tested. Random allocation helps ensure that differences in the outcome of the groups can be attributed to differences in the treatment and not differences in patient characteristics. In the case of ABMT, some experts have argued that early research showing favorable results for ABMT may have been due to the fact that the breast cancer patients receiving ABMT had more favorable characteristics than those who were not receiving the treatment. NCI has three large-scale randomized clinical trials ongoing to compare ABMT with conventional therapy for breast cancer. These trials randomly assign patients who fit certain criteria either to an experimental group that receives ABMT or to a control group that instead receives a more conventional form of therapy. NCI has had difficulty accruing enough patients to its randomized trials. Two of the three ongoing NCI trials are accruing patients at about half the rate researchers originally anticipated, and a fourth trial was closed because of low enrollment. NCI expanded the enrollment goal of the third trial to improve the statistical power of the results, and results from all three trials are not expected until nearly the turn of the century. NCI says patient accrual to the trials, although slow, appears to be progressing adequately, but many experts we spoke with questioned whether the NCI trials will ever be completed as planned. Many medical experts believe that the wide availability of the treatment is one reason researchers are having problems accruing patients to the randomized trials. ABMT is now widely available to many breast cancer patients either through other clinical trials or outside of a research trial. Under most circumstances, insurers that cover ABMT do not require that the patient enter a randomized trial, and many patients are reluctant to do so. Patients who believe ABMT is their best hope for survival may not be willing to enter a trial where they may be randomly assigned to a group receiving conventional chemotherapy. The ABMT Registry estimates that only about 5 percent of all breast cancer patients receiving ABMT are enrolled in the randomized clinical trials. Proponents of ABMT that we spoke with pointed out that most procedures in common medical practice today have not been subjected to the strict scrutiny of randomized trials and that this potentially lifesaving therapy should not be withheld until the NCI trials are completed many years from now. Other medical experts, insurers, and patient advocates we spoke with said that ABMT for breast cancer should only be available to patients enrolled in clinical trials, possibly only randomized trials. They argued that the proliferation of ABMT outside of randomized trials—or outside of any research setting at all—is making it difficult to gather the data necessary to assess whether and for whom ABMT may be a beneficial treatment. A large number of clinical trials are being conducted on ABMT for breast cancer apart from the NCI randomized trials. Many major cancer research centers are conducting nonrandomized trials, and numerous clinical trials are also under way at smaller hospitals and private transplant centers. Yet some experts have argued that many of these trials will contribute little useful information because the study population is too small, the trial is not sufficiently well-designed, or because the results will not be published. These experts are concerned that the proliferation of smaller clinical trials may be diverting patients from larger clinical trials, including the NCI randomized clinical trials, that are more likely to yield meaningful results about the effectiveness of ABMT for breast cancer. The controversy over ABMT has also highlighted the issue of the extent to which health insurers should pay for the costs of clinical research. Clinical research in the United States has been financed primarily by the federal government, private research institutions, the pharmaceutical industry, and insurers. Insurers have often paid the patient care costs for certain clinical trials. But given federal funding constraints and other economic pressures, many researchers and other experts we spoke with believe that health insurers should assume the costs of more clinical trials, especially the patient care costs of well-designed trials that offer promising treatments in an advanced stage of testing. They say the insurers would have to pay for patient care costs even if the patient were not in a trial and that the trials will ultimately benefit everyone by helping identify effective treatments. The insurance industry’s position has been that insurers should pay only for standard medical care and that insurers should not be in the business of financing research. But insurers have made exceptions, especially for clinical trials involving promising treatments for patients with terminal illnesses. Many insurance industry officials we spoke with said they would be open to paying the costs of some clinical trials for promising treatments, as long as the costs were to be spread equitably among all insurers and health providers, and as long as there were strict standards to ensure that the research being funded was of high quality. The controversy over insurance coverage of ABMT for breast cancer illustrates several issues related to the dissemination and insurance coverage of new technologies. The rapid diffusion of new, often expensive, medical technologies puts in conflict several goals of the U.S. health care system: access to the best available care, the ability to control health care costs, and the ability to conduct research adequate to assess the efficacy of a new treatment. Specifically, the ABMT controversy illustrates the challenge health insurers in the United States face in determining whether and when to provide coverage for a new technology of unknown efficacy, given the decentralized process for assessing new medical technologies. Insurers have less clear direction regarding coverage of medical procedures than they do for drugs because of FDA’s role in drug approval. Insurers thus have wide discretion, and little nationwide guidance, in determining whether and when a medical procedure should no longer be considered “experimental” and should be covered. The result can be great disparity in the coverage policies of insurers, with coverage decisions being influenced not just by the medical data and clinical judgments, but also by factors such as lawsuits and public relations concerns. Furthermore, the lack of a systematic process for the dissemination of new technologies in the United States raises issues for the health care system. Those who advocate widespread access to experimental technologies argue that patients should not be denied access to promising therapies, especially when clinical trials for those therapies may take many years. Those who advocate restricting access to new technologies argue that the rapid diffusion of a new treatment before its effectiveness has been definitively proven is not ultimately beneficial to patient care, may waste resources, and may impede controlled research on the treatment. NIH provided us with comments on a draft of this report. They agreed with the conclusions and stated that the report presented a balanced, thoughtful discussion of the controversial issues. NIH also noted that in the past, many insurers provided coverage only in the context of clinical trials, but this became untenable because of the factors discussed in the report, particularly the OPM decision to require FEHBP coverage of the treatment both inside and outside of clinical trials. NIH also recommended some technical changes, which we incorporated in the report where appropriate. (See app. I for a copy of the NIH comments.) OPM also reviewed the draft report and provided comments regarding the decision to require that all FEHBP health insurance plans provide coverage for ABMT for breast cancer. Their comments reemphasized that (1) many FEHBP plans were already providing this coverage; (2) the OPM decision was based on a desire to broaden coverage to all FEHBP enrollees; and (3) each plan retains the flexibility to determine when and how the treatment will be covered, but plans that limit coverage to patients enrolled in clinical trials have to offer coverage in nonrandomized as well as randomized trials. (See app. II for a copy of OPM’s comments.) As agreed with your office, unless you release its contents earlier, we plan no further distribution of this report for 30 days. At that time, we will send copies to other congressional committees and members with an interest in this matter, the Secretary of Health and Human Services; the Director, NIH; and the Director, OPM. This report was prepared by William Reis, Assistant Director; Joan Mahagan; and Jason Bromberg under the direction of Mark Nadel, Associate Director. Please contact me on (202) 512-7119 or Mr. Reis on (617) 565-7488 if you or your staff have any questions on this report. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. 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Pursuant to a congressional request, GAO reviewed insurance coverage of autologous bone marrow transplantation (ABMT) for breast cancer, focusing on: (1) the factors insurers consider when deciding whether to cover treatment; (2) the effectiveness of the treatment; and (3) the consequences of the increased use and insurance coverage of the treatment while it is still in clinical trials. GAO found that: (1) the use of ABMT has become widespread and many insurers cover ABMT; (2) sufficient data do not exist to establish that ABMT is more effective than traditional chemotherapy; (3) despite the lack of data, many insurers cover ABMT because the research results of its effectiveness are promising, its use is widespread, and they fear costly litigation battles with their customers; (4) as of June 1995, seven states had enacted a law that mandates insurance coverage for ABMT and seven other states have similar laws pending; (5) of the federally funded health insurance programs, Medicaid coverage for ABMT varies by state, Medicare does not cover ABMT for solid tumors such as breast cancer, the Civilian Health and Medical Program of the Uniformed Services covers ABMT through a demonstration project in which beneficiaries may receive the treatment by enrolling in a randomized clinical trial; and (6) the widespread use of ABMT prior to conclusive data about its effectiveness may jeopardize patients unresponsive to the treatment, raise health care costs, and deter participation in randomized clinical trials.

You are an expert at summarizing long articles. Proceed to summarize the following text: EPA is required by the Clean Air Act to conduct reviews of the National Ambient Air Quality Standards (NAAQS) for the six criteria pollutants, including particulate matter, every 5 years. The overarching purpose of such reviews is to determine whether the current standards are sufficient to protect public health and welfare at large, with an adequate margin of safety, given the latest scientific information available at the time of the review. Major steps in the NAAQS process include the following: developing a criteria document that synthesizes new research on health preparing a staff paper that assesses the policy implications of the scientific information in the criteria document, which also discusses possible ranges for air quality standards; and determining whether and how EPA should revise the NAAQS. If EPA decides to revise the NAAQS, the agency proposes the changes in the Federal Register. As part of the federal rule-making process, EPA is to comply with Executive Order 12866, which directs federal agencies to analyze the costs and benefits of proposed and final rules expected to affect the economy by $100 million or more per year. In September 2003, the Office of Management and Budget (OMB) issued its Circular A-4, which presents guidance and best practices and states that agencies should analyze the costs and benefits in accordance with the principles of full disclosure and transparency. Further, in cases such as the particulate matter rule, where expected economic impacts exceed $1 billion annually, Circular A-4 also states that agencies should conduct a comprehensive assessment of key uncertainties in their analyses of costs and benefits, which EPA also refers to as regulatory impact analyses. EPA’s January 2006 regulatory impact analysis presents estimates of the costs and benefits for the proposed particulate matter rule. The focus of the National Academies’ 2002 report was on how EPA estimates the health benefits of its proposed air regulations. To develop such estimates, EPA conducts analyses to quantify the expected changes in the number of deaths and illnesses that are likely to result from proposed regulations. The regulatory impact analyses also estimate the costs associated with implementing proposed air regulations, although, under the Clean Air Act, EPA is not permitted to consider costs in setting health- based standards for the criteria air pollutants, such as particulate matter. Soon after the National Academies issued its report in 2002, EPA staff identified key recommendations and developed a strategy, in consultation with OMB, to apply some of the recommendations to benefit analyses for air pollution regulations under consideration at the time. EPA roughly approximated the time and resource requirements to respond to the recommendations, identifying those the agency could address within 2 or 3 years and those that would take longer. According to EPA officials, the agency focused primarily on the numerous recommendations related to analyzing uncertainty. Both the National Academies’ report and the OMB guidance emphasize the need for agencies to account for uncertainties and to maintain transparency in the course of conducting benefit analyses. Identifying and accounting for uncertainties in these analyses can help decision makers evaluate the likelihood that certain regulatory decisions will achieve the estimated benefits. Transparency is important because it enables the public and relevant decision makers to see clearly how EPA arrived at its estimates and conclusions. In prior work on regulatory impact analyses, we have found shortcomings in EPA’s analyses of uncertainty and the information the agency provides with its estimates of costs and benefits. EPA applied—either wholly or in part—approximately two-thirds of the Academies’ recommendations to its January 2006 regulatory impact analysis and continues to address the recommendations through ongoing research and development. The January 2006 regulatory impact analysis demonstrated progress toward an expanded analysis of uncertainty and consideration of different assumptions. EPA officials cited time and resource constraints, as well as the need to mitigate complex technical challenges, as the basis for not applying other recommendations. According to EPA officials, the agency did not apply some of the more complex recommendations because it had not achieved sufficient progress in the research and development projects under way. The January 2006 regulatory impact analysis on particulate matter represents a snapshot of an ongoing EPA effort to respond to the National Academies’ recommendations on developing estimates of health benefits for air pollution regulations. Specifically, the agency applied, at least in part, approximately two-thirds of the recommendations—8 were applied and 14 were partially applied—by taking steps toward conducting a more rigorous assessment of uncertainty for proposed air pollution regulations by, for example, evaluating the different assumptions about the link between human exposure to particulate matter and health effects and discussing sources of uncertainty not included in the benefit estimates. According to EPA officials, the agency focused much of its time and resources on the recommendations related to uncertainty. In particular, one overarching recommendation suggests that EPA take steps toward conducting a formal, comprehensive uncertainty analysis—the systematic application of mathematical techniques, such as Monte Carlo simulation— and include the uncertainty analysis in the regulatory impact analysis to provide a “more realistic depiction of the overall uncertainty” in EPA’s estimates of the benefits. A number of the other recommendations regarding uncertainty are aimed at EPA’s developing the information and methodologies needed to carry out a comprehensive uncertainty analysis. Overall, the uncertainty recommendations suggest that EPA should determine (1) which sources of uncertainties have the greatest effect on benefit estimates and (2) the degree to which the uncertainties affect the estimates by specifying a range of estimates and the likelihood of attaining them. In response, EPA devoted significant resources to applying an alternative technique called expert elicitation in a multiphased pilot project. The pilot project was designed to systematically obtain expert advice to begin to better incorporate in its health benefit analysis the uncertainty underlying the causal link between exposure to particulate matter and premature death. EPA used the expert elicitation process to help it more definitively evaluate the uncertainty associated with estimated reductions in premature death—estimates that composed 85 percent to 95 percent of EPA’s total health benefit estimates for air pollution regulations in the past 5 years, according to the agency. EPA developed a range of expected reductions in death rates based on expert opinion systematically gathered in its pilot expert elicitation project and provided the results of this supplemental analysis in an appendix to the regulatory impact analysis. However, the National Academies had recommended that EPA merge such supplemental analyses into the main benefit analysis. Moreover, the Academies recommended that EPA’s main benefit analysis reflect how the benefit estimates would vary in light of uncertainties. In addition to the uncertainty underlying the causal link between exposure and premature death that EPA analyzed, other key uncertainties can influence the estimates. For example, there is uncertainty about the effects of the age and health status of people exposed to particulate matter, the varying composition of particulate matter, and the measurements of actual exposure to particulate matter. EPA’s health benefit analysis, however, does not account for these key uncertainties by specifying a range of estimates and the likelihood of attaining them, similar to estimates derived from the expert elicitation addressing causal uncertainty. For these reasons, EPA’s responses reflect a partial application of the Academies’ recommendation. In addition, the Academies recommended that EPA both continue to conduct sensitivity analyses on sources of uncertainty and expand these analyses. In the particulate matter regulatory impact analysis, EPA included a new sensitivity analysis regarding assumptions about thresholds, or levels below which those exposed to particulate matter are not at risk of experiencing harmful effects. EPA has assumed no threshold level exists—that is, any exposure poses potential health risks. Some experts have suggested that different thresholds may exist and the National Academies recommended that EPA determine how changing its assumption—that no threshold exists—would influence the estimates. The sensitivity analysis EPA provided in the regulatory impact analysis examined how its estimates of expected health benefits would change assuming varying thresholds. Another recommendation that EPA is researching and partially applied to the draft regulatory impact analysis concerns alternative assumptions about cessation lags—the time between reductions in exposure to particulate matter and the health response. The National Academies made several recommendations on this topic, including one that EPA incorporate alternative assumptions about lags into a formal uncertainty analysis to estimate benefits that account for the likelihood of different lag durations. In response, EPA has sought advice from its Advisory Council on Clean Air Compliance Analysis on how to address this recommendation and has conducted a series of sensitivity analyses related to cessation lags. EPA is also funding research to explore ways to address lag effects in its uncertainty analysis. According to an EPA official, specifying the probability of different lag effects is computationally complex, and the agency is working to resolve this challenge. In response to another recommendation by the National Academies, EPA identified some of the sources of uncertainty that are not reflected in its benefit estimates. For example, EPA’s regulatory impact analysis disclosed that its benefit estimates do not reflect the uncertainty associated with future year projections of particulate matter emissions. EPA presented a qualitative description about emissions uncertainty, elaborating on technical reasons—such as the limited information about the effectiveness of particulate matter control programs—why the analysis likely underestimates future emissions levels. EPA also applied the Academies’ recommendation on the presentation of uncertainty, which encouraged the agency to present the results of its health benefit analyses in ways that convey the estimated benefits more realistically by, for example, placing less emphasis on single estimates and rounding the numbers. EPA’s regulatory impact analysis presented ranges for some of the benefit estimates. Also, EPA sought to convey the overall uncertainty of its benefit estimates in a qualitative manner by clearly stating that decision makers and the public should not place significant weight on the quantified benefit estimates in the regulatory impact analysis because of data limitations and uncertainties. Another example of EPA’s response to the National Academies’ recommendations involves exploring the various regulatory choices available to decision makers. The Academies recommended that EPA estimate the health benefits representing the full range of regulatory choices available to decision makers. In the particulate matter analysis, EPA presented health benefits expected under several regulatory options targeting fine particulate matter. Citing a lack of data and tools needed to conduct an accurate analysis, EPA did not estimate the benefits expected under the proposed regulatory options for coarse particulate matter but, consistent with the National Academies’ recommendation, presented its rationale for not doing so. Overall, we considered this a partial application of the recommendation. (See app. II for more detail on the recommendations that EPA has applied or partially applied to the draft particulate matter regulatory impact analysis.) EPA did not apply the remaining 12 recommendations to the analysis for various reasons. While EPA applied some recommendations—either wholly or in part—that require additional studies, methodologies, or data to its particulate matter analysis, the agency had not made sufficient progress in addressing others and therefore did not apply them to the analysis. EPA officials viewed most of these recommendations as relevant to its health benefit analyses and, citing the need for additional research and development, emphasized the agency’s commitment to continue to respond to the recommendations. According to a senior EPA official, insufficient resources impeded the agency’s progress in applying the recommendations. This official cited limited availability of skilled staff, time, and other resources to conduct the required analyses and research and development. According to EPA, some of the more complex, long-term recommendations include the following: relying less on simplifying assumptions, such as the assumption that the various components of particulate matter have equal toxicity; conducting a formal assessment of the uncertainty of particulate matter emissions; and assessing the expected reduction of any harmful effects other than air pollution or human health problems. For example, EPA is in the process of responding to a recommendation involving the relative toxicity of components of particulate matter, an emerging area of research that has the potential to influence EPA’s regulatory decisions in the future. Specifically, the agency could, hypothetically, refine national air quality standards to address the potentially varying health consequences associated with different components of particulate matter. The National Academies recommended that EPA strengthen its benefit analyses by evaluating a range of alternative assumptions regarding relative toxicity and incorporate these assumptions into sensitivity or uncertainty analyses as more data become available. EPA did not believe the state of scientific knowledge on relative toxicity was sufficiently developed at the time it prepared the draft regulatory impact analysis to include this kind of analysis. However, EPA is sponsoring research on this issue. For example, EPA is supporting long- term research on the relative toxicity of particulate matter components being conducted by EPA’s intramural research program, its five Particulate Matter Research Centers, and the Health Effects Institute, an organization funded in part by EPA. In addition, an EPA contractor has begun to investigate methods for conducting a formal analysis that would consider sources of uncertainty, including relative toxicity and lag effects. To date, the contractor has created a model to assess whether and how much these sources of uncertainty may affect benefit estimates in one urban area. The National Academies also recommended that EPA incorporate an assessment of uncertainty into the early stages of its benefit analyses by characterizing the uncertainty of its emissions estimates on which the agency is going to base its benefit estimates. While the agency is investigating ways to assess or characterize this uncertainty, EPA did not conduct a formal uncertainty analysis for particulate matter emissions for the draft regulatory impact analysis because of data limitations. These limitations stem largely from the source of emissions data, the National Emissions Inventory, an amalgamation of data from a variety of entities, including state and local air agencies, tribes, and industry. According to EPA, these entities use different methods to collect data, which have different implications for how to characterize the uncertainty. Furthermore, the uncertainty associated with emissions varies by the source of emissions. For example, the analytical methods for evaluating the uncertainty of estimates of emissions from utilities would differ from those for car and truck emissions because the nature of these emissions and the data collection methods differ. In sum, to apply this recommendation, EPA must determine how to characterize the uncertainty of the estimates for each source of emissions before aggregating the uncertainty to a national level and then factoring that aggregation into its benefit estimates. According to EPA officials, the agency needs much more time to resolve the complex technical challenges of such an analysis. EPA officials also noted that the final particulate matter analysis will demonstrate steps toward this recommendation by presenting emissions data according to the level emitted by the different kinds of sources, such as utilities, cars, and trucks. Another recommendation that EPA is researching but did not apply to the draft regulatory impact analysis concerns whether the proposed revisions to the particulate matter standards would have important indirect impacts on human health and the environment. According to an EPA official, the agency could not rule out the possibility that the revisions could have indirect impacts on the environment, such as whether reductions to particulate matter emissions would reduce the amount of particulate matter deposited in water bodies, thereby decreasing water pollution. EPA has considered indirect impacts of air pollution regulations on sensitive water bodies in the past and plans to include a similar analysis in the final particulate matter rule. An agency official further noted that ongoing research about environmental impacts could reveal additional indirect impacts for future analyses. Other recommendations that EPA did not apply to its benefit estimates in the regulatory impact analysis concern issues such as transparency and external review of EPA’s benefit estimation process. For example, the National Academies recommended that EPA clearly summarize the key elements of the benefit analysis in an executive summary that includes a table that lists and briefly describes the regulatory options for which EPA estimated the benefits, the assumptions that had a substantial impact on the benefit estimates, and the health benefits evaluated. EPA did not, however, present a summary table as called for by the recommendation or summarize the benefits in the executive summary. As EPA stated in the particulate matter analysis, the agency decided not to present the benefit estimates in the executive summary because they were too uncertain. Specifically, officials said the agency was not able to resolve some significant data limitations before issuing the draft regulatory impact analysis in January 2006—a deadline driven by the need to meet the court- ordered issue date for the final rule in September 2006. According to EPA officials, EPA has resolved some of these data challenges by, for example, obtaining more robust data on anticipated strategies for reducing emissions, which will affect the estimates of benefits. The officials also said that EPA intends to include in the executive summary of the regulatory impact analysis supporting the final rule a summary table that describes key analytical information. EPA officials also acknowledged other presentation shortcomings, including references to key analytical elements that were insufficiently specific, that officials attributed to tight time frames and the demands of working on other regulatory analyses concurrently. They said they plan to address these shortcomings in the final regulatory impact analysis. Regarding external review, the National Academies recommended that EPA establish an independent review panel, supported by permanent technical staff, to bolster EPA’s quality control measures for its regulatory impact analyses, such as the one for particulate matter. The National Academies noted that peer review of EPA’s regulatory impact analyses would be advantageous when the agency designs and conducts its economic analysis. EPA has not directly addressed this recommendation. According to the Director of the Office of Policy Analysis and Review in EPA’s Office of Air and Radiation, establishing and supporting independent committees is costly, making it important for EPA to take advantage of existing panels rather than set up new ones. Further, an official in the Office of Air and Radiation who oversees the development of regulatory impact analyses said that the cost of reviewing all regulatory impact analyses would be substantial. In this regard, EPA officials identified peer reviews the agency received from its existing independent committees, such as the Clean Air Scientific Advisory Committee and the Advisory Council on Clean Air Compliance. For example, to respond to the Academies’ recommendations about lag effects, EPA sought independent advice on the assumptions it was developing regarding the time between reduced exposure to particulate matter and reductions in incidences of health effects. Finally, EPA officials noted that although the agency does not have each regulatory impact analysis peer reviewed, EPA typically does have the methodologies that will be applied to regulatory impact analyses peer reviewed. (See app. III for more detail on these recommendations and others that EPA did not apply to the draft particulate matter regulatory impact analysis.) While EPA has taken a number of steps to respond to the Academies’ recommendations on estimating health benefits, continued commitment and dedication of resources will be needed if EPA is to fully implement the improvements endorsed by the National Academies. In particular, the agency will need to ensure that it allocates resources to needed research on emerging issues, such as the relative toxicity of particulate matter components; assessing which sources of uncertainty have the greatest influence on benefit estimates; and estimating other benefits, such as environmental improvements. In addition, it is important for EPA to continue to improve its uncertainty analysis in accordance with the Academies’ recommendations. The agency’s draft regulatory impact analysis illustrates that estimates of health benefits can be highly uncertain. In fact, EPA officials viewed these estimates as so uncertain that they chose to not present them in the executive summary of the regulatory impact analysis. While EPA officials said they expect to reduce the uncertainties associated with the health benefit estimates in the final particulate matter analysis, robust uncertainty analysis will nonetheless be important for decision makers and the public to understand the likelihood of attaining the estimated health benefits. According to EPA officials, the final regulatory impact analysis on particulate matter will reflect further responsiveness to the Academies’ recommendations by, for example, providing additional sensitivity analysis and improving the transparency of the regulatory impact analysis by highlighting key data and assumptions in the executive summary. Moreover, these officials emphasized the agency’s commitment to further enhancing the transparency of the analysis by presenting clear and accurate references to the supporting technical documents, which detail the analytical assumptions and describe the data supporting the estimates. To the extent EPA continues to make progress addressing the Academies’ recommendations, decision makers and the public will be able to better evaluate the basis for EPA’s air regulations. We provided a draft of this report to EPA for review. EPA provided technical comments that we incorporated, as appropriate. Officials from the Office of Policy Analysis and Review within EPA’s Office of Air and Radiation noted in their technical comments that the report provides a fair and balanced representation of EPA’s efforts to apply the National Academies’ recommendations to the draft particulate matter regulatory impact analysis. However, these officials also cited progress made in applying the National Academies’ recommendations through analyses of other air programs and through research and development efforts. We note that this report does identify, as appropriate, EPA’s research and development efforts for recommendations EPA did not apply to the draft particulate matter analysis, its plans to apply some additional recommendations to the final particulate matter regulatory impact analysis, and the agency’s responses to recommendations in prior rule- making analyses of air programs. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the EPA Administrator and other interested parties. We will also make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV. We were asked to determine whether and how the Environmental Protection Agency (EPA) applied the National Academies (Academies) recommendations in its estimates of the health benefits expected from the January 2006 proposed revisions to the particulate matter national ambient air quality standards. In response to this objective, we assessed EPA’s response to the Academies’ recommendations and present an overview of the agency’s completed, ongoing, and planned actions addressing the recommendations. To develop this overview, we reviewed EPA’s particulate matter regulatory impact analysis, EPA’s economic analysis guidelines, and Office of Management and Budget (OMB) guidance on regulatory impact analysis. We also analyzed documentation addressing current and future agency efforts to address the recommendations, such as project planning memorandums and technical support documents discussing the application of economic techniques. In addition, we met with senior officials from EPA’s Office of Air and Radiation, which was responsible for developing the proposed rule and analyzing its economic effects, and with officials from EPA’s Office of Policy, Economics, and Innovation to discuss the agency’s responses to the recommendations. We interviewed several experts outside EPA, including (1) the Chair and other members of the National Academies’ Committee on Estimating the Health-Risk-Reduction Benefits of Proposed Air Pollution Regulations, to clarify the basis for their recommendations; and (2) economists at Resources for the Future, to discuss the technical issues underlying the recommendations on uncertainty analysis. While the 2002 National Academies’ report is generally applicable to EPA air pollution regulations, our review focused on the application of the recommendations to the proposed revisions to the particulate matter standards, as requested. Our work focused on broadly characterizing EPA’s progress toward applying the recommendations; we did not evaluate the effectiveness or quality of the scientific and technical actions the agency has taken to apply them. To assess whether and how EPA has made progress in responding to the recommendations, we developed the following recommendation classification continuum: applied, partially applied, and not applied. The applied and partially applied categories refer to completed and initiated actions in EPA’s health benefit analysis of particulate matter that corresponds to components of the National Academies’ recommendations. The not applied category includes recommendations that EPA did not apply when conducting the analysis for the January 2006 particulate matter regulatory impact analysis and identifies those for which ongoing research and development efforts were not far enough along to apply to the particulate matter analysis. We performed our work from January 2006 to July 2006 in accordance with generally accepted government auditing standards. Table 1 provides a summary of the National Academies’ recommendations that EPA has applied or partially applied to its draft regulatory impact analysis (RIA) for particulate matter (PM). This table also provides GAO’s assessment of EPA’s progress in applying each recommendation, in terms of steps EPA has taken thus far to address issues highlighted in the National Academies’ report. The final column characterizes EPA’s comments regarding each recommendation, including, as pertinent, contextual information, potential impediments to application, and intended next steps. Table 2 provides a summary of the National Academies’ recommendations that EPA has not applied to its draft regulatory impact analysis (RIA) for particulate matter (PM). This table provides GAO’s assessment of EPA's progress to date regarding recommendations that required additional research and development, were deemed as not relevant to the PM National Ambient Air Quality Standards (NAAQS) by the agency, or were not included in the draft PM RIA due to time and resource constraints. The final column characterizes EPA’s comments regarding each recommendation, including contextual information, potential impediments to application, justification for not addressing the recommendation, and intended next steps, if applicable. In addition to the contact named above, Christine Fishkin, Assistant Director; Kate Cardamone; Nancy Crothers; Cindy Gilbert; Tim Guinane; Jessica Lemke; and Meaghan K. Marshall made key contributions to this report. Timothy Bober, Marcia Crosse, and Karen Keegan also made important contributions.

A large body of scientific evidence links exposure to particulate matter--a widespread form of air pollution--to serious health problems, including asthma and premature death. Under the Clean Air Act, the Environmental Protection Agency (EPA) periodically reviews the appropriate air quality level at which to set national standards to protect the public against the health effects of particulate matter. EPA proposed revisions to these standards in January 2006 and issued a draft regulatory impact analysis of the revisions' expected costs and benefits. The estimated benefits of air pollution regulations have been controversial in the past. A 2002 National Academies report generally supported EPA's approach but made 34 recommendations to improve how EPA implements its approach. GAO was asked to determine whether and how EPA applied the Academies' recommendations in its estimates of the health benefits expected from the January 2006 proposed revisions to the particulate matter standards. GAO examined the draft analysis, met with EPA officials, and interviewed members of the National Academies' committee. In providing technical comments on the report, EPA officials said it was fair and balanced and noted the agency's progress in addressing recommendations via research and development and other analyses. EPA has begun to change the way it conducts and presents its analyses of health benefits in response to recommendations from the National Academies. Specifically, EPA applied, at least in part, 22--or about two-thirds--of the Academies' recommendations to its health benefit analysis of proposed revisions to particulate matter standards. For example, in response to some of the recommendations, EPA took steps toward conducting a more rigorous assessment of uncertainty by, for instance, evaluating how benefits could change under different assumptions and discussing sources of uncertainty not included in the benefit estimates. In one case, EPA applied an alternative technique, called expert elicitation, for evaluating uncertainty by systematically gathering expert opinion about the uncertainty underlying the causal link between exposure to particulate matter and premature death. Consistent with the National Academies' recommendation to assess uncertainty by developing ranges of estimates and specifying the likelihood of attaining them, EPA used expert elicitation to develop ranges of reductions in premature death expected from the proposed revisions. EPA officials said that ongoing research and development efforts will allow the agency to gradually achieve more progress in applying the recommendations. We note that robust uncertainty analysis is important because estimates of health benefits can be highly uncertain, as the draft regulatory impact analysis for particulate matter illustrates. EPA viewed the estimates in this analysis as so uncertain that it chose not to present them in the executive summary. For various reasons, EPA has not applied the remaining 12 recommendations to the analysis, such as the recommendation to evaluate the impact of using the simplifying assumption that each component of particulate matter is equally toxic. EPA officials viewed most of these recommendations as relevant to its health benefit analyses and, citing the need for additional research and development, emphasized the agency's commitment to continue to respond to the recommendations. For example, EPA did not believe that the state of scientific knowledge on the relative toxicity of particulate matter components was sufficiently developed to include in the January 2006 regulatory impact analysis, and the agency is currently sponsoring research on this issue. In addition, a senior EPA official said that insufficient resources impeded the agency's progress in applying the recommendations, citing, in particular, the limited availability of skilled staff, time, and other resources to conduct the required analyses and research and development. EPA officials also said that some of the recommendations the agency did not apply to the draft analysis, such as one calling for a summary table describing key analytical information to enhance transparency, will be applied to the analysis supporting the final rule. To the extent that EPA continues to make progress addressing the Academies' recommendations, decision makers and the public will be better able to evaluate the basis for EPA's air regulations.

You are an expert at summarizing long articles. Proceed to summarize the following text: The financial regulatory framework in the United States was built over more than a century, largely in response to crises and significant market developments. As a result, the regulatory system is complex and fragmented. While the Dodd-Frank Act has brought additional changes, including the creation of new regulatory entities and the consolidation of some regulatory responsibilities that had been shared by multiple agencies, the U.S. financial regulatory structure largely remains the same. It is a complex system of multiple federal and state regulators, as well as self-regulatory organizations, that operates largely along functional lines. The U.S. regulatory system is described as “functional” in that financial products or activities are generally regulated according to their function, no matter who offers the product or participates in the activity. In the banking industry, the specific regulatory configuration depends on the type of charter the banking institution chooses. Depository institution charter types include commercial banks, which originally focused on the banking needs of businesses but over time have broadened their services; thrifts, which include savings banks, savings associations, and savings and loans and were originally created to serve the needs— particularly the mortgage needs—of those not served by commercial banks; and credit unions, which are member-owned cooperatives run by member- elected boards with an historical emphasis on serving people of modest means. These charters may be obtained at the state or federal level. State regulators charter institutions and participate in their oversight, but all institutions that have federal deposit insurance have a federal prudential regulator. The federal prudential regulators—which generally may issue regulations and take enforcement actions against industry participants within their jurisdiction—are identified in table 1. The act eliminated the Office of Thrift Supervision (OTS) and transferred its regulatory responsibilities to OCC, the Federal Reserve, and FDIC. To achieve their safety and soundness goals, bank regulators establish capital requirements, conduct onsite examinations and off-site monitoring to assess a bank’s financial condition, and monitor compliance with banking laws. Regulators also issue regulations, take enforcement actions, and close banks they determine to be insolvent. Holding companies that own or control a bank or thrift are subject to supervision by the Federal Reserve. The Bank Holding Company Act of 1956 and the Home Owners’ Loan Act set forth the regulatory frameworks for bank holding companies and savings and loan (S&L) holding companies, respectively. Before the Dodd-Frank Act, S&L holding companies had been subject to supervision by OTS and a different set of regulatory requirements from those of bank holding companies. The Dodd-Frank Act made the Federal Reserve the regulator of S&L holding companies and amended the Home Owners’ Loan Act and the Bank Holding Company Act to create certain similar requirements for both bank holding companies and S&L holding companies. The Dodd-Frank Act also grants new authorities to FSOC to designate nonbank financial companies for supervision by the Federal Reserve. The securities and futures markets are regulated under a combination of self-regulation (subject to oversight by the appropriate federal regulator) and direct oversight by SEC and CFTC, respectively. SEC regulates the securities markets, including participants such as securities exchanges, broker-dealers, investment companies, and investment advisers. SEC’s mission is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. In the securities industry, certain self-regulatory organizations—including the securities exchanges and the Financial Industry Regulatory Authority—have responsibility for overseeing the securities markets and their members; establishing the standards under which their members conduct business; monitoring business conduct; and bringing disciplinary actions against members for violating applicable federal statutes, SEC’s rules, and their own rules. CFTC is the primary regulator of futures markets, including futures exchanges and intermediaries, such as futures commission merchants. CFTC’s mission is to protect market users and the public from fraud, manipulation, abusive practices, and systemic risk related to derivatives that are subject to the Commodity Exchange Act, and to foster open, competitive, and financially sound futures markets. Like SEC, CFTC oversees the registration of intermediaries and relies on self-regulatory organizations, including the futures exchanges and the National Futures Association, to establish and enforce rules governing member behavior. In addition, Title VII of the Dodd-Frank Act expands regulatory responsibilities for CFTC and SEC by establishing a new regulatory framework for swaps. The act authorizes CFTC to regulate “swaps” and SEC to regulate “security-based swaps” with the goals of reducing risk, increasing transparency, and promoting market integrity in the financial system. The Dodd-Frank Act established CFPB as an independent bureau within the Federal Reserve System and provided it with rule-making, enforcement, supervisory, and other powers over many consumer financial products and services and many of the entities that sell them. Certain consumer financial protection functions from seven existing federal agencies were transferred to CFPB. Consumer financial products and services over which CFPB has primary authority include deposit taking, mortgages, credit cards and other extensions of credit, loan servicing, debt collection, and others. CFPB is authorized to supervise certain nonbank financial companies and large banks and credit unions with over $10 billion in assets and their affiliates for consumer protection purposes. CFPB does not have authority over most insurance activities or most activities conducted by firms regulated by SEC or CFTC. The Housing and Economic Recovery Act of 2008 (HERA) created FHFA to oversee the government-sponsored enterprises (GSE): Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Fannie Mae and Freddie Mac were created by Congress as private, federally chartered companies to provide, among other things, liquidity to home mortgage markets by purchasing mortgage loans, thus enabling lenders to make additional loans. The system of 12 Federal Home Loan Banks provides funding to support housing finance and economic development. Until enactment of HERA, Fannie Mae and Freddie Mac had been overseen since 1992 by the Office of Federal Housing Enterprise Oversight (OFHEO), an agency within the Department of Housing and Urban Development (HUD), and the Federal Home Loan Banks were subject to supervision by the Federal Housing Finance Board (FHFB), an independent regulatory agency. In July 2008, HERA created FHFA to establish more effective and more consistent oversight of the three housing GSEs. Given their precarious financial condition, Fannie Mae and Freddie Mac were placed in conservatorship in September 2008, with FHFA serving as the conservator under powers provided in HERA. While insurance activities are primarily regulated at the state level, the Dodd-Frank Act created the Federal Insurance Office within Treasury to monitor issues related to regulation of the insurance industry. The Federal Insurance Office is not a regulator or supervisor, and its responsibilities include identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system. The Dodd-Frank Act established FSOC to identify risks to the financial stability of the United States, promote market discipline, and respond to emerging threats to the stability of the U.S. financial system. The Dodd- Frank Act also established OFR within Treasury to serve FSOC and its member agencies by improving the quality, transparency, and accessibility of financial data and information; conducting and sponsoring research related to financial stability; and promoting best practices in risk management. FSOC’s membership consists of the Secretary of the Treasury, who chairs the council, and the heads of CFPB, CFTC, FDIC, the Federal Reserve, FHFA, the National Credit Union Administration, OCC, SEC, the directors of OFR and the Federal Insurance Office, representatives from state-level financial regulators, and an independent member with insurance experience. There is no universally accepted definition of a financial crisis. Some academic studies identify three major types of financial crises: banking crises, public debt crises, and currency crises. The most recent financial crisis in the United States is widely considered to have been a banking crisis. While researchers have defined banking crises in different ways, their definitions generally focus on indicators of severe stress on the financial system, such as runs on financial institutions or large-scale government assistance to the financial sector. The large increases in public debt that tend to follow the onset of a banking crisis can make a country more susceptible to a public debt crisis. Studies reviewing historical banking crises in the United States and other countries found that such crises were associated with large losses in output (the value of goods and services produced in the economy) and employment that can persist for years. A disruption to the financial system can have a ripple effect through the economy, harming the broader economy through several channels. For example, some studies identify ways that strains in the financial system can negatively impact the cost and availability of credit and, in turn, reduce total output. During the recent crisis, certain securitization markets collapsed and households and businesses faced tightened credit conditions. Higher funding costs for firms in the form of higher interest rates and lower equity prices can contribute to declines in investment. Furthermore, as asset prices fall, declines in the wealth and confidence of consumers, businesses, and investors also can contribute to output declines. Historically, governments have provided substantial assistance to financial institutions during banking crises to avert more severe disruptions to the key functions performed by the financial system. The causes of the 2007-2009 crisis are complex and remain subject to debate and ongoing research. According to many researchers, around mid-2007, losses in the mortgage market triggered a reassessment of financial risk in other debt instruments and sparked the financial crisis. Uncertainty about the financial condition and solvency of financial entities resulted in a liquidity and credit crunch that made the financing on which many businesses and individuals depend increasingly difficult to obtain. By late summer of 2008, the ramifications of the financial crisis ranged from the failure of financial institutions to increased losses of individual savings and corporate investments. Academics and others have identified a number of factors that may have helped set the stage for problems in the mortgage market and the broader financial system. These factors, in no particular order, include financial innovation in the form of asset securitization, which reduced mortgage originators’ incentives to be prudent in underwriting loans and made it difficult to understand the size and distribution of loss exposures throughout the system; imprudent business and risk management decisions based on the expectation of continued housing price appreciation; faulty assumptions in the models used by credit rating agencies to rate mortgage-related securities; gaps and weaknesses in regulatory oversight, which allowed financial institutions to take excessive risks by exploiting loopholes in capital rules and funding themselves increasingly with short-term liabilities; government policies to increase homeownership, including the role of Fannie Mae and Freddie Mac in supporting lending to higher-risk borrowers; and economic conditions, characterized by accommodative monetary policies, ample liquidity and availability of credit, and low interest rates that spurred housing investment. The United States periodically has experienced banking crises of varying severity. The financial crisis that began in 2007 was the most severe banking crisis experienced by the United States since the 1930s. While this most recent financial crisis may have had some new elements—such as the role of asset securitization in spreading risks across the financial system—studies have found that it followed patterns common to past crises in the United States and other countries. For example, experts have noted that the recent crisis, like many past crises, was preceded by an asset price boom that was accompanied by an excessive buildup in leverage. Another common pattern between the recent and past crises has been the buildup of risks and leverage in unregulated or less regulated financial institutions. While academic studies have used different criteria to identify and date banking crises, studies we reviewed identify the following episodes as U.S. banking crises since the Civil War: the banking panics of 1873, 1893, 1907, and the 1930s; the Savings and Loan Crisis that began in the1980s; and the 2007-2009 crisis. The studies do not consider the stock market crash of 1987 or the bursting of the technology bubble during 2000-2001 to be banking crises, because neither placed severe strains on the financial system that threatened the economy. Several studies measure the overall economic costs associated with past financial crises based on the decline in economic output (the value of goods and services produced in the economy) relative to some benchmark, such as the long-term trend in output. While using a variety of methods to quantify these output losses, the studies generally have found the losses from past financial crises to be very large. Some of these studies also analyze changes in unemployment, household wealth, and other economic indicators to show the effects of the crises at a more granular level. In addition, some studies use measures of fiscal costs— such as increases in government debt—to analyze the losses associated with financial crises. In the following section, we review what is known about the losses associated with the recent financial crisis based on these measures. The 2007-2009 financial crisis, like past financial crises, was associated with not only a steep decline in output but also the most severe economic downturn since the Great Depression of the 1930s (see fig. 1). According to a study, in the aftermath of past U.S. and foreign financial crises, output falls (from peak to trough) an average of over 9 percent and the associated recession lasts about 2 years on average. The length and severity of this economic downturn was roughly consistent with the experience of past financial crises. The U.S. economy entered a recession in December 2007, a few months after the start of the financial crisis. Between December 2007 and the end of the recession in June 2009, U.S. real gross domestic product (GDP) fell from $13.3 trillion to $12.7 trillion (in 2005 dollars), or by nearly 5 percent. As shown in figure 1, real GDP did not regain its pre-recession level until the third quarter of 2011. Although the decline in the U.S. economy’s real GDP during the recession may reflect some of the losses associated with the 2007-2009 financial crisis, the decline does not capture the cumulative losses from the crisis. To quantify the overall losses associated with past financial crises, researchers have estimated output losses as the cumulative shortfall between actual GDP and estimates of what GDP would have been if the crisis had not occurred. Measuring the shortfall in GDP in the aftermath of a crisis requires making a number of assumptions, and the measurement will vary depending on what assumptions are used. Figure 2 provides two examples to show how estimates of output losses vary depending on the assumptions used. The output shortfall is shown in the shaded areas of the two examples, with the output shortfall larger in example 2 than in example 1. Important assumptions include the following: Start date of the crisis: The first assumption involves selecting the date when the crisis began. The start date is shown as the vertical line in examples 1 and 2 and is assumed to be the same. However, researchers have used different assumptions to select the start date of the 2007-2009 financial crisis. The path real GDP would have followed if the crisis had not occurred: The second assumption involves estimating the counterfactual for the path of GDP—that is, the path that real GDP would have followed in the absence of a crisis. This counterfactual is not observable. Studies have used different assumptions to estimate this path and one approach is to assume that this path would follow a precrisis trend in real GDP growth. For example, one study estimated trend output paths based on average GDP growth for the three years and ten years before the crisis. In figure 2, example 1 assumes a much lower (or less steep) trend rate of GDP growth than example 2. Assuming a higher growth trend results in a larger estimate of output losses. Projections of actual GDP: The third assumption involves determining when GDP regained or will regain its estimated precrisis trend path. With respect to the recent crisis, some studies find that real GDP remains below the estimated precrisis trend. Researchers reach different conclusions about when or whether GDP will regain its long-term trend from before the crisis. Assumptions about the path of actual GDP and how it compares to the potential trend path can reflect different views on whether the output losses from the crisis are temporary or permanent. In contrast to example 1, where the economy regains its precrisis growth rate and level of output, example 2 assumes the economy regains its precrisis rate of output growth but remains permanently below the level of output projected by extrapolating the precrisis growth trend. As a result, output losses in example 2 extend farther into the future and are considerably larger than in example 1. Some studies describe reasons why financial crises could be associated with permanent output losses. For example, sharp declines in investment during and following the crisis could result in lower capital accumulation in the long-term. In addition, persistent high unemployment could substantially erode the skills of many U.S. workers and reduce the productive capacity of the U.S. economy. Research suggests that U.S. output losses associated with the 2007- 2009 financial crisis could range from several trillion to over $10 trillion. In January 2012, the Congressional Budget Office (CBO) estimated that the cumulative difference between actual GDP and estimated potential GDP following the crisis would amount to $5.7 trillion by 2018. CBO defined potential output as the output level that corresponds to a high rate of use of labor and capital. CBO reported that recessions following financial crises, like the most recent crisis, tend to reduce not only output below what it otherwise would have been but also the economy’s potential to produce output, even after all resources are productively employed. In its estimate, CBO assumed that GDP would recover to its potential level by 2018, noting that it does not attempt to predict business cycle fluctuations so far into the future. Other studies have reported a wide range of estimates for the output losses associated with past financial crises, with some suggesting that output losses from the recent crisis could persist beyond 2018 or be permanent. In an August 2010 study, a working group of the Basel Committee on Banking Supervision reviewed the literature estimating output losses. According to the Basel Committee working group’s review, studies calculating long-term output losses relative to a benchmark (such as an estimated trend in the level of GDP) estimated much larger losses than studies calculating output losses over a shorter time period. In a June 2012 working paper, International Monetary Fund (IMF) economists estimated the cumulative percentage difference between actual and trend real GDP for the 4 years following the start of individual banking crises in many countries. They found a median output loss of 23 percent of trend-level GDP for a historical set of banking crises and a loss of 31 percent for the 2007-2009 U.S. banking crisis. Other researchers who assume more persistent or permanent output losses from past financial crises estimate much larger output losses from these crises, potentially in excess of 100 percent of precrisis GDP. While such findings were based on crisis events before 2007, if losses from the 2007- 2009 crisis were to reach similar levels, the present value of cumulative output losses could exceed $13 trillion. Studies that estimate output losses can be useful in showing the rough magnitude of the overall costs associated with the 2007-2009 financial crisis, but their results have limitations. Importantly, real GDP is an imperfect proxy of overall social welfare. As discussed below, real GDP measures do not reveal the distributional impacts of the crisis, and the costs associated with a financial crisis can fall disproportionately on certain populations. In addition, it is difficult to separate out the economic costs attributable to the crisis from the costs attributable to other factors, such as federal government policy decisions before, during, and after the crisis. While studies often use output losses to measure the overall costs associated with financial crises, many researchers also discuss trends in unemployment, household wealth, and other economic indicators, such as the number of foreclosures, to provide a more granular picture of the effects of financial crises. As with trends in output losses, it is not possible to determine how much of the changes in these measures can be attributed to the financial crisis rather than to other factors. For example, analyzing the peak-to-trough changes in certain measures, such as home prices, can overstate the impacts associated with the crisis, as valuations before the crisis may have been inflated and unsustainable. The effects of the financial crisis have been wide-ranging, and we are not attempting to provide a comprehensive review of all components of the economic harm. Rather, the following highlights some of the most common types of measures used by academics and other researchers. As shown in figure 3, the unemployment rate rose substantially following the onset of the financial crisis and then declined, but it remains above the historical average as of November 2012. The monthly unemployment rate peaked at around 10 percent in October 2009 and remained above 8 percent for over 3 years, making this the longest stretch of unemployment above 8 percent in the United States since the Great Depression. The monthly long-term unemployment rate—measured as the share of the unemployed who have been looking for work for more than 27 weeks— increased above 40 percent in December 2009 and remained above 40 percent as of November 2012. Persistent, high unemployment has a range of negative consequences for individuals and the economy. First, displaced workers—those who permanently lose their jobs through no fault of their own—often suffer an initial decline in earnings and also can suffer longer-term losses in earnings. For example, one study found that workers displaced during the 1982 recession earned 20 percent less, on average, than their nondisplaced peers 15 to 20 years later. Reasons that unemployment can reduce future employment and earnings prospects for individuals include the stigma that some employers attach to long-term unemployment and the skill erosion that can occur as individuals lose familiarity with technical aspects of their occupation. Second, research suggests that the unemployed tend to be physically and psychologically worse off than their employed counterparts. For example, a review of 104 empirical studies assessing the impact of unemployment found that people who lost their job were more likely than other workers to report having stress-related health conditions, such as depression, stroke, heart disease, or heart attacks. Third, some studies find negative outcomes for health, earnings, and educational opportunities for the children of the unemployed. Fourth, periods of high unemployment can impact the lifetime earnings of people entering the workforce for the first time. For example, one study found that young people who graduate in a severe recession have lower lifetime earnings, on average, than those who graduate in normal economic conditions. In prior work, we reported that long-term unemployment can have particularly serious consequences for older Americans (age 55 and over) as their job loss threatens not only their immediate financial security but also their ability to support themselves during retirement. Persistent high unemployment can also increase budgetary pressures on federal, state, and local governments as expenditures on social welfare programs increase and individuals with reduced earnings pay less in taxes. According to the Federal Reserve’s Survey of Consumer Finances, median household net worth fell by $49,100 per family, or by nearly 39 percent, between 2007 and 2010. The survey found that this decline appeared to be driven most strongly by a broad collapse in home prices. Another major component of net worth that declined was the value of household financial assets, such as stocks and mutual funds. Economists we spoke with noted that precrisis asset prices may have reflected unsustainably high (or “bubble”) valuations and it may not be appropriate to consider the full amount of the overall decline in net worth as a loss associated with the crisis. Nevertheless, dramatic declines in net worth, combined with an uncertain economic outlook and reduced job security, can cause consumers to reduce spending. Reduced consumption, all else equal, further reduces aggregate demand and real GDP. As we reported in June 2012, decreases in home prices played a central role in the crisis and home prices continue to be well below their peak nationwide. According to CoreLogic’s Home Price Index, home prices across the country fell nearly 29 percent between their peak in April 2006 and the end of the recession in June 2009 (see fig. 4). This decline followed a 10-year period of significant home price growth, with the index more than doubling between April 1996 and 2006. Since 2009, home prices have fluctuated. Similarly, we also reported that homeowners have lost substantial equity in their homes, because home values have declined faster than home mortgage debt. As shown in figure 5, households collectively lost about $9.1 trillion (in constant 2011 dollars) in national home equity between 2005 and 2011, in part because of the decline in home prices. Figure 5 also shows that between 2006 and 2007, the steep decline in home values left homeowners collectively holding home mortgage debt in excess of the equity in their homes. This is the first time that aggregate home mortgage debt exceeded home equity since the data were kept in 1945. As of December 2011, national home equity was approximately $3.7 trillion less than total home mortgage debt. Declines in the value of household investments in stocks and mutual funds also contributed to significant declines in household wealth after the crisis began. In addition to experiencing a decline in the value of their stock and mutual fund investments, households also experienced a decline in their retirement funds. As shown in figure 6, the value of corporate equities held in retirement funds dropped sharply in late 2008. While equity prices and the value of retirement fund assets generally have recovered since 2009, investors and pension funds that sold assets at depressed prices experienced losses. For example, officials from a large pension fund told us that they were forced to sell equity securities at depressed prices during the crisis to meet their liquidity needs. Experts have different views on how the crisis may have changed investors’ attitudes towards risk-taking. To the extent that investors are more risk averse and demand higher returns for the risks associated with certain investments, businesses could face increased funding costs that could contribute to slower growth. In 2006, the percentage of loans in default or in foreclosure began to increase (see fig. 7). As we previously reported, a number of factors contributed to the increase in loan defaults and foreclosures, including a rapid decline in home prices throughout much of the nation and weak regional labor market conditions in some states where foreclosure rates were already elevated. During the 2007-2009 recession, the elevated unemployment rate and declining home prices worsened the financial circumstances for many families, along with their ability to make their mortgage payments. Foreclosures have been associated with a number of adverse effects on homeowners, communities, the housing market, and the overall economy. Homeowners involved in a foreclosure often are forced to move out and may see their credit ratings plummet, making it difficult to purchase another home. A large number of foreclosures can have serious consequences for neighborhoods. For example, research has shown that foreclosures depress the values of nearby properties in the local neighborhood. Creditors, investors, and servicers can incur a number of costs during the foreclosure process (e.g., maintenance and local taxes) and a net loss, if there is a shortfall between the ultimate sales price and the mortgage balance and carrying costs. Large numbers of foreclosures can significantly worsen cities’ fiscal circumstances, both by reducing property tax revenues and by raising costs to the local government associated with maintaining vacant and abandoned properties. Some studies consider measures of fiscal costs—such as increases in federal government debt—when analyzing the losses associated with financial crises. Like past financial crises, the 2007-2009 financial crisis has been associated with large increases in the federal government’s debt and heightened fiscal challenges for many state and local governments. Factors contributing to these challenges include decreased tax revenues from reduced economic activity and increased spending associated with government efforts to mitigate the effects of the recession. In prior work, we have reported that the economic downturn and the federal government’s response caused budget deficits to rise in recent years to levels not seen since World War II. While the structural imbalance between spending and revenue paths in the federal budget predated the financial crisis, the size and urgency of the federal government’s long-term fiscal challenges increased significantly following the crisis’s onset. From the end of 2007 to the end of 2010, federal debt held by the public increased from roughly 36 percent of GDP to roughly 62 percent. Key factors contributing to increased deficit and debt levels following the crisis included (1) reduced tax revenues, in part driven by declines in taxable income for consumers and businesses; (2) increased spending on unemployment insurance and other nondiscretionary programs that provide assistance to individuals impacted by the recession; (3) fiscal stimulus programs enacted by Congress to mitigate the recession, such as the American Recovery and Reinvestment Act of 2009 (Recovery Act); and (4) increased government assistance to stabilize financial institutions and markets. While deficits during or shortly after a recession can support an economic recovery, increased deficit and debt levels could have negative effects on economic growth. For example, rising federal debt can “crowd out” private investment in productive capital as the portion of savings that is used to buy government debt securities is not available to fund such investment. Lower levels of private investment can reduce future economic growth. In addition, increased debt increases the amount of interest the government pays to its lenders, all else equal. Policy alternatives to offsetting increased interest payments include increasing tax rates and reducing government benefits and services, which also can reduce economic growth. Moreover, increased fiscal challenges could make the United States more vulnerable to a fiscal crisis should investors lose confidence in the ability of the U.S. government to repay its debts. Such a crisis could carry enormous costs because the federal government would face a sharp increase in its borrowing costs. The following discussion focuses on the costs associated with the federal government’s actions to assist the financial sector. Fiscal stimulus programs, such as the Recovery Act, and the Federal Reserve’s monetary policy operations were major components of the federal government’s efforts to mitigate the recession that coincided with the 2007-2009 financial crisis. However, given our focus on the Dodd-Frank Act reforms, the potential short-term and long-term impacts of these efforts are beyond the scope of this report. Furthermore, our review did not consider the benefits or costs of government policy interventions relative to alternatives that were not implemented. With respect to the most significant government programs and other actions to assist the financial sector, the following discussion reviews (1) expert perspectives on how these policy responses could have reduced or increased the severity of the financial crisis and the associated economic losses; (2) the potential costs associated with increased moral hazard; and (3) the financial performance (including income and losses) of the largest of these policy interventions. Federal financial regulators and several academics and other experts we spoke with highlighted several interventions that they maintain likely helped to mitigate the severity of the 2007-2009 financial crisis. These interventions included providing emergency funding to support several key credit markets through the Federal Reserve’s emergency credit and liquidity programs; extending federal government guarantees to a broader range of private sector liabilities through FDIC’s Temporary Liquidity Guarantee Program (TLGP) and Treasury’s Money Market Fund Guarantee Program; recapitalizing financial firms through Treasury’s Troubled Asset Relief Program’s Capital Purchase Program; and taking actions with respect to individual firms, such as Fannie Mae, Freddie Mac, American International Group (AIG), Citigroup, and Bank of America, to avert further destabilization of financial markets. Many experts maintain that these large-scale interventions, in combination with other government actions, such as the stress tests, helped to restore confidence in the financial system and bring about a recovery in certain private credit markets in 2009. In contrast, other experts argue that certain federal government actions worsened, rather than mitigated, the severity of the financial crisis. For example, some experts maintain that the federal government’s rescue of Bear Stearns but not Lehman Brothers sent a conflicting signal to the market and contributed to a more severe panic. Some experts also have commented that government assistance to the financial and housing sectors may have slowed the economic recovery by preventing a full correction of asset prices. Many experts agree that several (if not all) of the federal government’s policy interventions likely averted a more severe crisis in the short-run and that the long-term implications of these interventions remain to be seen. Experts generally agree that the government actions to assist the financial sector may have increased moral hazard—that is, such actions may have encouraged market participants to expect similar emergency actions in the future, thus weakening private incentives to properly manage risks and creating the perception that some firms are too big to fail. Increased moral hazard could result in future costs for the government if reduced private sector incentives to manage risks contribute to a future financial crisis. Although the financial performance of the federal government’s assistance to the financial sector can be measured in different ways, most of the federal government’s major programs earned accounting income in excess of accounting losses and the net losses for some interventions are expected to be small relative to the overall increase in the federal debt. For example, the Federal Reserve reported that all loans made under its emergency programs that have closed were repaid with interest and does not project any losses on remaining loans outstanding. Under FDIC’s TLGP, program participants, which included insured depository institutions and their holding companies, paid fees on debt and deposits guaranteed by the program; these fees created a pool of funds to absorb losses. According to FDIC data, as of November 30, 2012, FDIC had collected $11.5 billion in TLGP fees and surcharges, and this amount is expected to exceed the losses from the program. In contrast, Treasury’s investments in Fannie Mae and Freddie Mac under the Senior Preferred Stock Purchase Agreements program represent the federal government’s single largest risk exposure remaining from its emergency actions to assist the financial sector. Cumulative cash draws by the GSEs under this program totaled $187.4 billion as of September 30, 2012, and Treasury reported a contingent liability of $316.2 billion for this program as of September 30, 2011. As of September 30, 2012, Fannie Mae and Freddie Mac had paid Treasury a total of $50.4 billion in dividends on these investments. The amount that Treasury will recoup from these investments is uncertain. Table 2 provides an overview of income and losses from selected federal government interventions to assist the financial sector. In our prior work, we have described how the national recession that coincided with the 2007-2009 financial crisis added to the fiscal challenges facing the state and local sectors. Declines in output, income, and employment caused state and local governments to collect less revenue at the same time that demand for social welfare services they provide was increasing. During the most recent recession, state and local governments experienced more severe and long-lasting declines in revenue than in past recessions. Because state governments typically face balanced budget requirements and other constraints, they adjust to this situation by raising taxes, cutting programs and services, or drawing down reserve funds, all but the last of which amplify short-term recessionary pressure on households and businesses. Local governments may make similar adjustments, unless they can borrow to make up for reduced revenue. The extent to which state and local governments took such actions was impacted by the federal government’s policy responses to moderate the downturn and restore economic growth. Under the Recovery Act, the federal government provided $282 billion in direct assistance to state and local governments to help offset significant declines in tax revenues. States have been affected differently by the 2007-2009 recession. For example, the unemployment rate in individual states increased by between 1.4 and 6.8 percentage points during the recession. Recent economic research suggests that while economic downturns within states generally occur around the same time as national recessions, their timing and duration vary. States’ differing characteristics, such as industrial structure, contribute to these differences in economic activity. Declines in state and local pension asset values stemming from the 2007- 2009 recession also could affect the sector’s long-term fiscal position. In March 2012, we reported that while most state and local government pension plans had assets sufficient to cover benefit payments to retirees for a decade or more, plans have experienced a growing gap between assets and liabilities. In response, state and local governments have begun taking a number of steps to manage their pension obligations, including reducing benefits and increasing member contributions. The Dodd-Frank Act contains several provisions that may benefit the financial system and the broader economy, but the realization of such benefits depends on a number of factors. Our review of the literature and discussions with a broad range of financial market regulators, participants, and observers revealed no clear consensus on the extent to which, if at all, the Dodd-Frank Act will help reduce the probability or severity of a future crisis. Nevertheless, many of these experts identified a number of the same reforms that they expect to enhance financial stability, at least in principle, and help reduce the probability or severity of a future crisis. At the same time, such experts generally noted that the benefits are not assured and depend on, among other things, how regulators implement the provisions and whether the additional regulations result in financial activity moving to less regulated institutions or markets. Several experts also commented that the act also could enhance consumer and investor protections. While estimating the extent to which the act may reduce the probability of a future crisis is difficult and subject to limitations, studies have found statistical evidence suggesting that certain reforms are associated with a reduction in the probability of a crisis. Through our review of the literature and discussions with a broad range of financial market regulators, academics, and industry and public interest group experts, we found no clear consensus on the extent to which, if at all, the Dodd-Frank Act will help reduce the probability or severity of a future financial crisis. However, representatives of these groups identified many of the same provisions in the act that they expect to enhance financial stability, at least in principle, and help reduce the probability or severity of a future crisis. These provisions include the following: Creation of FSOC and OFR: The act created FSOC and OFR to monitor and address threats to financial stability. Heightened prudential standards for systemically important financial institutions (SIFI): The act requires that all SIFIs be subjected to Federal Reserve supervision and enhanced capital and other prudential standards. SIFIs include bank holding companies with $50 billion or more in total consolidated assets and nonbank financial companies designated by FSOC for such supervision. Orderly Liquidation Authority: The act provides regulators with new authorities and tools to manage the failure of a large financial company in a way designed to avoid taxpayer-funded bailouts and mitigate the potential for such failures to threaten the stability of the financial system. Regulation of swaps: The act establishes a comprehensive regulatory framework for swaps. Mortgage-related and other reforms: The act includes provisions to modify certain mortgage lending practices, increase regulation of asset-backed securitizations, and restrict proprietary trading by large depository institutions. Experts had differing views on these provisions, but many expect some or all of the provisions to improve the financial system’s resilience to shocks and reduce incentives for financial institutions to take excessive risks that could threaten the broader economy. While acknowledging these potential financial stability benefits, experts generally were cautious in their assessments for several reasons. Specifically, the effectiveness of certain provisions will depend not only on how regulators implement the provisions through rulemaking or exercise their new authorities but also on how financial firms react to the new rules, including whether currently regulated financial activity migrates to less regulated institutions or markets. In addition, a few experts with whom we spoke said that some of the act’s provisions could increase systemic risk and, thus, have adverse effects on financial stability. Further, it may be neither possible nor necessarily desirable for the Dodd-Frank Act or any other legislation to prevent all future financial crises, in part because of the tradeoff inherent between financial stability and economic growth. The 2007-2009 financial crisis highlighted the lack of an agency or mechanism responsible for monitoring and addressing risks across the financial system and a shortage of readily available information to facilitate that oversight. We reported in July 2009 that creating a new body or designating one or more existing regulators with the responsibility to oversee systemic risk could serve to address a significant gap in the current U.S. regulatory system. Before the Dodd-Frank Act’s passage, federal financial regulators focused their oversight more on individual financial firms (called microprudential regulation) and less on market stability and systemic risk (called macroprudential regulation). However, the recent crisis illustrated the potential for one financial firm’s distress to spill over into the broader financial system and economy. For example, the failures and near-failures of Lehman Brothers, AIG, Fannie Mae, Freddie Mac, and other large financial institutions contributed to the instability experienced in the financial system during the crisis. The crisis also illustrated the potential for systemic risk to be generated and propagated outside of the largest financial firms (such as by money market mutual funds), in part because of interconnections not only between firms but also between markets. According to some academics and other market observers, a significant market failure revealed by the recent crisis was that the market did not discourage individual financial firms from taking excessive risks that could impose costs on others, including the public. Such spillover costs imposed on others are known as negative externalities, and government intervention may be appropriate to address such externalities. The Dodd-Frank Act established FSOC to provide, for the first time, an entity charged with the responsibility for monitoring and addressing sources of systemic risk. The act also created OFR to support FSOC and Congress by providing financial research and data. FSOC is authorized, among other things, to collect information across the financial system from member agencies and other government agencies, so that regulators will be better prepared to address emerging threats; designate certain nonbank financial companies for supervision by the Federal Reserve and subject them to enhanced prudential standards; designate as systemically important certain financial market utilities and payment, clearing, or settlement activities, and subject them to enhanced regulatory oversight; recommend stricter standards for the large, interconnected bank holding companies and nonbank financial companies designated for enhanced supervision; vote on any determination by the Federal Reserve that action should be taken to break up a SIFI that poses a “grave threat” to U.S. financial stability; facilitate information sharing and coordination among the member agencies to eliminate gaps in the regulatory structure; and make recommendations to enhance the integrity, efficiency, competitiveness, and stability of U.S. financial markets, promote market discipline, and maintain investor confidence. Financial market regulators, academics, and industry and public interest groups with whom we spoke generally view the creation of FSOC and OFR as positive steps, in principle, to address systemic risk and help identify or mitigate a future crisis for several reasons. First, FSOC and its member agencies now have explicit responsibility for taking a macroprudential approach to regulation, along with tools and authority to help identify and address threats to the financial stability of the United States. For example, certain nonbank financial companies posed systemic risk during the crisis but were subject to less regulation than bank holding companies. To close this regulatory gap, FSOC has the authority to designate a nonbank financial company for supervision by the Federal Reserve and subject it to enhanced prudential standards, if the material distress of that firm could pose a risk to U.S. financial stability. In addition, although the Dodd-Frank Act does not address all sources of systemic risk, the act authorizes FSOC to make recommendations to address regulatory gaps or other issues that threaten U.S. financial stability. For example, FSOC’s 2011 and 2012 annual reports discuss financial stability threats not directly addressed by the Dodd-Frank Act (e.g., money market mutual funds, tri-party repurchase agreements, and the GSEs) and make recommendations to address some of them. Finally, OFR may play an important role in gathering and analyzing data that FSOC and its members will be able to use to identify and address emerging risks to the financial system. OFR may also facilitate data sharing among the regulators, which may enable regulators to identify risks in areas emerging from beyond their immediate jurisdictions. Market participants also may benefit from the ability to use OFR data to analyze risks. Experts also identified a number of factors that could limit FSOC’s or OFR’s effectiveness. First, it is inherently challenging for a regulator to identify and address certain sources of systemic risk. For example, while asset price bubbles often become clear in hindsight, when such risks appear to be building, policymakers may disagree over whether any intervention is warranted. Second, FSOC’s committee structure cannot fully resolve the difficulties inherent in the existing, fragmented regulatory structure. For example, FSOC could encounter difficulties coming to decisions or advancing a reform if it faces resistance from one or more of its members. In addition, FSOC’s committee structure, including the Treasury Secretary’s role as FSOC chair, could subject FSOC’s decision making to political influence. According to a number of experts, establishing FSOC and OFR as independent entities could have better insulated them from political pressures that could dissuade them from recommending or taking actions to promote long-term financial stability, if such actions imposed short-term political costs. On the other hand, the selection of the Treasury Secretary as FSOC chair reflects the Treasury Secretary’s traditional role in financial policy decisions. In a recent report, we identified a number of potential challenges for FSOC, some of which are similar to those discussed above. Specifically, we noted that key components of FSOC’s mission—to identify risks to U.S. financial stability and respond to emerging threats to stability—are inherently challenging. Risks to the stability of the U.S. financial system are difficult to identify because commonly used indicators, such as market prices, often do not reflect these risks and threats may not develop in precisely the same way as they did in past crises. Although the act created FSOC to provide for a more comprehensive view of threats to U.S. financial stability, it left most of the pre-existing fragmented and complex arrangement of independent federal and state regulators in place and generally preserved their statutory responsibilities. Further, we noted that FSOC does not have the authority to force agencies to coordinate or adopt compatible policies and procedures. However, we also reported that FSOC and OFR have made progress in establishing their operations and approaches for monitoring threats to financial stability, but these efforts could be strengthened. We made recommendations to strengthen the accountability and transparency of FSOC’s and OFR’s decisions and activities as well as to enhance collaboration among FSOC members and with external stakeholders. In response to our recommendations, Treasury emphasized the progress that FSOC and OFR have made since their creation and noted that more work remains, as they are relatively new organizations. The 2007-2009 financial crisis also revealed weaknesses in the existing regulatory framework for overseeing large, interconnected, and highly leveraged financial institutions. Such financial firms were subject to some form of federal supervision and regulation, but these forms of supervision and regulation proved inadequate and inconsistent. For example, fragmentation of supervisory responsibility allowed owners of banks and other insured depository institutions to choose their own regulator. In addition, regulators did not require firms to hold sufficient capital to cover their trading and other losses or to plan for a scenario in which liquidity was sharply curtailed. Moreover, the regulatory framework did not ensure that banks fully internalized the costs of the risks that their failure could impose on the financial system and broader economy. The Dodd-Frank Act requires the Federal Reserve to supervise and develop enhanced capital and other prudential standards for SIFIs, which include bank holding companies with $50 billion or more in consolidated assets and any nonbank financial company that FSOC designates. The act requires the enhanced prudential standards to be more stringent than standards applicable to other bank holding companies and financial firms that do not present similar risks to U.S. financial stability. The act further allows the enhanced standards to increase in stringency based on the systemic footprint and risk characteristics of each firm. The Federal Reserve plans to implement some of its enhanced standards in conjunction with its implementation of Basel III, a new capital regime developed by the Basel Committee on Banking Supervision. The act’s provisions related to SIFIs include the following: Risk-based capital requirements and leverage limits: The Federal Reserve must establish capital and leverage standards, which as proposed would include a requirement for SIFIs to develop capital plans to help ensure that they maintain capital ratios above specified standards, under both normal and adverse conditions. In addition, the Federal Reserve has announced its intention to apply capital surcharges to some or all SIFIs based on the risks SIFIs pose to the financial system. Liquidity requirements: The Federal Reserve must establish SIFI liquidity standards, which as proposed would include requirements for SIFIs to hold liquid assets that can be used to cover their cash outflows over short time periods. Single-counterparty credit limits: The Federal Reserve must propose rules that, in general, limit the total net credit exposure of a SIFI to any single unaffiliated company to 25 percent of its total capital stock and surplus. Risk management requirements: Publicly traded SIFIs must establish a risk committee and be subject to enhanced risk management standards. Stress testing requirements: The Federal Reserve is required to conduct an annual evaluation of whether SIFIs have sufficient capital to absorb losses that could arise from adverse economic conditions. Debt-to-equity limits: Certain SIFIs may be required to maintain a debt-to-equity ratio of no more than 15-to-1. Early remediation: The Federal Reserve is required to establish a regulatory framework for the early remediation of financial weaknesses of SIFIs in order to minimize the probability that such companies will become insolvent and the potential harm of such insolvencies to the financial stability of the United States. A broad range of financial market regulators, academics, and industry and public interest group experts generally expect the enhanced prudential standards to help increase the resilience of SIFIs and reduce the potential for a SIFI’s financial distress to spill over to the financial system and broader economy. Higher capital levels increase a firm’s resilience during times of financial stress because more capital is available to absorb unexpected losses. Similarly, increased liquidity (e.g., holding more liquid assets and reducing reliance on short-term funding sources) can reduce the likelihood that a firm will have to respond to temporary strains in credit markets by cutting back on new lending or selling assets at depressed prices. Increased capital and liquidity levels together can limit the potential for large, unexpected losses in the financial system to disrupt the provision of credit and other financial services to households and businesses, which occurred in the most recent financial crisis. Finally, limiting counterparty credit exposures also can help to minimize spillover effects. A number of experts viewed the act’s enhanced prudential standards for SIFIs as particularly beneficial, because such institutions pose greater risks to the orderly functioning of financial markets than less systemically significant institutions, and subjecting SIFIs to stricter standards can cause them to internalize the costs of the risks they pose to the system. For example, the Federal Reserve intends to issue a proposal that would impose capital surcharges on SIFIs based on a regulatory assessment of the systemic risk they pose, consistent with a framework agreed to by the Basel Committee. In addition, the Dodd-Frank Act’s enhanced prudential standards provisions allow federal regulators to impose more stringent risk management standards and oversight of SIFIs’ activities, including by conducting stress tests, to help ensure that weaknesses are addressed before they threaten the financial system. Experts noted that these stricter standards, including the surcharges, could serve as a disincentive to financial firms to become larger or otherwise increase the risks they pose to the broader financial system. Despite generally supporting an increase in the capital requirements, experts questioned the potential effectiveness of certain aspects of the enhanced prudential standards for SIFIs: Impact on “too-big-to-fail” perceptions: Experts suggested that the market may view SIFIs as too big to fail, paradoxically giving such firms an implicit promise of government support if they run into financial difficulties. As discussed below, perceptions that SIFIs are too big to fail can weaken incentives for creditors to restrain excessive risk-taking by SIFIs and could give such firms a funding advantage over their competitors. However, others noted that the heightened standards were specifically designed to address these issues and view the act as explicitly prohibiting federal government support for SIFIs. For example, the act revises the Federal Reserve Act to prohibit the Federal Reserve from providing support to individual institutions in financial distress and, as discussed below, the act creates a new option for liquidating such firms. Limits of Basel approach to capital standards: The Federal Reserve will base its enhanced regulatory capital standards, in part, on Basel’s approach, which several experts view as having limitations. They recognized that the Basel III standards address some of the limitations that the financial crisis revealed in the regulatory capital framework, but maintain that Basel III continues to place too much reliance on risk-based approaches to determining capital adequacy. During the 2007-2009 crisis, some banks experienced capital shortages, in part because they suffered large losses on assets that were assigned low risk weights under Basel’s standards but posed greater risk than their risk weights. The Basel III framework will increase risk weights for certain asset classes—and includes a leverage ratio as a safeguard against inaccurate risk weights—but experts noted that the potential remains for financial institutions to “game” the Basel risk weights by increasing holdings of assets that carry risk-weights that are lower than their actual risks. In addition, some experts maintain that the Basel standards overall may not provide a sufficient buffer to protect firms during times of stress. However, one regulator noted that the leverage ratio, and the higher requirements for common equity and tier 1 capital called for in the Basel III standards, represent a significant tightening of capital regulation (in combination with the imposition of some higher risk weights and better quality of capital). Implementation of these SIFI provisions is ongoing. In January 2012, the Federal Reserve proposed rules to implement the enhanced prudential standards, but has not yet finalized all of these rules. In addition, the Federal Reserve and other federal prudential regulators are continuing to work to implement Basel III. As of December 2012 FSOC had not yet designated any nonbank financial companies for Federal Reserve supervision; the Federal Reserve will subsequently be responsible for developing rules for the heightened capital and other prudential standards for these entities. Faced with the impending failure of a number of large financial companies during the 2007-2009 financial crisis, federal financial regulators generally had two options: (1) allowing these companies to file for bankruptcy at the risk of exacerbating the crisis (e.g., Lehman Brothers) or (2) providing such companies with emergency funding from the government at the risk of increasing moral hazard (e.g., AIG). As we previously reported, traditional bankruptcy may not be effective or appropriate for financial companies for a variety of reasons. For example, in bankruptcy proceedings for companies that hold derivatives or certain other qualified financial contracts, creditors may terminate such contracts, even though creditors generally may not terminate other contracts because they are subject to automatic stays. Termination of derivative contracts can lead to large losses for the failed firm and other firms through fire sales and other interconnections. For example, the insolvency of Lehman Brothers had a negative effect on financial stability by contributing to a run on money market mutual funds and disrupting certain swaps markets. Further, bankruptcy is a domestic legal process that varies by jurisdiction. Thus, the bankruptcy of a financial company with foreign subsidiaries, such as Lehman Brothers, can raise difficult international coordination challenges. In contrast to the Lehman case, the government provided support to some financial firms, such as AIG, because of concerns that their failures would further disrupt the broader financial system. A number of experts maintain this government assistance increased moral hazard by encouraging market participants to expect similar emergency actions in future crises for large, interconnected financial institutions—in effect, reinforcing perceptions that some firms are too big to fail. The perception of certain firms as too big to fail weakens market discipline by reducing the incentives of shareholders, creditors, and counterparties of these companies to discipline excessive risk taking. For example, creditors and shareholders may not demand that firms they view as too big to fail make adequate disclosures about these risks, which could further undermine market discipline. Perceptions that firms are too big to fail also can produce competitive distortions because companies perceived as ‘too big to fail’ may be able to fund themselves at a lower cost than their competitors. The Dodd-Frank Act’s Title II provides the federal government with a new option for resolving failing financial companies by creating a process under which FDIC has the authority to liquidate large financial companies, including nonbanks, outside of the bankruptcy process—called orderly liquidation authority (OLA). In general, under this authority, FDIC may be appointed receiver for a financial firm if the Treasury Secretary determines that the firm’s failure would have a serious adverse effect on U.S. financial stability. Under OLA, FDIC must maximize the value of the firm’s assets, minimize losses, mitigate systemic risk, and minimize moral hazard. OLA also establishes additional authorities for FDIC as receiver, such as the ability to set up a bridge financial company and to borrow funds from the Treasury to carry out the liquidation. FDIC can subsequently collect funding for the OLA process from the financial industry after a company has been liquidated. A range of financial market regulators, academics, and industry and public interest group experts identified a number of ways in which the Dodd-Frank Act’s OLA provisions could help mitigate threats to the financial system posed by the failure of SIFIs or other large, complex, interconnected financial companies. First, the OLA framework may be effective in addressing the limitations of the bankruptcy process. For example, experts noted that under OLA, FDIC will be able to control the liquidation process and can temporarily prevent creditors from terminating their qualified financial contracts, the termination of which could prompt fire sales that could be destabilizing. Second, under its rules, FDIC has indicated that it will ensure that creditors and shareholders of a company in OLA will bear the losses of the company. By helping to ensure that creditors and shareholders will bear losses in the event of a failure, OLA could strengthen incentives for creditors and shareholders to monitor these firms’ risks. Finally, OLA could help convince market participants that government support will no longer be available for SIFIs, which could increase investors’ incentives to demand that SIFIs become more transparent and refrain from taking excessive risks. Experts also identified a number of potential challenges and limitations of OLA. OLA is new and untested, and its effectiveness in reducing moral hazard will depend on the extent to which the market believes FDIC will use OLA to make creditors bear losses of any SIFI failure. Experts identified a conflict between OLA’s goal of eliminating government bailouts on one hand and minimizing systemic risk on the other. For example, if FDIC imposes losses on some creditors of a failed SIFI, these losses could cause other SIFIs to fail. In that regard, some experts observed that governments historically have not allowed potentially systemically important financial firms to fail during a crisis and question whether a different outcome can be expected in the future. Moreover, experts questioned whether FDIC has the capacity to use OLA to handle multiple SIFI failures, which might occur during a crisis. Another concern is that OLA will be applied to globally active financial institutions, and how FDIC and foreign regulators will handle the non-U.S. subsidiaries of a failed SIFI remains unclear. In addition, SIFIs must formulate and submit to their regulators resolution plans (or “living wills”) that detail how they could be resolved in bankruptcy should they encounter financial difficulties. Experts noted that resolution plans may provide regulators with critical information about a firm’s organizational structure that could aid the resolution process. The plans also could motivate SIFIs to simplify their structures, and this simplification could help facilitate an orderly liquidation. However, other experts commented that while resolution plans may assist regulators in gaining a better understanding of SIFI structures and activities, the plans may not be useful guides during an actual liquidation—in part because of the complex structures of the institutions or because the plans may not be helpful during a crisis. Resolution plans also may provide limited benefits in simplifying firm structures, in part because tax, jurisdictional, and other considerations may outweigh the benefits of simplification. FDIC has finalized key OLA rules and is engaged in a continuing process of clarifying how certain aspects of the OLA process would work. For example, FDIC officials have clarified that the OLA process will focus on the holding company level of the firm, and stated that the creation of the bridge institution will help ensure that solvent subsidiaries may continue to function. In addition, FDIC and the Federal Reserve are in the process of reviewing the first set of resolution plans, which were submitted in July 2012. Except for credit default swaps (CDS)—a type of derivative used to hedge or transfer credit risk—other over-the-counter (OTC) swaps and derivative contracts generally were not central to the systemwide problems encountered during the financial crisis, according to FSOC. Nonetheless, FSOC noted that OTC derivatives generally were a factor in the propagation of risks during the recent crisis because of their complexity and opacity, which contributed to excessive risk taking, a lack of clarity about the ultimate distribution of risks, and a loss in market confidence. In contrast to other OTC derivatives, credit default swaps exacerbated the 2007-2009 crisis, particularly because of AIG’s large holdings of such swaps, which were not well understood by regulators or other market participants. Furthermore, the concentration of most OTC derivatives trading among a small number of dealers created the risk that the failure of one of these dealers could expose counterparties to sudden losses and destabilize financial markets. While some standardized swaps, such as interest rate swaps, have traditionally been cleared through clearinghouses—which stand between counterparties in assuming the risk of counterparty default—most CDS and most other swaps have been traded in the OTC market where holders of derivatives contracts bear the risk of counterparty default. In addition, swaps traded in the OTC market have typically featured an exchange of margin collateral to cover current exposures between the two parties, but not “initial” margin to protect a nondefaulting party against the cost of replacing the contract if necessary. As of the end of the second quarter of 2012, the outstanding notional value of derivatives held by insured U.S. commercial banks and savings associations totaled more than $200 trillion. As noted earlier, Title VII of the Dodd-Frank Act, also known as the Wall Street Transparency and Accountability Act of 2010, establishes a new regulatory framework for swaps to reduce risk, increase transparency, and promote market integrity in swaps markets. Among other things, Title VII generally provides for the registration and regulation of swap dealers and major swap participants, including subjecting them to (1) prudential regulatory requirements, such as minimum capital and minimum initial and variation margin requirements and (2) business conduct requirements to address, among other things, interaction with counterparties, disclosure, and supervision; imposes mandatory clearing requirements on swaps but exempts certain end users that use swaps to hedge or mitigate commercial risk; requires swaps subject to mandatory clearing to be executed on an organized exchange or swap execution facility, which promotes pre- trade transparency (unless no facility offers the swap for trading); and requires all swaps to be reported to a registered swap data repository or, if no such repository will accept the swap, to CFTC or SEC, and subjects swaps to post-trade transparency requirements (real-time public reporting of swap data). Figure 8 illustrates some of the differences between swaps traded on exchanges and cleared through clearinghouses and swaps traded in the OTC market. A broad range of financial market regulators, participants, and observers expect various provisions under Title VII to help promote financial stability, but they also identified potential obstacles or challenges. Clearing through clearinghouses: According to experts, the clearing of swaps through clearinghouses could be beneficial. Clearing can reduce the vulnerability of the financial system to the failure of one or a few of the major swap dealers by transferring credit risk from the swap counterparties to the clearinghouse. By becoming the central counterparty in every trade, a clearinghouse can provide multilateral netting efficiencies to reduce counterparty credit and liquidity risks faced by market participants. Unlike dealers, clearinghouses do not take positions on the trades they clear and may have stronger incentives to develop effective risk management measures and monitor their members’ financial condition. In addition, clearinghouses have tools to mitigate counterparty credit risk, for instance, initial and variation margin, as well as the ability to assess their members for additional financial contributions. At the same time, experts have pointed out that clearinghouses concentrate credit risk and thus represent a potential source of systemic risk. For example, a former regulatory official told us that, in her opinion, clearinghouses essentially are too big to fail, given that the Dodd-Frank Act includes provisions mandating centralized clearing of standardized swaps and authorizing the Federal Reserve to provide emergency liquidity to systemically important clearinghouses provided certain conditions are met. Others commented that clearinghouses may be engaged in clearing less standardized or illiquid products, which could pose risk- management challenges for clearinghouses and expose them to greater risks. Margin requirements: Experts expect the margin requirements for uncleared swaps with swap dealers and major swap participants to help promote financial stability by helping to ensure that market participants have enough collateral to absorb losses. For example, imposing both initial and variation margin requirements on uncleared swaps could help prevent the type of build-up of large, uncollateralized exposures experienced by AIG. Some experts commented that margin requirements, depending how they are implemented, could have a negative impact on liquidity if there is not a sufficient supply of quality securities that can be posted as collateral to meet margin requirements. Reporting requirements: Many experts generally expect the swaps reforms that improve transparency to benefit the financial system. For example, the requirement for regulatory reporting of swaps transactions may provide regulators with a better understanding of the current risks in the swaps market and help enhance their oversight of the market. Similarly, public reporting of swap data could benefit market participants by providing them with data on prices and other details about swaps that they can use to better assess their risks. A number of industry representatives noted that the public reporting requirement could lead some market participants to reduce their participation out of fear that others can take advantage of such information. In their view, this could result in a loss of liquidity to the system. CFTC and SEC have finalized many of the regulations needed to implement Title VII, though several had yet to be finalized as of December 2012. OTC derivatives are globally traded, and many other jurisdictions are in the process of developing new regulatory regimes. However, the United States is one of the first jurisdictions to have enacted legislation in this area. Indeed, the implementation of at least one derivatives-related provision has already been delayed because of the importance of coordinating with international entities. The outcome of the reform process in other jurisdictions will determine the extent to which U.S. firms could be at a competitive advantage or disadvantage. (See app. II for a description of international coordination efforts.) While the previously discussed Dodd-Frank Act provisions were commonly cited as the most important ones for enhancing U.S. financial stability, several financial market regulators, participants, and observers we spoke with identified other provisions that they expect to help enhance financial stability. As with the provisions discussed above, certain key rules implementing the following provisions have not yet been finalized. Mortgage-related reforms: According to experts, problems in the mortgage market, particularly with subprime mortgages, played a central role in the recent financial crisis, and the act’s mortgage- related reforms may help prevent such problems in the future. Some bank and nonbank mortgage lenders weakened their underwriting standards and made mortgage loans to homebuyers who could not afford them or engaged in abusive lending practices before the crisis. These factors, along with the decline in housing prices, contributed to the increase in mortgage defaults and foreclosures. A number of the act’s provisions seek to reform the mortgage market—for example, by authorizing CFPB to supervise nonbank mortgage lenders and by prohibiting certain mortgage lending practices, such as issuing mortgage loans without making a reasonable and good faith effort to determine that the borrower has a reasonable ability to repay. Some industry representatives have expressed concerns that these reforms could prevent certain potential homebuyers from being able to obtain mortgage loans. However, other experts noted that before the crisis some loans had rates that did not fully reflect their risks, which contributed to an excess of credit, and the act’s reforms may help ensure that loans are accurately priced to reflect risks. Many of the Dodd-Frank Act’s mortgage reforms have not yet been implemented through rulemaking. Risk retention for asset securitizations: According to experts, the securitization of residential mortgages into mortgage-backed securities that subsequently were part of other securitizations also played a central role in the crisis, and the act contains provisions to reform the market. Experts also noted that institutions that created mortgage-backed securities in the lead-up to the crisis engaged in a number of practices that undermined the quality of their securities, including not adequately monitoring the quality of the mortgages underlying their securities, because they did not bear the risk of significant losses if those mortgages defaulted. The act contains provisions that require securitizers of asset-backed securities to retain some “skin in the game” in the form of a certain percentage of the credit risk in asset-backed securities they create. However, experts have different views on the extent to which the level of risk retention for securitizations was central to the problems encountered during the recent crisis, and a few do not view these provisions as potentially beneficial for financial stability. Regulators proposed implementing rules for the provision in 2011 but had yet to finalize the rules as of December 2012. The Volcker rule: The role that proprietary trading—trading activities conducted by banking entities for their own account as opposed to those of their clients—played in the recent crisis is a matter of debate. However, a number of experts maintain that the ability of banking entities to use federally insured deposits to seek profits for their own account provides incentives for them to take on excessive risks. In particular, some have noted that commercial banks that benefit from the federal financial safety net enjoy access to subsidized capital and thus do not bear the full risks of their proprietary trading activities. To address these concerns, section 619 of the Dodd-Frank Act, referred to as the Volcker rule, generally prohibits a banking entity from engaging in proprietary trading or acquiring or retaining more than a certain maximum percentage of any equity, partnership, or other ownership interest in, or sponsoring, a hedge fund or a private equity fund, among other restrictions involving transactions between covered banking entities and sponsored hedge funds and private equity funds. A number of experts view these restrictions as enhancing financial stability by discouraging excessive risk-taking by these institutions. Others, however, have noted that the Volcker rule, by prohibiting certain proprietary activities of these institutions, could have adverse effects on liquidity and, in turn, the unintended effect of undermining financial stability. In 2011, regulators proposed rules to implement the Volcker rule but had not yet finalized them as of December 2012. Financial market regulators, participants, and observers whom we interviewed also identified provisions that may result in benefits beyond increased financial stability. For example, the act may enhance consumer and investor protections and improve economic efficiency. As with the provisions previously noted, the realization of such benefits will depend, in part, on how regulators implement the provisions. Benefits beyond financial stability that experts highlighted include the following: Enhanced consumer protections: The Dodd-Frank Act’s Title X consolidates rulemaking and other authorities over consumer financial products and services under CFPB. The new agency assumes authority to implement consumer protection laws, such as the Truth in Lending Act and Home Ownership and Equity Protection Act of 1994. CFPB could assist consumers by improving their understanding of financial products and services. For example, experts noted that consumers could benefit from CFPB’s efforts, which include providing information on consumer financial products and simplifying disclosures for mortgages, credit cards, and other consumer financial products. Enhanced investor protections: Certain provisions in the act could provide shareholders with greater influence over, and insight into, the activities of publicly traded companies. For example, the act contains provisions that require shareholder advisory votes on executive compensation, disclosure of the ratio between the chief executive officer’s annual total compensation and median annual total compensation for all other employees, and clawback policies for erroneously awarded incentive-based compensation. Improving resource allocation in the economy: Some experts noted that mortgages and related credit instruments were not accurately priced before the crisis to reflect their risks. As a result, the economy experienced a credit bubble that facilitated a misallocation of resources to the housing sector. For example, one expert noted that residential housing construction during the 2000s was excessive and inefficient. To the extent that the act contributes to a more accurate pricing of credit, the economy could benefit from a more efficient allocation of resources across the broader economy. The Dodd-Frank Act’s potential benefit of reducing the probability or severity of a future financial crisis cannot be readily observed and this potential benefit is difficult to quantify. Any analyses must be based on assumptions about, or models of, the economy. Consequently, the results of such analyses are subject to substantial uncertainty. Nonetheless, as we noted previously in this report, a working group of the Basel Committee on Banking Supervision summarized several studies that analyze the costs of financial crises, and that used different macroeconomic models of the economy to estimate the impact of more stringent capital and liquidity standards on the annual likelihood of a financial crisis, and the benefits of avoiding associated output losses. The Basel Committee report suggests that increases in capital and liquidity ratios are associated with a reduction in the probability that a country will experience a financial crisis. Higher capital and liquidity requirements may generate social benefits by reducing the frequency and severity of banking crises and the consequent loss of economic output. The Basel Committee working group found that although there is considerable uncertainty about the exact magnitude of the effect, the evidence suggests that higher capital and liquidity requirements can reduce the probability of banking crises. For example, the models suggest, on average, that if the banking system’s capital ratio—as measured by the ratio of tangible common equity to risk-weighted assets—is 7 percent, then a 1 percentage point increase in the capital ratio is associated with a 1.6 percentage point reduction in the probability of a financial crisis—from 4.6 percent to 3.0 percent per year. The working group also found that if the capital ratio was 7 percent, then a 12.5 percent increase in the ratio of liquid assets to total assets in the banking system is associated with a 0.8 percentage point reduction in the probability of a crisis per year, on average. In addition, the incremental benefits of higher capital requirements are greater when bank capital ratios are increased from lower levels and they decline as standards become progressively more stringent. For example, the models suggest, on average, that the reduction in the likelihood of a crisis is three times larger when the capital ratio is increased from 7 percent to 8 percent than it is when the capital ratio is increased from 10 percent to 11 percent. The further away banks are from insolvency, the lower their marginal benefit is from additional protection. Estimates of the reduced probability of a financial crisis are subject to a number of limitations. For example, researchers note that the reduction in the probability of a crisis depends on the baseline assumptions about the average probability of a crisis before the policy changes—in this case, before the increase in capital requirements. In addition, overall economic conditions, or factors outside of the financial system, also may affect the probability of a financial crisis. The Basel Committee working group also summarized the studies’ estimates of the potential benefits from higher capital and liquidity requirements in terms of economic output gains that could result from a lower probability of a crisis. The studies used estimates of the costs of a crisis to estimate that a 1 percent decrease in the annual probability of a crisis could have a benefit of 0.2 percent to 1.6 percent per year of increased economic output, depending on the extent to which the crisis losses are temporary or permanent. If, for example, annual GDP were $15 trillion (around the size of U.S. GDP) these estimates suggest that the economic benefit in terms of increased GDP could range from approximately $29 billion to about $238 billion per year. These estimates also are subject to limitations, however. As we previously discussed in this report, estimates of financial crisis losses have varied widely depending on the assumptions made. In addition, these models did not take into account variations in responses to higher capital and liquidity requirements among institutions and regulatory environments. Given the difficulty of measuring the extent to which the Dodd-Frank Act may reduce the probability of a future crisis, a few academics have proposed a more conceptual approach for comparing the act’s potential benefits and costs. According to these experts, the benefits of the act can be framed by determining the percent by which the cost of a financial crisis needs to be reduced to be equal to the act’s costs. If the cost of a future crisis is expected to be in the trillions of dollars, then the act likely would need to reduce the probability of a future financial crisis by only a small percent for its expected benefit to equal the act’s expected cost. Although an academic told us this thought exercise helped put the benefits and costs of the Dodd-Frank Act into perspective, it provides no insight into whether the act reduces the probability of a future crisis by even a small percent. The Dodd-Frank Act requires federal agencies and the financial services industry to expend resources to implement or comply with its requirements, and some of its reforms are expected to impose costs on the economy. First, federal agencies are devoting resources to fulfill rule- making and other new regulatory responsibilities created by the act. A large portion of these agency resources are funded by fees paid by industry participants or other revenue sources outside of congressional appropriations, limiting the impact of these activities on the federal budget deficit. Second, the act contains a broad range of reforms that generally are imposing or will impose additional regulations and costs on a correspondingly broad range of financial institutions, including banks, broker-dealers, futures commission merchants, investment advisers, and nonbank financial companies. Given the act’s focus on enhancing financial stability, large, complex financial institutions will likely bear the greatest costs, but smaller financial institutions and other financial market participants also will incur costs. Third, by imposing costs on the financial services industry, the act also may impose costs on the broader economy and reduce output. For example, financial institutions may charge their customers more for credit or other financial services. While the act’s costs can be viewed as the price to be paid to achieve a more resilient financial system and other benefits, some industry representatives question whether the costs, individually or cumulatively, are excessive. Furthermore, observers have also expressed concerns about potential unintended consequences of the act, such as reducing the competiveness of U.S. financial institutions in the global financial marketplace. The amount of funding that 10 federal financial entities have reported as associated with their implementation of the Dodd-Frank Act varied significantly from 2010 through 2013, and the amounts have been increasing for some of these entities. Funding resources associated with the Dodd-Frank Act’s implementation from 2010 through 2012 ranged from a low of $4.3 million for FHFA to a high of $432.3 million for CFPB (see table 2). In addition, funding associated with the act’s implementation increased from 2011 through 2012 for all but one of the agencies, FHFA, and more than doubled for four entities: OFR, FSOC, CFPB, and OCC. Three of these four entities—OFR, FSOC, and CFPB— were created through the Dodd-Frank Act and thus are in the process of establishing management structures and mechanisms to carry out their missions. Likewise, according to CFPB and OFR, while some of their funding was used for recurring staffing costs, other funding was used for start-up costs, such as systems development, contractor support, and data purchases. According to FSOC and OFR, the increase in funding is directly proportional to the growth in their staffing and reflects an increase in the size and scope of their organizations. Some new funding resources reported by agencies may represent transfers between entities rather than new funding resources. For example, the large increase in Dodd- Frank-related funding for OCC between 2011 and 2012 reflects OCC’s integration of OTS responsibilities and staff, according to OCC officials. In addition, new funding resources for CFPB include some funding resources transferred from the Federal Reserve. In such cases, these new funding resources do not represent an incremental cost of the act’s implementation. To meet their Dodd-Frank-related responsibilities, federal entities reported that they have hired new staff, redirected staff from other areas, or used staff transferred from other entities. The number of full-time equivalents (FTE) reported by the 10 federal entities as associated with their implementation of the act also varied significantly from 2010 through 2013, and the amounts have been increasing for some entities (see table 3). The entities’ estimates of new FTEs related to implementing the Dodd- Frank provisions for 2010 through 2012 ranged from a low of 18 for FHFA to a high of 964 for the Federal Reserve. Some new FTEs reported by agencies represent transfers of staff between agencies rather than new hires. New FTEs for OCC in 2011 include staff transferred from OTS. In addition, new FTEs for CFPB include staff transferred from the agencies whose consumer protection responsibilities were transferred to CFPB. In such cases where new FTEs for an entity have resulted from a transfer of existing regulatory responsibilities between entities, these new FTEs do not represent an incremental cost of the act’s implementation. A large portion of the federal entities’ resources devoted to the act’s implementation are funded by fees paid by regulated institutions or other sources outside the congressional appropriations process, limiting the impact of these activities on the federal budget deficit. Seven of the entities (CFPB, FSOC, OFR, FDIC, FHFA, OCC, and the Federal Reserve) are funded in full through assessments, fees, or other revenue sources and, thus, have not received any congressional appropriations. Moreover, FSOC and OFR are funded by assessments on large bank holding companies and nonbank financial companies designated by FSOC for supervision by the Federal Reserve. SEC receives appropriations, but SEC collects transaction fees and assessments that are designed to recover the costs to the federal government of its annual appropriation. CFPB receives a mandatory transfer of funding from the Federal Reserve, subject to certain limits, but may request discretionary appropriations. Treasury and CFTC are funded through congressional appropriations. Although entities’ funding resources and staff have increased due to implementation of the act, these increases are not expected to have a significant impact on the federal deficit. In 2011, CBO estimated that the Dodd-Frank Act would reduce federal deficits by $3.2 billion over the period from 2010 to 2020. CBO projected that the act would increase revenues by $13.4 billion and increase direct spending by $10.2 billion over this period. While CBO’s analysis did not consider the potential impacts of the act’s reforms on economic growth, its estimates suggest that the size of the act’s direct impacts on federal spending is small relative to total federal net outlays of $3.6 trillion in fiscal year 2011. While fees and assessments paid by financial institutions to the federal entities help to limit the act’s direct impacts on the federal budget deficit, they represent a cost to these institutions and could have indirect impacts on the economy, as discussed later in this report. In collecting and analyzing this information, we found challenges and limitations that affected our efforts to aggregate the data. For example, agencies told us that their reported funding and FTE resources for 2013 reflect their best estimates of the level of resources required to implement existing and new responsibilities but stated that these estimates were uncertain. As shown in tables 3 and 4, a few agencies did not provide projections for 2013 resources related to the act’s implementation. In addition, not all of the federal entities are on a federal fiscal year, so the reported budgetary activities for some entities cover different time frames. Moreover, the entities may have used different approaches to estimate the funding and FTE resources, potentially making the figures harder to compare across entities. The Dodd-Frank Act’s provisions and regulations generally impose or are expected to impose costs on banks and other financial institutions. According to some academics and others, certain types of costs imposed by the act on financial institutions serve to make such institutions internalize costs that they impose on others through their risk-taking and thereby reduce the risk that they pose to the financial system. The extent to which the act imposes costs on financial institutions may vary among not only different types of financial firms (e.g., banks versus nonbank financial companies) but also among the same types of firms (e.g., large banks versus small banks). In discussions with regulators, industry representatives, and other experts, we identified two main categories of financial impacts on financial institutions: (1) increased regulatory compliance and other costs and (2) reduced revenue associated with new restrictions on certain activities. However, as commonly noted by financial firms in their annual reports, the Dodd-Frank Act’s full impact on their businesses, operations, and earnings remains uncertain, in part because of the rulemakings that still need to be completed. For example, in its 2012 annual report, one large bank holding company noted that it could not quantify the possible effects of the significant changes that were under way on its business and operations, given the status of the regulatory developments. Furthermore, even when the reforms have been fully implemented, it may not be possible to determine precisely the extent to which observed costs can be attributed to the act versus other factors, such as changes in the economy. No comprehensive data are readily available on the costs that the financial services industry is incurring to comply with the Dodd-Frank Act. Representatives from financial institutions and industry associations told us that firms generally do not track their incremental costs for complying with the act. Moreover, they said that the piecemeal way that the act is being implemented makes it difficult to measure their regulatory costs. Likewise, none of the industry associations we met with are tracking the incremental costs that their members are incurring to comply with the act. Regulators and others have collected some data on certain compliance costs. Specifically, federal agencies typically estimate the cost of complying with any recordkeeping and reporting requirements of their rules under the Paperwork Reduction Act, but these estimates do not capture other types of compliance costs, which can be more substantial. For example, an SEC rule on asset-backed securities requires issuers of such securities to conduct, or hire a third party to conduct, a review of the assets underlying the securities; this cost is not a paperwork-related cost and thus not included in the compliance costs captured under the Paperwork Reduction Act. In May 2012, the Treasury Secretary asked the Federal Reserve’s Federal Advisory Council, a group of bank executives, to prepare a study to provide regulators with more specific examples of the regulatory burdens imposed by the act’s reforms. A number of the Dodd-Frank Act provisions target large financial firms and are expected to increase their compliance or other costs more significantly than for other financial firms. In particular, several provisions specifically apply to SIFIs, which include bank holding companies with $50 billion or more in total consolidated assets (which we refer to as “bank SIFIs”) and nonbank financial companies designated by FSOC for supervision by the Federal Reserve. Examples of provisions targeting large financial institutions include the following: Enhanced prudential standards: Higher capital and liquidity requirements can increase funding costs for banks. Studies by the Basel Committee on Banking Supervision, IMF, and Organization for Economic Cooperation and Development estimated that increased capital and liquidity requirements would have modest impacts on funding costs for financial institutions. In contrast, a study by the International Institute of Finance, a global association of financial institutions, found much larger negative impacts. Differences in these studies’ estimates result from differences in certain assumptions. For example, the size of the estimated impact on funding costs depends on assumptions about how much of the increase in banks’ capital levels is due to regulatory reforms rather than other factors. Some researchers have noted that attributing all of the increase in banks’ capital levels to regulatory reforms may overstate the cost impacts of these reforms, because banks likely increased their capital levels, to some extent, in response to market forces after the crisis. Resolution plans: Regulators and industry officials stated that bank SIFIs have devoted significant staffing resources to developing the required resolution plans and that some plans submitted in July 2012 were thousands of pages in length. Regulators estimated that each bank SIFI required to complete a full resolution plan (20 banks) will spend, on average, 9,200 hours to complete the first plan and 2,561 hours to update the plan annually. Stress tests: In accordance with the act, the Federal Reserve, OCC, and FDIC have issued rules for stress testing requirements for certain bank holding companies, banks, thrift institutions, state member banks, savings and loan companies, and nonbank financial companies FSOC designates for supervision by the Federal Reserve. Bank holding companies with $50 billion or more in assets and nonbank financial companies designated by FSOC will be required to conduct company-run stress tests semi-annually, and the Federal Reserve will be required to conduct stress tests on these companies annually. Financial companies with more than $10 billion but less than $50 billion in assets will be required to conduct company-run stress tests annually as directed by their primary federal banking supervisor. According to industry representatives, stress testing requires newly covered firms to incur significant compliance costs associated with building information systems, contracting with outside vendors, recruiting experienced personnel, and developing stress testing models that are unique to their organization. Regulatory assessments: The Dodd-Frank Act also increases operating costs for SIFIs and certain large banks through new or higher regulatory assessments. First, under the act, large bank holding companies and nonbank financial companies designated by FSOC for supervision by the Federal Reserve must fund the Financial Research Fund, which funds the operating costs of FSOC and OFR, and certain expenses for the implementation of the orderly liquidation activities of FDIC, through a periodic assessment. The President’s fiscal year 2013 budget included estimates of about $158 million for the Financial Research Fund for fiscal year 2013. Second, pursuant to the act, FDIC issued a final rule changing the assessment base for the deposit insurance fund and the method for calculating the deposit insurance assessment rate. According to FDIC, the change in the assessment base shifted some of the overall assessment burden from community banks to the largest institutions, which rely less on domestic deposits for their funding than smaller institutions, but without affecting the overall amount of assessment revenue collected. According to FDIC data, following implementation of the new assessment base, from the first to the second quarter of 2011, total assessments for banks with $10 billion or more in assets increased by $413 million. In addition to increasing compliance costs for SIFIs and other large financial institutions, Title VII of the Dodd-Frank Act establishes a new regulatory framework for swaps, which is expected to impose substantial compliance and other costs on swap dealers, which generally include large banks, and other swap market participants. Business conduct standards: Swap dealers and major swap participants will face increased costs to comply with new business conduct standards under the act. These requirements address, among other things, interaction with counterparties, disclosure, reporting, recordkeeping, documentation, conflicts of interest, and avoidance of fraud and other abusive practices. Under CFTC’s final rules, swap dealers and major swap participants will need to adopt or amend written policies and procedures, obtain needed representations from counterparties, and determine whether existing counterparty relationship documents need to be otherwise changed or supplemented. Clearing, exchange trading, and data reporting: Changes to the market infrastructure for swaps—such as clearing and exchange- trading requirements—and real-time reporting requirements for designated major swap dealers or major swap participants will require firms to purchase or upgrade information systems. Industry representatives and regulators said that while some compliance costs of the derivatives reforms could be recurring, a large part of these costs will come from one-time upfront investments to update processes and technology. For example, according to industry groups and agency officials, the real-time reporting and swap execution facility technology upgrades for reporting are among the largest technology investment compliance cost areas for derivatives reforms, and costs to develop new reporting technology for firms may vary depending on the compatibility of the new reporting system with the prior system used. In its final rule on real-time reporting of swap data, CFTC estimated that the annual information collection burden on swap dealers and major swap participants would be approximately 260,000 hours. Margin rules: Swap dealers and end users will incur costs to post the additional collateral required under the new margin rules, including costs to borrow assets to pledge as collateral. For newly raised funds, the net cost would be the difference between the interest rate paid on the borrowed funds and the interest rate earned on the securities purchased to use as collateral. Estimating the incremental costs is difficult, in part because the incremental cost must take into account the extent to which swap dealers in the past, even if they did not require margin explicitly, may have charged end users more to price in a buffer to absorb losses. Although the Dodd-Frank Act reforms are directed primarily at large, complex U.S. financial institutions, many of the act’s provisions are expected to impose costs on other financial institutions as well. For example, we recently reported that the act’s reforms covering residential mortgages, securitizations, executive compensation, and other areas may impose additional requirements and, thus, costs on a broad range of financial institutions, but the magnitude of these costs will depend on, among other things, how the provisions are implemented. In addition to imposing compliance and other costs on financial institutions, the Dodd-Frank Act’s provisions may limit or restrict financial institutions’ business activities and reduce their revenue or revenue opportunities. Examples of such provisions include the following. Volcker rule: By generally prohibiting banks from engaging in proprietary trading and limiting their ability to sponsor or invest in hedge and private equity funds, the restrictions could eliminate past sources of trading and fee income for some banks. In addition, according to industry representatives, some banks currently holding private funds face the risk of incurring losses on the investments, if they are required to liquidate such investments at a substantial discount within an allotted period. Swaps reform: The provisions of the Dodd-Frank Act requiring central clearing and exchange trading of certain swaps could reduce the volume of dealers’ higher-profit margin swaps and thereby reduce their revenue. In addition, the margin requirements could reduce the ability of U.S. dealers to compete internationally, according to industry representatives. Single counterparty credit limit: Section 165(e) of the act directs the Federal Reserve to establish single-counterparty credit limits for SIFIs to limit the risks that the failure of any individual company could pose to a SIFI. According to industry representatives, the Federal Reserve’s proposed rule to implement credit limits would, among other things, require some SIFIs to reduce their derivatives and securities lending activities. Debit card interchange fees: Under section 1075 of the act (known as the Durbin amendment) the Federal Reserve issued a final rule that places a cap on debit card interchange fees charged by debit card issuers with at least $10 billion of assets. In their SEC filings, several large debit card issuers have estimated lost revenues from the Durbin amendment to be in the hundreds of millions of dollars annually. Similarly, we recently reported that large banks that issue debit cards initially have experienced a decline in their debit interchange fees as a result of the rule but that small banks generally have not. The reduction in debit interchange fees following the adoption of the rule likely has resulted or will result in savings for merchants. However, debit card issuers, payment card networks, and merchants are continuing to react to the rule; thus, the rule’s impact has not yet been fully realized. Financial markets can channel funds from savers and investors looking for productive investment opportunities to borrowers who have productive investment opportunities but not the funds to pursue them. By serving this financial intermediation function, financial markets can contribute to higher production and efficiency in the economy. Banks and other financial institutions can facilitate transactions between savers and borrowers and reduce the associated costs, as well as provide other financial services and products that contribute to economic growth. However, according to academics and industry representatives, by imposing higher costs on financial institutions, the Dodd-Frank Act may indirectly impose higher costs on businesses and households and reduce their investment and consumption with a consequent effect on economic output. Industry representatives, academics, and others generally expect the costs imposed by the act on the economy to be more significant than the act’s compliance costs for regulated institutions. At the same time, experts have noted that such costs can be viewed as part of the price to pay to realize the act’s potential financial stability and other benefits. For example, reforms that increase safety margins in the financial system— such as by requiring increased capital and collateral to absorb potential losses—represent a tradeoff between lower economic growth in the short term and a lower probability of a financial crisis in the long term. Furthermore, reforms may cause financial market participants to internalize costs that their failure could impose on others through, for example, triggering declines in asset prices and strains in funding markets; thus, such reforms could improve overall economic outcomes. Nevertheless, experts continue to debate whether the economic costs of the act’s reforms, individually and cumulatively, could be excessive relative to their potential benefits. One way through which the Dodd-Frank Act could impose costs on the broader economy is through its reforms that ultimately increase the cost or reduce the availability of credit for households and businesses. All else equal, when credit becomes more expensive or harder to obtain, households may reduce purchases and businesses may reduce investments that are funded by debt. These declines in consumption and investment can reduce GDP. According to academics, industry associations and firms, and others, reforms that could increase the cost or reduce the availability of credit include higher capital and liquidity requirements for financial institutions, the Volcker rule, counterparty credit limits, and mortgage-related provisions. Capital and liquidity requirements: Higher capital and liquidity requirements for banks can increase their funding and other costs. While banks can respond to these additional costs in a variety of ways, they generally are expected to pass on some of these costs to borrowers by charging higher interest rates on their loans, which could lead to a reduction in output. Some studies have assessed the potential short-term and long-term cost impacts of higher capital and liquidity requirements. Differences in estimates produced by different studies follow from differences in key modeling assumptions. With respect to short-term impacts, studies generally suggest that increasing capital and liquidity requirements for banks will likely be associated with short-term increases in interest rates for borrowers and short-term decreases in lending volumes, output, and economic growth rates during the period over which banks transition to these new requirements, but the magnitudes vary considerably across studies. For example, a Macroeconomic Assessment Group study summarized research by its members on the impact of the transition to the Basel III capital and liquidity requirements and found that interest rates for borrowers are likely to increase and lending volumes are likely to fall during the transition period, but that the ultimate reductions in output and growth are likely to be modest. Studies from the IMF and the Organization for Economic Cooperation and Development found broadly similar results. In contrast, a study by the Institute of International Finance estimated the impact of banks’ making the transition to meeting Basel III and additional country- specific requirements and found much larger short-term impacts on lending rates, lending volumes, output, and growth rates during the transition period. Studies also suggest that increasing capital and liquidity requirements for banks will likely be associated with long-term or permanent changes in lending rates and output. For example, a Basel Committee working group assessed the long-term impact of higher capital and liquidity requirements and found that they are likely to be associated with modest long-term increases in lending spreads and modest long-term reductions in output. An IMF study found similar results. Volcker rule: Some experts and industry representatives have expressed concern that the Volcker rule’s restriction on proprietary trading by banks could reduce market liquidity and increase the cost of raising funds in the securities markets and thus reduce output. As we previously reported, some market observers maintain that restrictions on proprietary trading by banks under the Volcker rule may reduce the amount of liquidity in the securities markets, depending on how the restrictions are implemented. For example, the rule could reduce the amount of market-making provided by banks for certain debt securities and ultimately result in higher borrowing rates for corporations, state and local governments, or others that use debt securities to help finance their activities. A study sponsored by an industry association estimated that the Volcker rule could increase annual borrowing costs for debt securities issuers by billions of dollars, and reduce liquidity in a wide range of markets, and consequently, to some extent, impede the ability of businesses to access capital through increases in cost of funds to borrowers. However, other experts have asserted that the study’s estimate is too high, in part because they believe it understates the potential for other firms to fill the gap left by banks and provide liquidity to the market. Single counterparty credit limit: According to industry representatives, the Federal Reserve’s proposed single counterparty credit limit rule could restrict the ability of SIFIs to engage in derivatives transactions with each other to hedge risk. In turn, such interference could reduce market liquidity and result in higher funding, hedging, and transaction costs for businesses. Mortgage-related reforms: The act’s provisions regulating the underwriting of mortgages also could restrict the availability of mortgage loans and raise mortgage costs for some homebuyers. For example, the act amends the Truth in Lending Act to prohibit lenders from making mortgage loans without regard to borrowers’ ability to repay them. As described earlier in this report, lenders may comply with the ability-to-repay standard by originating qualified mortgages that meet criteria that will be finalized by CFPB in rulemaking. In addition, securitized mortgages that meet certain criteria and which are referred to as “qualified residential mortgages” (QRM), are exempt from the act’s risk retention requirements. While there is general agreement that new Dodd-Frank rules should restrict certain types of risky loans and loan products that proliferated in the lead-up to the crisis, many market observers have expressed concern that these restrictions could go too far. For example, some mortgage industry representatives have raised concerns that including overly restrictive requirements for loan-to-value and debt service-to-income ratios in the qualified residential mortgage criteria could restrict the availability of mortgages to lower-income borrowers. Measuring the costs of financial regulation to the broader economy is challenging because of the multitude of intervening variables, the complexity of the global financial system, and data limitations. Many of the rules implementing the act’s reforms have not been finalized, and it is difficult to predict how regulated institutions will respond to the act’s reforms. For example, the extent to which regulated institutions pass on a portion of their increased costs to their customers may be impacted by competitive forces or other factors. Furthermore, even when the reforms have been fully implemented, it may not be possible to determine precisely the extent to which observed costs can be attributed to the act versus other factors, such as changes in the economy. Differences in assumptions about the appropriate baseline for comparison can lead to significant variation in estimates of the act’s impacts. As discussed below, other sources of uncertainty, such as the potential for regulatory arbitrage, add to the challenges of estimating the act’s potential costs. Some of the act’s reforms have the effect of transferring wealth across groups and may create economic costs if they result in resources being deployed less efficiently. For example, new assessments to fund the Financial Research Fund, which funds the operating costs of FSOC, OFR, and certain expenses for the implementation of the orderly liquidation activities of FDIC, represent an economic transfer from bank holding companies to the Financial Research Fund. In addition, as noted previously, changes in the deposit insurance fund assessment base shift some of the overall assessment burden from smaller banks to the largest institutions without affecting the overall amount of assessment revenue collected. Similarly, while the Durbin amendment has reduced revenues from interchange fees for large debit card issuers, these lost revenues will be offset to some extent by financial benefits to merchants who will pay lower interchange fees. Predicting the extent to which such transfers across groups could reduce economic growth is difficult, in part because how financial institutions will respond to these changes is unclear. For example, financial institutions could respond to increased assessment burdens or reduced revenue streams by cutting other expenses or increasing fees and other costs for their customers. Some market observers have noted that some financial institutions have increased fees on certain services, such as bank checking accounts, to compensate for lost revenues and increased fee assessments from the act. However, financial institutions’ business strategies are impacted by a wide range of factors, and determining the extent to which such increased fees can be attributed to the Dodd-Frank Act is difficult. Academics, industry representatives, and others we spoke with also have expressed concern about the potential for the Dodd-Frank Act’s reforms to have unintended consequences that could harm U.S. economic growth or the global competitiveness of U.S. financial markets. Experts have a wide range of views on the act’s potential to enhance financial stability, with some maintaining that certain reforms could make the financial system more vulnerable to a crisis. For example, some experts suggest that higher capital, liquidity, and collateral requirements will cause regulated institutions to increase significantly their holdings of relatively safe and liquid securities, such as U.S. Treasuries. Such an outcome could inflate the value of such securities and result in large losses if there were a sharp correction in the securities’ valuation. In addition, experts raised concerns about the potential for certain reforms to cause financial activities to shift to less regulated or unregulated markets and pose risks to U.S. financial stability. Of particular concern is the potential for increased regulation of U.S. financial markets to cause financial activities in the United States to move to foreign jurisdictions with less stringent regulations. For example, some academics and industry groups contend that if the United States imposes new margin requirements on swaps before other countries, the swap business could migrate to countries with lower margin requirements. Similarly, industry representatives have raised concerns about the potential for the Volcker rule and single counterparty credit limit to disadvantage U.S. financial institutions relative to foreign competitors that will be permitted to engage in proprietary trading activities outside the United States. While acknowledging these concerns and the need for harmonizing international regulatory standards, regulators noted that it can be advantageous for the United States to be the leader in implementing new regulatory safeguards. For example, when financial institutions are more resilient to unexpected shocks, they can continue to provide loans and other financial services that are important to economic growth, even during periods of market turmoil. These potential unintended consequences add to the challenge of assessing the costs and full impacts of the Dodd-Frank Act. Currently, the act is imposing costs on the financial services industry that could contribute to slower economic growth. At the same time, the act may help reduce the probability or severity of a future financial crisis, which would benefit the economy by preventing or mitigating crisis-related costs. However, the Dodd-Frank Act remains untested in a number of areas, has yet to be fully implemented, and leaves unresolved certain potential sources of system risk, such as money market funds and the tri-party repo market. As noted earlier, because the costs associated with a financial crisis can total trillions of dollars, the Dodd-Frank Act might need to reduce the probability of a crisis by only a small fraction for its benefits to equal its costs. Whether the act can achieve that outcome is unknown. As the impact of the act’s multitude of provisions, individually or cumulatively, materializes, their benefits and costs will become more fully known and understood—enabling policy makers and regulators to revise the requirements, as needed, to achieve the appropriate balance between the act’s benefits and costs to the U.S. economy. We provided a draft of this report to CFPB, CFTC, FDIC, the Federal Reserve, FSOC, OCC, OFR, Treasury, and SEC for their review and comment. We also provided excerpts of the draft report for technical comment to FHFA. All of the agencies provided technical comments, which we have incorporated, as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to CFPB, CFTC, FDIC, FHFA, the Federal Reserve, FSOC, OCC, OFR, Treasury, and SEC, interested congressional committees, members, and others. In addition, this report will be available at no charge on our web site at http://www.gao.gov. Should you or your staff have questions concerning this report, please contact me at (202) 512-8678 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix IV. The objectives of our report were to examine what is known about (1) the losses and related economic impacts associated with the 2007-2009 financial crisis; (2) the benefits of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), particularly its key financial stability provisions, for the U.S. financial system and broader economy; and (3) the costs associated with the act, particularly its key financial stability provisions. To address our first objective, we reviewed and analyzed studies by regulators and academics. We conducted searches of social science, economic, and federal research databases, including EconLit, Google Scholar, and JSTOR, to identify relevant studies that examine the losses associated with the 2007-2009 financial crisis. To help us identify relevant studies, we also relied on federal agencies and academic and other experts. Although we found these studies to be sufficiently reliable for the purposes of our report, the results should not necessarily be considered as definitive, given the potential methodological or data limitations contained in the studies individually or collectively. In addition, we reviewed our prior work that addresses economic impacts associated with the crisis, including the impacts on the fiscal challenges faced by federal, state, and local governments. We interviewed federal financial regulators, academics, industry associations, market participants and others to obtain their perspectives on how the recent financial crisis impacted the economy and what methods have been used to quantify the economic impacts associated with the crisis. Based on our literature review and interviews with experts, we identified approaches commonly used by experts to quantify or describe the economic losses associated with the crisis, and the limitations of these approaches. For example, we summarized approaches used by some researchers to quantify losses associated with the financial crisis in terms of lost gross domestic product, which measures the total goods and services produced in the economy. To describe trends in economic measures associated with the financial crisis, we collected and analyzed data from the Bureau of Economic Analysis, the Bureau of Labor Statistics, CoreLogic, the Federal Reserve Flow of Funds database, and the National Bureau of Economic Research. Lastly, we obtained and analyzed perspectives on the role of the federal government’s policy interventions in mitigating the costs of the financial crisis. We obtained and analyzed data from government financial statements and other reports on the income and losses for the most significant government programs to assist the financial sector, including the Troubled Asset Relief Program, the Board of Governors of the Federal Reserve System’s (Federal Reserve) emergency liquidity programs, the Temporary Liquidity Guarantee Program, and assistance provided to rescue individual institutions, such as American International Group, Inc. and the government-sponsored enterprises. Our review did not consider the potential short-term and long-term impacts of other federal policy responses to the recession that coincided with the financial crisis, including the American Recovery and Reinvestment Act of 2009. To address our second objective, we obtained and analyzed a broad range of perspectives on the potential economic benefits of the Dodd- Frank Act and factors that could impact the realization of these benefits. Using a literature search strategy similar to the one described under our first objective, we identified and analyzed academic and other studies that evaluate the potential benefits of one or more of the act’s reforms. In addition, we reviewed relevant reports and public statements by federal financial regulators, industry associations, and others. We obtained additional perspectives from regulators, academics, and representatives of industry and public interest groups through interviews and an expert roundtable we held with the assistance of the National Academy of Sciences (NAS). Based on our literature review, interviews, and expert roundtable, we identified provisions of the act that could have the most significant impacts on financial stability, and factors that could impact the effectiveness of these provisions. In addition, we obtained and summarized expert perspectives on potential benefits of the act beyond enhanced financial stability, such as increased consumer and investor protections. Finally, we reviewed and summarized approaches used by researchers to quantify potential benefits of the act’s reforms. Although we found these studies to be sufficiently reliable for the purposes of our report, the results should not necessarily be considered as definitive, given the potential methodological or data limitations contained in the studies individually or collectively. To address our third objective, we obtained and analyzed information on the costs of implementing the Dodd-Frank Act, including for the federal government, the financial sector, and the broader economy. We obtained and summarized data on the incremental budgetary costs associated with the act’s implementation for 10 federal entities (Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Office of the Comptroller of the Currency, Securities and Exchange Commission, Department of the Treasury, Consumer Financial Protection Bureau, Financial Stability Oversight Council, and the Office of Financial Research). We requested data on the entities’ estimates of their funding and full-time equivalents agency-wide and for activities related to the Dodd-Frank Act in 2010, 2011, 2012, and 2013. We also requested that the entities identify their sources of funding (appropriations, assessments of supervised institutions, revenue from investments or providing services, and transfers of funds from other agencies), and describe the extent to which new resources related to the Dodd-Frank Act would be funded on a one-time or recurring basis. We corroborated the information with other data, where available. In addition, we reviewed the Congressional Budget Office’s estimate of the act’s effect on the federal government’s direct spending and revenue and, in turn, deficit. To describe the potential costs for the financial sector and the broader economy, we reviewed published works, public statements, and other available analyses by financial regulators, industry representatives, academics, and other experts. We also obtained perspectives from representatives of these groups through interviews and the expert roundtable we held in coordination with NAS. We also had two financial markets experts review a draft of our report and incorporated their comments, as appropriate. To help inform our work on the second and third objectives, we contracted with NAS to convene a 1-day roundtable of 14 experts to discuss the potential benefits and potential costs of the Dodd-Frank Act. The group of experts was selected with the goal of obtaining a balance of perspectives and included former financial regulatory officials, representatives of financial institutions impacted by the act’s reforms, academic experts on financial regulation, a representative of a public interest group, and an industry analyst. The discussion was divided into three moderated sub-sessions. The sub-sessions addressed (1) the potential benefits of the act’s key financial stability reforms; (2) the potential costs of these key financial stability reforms; and (3) methodological approaches and challenges in measuring the impacts of the act’s reforms. For a list of the 14 experts, see appendix III. For parts of our methodology that involved the analysis of computer- processed data, we assessed the reliability of these data and determined that they were sufficiently reliable for our purposes. Data sets for which we conducted data reliability assessments include gross domestic product data from the Bureau of Economic Analysis; employment data from the Bureau of Labor Statistics; home price data from CoreLogic; Federal Reserve Flow of Funds data on retirement fund assets; loan default and foreclosure data from the Mortgage Bankers Association; and recession data from the National Bureau of Economic Research. We reviewed information on the statistical collection procedures and methods for these data sets to assess their reliability. In addition, we assessed the reliability of estimates federal entities provided for the funding resources and full-time equivalents associated with Dodd-Frank implementation by comparing these estimates to agency budget documents and interviewing agency staff about how the data were collected. Finally, for studies that present quantitative estimates of the economic impacts associated with financial crises or financial regulatory reforms, we assessed the reasonableness of the methodological approaches used to generate these estimates. Although we found certain studies to be sufficiently reliable for the purposes of our report, the results should not necessarily be considered definitive, given the potential methodological or data limitations contained in the studies, individually or collectively. We conducted this performance audit from November 2011 to January 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Many U.S. financial firms conduct business around the world and thus generally are subject to rules on banking, securities, and other financial market activities in multiple jurisdictions. In response to the financial crisis that began in 2007, the United States and other countries have taken steps to introduce financial reforms into their domestic legal and regulatory systems. In parallel with these domestic reform efforts, international organizations have issued new standards and principles to guide their members’ efforts. The goal of these international efforts is to harmonize and coordinate views and policies across different jurisdictions to minimize opportunities for regulatory arbitrage—the ability of market participants to profit from differences in regulatory regimes between one jurisdiction and another. Examples of some of these efforts include the following: The G20, a group that represents 20 of the largest global economies, created the Financial Stability Board (FSB) to coordinate and monitor international financial regulatory reform efforts, among other activities. The Basel Committee on Banking Supervision (BCBS)—hosted at the Bank for International Settlements (BIS)—has developed a new set of capital and, for the first time, liquidity requirements for banks. The Committee on Payment and Settlement Systems (CPSS), which is comprised of central banks, focuses on the efficiency and stability of payment, clearing, and settlement arrangements, including financial market infrastructures. Recently, CPSS has worked jointly with the International Organization of Securities Commissions (IOSCO) to produce a new set of prudential standards for financial market infrastructures. IOSCO, a multilateral organization of securities market regulators, has issued policy documents to guide national securities commissions’ regulatory reform efforts. Various other forums and groups, including the International Association of Insurance Supervisors (IAIS), are housed at BIS and cooperate on financial regulatory reform initiatives. For example, the Joint Forum—which includes representatives of IAIS, BCBS, and IOSCO—works to coordinate financial services reforms. Separately, multilateral organizations, such as the International Monetary Fund and Organization for Economic Cooperation and Development, have published research and analysis of international financial reforms. Table 5 summarizes selected international financial regulatory reform efforts. In addition to the contact named above, Richard Tsuhara (Assistant Director), William R. Chatlos, John Fisher, Catherine Gelb, G. Michael Mikota, Marc Molino, Courtney LaFountain, Robert Pollard, Jennifer Schwartz, Andrew J. Stephens, and Walter Vance made significant contributions to this report. Acharya, Viral V., Thomas F. Cooley, Matthew Richardson, and Ingo Walter. Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance. Hoboken, New Jersey, John Wiley & Sons, 2011. Admati, Anat R., Peter M. DeMarzo, Martin F. Hellwig, and Paul Pfleiderer. “Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive.” Stanford GSB Research Paper No. 2065. Stanford University: March 23, 2011. Basel Committee on Banking Supervision, The Transmission Channels Between the Financial and Real Sectors: A Critical Survey of the Literature, Bank for International Settlements (BIS) Working Paper No. 18. 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The 2007-2009 financial crisis threatened the stability of the U.S. financial system and the health of the U.S. economy. To address regulatory gaps and other problems revealed by the crisis, Congress enacted the Dodd- Frank Act. Federal regulators will need to issue hundreds of rules to implement the act. Industry representatives, academics, and others generally have supported the act's goal of enhancing U.S. financial stability, but implementation of certain of the act's provisions has led to much debate. These experts have expressed a wide range of views on the potential positive and negative effects that the act could have on the U.S. financial system and broader economy. GAO was asked to examine the (1) losses associated with the recent financial crisis; (2) benefits of the act for the U.S. financial system and the broader economy; and (3) costs of the act's reforms. GAO reviewed empirical and other studies on the impacts of financial crises and the Dodd-Frank reforms, as well as congressional testimonies, comment letters, and other public statements by federal regulators, industry representatives, and others. GAO obtained and analyzed data on agency resources devoted to the act's implementation. GAO also obtained perspectives from regulators, academics, and representatives of industry and public interest groups through interviews and an expert roundtable held with the assistance of the National Academy of Sciences. GAO provided a draft of this report to the financial regulators for review and comment and received technical comments, which were incorporated as appropriate. The 2007-2009 financial crisis has been associated with large economic losses and increased fiscal challenges. Studies estimating the losses of financial crises based on lost output (value of goods and services not produced) suggest losses associated with the recent crisis could range from a few trillion dollars to over $10 trillion. Also associated with the crisis were large declines in employment, household wealth, and other economic indicators. Some studies suggest the crisis could have long-lasting effects: for example, high unemployment, if persistent, could lead to skill erosion and lower future earnings for those affected. Finally, since the crisis began, federal, state, and local governments have faced greater fiscal challenges, in part because of reduced tax revenues from lower economic activity and increased spending to mitigate the impact of the recession. While the Dodd-Frank Wall Street Reform and Consumer Protection Act's (Dodd- Frank Act) reforms could enhance the stability of the U.S. financial system and provide other benefits, the extent to which such benefits materialize will depend on many factors whose effects are difficult to predict. According to some academics, industry representatives, and others, a number of the act's provisions could help reduce the probability or severity of a future crisis and thereby avoid or reduce the associated losses. These include subjecting large, complex financial institutions to enhanced prudential supervision, authorizing regulators to liquidate a financial firm whose failure could pose systemic risk, and regulating certain complex financial instruments. In contrast, some experts maintain these measures will not help reduce the probability or severity of a future crisis, while others note that their effectiveness will depend on how they are implemented by regulators, including through their rulemakings, and other factors, such as how financial firms respond to the new requirements. Quantifying the act's potential benefits is difficult, but several studies have framed potential benefits of certain reforms by estimating output losses that could be avoided if the reforms lowered the probability of a future crisis. Federal agencies and the financial industry are expending resources to implement and comply with the Dodd-Frank Act. First, federal agencies are devoting resources to fulfill rulemaking and other new regulatory responsibilities created by the act. Many of these agencies do not receive any congressional appropriations, limiting federal budget impacts. Second, the act imposes compliance and other costs on financial institutions and restricts their business activities in ways that may affect the provision of financial products and services. While regulators and others have collected some data on these costs, no comprehensive data exist. Some experts stated that many of the act's reforms serve to impose costs on financial firms to reduce the risks they pose to the financial system. Third, in response to reforms, financial institutions may pass increased costs on to their customers. For example, banks could charge more for their loans or other services, which could reduce economic growth. Although certain costs, such as paperwork costs, can be quantified, other costs, such as the act's impact on the economy, cannot be easily quantified. Studies have estimated the economic impact of certain of the act's reforms, but their results vary widely and depend on key assumptions. Finally, some experts expressed concern about the act's potential unintended consequences and their related costs, adding to the challenges of assessing the benefits and costs of the act.

You are an expert at summarizing long articles. Proceed to summarize the following text: The model for data-driven performance reviews was established in the early 1990s by New York City Police Department (NYPD) leadership as a strategy to reduce crime. Dubbed “CompStat,” the NYPD’s weekly reviews grew from the premise that use of crime data could enable leadership to make better-informed, more effective decisions. CompStat followed four key tenets: 1. Accurate and timely intelligence. 2. Effective tactics. 3. Rapid deployment. 4. Relentless follow-up and assessment. As the law enforcement community observed NYPD’s improved accountability and bottom-line results in crime reduction, many police departments nationwide began to replicate CompStat in their own organizations. The CompStat model was subsequently adopted by many cities, municipalities, and some states—most notably Washington and Maryland—as a general performance management tool. Many of these efforts were patterned on the same four tenets as CompStat. Nearly two decades later, the Obama administration began to encourage the use of data-driven review meetings as a performance management tool through several memorandums issued by OMB in 2010 and 2011, and a June 2011 executive order. During this timeframe, GPRAMA introduced the concept of data-driven performance reviews at the federal level with a provision that federal agencies conduct quarterly performance reviews on progress toward their APGs. Specifically, agencies are required to assess how relevant programs and activities contribute to achieving APGs; categorize goals by their risk of not being achieved; and for those at risk, identify strategies to improve performance. GPRAMA also specified that the reviews must occur on at least a quarterly basis and involve key leadership and other relevant parties both within and outside the agency. GPRAMA required agencies to begin conducting quarterly performance reviews by June 2011. Some agencies began conducting data-driven reviews earlier, in response to the executive order, OMB guidance, or other performance management efforts. Several efforts aid agencies in implementing the GPRAMA-required quarterly performance reviews. The PIC established a working group on internal agency performance reviews. The working group meets monthly to share leading practices and discuss strategies for improving performance. Participation in the working group is voluntary and according to OMB, PIOs or designees from 21 agencies across the federal government are currently represented. In addition, OMB supported performance review implementation by issuing new guidance in OMB Circular A-11 during August 2012. DOE, SBA, and Treasury each had experience with data-driven performance reviews before the June 2011 GPRAMA implementation deadline. Officials at both SBA and Treasury said that when new leadership came in, they brought interest in data-driven decision making, along with key staff that were experienced at data-driven review or data analysis. DOE officials said that their experience with the American Recovery and Reinvestment Act of 2009 (Recovery Act) work led them to begin data-driven performance reviews along with the GPRAMA requirements.  DOE built on its Recovery Act-related performance reviews with the establishment of its quarterly performance reviews, called business quarterly reviews, in 2011. According to DOE officials, the Deputy Secretary leads the review meetings with participation by under secretaries, and each review covers the department’s 8 priority goals, 15 mission-related key goals, and 8 management and operations key goals. The Associate Deputy Secretary, who is responsible for agency-wide management and operations goals, also participates in the reviews. The review meeting follows a structured format, with the first half focusing on performance goals and the second half focusing on fiscal issues, such as budget execution.  SBA began conducting reviews, called quarterly performance reviews, during the third quarter of 2009. SBA started by holding separate meetings by program area but changed the review format in early 2010 to include all program offices at each review meeting. According to SBA officials, the Deputy Administrator leads SBA’s quarterly performance reviews with support from the chief operating officer (COO) and the PIO. The PIO also assembles the data and disseminates follow-up action items. Review meetings also include senior officials from functional management areas (e.g., information technology, human capital, procurement, etc.). In addition to discussing agency priority goals, SBA reviews cover the rest of the agency’s performance goals and objectives, as time permits.  Treasury started conducting department-level performance reviews, called Stats, in 2010. Treasury’s reviews, led by the Deputy Secretary, are performed on an agency component-by-component basis. Reviews also involve senior officials responsible for functional management areas such as information technology, financial management, and procurement, as well as policy officials. The Stat process is managed by Treasury’s Office of the Deputy Assistant Secretary for Management and Budget, which reports to the PIO. The Stats cover Treasury’s two priority goals along with a range of other department programmatic and operational goals and priority projects. Our analysis confirmed that to be successful, data-driven reviews should be used as a leadership strategy to drive performance improvement. Agency leadership must be directly and visibly engaged in the review process and invest the time necessary to understand and interpret the data being discussed during the meetings. Moreover, GPRAMA requires an agency head and deputy head to conduct quarterly priority progress reviews which fosters ownership and helps ensure that participants take the reviews seriously and that decisions and commitments can be made. OMB Circular No. A-11 also emphasizes the importance of leadership involvement in quarterly performance reviews, allowing the COO, the agency head, or both to conduct the review. Our survey of PIOs indicated that agency leadership, with the exception of agency heads, actively participated in these reviews. This was consistent with what we found at DOE, SBA, and Treasury. The sidebar at left shows the survey results on the participation of key positions. At Treasury, where we observed two Stat meetings, the Deputy Secretary used the Stat meetings to challenge participants to stretch toward ambitious performance goals and to provide possible solutions for any issues that were discussed. By holding separate reviews for all of Treasury’s bureaus and key offices, the Deputy Secretary committed a significant amount of time to these reviews. Other Treasury officials—at both the department headquarters and bureau levels—were appreciative of the amount of time the Deputy Secretary devoted to the reviews. The Deputy Secretary’s high-level position allowed him to speak with clear authority in the department and garner the attention of component agency leaders on performance issues. For example, during one review meeting that we observed, the Deputy Secretary challenged Treasury’s bureau leaders to develop new strategies for the department to collect delinquent debt payments owed to the federal government. We did not observe quarterly performance meetings at DOE or SBA. However, officials we interviewed said that top leadership was actively driving performance discussions. At DOE, the Deputy Secretary led the quarterly review sessions and guided performance discussions with the department’s under secretaries on progress made toward achieving their respective performance goals. DOE’s Deputy Secretary noted that it is important that under secretaries take ownership of the performance review process to ensure the reviews are useful. At SBA, the Deputy Administrator led the reviews with support from the COO and PIO. According to officials, SBA’s leadership asks probing questions of program heads concerning SBA’s performance goals. Officials from DOE, SBA, and Treasury expressed concern about maintaining the continuity of leadership engagement in performance review meetings and pointed to ways to help ensure that the review process continues with transitions to new agency leadership. For example, officials at DOE pointed out that they have a responsibility to remind new leadership of the legislative requirement for performance reviews as well as OMB’s guidance on these reviews. In addition, SBA officials noted that having a mix of career and political leadership involved in the reviews can facilitate continuity of the review practices since career officials generally span successive administrations. At Treasury, performance budgeting staff developed written standard operating procedures as a way to document the review process and pave the way for new leadership engagement at the department. To encourage new leadership to take ownership of the performance reviews, several agency officials noted the importance of designing the reviews to fit the leadership style and preferences of the incoming leader. For example, one official said that it is critical for the incoming leader of the review meetings to provide input into the presentation format and structure of the review based upon personal preferences. At Treasury, headquarters staff responsible for managing the performance reviews worked closely with the Deputy Secretary to develop a review template and meeting format that met his needs. Our analysis indicated that performance review meeting participants should include high-level leaders and managers with an agency-wide perspective as well as those with programmatic knowledge and responsibility for the specific performance issues likely to be raised. In addition, participants should typically include those with agency-wide functional management responsibilities, such as information technology, budget, and human capital. This enables the reviews to facilitate problem solving by breaking down information silos and providing managers from across the agency and other contributing organizations with a forum to communicate with each other and identify improvement strategies and agree upon specific next steps. At the city and state level, data-driven performance reviews typically include senior management from multiple agencies. In addition to the benefit of in-person meeting attendance, there is also value in having key players participate in other parts of the review process, such as the data review and analysis leading up to the meetings and the follow-up actions that arise from the meetings. Consistent with this practice, OMB’s guidance directs agencies to include, as appropriate, relevant personnel from within and outside the agency in the review meetings. According to our survey, most PIOs—21 of 24—reported that their reviews included the participants needed to facilitate problem solving and identify performance improvements the majority of the time. Further, 19 PIOs reported that goal leaders had large involvement in their agency’s performance reviews, and 15 PIOs reported that internal contributors to agency goals and functional management chiefs, such as the CFO, had large involvement in their agency’s reviews. At DOE, SBA, and Treasury, officials said they found that including senior management responsible for specific mission program areas—as well as those with functional management responsibilities in areas such as budget, information technology, human capital, procurement, and legal counsel—enhanced performance improvement efforts at review meetings. For example, both DOE and Treasury officials said discussions with budget officials concerning performance goals provided an opportunity for performance issues to be discussed in the context of budget issues where relevant. However, differences in the scope of the reviews influenced which key players attended the review meetings. For instance, while Treasury’s reviews focused primarily on a specific component organization, such as a bureau or policy office, representatives from multiple components attended the review meetings when the achievement of a performance goal crossed component lines, or when the components had other commonalities. One Treasury official noted that the Bureau of Engraving and Printing and the U.S. Mint were asked to sit in on each others’ sessions, as they both work under the Treasurer and have similar operations. Treasury officials indicated that one of the reasons why they chose to focus their performance reviews on individual component agencies—such as IRS and the Bureau of the Fiscal Service—was that their performance goals are generally aligned by component rather than shared by components. In addition, according to a senior Treasury official, focusing reviews on components allows time for more in-depth reviews. Treasury’s reviews include officials with department-level responsibilities in functional management areas such as budget, procurement, and legal counsel who can contribute to problem solving or who may be called on to take follow- up actions. In addition, Treasury officials noted that component-by- component reviews enable Treasury not only to have attendance from the bureau head, but also from more members of the bureau’s leadership team, such as the bureau CFO and others. Officials said that if reviews were held with all of Treasury’s components at one time it would be impractical to gather all key members of bureau leadership because of the limited time which would be available for discussion on any particular topic. Treasury officials said that their practice of using the same information template for the Stat review with each component enables the reviews to cover similar issues across components and identify actions that should be addressed collaboratively, even though all components do not participate in the review meetings at the same time. Conversely, at DOE and SBA, each review meeting included leadership participation from across all agency mission areas. However, DOE and SBA were similar to Treasury in that they included officials with agency- wide functional management responsibilities in the reviews. Officials noted that DOE’s reviews provided an opportunity for senior leadership to discuss the context around their performance goals and improve results with help from other areas of the department. In addition, the presence of senior officials across DOE’s programs provided an opportunity to share leading practices in various areas across program lines. At SBA, officials noted that many senior career officials attending these reviews had experience managing multiple programs and their broader experiences helped them understand and identify relevant performance metrics across program areas. In addition, officials mentioned that, in contrast to a large department with many discrete mission areas, SBA’s programs are focused on achieving a relatively narrow mission of supporting small businesses, which creates more opportunities for cross-program collaboration. According to our survey results, PIOs did not see getting the right personnel included in the meetings as a challenge: Only 2 of 24 PIOs reported a challenge in including those managers or staff needed to facilitate problem solving and identify improvement opportunities. However, officials from DOE, SBA, and Treasury did note challenges in getting the right mix and number of participants to most effectively facilitate performance improvement efforts at the meetings. See figure 1. According to survey results, 16 of 24 PIOs indicated that there was little to no involvement in the reviews from external officials who contribute to the achievement of agency goals. This is consistent with what we found at DOE, SBA, and Treasury, as stakeholders from outside the agencies did not participate in their performance review meetings. At Treasury, officials said they addressed performance issues requiring external collaboration by conducting follow-up meetings with relevant external participants. These meetings were scheduled as part of Treasury’s practice of following up on issues raised during the review sessions. For instance, during a Treasury review meeting we observed, the Deputy Secretary directed staff to arrange a meeting with OMB to help address an obstacle to achieving a performance goal. Likewise, DOE and SBA officials said they undertook collaborative actions as a result of discussions in their quarterly performance reviews, but neither planned to invite external representatives to their meetings. For example, SBA’s reviews led to multiple discussions with other federal agencies on whether some of their government contracts that were going to large businesses could go to small businesses instead. Officials we interviewed cited several concerns that may explain why, at present, agencies are generally not including external participants—from other federal agencies or other relevant organizations—in their reviews. First, officials did not include external stakeholders because they wanted to keep discussions focused on internal problem-solving and were concerned that including external parties might inhibit open discussions on performance issues. Second, reviews at DOE, SBA, and Treasury mainly focused on goals achieved through internal contributors at each agency or office and officials noted that it would not currently be an efficient use of time to include external parties, even though external issues are discussed. One official said that the logistics of including high- ranking agency managers from other agencies could make it difficult to schedule review meetings on a timely basis. Another official who had experience managing data-driven performance reviews at different levels of government noted that city- and state-level reviews tend to be run by a mayor or governor with direct authority over the various agencies that participate in the reviews. This official pointed out that circumstances are different at the federal level, where an agency head could invite but not require outside participation and would not have control over the information shared or whether follow-up action was carried out. However, we have previously reported that agencies can collaborate more effectively across organizational lines when presented with a clear and compelling rationale to do so and when agency leaders demonstrate their commitment to working collaboratively. Agency goals that require the efforts of more than one agency could serve as such a compelling rationale—even in the absence of direct authority requiring such collaboration. Moreover, our prior work has shown that agencies which participated in various planning and decision-making forums together— such as interagency councils or planning bodies—reported that such interactions contributed to achieving their goals. Specifically, agencies reported that such participation opened lines of communication, fostered trust, and helped build relationships, which can in turn lead to more effective collaboration across agency lines. Despite the concerns that DOE, SBA, and Treasury raised about including external participants in their reviews, our survey results indicate that some agencies are doing so: 4 of 24 PIOs reported moderate to large involvement of external officials who contribute to the achievement of agency goals. In addition, OMB officials provided an example of two agencies which have been successfully making use of quarterly performance reviews to collaborate on their APGs. These officials told us that the Departments of Housing and Urban Development and Veterans Affairs—which both contribute to efforts to reduce veterans’ homelessness—had conducted several Stat meetings jointly. According to OMB officials, program staff members from both agencies regularly participate in HUD Stat meetings, where they jointly analyze performance data to understand trends, identify best practices, and prioritize the actions needed to achieve veteran homelessness goals. Officials reported that these collaborative meetings have contributed to better outcomes. Moreover, officials from both OMB and the PIC indicated that agencies have increasingly been observing others’ review meetings as a means of learning about different practices with no apparent harm to the effectiveness of the meetings. This suggests that the challenges, if any, to outside participation can be overcome. While there are many approaches to managing performance to achieve goals that rely on multiple agencies, few are likely to provide the benefit of bringing together the leadership and all the key players to solve problems and motivate performance improvement. Moreover, when key players are excluded from quarterly performance reviews, agencies may be missing opportunities to have all the relevant parties participate in developing solutions to performance problems. Instead, agencies will need to rely on potentially duplicative parallel coordination mechanisms, which could result in less than optimal performance improvement strategies. Our analysis showed that quarterly performance reviews should be used to align an organization’s resources, programs, and activities to ensure they are contributing to the achievement of agency goals. To help ensure that reviews are focusing on the appropriate interim goals and measures, agencies can develop models that describe the logical relationship between an agency’s inputs, activities, outputs, and outcomes. These logical relationships, sometimes called logic models, should be periodically assessed to determine if outcomes are being achieved as expected, and should be revised if necessary. Our survey results indicated that PIOs do not find goal alignment to be a challenging aspect of implementing quarterly performance reviews, with 13 of 24 PIOs reporting that ensuring alignment between performance reviews and strategic goals and performance objectives was easy. Only one PIO reported this as being a challenge. Moreover, 22 PIOs reported that the majority of their reviews are aligned with strategic goals and performance objectives. Consistent with our survey results, we found that DOE, SBA, and Treasury had selected performance metrics, initiatives, and other areas of focus in their reviews that were linked to the accomplishment of APGs and other goals, such as strategic plan objectives and key operational goals. Officials from both DOE and Treasury described the processes they undertook to choose useful performance information to frame the performance review discussion. For example, DOE narrowed its list of more than 190 performance measures to provide leadership with a focused view of the department’s key goals, while also providing sufficient depth of information to be meaningful. Treasury officials responsible for designing the department’s quarterly performance reviews described extensive interactions with the Deputy Secretary and the bureaus to identify performance measures that could be used to promote discussion of performance issues and opportunities for improvement. In addition, the three agencies described efforts to use logic models, project milestones, and other approaches to identify early information on how they were progressing toward long-term outcome goals, which officials said could be challenging to monitor. For example, DOE’s Office of Energy Efficiency and Renewable Energy created a template for program managers to develop logic models linking program inputs and outputs to longer-term performance objectives, such as achieving clean generation of 80 percent of the nation’s electricity by 2035. DOE identified outputs or intermediate outcomes that contribute to the clean generation of energy, such as reducing the cost of solar energy, which the department measures to indicate progress toward its 2035 goal. According to officials, logic models helped program staff communicate a coherent story about how the program’s key activities contribute to its goals. At Treasury, performance budgeting staff said they included the status of priority projects—such as IRS plans to develop a streamlined, user- friendly website—in its quarterly performance review information (see figure 2). Officials explained that these priority projects were designated as such because Treasury sees them as the critical path to achieving agency priority goals and other key longer-term outcomes, which could not always be tracked on a quarterly basis. For example, the Deputy Secretary wanted to monitor the status of IRS’s website update because it is seen to be a lever toward the agency’s priority goal to improve the voluntary tax compliance rate, which can only be measured with data that lags by approximately five years. Our analysis showed that because data-driven reviews are to foster improved performance, the focus of accountability should be on the responsible manager’s role in addressing problems and bringing about positive change. Agency leaders should hold goal leaders and other responsible managers accountable for knowing the progress being made in achieving goals and, if progress is insufficient, understanding why and having a plan for improvement. If data is insufficient for gauging progress, managers should be held accountable for improving the quality of the data so that it is sufficient for decision making. Managers should also be held accountable for identifying and replicating effective practices to improve performance. In addition, the goals addressed in the reviews should be aligned with managers’ and staff’s individual performance goals to create a line of sight that reinforces the connection between strategic goals and day-to-day activities of managers and staff. GPRAMA introduced specific roles and responsibilities for agency heads, COOs, PIOs, and goal leaders in conducting quarterly performance reviews. For each APG, agency heads and COOs, with support from the PIO, must: review with the appropriate goal leader the progress achieved during the most recent quarter, overall trend data, and the likelihood of meeting the planned level of performance;  assess whether relevant organizations, program activities, regulations, policies, and other activities are contributing as planned to agency priority goals; categorize agency priority goals by risk of not achieving the planned level of performance; and identify prospects and strategies for performance improvement, including any needed changes to agency program activities, regulations, policies, or other activities for agency priority goals at greatest risk of not meeting the planned level of performance. Across the government, a majority of PIOs reported that their agency’s reviews met these GPRAMA requirements, as indicated in figure 3. Our survey results indicated that most PIOs—21 of 24—reported using the reviews to identify actionable opportunities for performance improvement at least half the time. Consistent with the survey results, DOE, SBA, and Treasury reported that top agency leadership held officials accountable for identifying performance problems and opportunities for improvement. For example, Treasury officials said—and the sessions we observed confirmed—that their Stat meetings focus on performance and are a vehicle for the Deputy Secretary to challenge bureau heads to ensure their bureaus continually improve. For example, the Deputy Secretary reported that many of the bureaus had not reviewed their management metrics, such as internal controls, diversity issues and employee survey scores, for some time and the Stat reviews are an opportunity to engage the bureaus on these issues. At the Stat reviews we attended, we observed the Deputy Secretary discussing such management metrics. For example, he asked bureau leadership to explain why their scores on a government- wide employee satisfaction survey had dipped during the past year, questioned a decline in survey response rates, and discussed specific next steps that he could take to support plans for improvement. At DOE, officials said that their quarterly performance reviews focused on areas where they were not on track to meet performance goals and ways to address this. One official at DOE noted that the Deputy Secretary expected the under secretaries to be accountable for all of their goals at the meeting. At SBA, officials said the focus of the meetings is to fix problems and that it is important to be prepared because the Administrator asks probing questions and managers are called out when progress is not being made and asked to explain what is being done to resolve the issues. Each agency also reported taking steps to ensure that managers’ individual performance objectives are aligned with priority and other agency performance goals. For example, SBA’s performance agreements incorporate performance objectives which cascade from the agency’s priority goals and other performance goals and are aligned with its strategic plan. Samples of performance agreements we reviewed identified “performance elements linked to organizational goals.” For example, a district manager had a performance objective to hold outreach events to connect small businesses to contracting opportunities. This objective clearly links to SBA’s APG to increase small business participation in government contracting. Our analysis indicated that the capacity to collect and analyze accurate, useful, and timely data is critical to successful data-driven reviews. Agencies should track both outputs and outcomes. Agencies should also look for opportunities to leverage data produced by other agency components or outside entities. In addition, having the capacity to disaggregate data according to demographic, geographic, or other relevant characteristics can aid in highlighting significant variation, which can help meeting participants to pinpoint problems and identify solutions. Agencies also need to plan for the time and resources required to generate and communicate performance data in a timely manner. Easy access to relevant databases and systems-generated analysis, such as providing analysts with the ability to develop performance reports without relying on information technology staff, can streamline the data collection and analysis processes. While having accurate, timely, and useful data available is critical to successful performance reviews, 16 of 24 PIOs reported that this was a challenge—more than any other practice we asked about. However, all 16 of those PIOs also responded that accurate, timely, and useful data is available for their agency’s reviews about half the time or more, which may indicate that some agencies have found ways to address this challenge. Our review of DOE, SBA, and Treasury illustrates how agencies can overcome some challenges to data availability. Our analysis of quarterly performance review documents indicated that each agency was producing data-rich analyses that identified trends and potential performance issues. However, agency officials described initial challenges in these areas and said that improving their capacities for data collection and analysis took time. For example, SBA’s Office of Government Contracting and Business Development collects data on the percentage of all federal agency contracts being awarded to small businesses. The office is dependent on a General Services Administration database, the Federal Procurement Database System- Next Generation (FPDS-NG), for its information. SBA officials were concerned about the quality of the data since each federal agency enters its own information. To address this concern, SBA officials said they provided agencies with individualized reports of potential anomalies in their small business contracting data. This process allowed agencies to verify and correct if necessary the anomalies before SBA published the annual Small Business Procurement Scorecard report. For example, if an agency listed a contract in FPDS-NG as a small business set-aside at the same time that the agency listed the contract as an open procurement competition, this would be flagged. SBA would then notify the responsible agency and give it an opportunity to correct the anomaly in FPDS-NG. In addition, SBA noted instances where performance data lag behind the performance review cycle. For example, the Department of Defense holds its procurement data back from FPDS-NG for one quarter for national security purposes. SBA officials said that instead of waiting for the next quarter, they obtain preliminary information from the Department of Defense. Our analysis indicated that agencies need staff with the skills to assess performance data for coverage and quality and to identify key trends, areas of strong or weak performance, and possible causal factors. In addition, those messages need to be effectively communicated to management and staff that will play a role in identifying and solving performance problems and making related decisions. Analysts and managers should carefully consider the type and amount of information that will be useful for performance reviews, as well as how to present the information to audiences with varying levels of technical or quantitative skills. Providing the right amount of easy-to-understand performance information can promote effective decision making during the quarterly performance reviews. For example, focusing the presentation on the message the data tell about performance, using well-designed graphics, and grounding the data in relevant context are effective communication techniques. Our PIO survey results included information on 15 specific competencies associated with performance improvement responsibilities. For each of these competencies, the majority of PIOs reported the competencies were present among performance improvement staff to a large extent. However, survey results were less positive about 2 competencies specifically related to analytic abilities. Of the 24 PIOs, 9 reported that performance measurement competencies and 10 reported that organizational performance analysis competencies were present among their performance improvement staff to a small or moderate extent. PIOs at DOE, SBA, and Treasury each described the teams they had assembled to support their performance improvement efforts. For example, SBA’s Deputy PIO had performance analysts to support the quarterly performance reviews and many other performance management activities, such as the production of a weekly dashboard of key performance metrics. However, SBA officials acknowledged that some staff were less comfortable working with data and they perceived this as a skills gap that needed to be addressed. These officials said they are addressing this through a combination of training and hiring. For example, as part of its leadership training, SBA began developing courses related to “decision support;” officials said the courses were designed to lead to competencies in spreadsheet development and analysis, presentation delivery, development of decision support datasets, and other analytic and presentation skills. Participants began training in late summer of 2012 with courses titled Principles of Analytics and Analytic Boot Camp. Having staff with abilities to communicate analyses effectively is an important factor in successful performance reviews, and most PIOs—22 of 24—reported that data and relevant analyses are presented effectively to participants in their agency’s reviews about half the time or more. However, 11 of those 22 PIOs also reported that effective presentation of data and relevant analysis was challenging—the second largest challenge cited by the PIOs among the practices we asked about. Consistent with our survey results, officials we interviewed at SBA and Treasury described the challenges they faced in developing skills sets that bridge the gap between data analysis and effective communication. At SBA, the Office of Performance Management developed internal training to help SBA managers improve their ability to communicate the message that the data suggest. One official recounted initial struggles to interpret data and then effectively communicate the key points relevant to performance improvement to those who were not analysts. He noted that the SBA Administrator told senior management that a “data dump” was not helpful, which helped them to realize what was needed. Training was developed to move managers and staff beyond basic analytic skills, with a focus on structuring presentations effectively, using data to drive management decisions, and in general, “telling your story so you’re drawing out insights, rather than just summarizing facts.” See figure 4. At Treasury, performance budgeting staff developed a PowerPoint presentation template that was distributed to each bureau to complete in advance of the Stat meetings. The template provided a uniform data collection tool that incorporated data presentation design principles, to guide the bureaus in effectively communicating their message to the Deputy Secretary. For example, templates for line charts prompted bureaus to indicate whether the desired trend line direction was up or down, since this is not always immediately apparent to high-ranking reviewers who may not have the depth of background into the particular program or operation. According to a Treasury official, designing an effective presentation is as important as doing relevant, high-quality data analysis. One official pointed out, “If no one reads or understands the analysis, it doesn’t matter how good it was.” SBA and Treasury officials responsible for managing the reviews also described challenges in balancing presentation uniformity with the need to provide context that varies. These officials noted that consistency was key to making performance information quick and easy to absorb, especially for leadership that has limited time to review such information. However, SBA noted that the down side of consistency is people’s tendencies to tune out information that appears to be repetitive. SBA’s PIO and COO said they have to continually look for ways to keep the performance review meetings engaging to participants and that “meeting fatigue” can be a problem. Further, several bureau officials at Treasury we interviewed said that while they understood the need for uniformity, the templates did not always provide them with enough flexibility to provide sufficient context for their performance information. While bureau officials we interviewed said that the process and template had improved over time, some felt that in the early days of the Stat reviews, they were so limited in their ability to “tell their story” to the Deputy Secretary that they did not think he was getting an accurate understanding of the issues. However, our review of multiple Stat documents indicated that there was a specific page in the template left open for issues the bureaus wanted to raise, and further, that some bureaus appended information to the template to provide additional context. Our analysis found that sufficient preparation for the performance review meeting is critical for a successful review. Key participants must be prepared to discuss agenda items related to their performance measures and progress toward goals as well as any other issues to be addressed. The time allotted to prepare for reviews also provides a prompt for participants to continuously update their performance data, assess progress toward their performance goals, and develop a response to any performance issues identified. Also, data to be presented during the reviews must be fully vetted prior to the meeting so that participants can focus discussions on data trends and analysis rather than on whether the data itself is correct. According to our survey results, 22 of 24 PIOs reported that review participants are adequately prepared for performance reviews more than half the time, and 20 reported that, overall, it is not challenging for participants to be prepared for the reviews. Nevertheless, several agency officials from DOE, SBA, and Treasury said that there was a significant time investment in preparing information and coordinating among managers and analysts across headquarters and components or offices. Officials at Treasury noted that the process of preparing for the reviews forced the department and its component agencies to closely examine performance data and make sure they could explain it to the Deputy Secretary, and said this process was a valuable part of the performance review. As one bureau-level official explained, nobody wants to go before the Deputy Secretary with data that indicates a performance problem, unless they are able to explain the issue and show that they have already thought of strategies for improvement. As a result, preparing for the reviews sometimes prompted participants to conduct additional analysis and have advance discussions on how to address performance problems. At DOE, SBA, and Treasury, we found several practices in place to prepare participants for review meetings. Officials at each agency stressed the importance of meeting preparation to ensure that the review sessions were productive. For example, Treasury employed a rigorous pre-meeting process which started with the performance budgeting staff developing a PowerPoint template, in consultation with the Deputy Secretary, specifying the performance information to be provided by each component agency for its Stat session. Treasury officials said that performance budgeting staff then met with component staff to discuss the new template and any changes. The templates we reviewed were organized into several categories, such as priority projects, management metrics, and other issues, and were distributed in advance of the Stat meeting and used as the meeting agenda. Treasury officials said there were typically several rounds of revisions to the PowerPoint template prior to the review session, with management and analysts at the component level coordinating with their counterparts at the department. Officials said that one of the goals of developing the template was to ensure that all participants are fully prepared and able to engage in meaningful discussions about performance. In particular, one official explained that a guiding principle is that none of the participants should ever be surprised by any of the topics to be discussed. In advance of each review session, Treasury’s Deputy Secretary reviews the completed document along with an explanatory briefing memo prepared by performance budgeting staff, which provides relevant context for any issues, suggests lines of questioning, and highlights particular decisions to be made. Performance budgeting staff also review the completed Stat template with component staff to discuss the contents and ensure that the component is aware of issues likely to be brought to the attention of the Deputy Secretary. Treasury’s senior officials emphasized the importance of ensuring that data discussed at the meeting were sufficiently vetted during meeting preparation so as not to spend time during the sessions determining whether the information is correct. Several officials pointed to instances in early review meetings that used valuable meeting time on data issues because department-level and component staff disagreed on baseline data used during the reviews. DOE’s pre-meeting practices included briefings with the Deputy Secretary and under secretaries and development of a Business Quarterly Review binder that included descriptions of the program offices’ performance and budget information, a list of attendees, and background notes, as well as a list of actions from the previous performance review. Our analysis showed that in-person meetings which are both frequent and regularly scheduled are a defining characteristic of data-driven reviews. Regularly scheduled meetings foster a culture of performance management and continuous improvement. The frequency of the meeting schedule should depend on the urgency of the problems to be fixed, frequency with which the data are collected, and speed with which agency action can have an impact on these data. GPRAMA requires that starting no later than June 2011, agencies must conduct meetings at least quarterly, but agencies may meet more frequently if it meets their needs. According to our survey, all 24 of the PIOs reported that their agencies were conducting performance reviews at least quarterly, with 7 of those 24 reporting conducting reviews more frequently. At DOE, SBA, and Treasury, we found each agency had frequent, regularly scheduled performance review meetings. Treasury’s Deputy Secretary met separately with each of the bureaus two or three times a year. Generally, one or two of the meetings with each Treasury bureau focused on performance, and the other meetings focused on budget. Treasury also holds Stat meetings on certain department-wide goals related to human capital, procurement, and strategic sourcing. As a result, Treasury conducted more than three dozen performance review meetings throughout the year, with more than 100 reviews conducted as of November 2012. DOE and SBA both met quarterly with representatives from across their entire departments. Our survey results indicated that while holding performance reviews as scheduled is generally occurring, it may present challenges at some agencies. Of 24 PIOs, 20 reported that their agency held the performance reviews as scheduled more than half the time, with 2 of these PIOs reporting scheduling as a challenge. In addition, the 4 PIOs who reported that this practice was occurring about half of the time or less also reported that it was a challenge. Experiences at Treasury illustrated how it can be challenging to schedule performance review meetings with high-ranking officials. At one bureau, officials said that last-minute cancellations due to the Deputy Secretary’s schedule caused inefficiencies since extensive meeting preparations, including performance data analyses, had to be redone each time. Officials from this bureau also commented that the performance review meetings sometimes coincided with times during which the bureau had heavy workloads. The officials noted that scheduling all of the meetings at the beginning of the year would be helpful so that they could plan around them. According to Treasury officials, currently sessions are scheduled 4 to 8 weeks in advance. SBA found that it was best to schedule a standing date for the performance review meetings, which are held on the third Tuesday after the end of every quarter, rather than try to coordinate with numerous senior officials’ schedules every time. By selecting this meeting time, SBA was also able to leverage an existing weekly operations meeting, rather than scheduling a separate meeting for the quarterly performance review. Rigorous and sustained follow-up on issues identified during the meetings is also critical to ensure the success of the reviews as a performance improvement tool. Important follow-up activities include identifying the individual or office responsible for each action item as well as who will be monitoring the follow-up. Follow-up actions should be included as agenda items for subsequent reviews to hold responsible officials accountable for addressing the issues raised and communicating what was done. According to our survey results, follow-up activities are generally occurring even though some PIOs reported that this practice was challenging. In particular, 21 of 24 PIOs reported that follow-up activities occurred at their agencies more than half the time. Although 7 PIOs reported that follow-up activities were challenging, 5 of those 7 PIOs also reported that this practice was occurring more than half the time, which may indicate that some agencies have found ways to overcome these challenges. DOE, SBA, and Treasury each had a different approach to ensure that follow-up items were carried out as agreed to at the review meetings and to ensure responsible parties were held accountable. At DOE, post- meeting activities included asking program offices questions that were generated by their review and assigning an analyst from headquarters performance staff to work with mission program staff to prepare answers to these follow-up questions and have them ready for the next performance review meeting. According to an SBA official, follow-up action items were typically discussed at weekly operations meetings, which helped officials to integrate their action plans into these other performance discussions. One example of an SBA follow-up item was to develop new strategies related to increasing federal contracts with small businesses. Officials said they ranked agencies by the total dollar value of contracts they issued, and they targeted procurement representatives at the top seven purchasing agencies for their outreach efforts. At Treasury, its performance budgeting staff generated follow-up memorandums immediately after the review meetings, naming action items, responsible parties, and due dates. The status of follow-up items from the previous review meetings was also incorporated into the materials for the next review meeting so the Deputy Secretary could see if there was any lagging action. In addition, performance budgeting staff tracked overall performance on post-review follow-up to ensure that this part of the process was being managed effectively (see figure 5). Several officials from Treasury and SBA noted the importance of receiving feedback from meeting participants to help improve the review process. For example, Treasury conducted a formal feedback meeting with bureau heads after the first round of review meetings and learned that components wanted more data from the department’s performance staff to help substantiate their program performance. More recently, Treasury developed a survey to obtain formal feedback from participants and other management and staff that contribute to the review process. The survey included questions on the amount of time invested in preparation and follow-up and asked respondents to rate their satisfaction with various aspects of the review process, including the template design and the guidance provided by performance budget staff. Respondents were also asked to rate the importance of the various aspects of the review to their bureau or office, among other questions. According to Treasury officials who manage the Stat reviews, they have made specific improvements based on the survey results, such as sending out templates earlier to give components more time to prepare. SBA also solicited feedback from meeting participants and made some changes as a result. For example, an SBA official said that the agency used to schedule its quarterly performance review meeting after all the data were available, which was 45 days after the end of each quarter. However, the official said that participants wanted the meeting to be held when the majority of the data was available—only one of its offices’ data lagged—to allow them to take any needed action on a timely basis. As a result, the officials said SBA started scheduling the quarterly review meeting on the third Tuesday after the end of each quarter and conducting a separate meeting with the one SBA office that receives its data after that date. DOE, SBA, and Treasury officials said their quarterly performance reviews allowed different functional management groups and program areas within each agency to share information and ideas for performance improvement. Officials said these reviews helped them to solve problems that were impeding progress toward performance goals or to develop new performance improvement strategies. In some cases, officials were able to point to specific performance improvements that they attributed to the reviews. DOE officials said that quarterly reviews helped them take a more critical look at subordinate activities contributing to the achievement of their APGs. For instance, they examined barriers to achieving their weatherization goals and found they could produce better results by targeting not only individual homes but also multiuse buildings for retrofitting. Therefore, they created a program to leverage resources from nonprofit and private sector organizations focused on large scale retrofit projects for buildings. In another example, DOE identified barriers to achieving its solar energy cost reduction APG related to slow local permitting processes for solar installations along with other local-level activities that contributed toward the goal. To address these barriers, DOE funded a new program called the Rooftop Solar Challenge in which teams develop actions plans to standardize permit processes, update planning and zoning codes, improve standards for connecting solar power to the electric grid, and increase access to financing. Officials said they expected these new approaches to improve DOE’s performance in reducing solar energy costs. According to officials, performance reviews at DOE also facilitated information sharing across the agency that led to better results. For example, officials said discussions at DOE’s quarterly performance reviews led offices to share effective procurement practices. In this case, offices have been sharing best practices related to strategic sourcing to identify areas of cost reduction. For example, a recent reorganization between Environmental Management and National Nuclear Security Administration presented an opportunity for Environmental Management to leverage existing capabilities in strategic sourcing. The performance reviews have allowed for additional DOE-wide discussions on strategic sourcing lessons-learned and partnerships to potentially achieve greater efficiencies and cost savings. Another example provided by SBA officials illustrated how using the reviews to increase visibility of the small business contracting goal at higher management levels led to the adoption of new performance improvement strategies. After discussing contracting goal data at a quarterly review, officials said the Administrator and Deputy Administrator decided to call department secretaries at those federal agencies with the most potential for awarding small business contracts to emphasize the importance of the goal. Officials said other strategies, such as providing more training for procurement center representatives, who, among other things, assist small businesses in obtaining federal contracts, came out of discussion at the reviews. Officials said they anticipated that the new strategies that came out of the reviews would lead to better performance toward the small business contracting goal. SBA officials also provided an example that illustrated how the reviews facilitated intra-agency collaboration that improved SBA’s bottom line. Officials said that during a quarterly performance review meeting, the head of the Office of Capital Access described anticipated staffing shortfalls and the head of SBA’s Office of Disaster Assistance noted that he expected to have staff members available during the slower season in disaster assistance work, which is cyclical in nature. SBA’s Administrator instructed the two offices to work together, and as a result, officials said they were able to reduce the Office of Capital Access’s labor costs by 20 to 30 percent compared to the cost of paying employees overtime or hiring temporary contractor labor. DOE, SBA, and Treasury officials said the quarterly performance reviews provided a venue for top leadership to directly communicate their priorities and the priorities of the administration, which led to performance improvements in these areas. For example, at Treasury, nearly all of the bureau-level officials we interviewed said the Stat meetings were valuable because they allowed for a firsthand understanding of the Deputy Secretary’s priorities for their bureaus. Bureau officials said that the Deputy Secretary used these meetings to challenge their performance targets and approaches to addressing performance problems and to identify new opportunities for improvement. For example, the Bureau of the Public Debt Commissioner said that upon hearing about the Deputy Secretary’s interest in one of his ideas for improving how the agency communicates its bond pricing approach to customers, he moved ahead with developing an actionable strategy which he believes will ultimately lead to better customer service. Treasury officials said the Stat review process improved decision making by creating an environment where meaningful discussions on improving performance were held, citing performance improvements at the U.S. Mint as an example (see figure 6). Citing another example, Treasury officials said that the Deputy Secretary had made contracting with small business a department-wide priority. Although increasing small business participation in government contracting was a SBA priority goal, Treasury, like all federal agencies subject to the Small Business Act, had its own target to meet to contribute to the goal. Officials attributed increases in the department’s percentage of contracts with small businesses—Treasury was the only agency to achieve all of its fiscal year 2011 SBA small business prime contracting goals—to the Deputy Secretary’s “relentless attention” at the Stat meetings. At every Stat session with every bureau, the Deputy Secretary reviewed the individual bureau’s performance against the small business target goals. Officials said that Treasury’s chief procurement officer was present at every Stat meeting to facilitate goal achievement. The Financial Management Service (FMS) Commissioner cited another example of how the Stat meetings provided a venue for the Deputy Secretary to communicate his priorities, which led to better performance. FMS has been pursuing several priority projects to modernize its payments, collections, and central accounting systems that serve federal agencies across the government. For example, one project is to replace a paper process that many agencies use to accept vendor invoices with a central invoicing system. FMS’ analysts estimated that a central invoicing system could save the federal government $400 to $500 million annually, as well as provide vendors with online access to the status of their payments. FMS piloted the new system with the Bureau of Engraving and Printing. The new system enabled the Bureau of Engraving and Printing to pay their vendors more quickly than before, which resulted in the vendors having to provide “prompt pay” discounts. The decision was made to move forward government-wide, but to start with Treasury’s own bureaus. Following a Stat meeting in which the FMS Commissioner cited delays in adoption by other Treasury bureaus, the Deputy Secretary made it clear that implementing the new system was a priority. The FMS official said that, while he believed the adoption of the new system would have happened eventually even without the Stat meetings, he credited the Stat meetings with speeding up the process by three to four years. A small number of Treasury bureau officials we interviewed had mixed views on whether the Stat meetings had actually improved performance, with some pointing out that certain performance improvements may have occurred without the Stat meetings. For example, Treasury leadership said they used the Stat sessions to closely monitor the consolidation of Bureau of the Public Debt and FMS into a single bureau, the Bureau of the Fiscal Service. Some officials thought they would have achieved the various consolidation milestones and goals without the Stat reviews and one said that the reviews added another layer of reporting that was time consuming. However, Treasury department officials noted that component management may not be aware of how the Deputy Secretary uses the reviews to better understand performance issues, including, in some cases, to ensure that the department is providing necessary support to improve performance. Our review of DOE, SBA, and Treasury—as well as our survey of 24 PIOs—indicated that data-driven quarterly performance reviews hold promise as an effective management tool at the federal level. However, unlike city- and state-level data-driven reviews, which typically include representatives from multiple agencies, officials at DOE, SBA, and Treasury viewed their quarterly performance review meetings as an internal management tool and therefore did not open the reviews to outside participation. Officials said they relied on other means of collaborating with outside agencies and other partners that contribute to achieving cross-cutting goals. Furthermore, the majority of PIOs we surveyed indicated that there was little to no involvement in the reviews from external officials who could contribute to achieving agency goals. Successful data-driven performance reviews, which require extensive preparation and significant leadership time, do not come without a cost, so it is critical that agencies implement their reviews in a way that maximizes their effectiveness. As the implementation of the various GPRAMA provisions continues, agencies may need to reevaluate the most effective way to engage outside contributors in the quarterly performance review process for APGs and other performance goals that depend on other organizations to achieve desired outcomes. While there are many approaches to managing performance toward such goals, agency quarterly performance reviews could provide opportunities to bring together the leadership and all the key players needed to improve cross-agency and internal agency performance. To better leverage agency quarterly performance reviews as a mechanism to manage performance toward agency priority and other agency-level performance goals, we are recommending that the Director of the Office of Management and Budget—working with the Performance Improvement Council and other relevant groups—identify and share promising practices to help agencies extend their quarterly performance reviews to include, as relevant, representatives from outside organizations that contribute to achieving their agency performance goals. We provided a draft of this report to DOE, OMB, SBA, and Treasury for review and comment. Each agency provided technical comments which we incorporated as appropriate. OMB staff generally concurred with the recommendation in our report. DOE and Treasury provided written comments, which are reproduced in appendixes IV and V, agreeing with our conclusions. We are sending copies of this report to the appropriate congressional committees and the Secretaries of Energy and Treasury, the Administrator of SBA, and the Director of OMB. In addition, the report is available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6806 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VII. As part of our mandate to review the implementation of the Government Performance and Results Act Modernization Act of 2010 (GPRAMA), our reporting objectives were to (1) identify practices that can promote successful data-driven reviews at the federal level and examine how these reviews are being implemented at selected agencies and across the government, and (2) examine the impact of quarterly data-driven performance reviews on selected agencies’ progress toward high priority and other performance goals. This report is the second in a series that examines how agencies are implementing various GPRAMA requirements. To identify practices that can promote successful data-driven reviews at the federal level, we conducted a review of relevant academic and policy literature, including our previous reports. Based on our literature review, we developed a broad set of practices associated with the major contributors to success for data-driven reviews. We refined these practices with additional information obtained from practitioners at the local, state, and federal level who shared their experiences and lessons learned. As part of this engagement, we also compared these practices with recent GPRAMA-related guidance in the Office of Management and Budget’s (OMB) Circular No. A-11 and found them broadly consistent. We observed two data-driven review meetings at the Department of the Treasury (Treasury), which was one of the agencies selected to address our reporting objectives. To examine how these reviews are being implemented at agencies across the government, we surveyed the performance improvement officer (PIO) at each of the 24 federal agencies subject to the Chief Financial Officers (CFO) Act. We surveyed these agencies because GPRAMA directs us to focus on them in our reporting on the act. Additionally, several provisions of the act apply specifically to these agencies, including that the Performance Improvement Council (PIC) include them as members. We received responses from 24 PIOs—a 100 percent response rate. The web-based survey was administered from October 18, 2012, to December 14, 2012. Respondents were sent an e-mail invitation to complete the survey on a GAO web server using a unique username and password. During the data collection period, we sent reminder e-mails and made phone calls to nonresponding agencies. Because this was not a sample survey, it has no sampling errors. The practical difficulties of conducting any survey may also introduce nonsampling errors, such as difficulties interpreting a particular question, which can introduce unwanted variability into the survey results. We took steps to minimize nonsampling errors by pretesting the questionnaire in person with PIOs and Deputy PIOs at three different agencies. We conducted pretests to make sure that the questions were clear and unbiased, the data and information were readily obtainable, and the questionnaire did not place an undue burden on respondents. We made appropriate revisions to the content and format of the questionnaire after the pretests and independent review. All data analysis programs used to generate survey results were independently verified for accuracy. Additionally, in reviewing the answers from agencies, we confirmed that PIOs had correctly bypassed inapplicable questions (skip patterns). Based on our findings, we determined that the survey data are sufficiently reliable for the purposes of this engagement. To evaluate how effectively selected agencies are applying the practices of data-driven reviews in their GPRAMA-mandated quarterly performance reviews, and the effectiveness of these reviews toward achieving agency priority and other performance goals, we chose three agencies— Department of Energy (DOE), Small Business Administration (SBA), and Department of the Treasury (Treasury). Because one of our goals was to describe challenges and lessons learned that will be useful to as many federal agencies as possible—as well as to the administration and to Congress—we selected agencies for case study that could provide a new illustration of challenges or lessons learned, that is, agencies that were not the recent or current subject of GAO or other public administration or public policy case studies. We also looked for agencies that could provide broadly applicable case illustrations, based on the scope of their mission, organizational complexity, and the mix of government tools—such as direct service, regulations, grants, loans, and tax expenditures—used to achieve their performance goals. In addition, we excluded agencies that were undergoing significant management changes—such as leadership turnover or consolidation review—that could prevent us from gaining a clear picture of performance management or could interfere with our ability to make practicable recommendations. We also excluded agencies that had less than one year of experience in conducting data-driven reviews at the time that we started our field work. At each selected agency, we focused on two agency priority goals (APG) to examine how quarterly performance reviews affected the agency components responsible for achieving performance outcomes. Because the scope of our review was to examine data-driven performance reviews as a leadership strategy, we did not evaluate whether these goals were appropriate indicators of agency performance, sufficiently ambitious, or met other dimensions of quality. The following are the complete sets of the agencies’ 2013 APGs. An asterisk indicates the ones we focused on in our review:  Save low-income families money and energy through weatherization  Reduce the department’s Cold War legacy environmental footprint.  Reduce the cost of batteries for electric drive vehicles to help increase the market for plug-in-hybrids and all electric vehicles and thereby reduce petroleum use and greenhouse gas emissions.  Make solar energy as cheap as traditional sources of electricity.*  Reduce consumer energy use and costs for household appliances.  Prioritization of scientific facilities to ensure optimal benefit from federal investments.  Make significant progress toward securing the most vulnerable nuclear materials worldwide within four years.  Maintain the U.S. nuclear weapons stockpile and dismantle excess nuclear weapons to meet national nuclear security requirements as assigned by the President through the Nuclear Posture Review.  Process business loans as efficiently as possible.* Increase small business participation in government contracting.*  Process disaster assistance applications efficiently.  Expand access to long term capital. Increase electronic transactions with the public to improve service, prevent fraud, and reduce costs.* Increase voluntary tax compliance.* To address both of our objectives, we reviewed memorandums, internal briefings, and other materials agencies used to prepare for the reviews, as well as documents used during the reviews and follow-up materials. We conducted interviews with officials at OMB, the Performance Improvement Council, and senior-level officials involved in each agency’s performance review process to gain various perspectives on these reviews.  DOE: We met with the Deputy Secretary, who also serves as DOE’s chief operating officer (COO), and other senior-level officials including but not limited to the PIO, the Deputy PIO, and budget officials. In addition, we met with two APG goal leaders: the Deputy Assistant Secretary for Energy Efficiency and the Deputy Assistant Secretary for Renewable Energy.  SBA: We met with senior-level officials, including but not limited to the SBA’s PIO, Deputy PIO, and COO. In addition, we met with SBA’s Associate Administrator/Office of Capital Access, who serves as the goal leader for one of the AGPs we reviewed.  Treasury: We met with the Deputy Secretary, who also serves as Treasury’s COO, and other senior-level officials at the department level, including the PIO, who also serves as the CFO, the Deputy PIO, and budget officials. We also met with senior-level officials at Treasury’s Bureau of the Fiscal Service, Bureau of the Public Debt, Financial Management Service, and the Internal Revenue Service. In addition, we met with the Assistant Fiscal Secretary who serves as the goal leader for one of the APGs we reviewed. We asked to observe at least one review meeting at each agency. Treasury allowed us to observe two of its quarterly performance review meetings—one focused on the Bureau of the Fiscal Service and one on the Internal Revenue Service. DOE and SBA did not allow us to observe their meetings, citing concerns that our presence could inhibit open discussion. During the interviews, we asked officials to identify any challenges to effective implementation they faced as the process evolved or any lessons they learned. We also asked officials to identify examples of any impacts on performance that they attributed to the reviews. We conducted our work from April 2012 to February 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. To address several research objectives related to implementation of the Government Performance and Results Act Modernization Act of 2010 (GPRAMA) we distributed a web-based survey to the performance improvement officer (PIO) at each of the 24 agencies subject to the Chief Financial Officers Act. We received responses from all 24 PIOs. There were 45 survey questions; tables 1 through 9 below show questions and responses for the nine questions that were directly applicable to the research objectives in this report. We will publish the full survey results in a report in the spring of 2013 on the implementation of key management positions under GPRAMA. For more information about our methodology for designing and distributing the survey, see appendix I. This appendix includes the print version of the text contained in interactive figure 1. Several officials noted challenges in achieving the proper balance between having a small number of meeting participants, which can allow more air time for each participant, compared to a larger group which might not be a productive use of time for those attending. Picture: Treasury Deputy Secretary and COO Neal Wolin (top) leads the department’s quarterly performance reviews, with support from Assistant Secretary for Management Nani Coloretti, who also serves as Treasury’s PIO. In addition, balancing depth of knowledge and numbers of staff attending these reviews is another consideration for finding the right meeting size. One official pointed out that having a relatively small group can help participants feel more comfortable in revealing performance problems but that there is a risk of leaving out key players that need to be part of a performance solution. Officials from each agency described different approaches to finding the right meeting size and composition for effective performance reviews, with several officials acknowledging that it takes time to get it right. Table 10 contains the rollover information from interactive figure 1 about how the Department of Energy (DOE), the Small Business Administration (SBA), and the Department of the Treasury (Treasury) conduct their quarterly performance review meetings. Elizabeth Curda and Laura Miller Craig managed this assignment. Darnita Akers, Virginia Chanley, Don Kiggins, and Bob Yetvin made contributions to all aspects of the report. Kim Gianopoulos, Kay Kuhlman, Judith Kordahl, Jill Lacey, Sarah M. McGrath, Tim Minelli, Kathleen Padulchick, William B. Shear, Albert Sim, and Meredith Trauner also provided assistance. In addition, Sabrina Streagle provided legal support and Donna Miller developed the report’s graphics. Behn, Robert. “Collaborating for Performance: Or Can There Exist Such a Thing as CollaborationStat?” International Public Management Journal, vol. 13, no. 4 (2010): 429-470. Behn, Robert. “The Core Drivers Of CitiStat: It’s Not Just About the Meetings and the Maps,” International Public Management Journal, vol. 8, no. 3 (2005): 295-319. Behn, Robert. “The Varieties of CitiStat,” Public Administration Review, vol. 66, no. 3 (2006): 332-340. Behn, Robert. “What All Mayors Would Like to Know About Baltimore’s CitiStat Performance Strategy,” IBM Center for the Business of Government Managing for Performance and Results Series (Washington, D.C.: 2007). Campbell, Mary. “Bringing Performance Excellence to the Public Sector: Washington State’s Odyssey,” ASQ World Conference on Quality and Improvement Proceedings, vol. 59 (2005): 279-288. Esty, Daniel, and Reece Rushing. “The Promise of Data-Driven Policymaking,” Issues in Science and Technology, vol. 23, no. 4 (Summer 2007): 67-72. Fillichio, Carl. “Getting Ahead of the Curve: Baltimore and CitiStat,” Public Manager, vol. 34, no. 2 (Summer 2005): 51-53. Godown, Jeff. “The CompStat Process: Four Principles for Managing Crime Reduction,” The Police Chief, vol. LXXVI, no. 8 (August 2009), accessed on September 5, 2012, http://www.policechiefmagazine.org/magazine/index.cfm?fuseaction=displ ay&article_id=1859&issue_id=82009. Griffith, John, and Gadi Dechter. “Performance Reviews That Work: Four Case Studies of Successful Performance Review Systems in the Federal Government,” Center for American Progress (Washington, D.C.: February 2011). Hatry, Harry and Elizabeth Davies, “A Guide to Data-Driven Performance Reviews,” IBM Center for the Business of Government Improving Performance Series (Washington, D.C.: 2011). Henderson, Lenneal. “The Baltimore CitiStat Program: Performance and Accountability,” IBM Endowment for the Business of Government Managing For Results Series (Arlington, VA: May 2003). Kettl, Donald. “China Looks West for Performance Management,” Governing, August 2011, http://www.governing.com/columns/potomac- chronicle/china-looks-west-performance-management.html. Kingsley, Christopher. “Smart Cities: PerformanceSTAT at 15,” University of Pennsylvania Fels Institute of Government (Philadelphia, PA; October 2010). Malinowski, Chris, and Sasha Page. “Top 10 Performance Measurement Dos and Don’ts,” Government Finance Review, vol. 20, no. 5 (October 2004): 28+. Moynihan, Donald, and Stéphane Lavertu. “Do Performance Reforms Change How Federal Mangers Manage?” The Brookings Institution Issues in Governance Studies Series, 52 (Washington, D.C.: October 2012). O’Connell, Paul, and Daniel Forrester. “Think Differently: Update Your Stats to Unlock Outcomes,” The Public Manager, vol. 38, no. 4 (Winter 2009-2010): 5-9. O’Connell, Paul. “Using Performance Data for Accountability: The New York City Police Department’s CompStat Model of Police Management,” The PricewaterhouseCoopers Endowment for the Business of Government Managing for Results Series (Arlington, VA: 2001). Partnership for Public Service. “From Data to Decisions: The Power of Analytics,” IBM Center for the Business of Government (Washington, D.C.: November 2011). Perez, Teresita and Reece Rushing. “The CitiStat Model: How Data- Driven Government Can Increase Efficiency and Effectiveness,” Center for American Progress (Washington, D.C.: April 2007). Queensland Audit Office. Better Practice Guide Performance Reviews. Brisbane, Australia: 2010. Sanger, Mary Bryna. “From Measurement to Management: Breaking through the Barriers to State and Local Performance,” Public Administration Review, S1 (December 2008): S70-85. Scofield, Jennifer. “Asking Why Cuyahoga CountyStat,” Government Finance Review, vol. 27, no. 6 (December 2011): 40-43. Serpas, Ronal, and Matthew Morley. “The Next Step in Accountability- Driven Leadership: “CompStating” the CompStat data,” The Police Chief, vol. LXXV, no. 5 (May 2008), accessed on September 5, 2012, http://www.policechiefmagazine.org/magazine/index.cfm?fuseaction=displ ay_arch&article_id=1501&issue_id=52008. Shane, Jon. “Compstat Process,” FBI Law Enforcement Bulletin, vol. 73, no. 4 (April 2004): 12-21. Sharp, Cathy, Jocelyn Jones, and Alison Smith. “What Do We Measure and Why? An Evaluation of the Citistat Model of Performance Management and its Applicability to the Scottish Public Sector,” Scottish Executive Social Research (Edinburgh, UK: 2006). Solan, David. “The EPAStat Quarterly Report and Lessons Learned,” Public Performance & Management Review, vol. 33, no. 2 (December 2009): 222-240. Steinberg, Harold. “Using Performance Information to Drive Performance Improvement,” Association of Government Accountants Corporate Partner Advisory GroupResearch Series: Report No. 29 (Alexandria, VA: 2011). Useem, Greg. “Moving from Reporting Performance Information to Using It,” Government Finance Review, vol. 25, no. 2 (April 2009): 47-50. Weitzman, Beth, Diana Silver, and Caitlyn Brazill. “Efforts to Improve Public Policy and Programs through Data Practice: Experiences in 15 Distressed American Cities,” Public Administration Review, vol. 66, no. 3 (May/June 2006): 386-399. Managing for Results: Key Considerations for Implementing Interagency Collaborative Mechanisms. GAO-12-1022. Washington, D.C.: September 27, 2012 Strategic Sourcing: Improved and Expanded Use Could Save Billions in Annual Procurement Costs. GAO-12-919. Washington, D.C.: September 20, 2012 Solar Energy: Federal Initiatives Overlap but Take Measures to Avoid Duplication. GAO-12-843. Washington, D.C.: August 30, 2012. Entrepreneurial Assistance: Opportunities Exist to Improve Programs’ Collaboration, Data-Tracking, and Performance Management. GAO-12-819. Washington, D.C.: August 23, 2012. Managing for Results: GAO’s Work Related to the Interim Crosscutting Priority Goals under the GPRA Modernization Act. GAO-12-620R. Washington, D.C.: May 31, 2012. 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue. GAO-12-342SP. Washington D.C: February 28, 2012. Department of Energy: Additional Opportunities Exist to Streamline Support Functions at NNSA and Office of Science Sites. GAO-12-255. Washington, D.C.: January 31, 2012. Small Business Administration: Progress Continues in Addressing Reforms to the Disaster Loan Program. GAO-12-253T. Washington, D.C.: November 30, 2011. U.S. Coins: Replacing the $1 Note with a $1 Coin Would Provide a Financial Benefit to the Government. GAO-11-281. Washington, D.C.: March 4, 2011. Government Performance: Strategies for Building a Results-Oriented and Collaborative Culture in the Federal Government. GAO-09-1011T. Washington, D.C.: September 24, 2009. Government Performance: Lessons Learned for the Next Administration on Using Performance Information to Improve Results. GAO-08-1026T. Washington, D.C.: July 24, 2008. Results Oriented Cultures: Creating a Clear Linkage between Individual Performance and Organizational Success. GAO-03-488. Washington, D.C.: March 14, 2003.

Given the federal government's central role in addressing many of the American public's most pressing concerns, it is critical that government performance is managed effectively. GAO's previous work has shown that many federal agencies have struggled to adopt effective performance management practices. Congress took steps to improve federal performance management with the passage of the Government Performance and Results Act Modernization Act of 2010 (GPRAMA), which included a provision for agency leaders to conduct quarterly, data-driven performance reviews. As part of GAO's mandate to review GPRAMA implementation, this report (1) identifies practices that can promote successful data-driven performance reviews at the federal level and examines how they are being implemented at selected agencies and across the government, and (2) examines the impact of quarterly datadriven performance reviews on selected agencies' progress toward high priority and other performance goals. To address these objectives, GAO reviewed academic and policy literature; information from practitioners at the local, state, and federal level; and Office of Management and Budget (OMB) guidance. GAO surveyed performance improvement officers at 24 federal agencies and examined review implementation at three agencies--DOE, SBA, and Treasury. GAO identified nine leading practices to promote successful data-driven performance reviews--referred to as quarterly performance reviews--at the federal level. Agency leaders use data-driven reviews as a leadership strategy to drive performance improvement. Key players attend reviews to facilitate problem solving. Reviews ensure alignment between agency goals, program activities, and resources. Agency leaders hold managers accountable for diagnosing performance problems and identifying strategies for improvement. Agency has capacity to collect accurate, useful, and timely performance data. Agency staff have skills to analyze and clearly communicate complex data for decision making. Rigorous preparations enable meaningful performance discussions. Reviews are conducted on a frequent and regularly scheduled basis. Participants engage in rigorous and sustained follow-up on issues identified during reviews. Most officials GAO interviewed at the Department of Energy (DOE), Small Business Administration (SBA), and Department of the Treasury (Treasury) attributed improvements in performance and decision making to the reviews. DOE, SBA, and Treasury officials said their reviews allowed different functional management groups and program areas within their agencies to collaborate and identify strategies which led to performance improvements. GAO's survey of performance improvement officers indicated that there was little to no involvement in the reviews from other agencies that could help achieve agency goals. This was also true at DOE, SBA, and Treasury, where officials expressed concerns about including outsiders in their reviews and described other means of coordinating with them. However, OMB guidance--along with a leading practice GAO identified--indicates that including key players from other agencies can lead to more effective collaboration and goal achievement. GAO recommends that OMB identify and share practices to use the reviews for interagency collaboration, when relevant, to achieve agency goals. OMB staff generally agreed with the recommendation.

You are an expert at summarizing long articles. Proceed to summarize the following text: Immigration court hearings are adversarial proceedings in which an individual appears before an immigration judge for adjudication of charges of removability from the United States, and may raise defense to removal by seeking asylum and other forms of relief or protection from removal. Immigration judges are to assess whether an applicant has credibly demonstrated that he or she is eligible to be granted asylum, and whether a grant of asylum is warranted as a matter of discretion. An applicant is eligible for asylum if he or she (1) applies from within the United States; (2) suffered past persecution, or has a well-founded fear of future persecution, based on race, religion, nationality, membership in a particular social group, or political opinion; and (3) is not statutorily barred from applying for or being granted asylum. When making a credibility determination, the immigration judge is to consider the totality of the circumstances and all relevant factors. EOIR follows the same procedures for defensive asylum applications and affirmative asylum referrals from USCIS. For affirmative asylum referrals, the immigration judge reviews the case de novo, meaning that the judge evaluates the applicant’s affirmative asylum application anew and is not bound by the USCIS asylum officer’s previous determination. As shown in Figure 1, in conducting removal proceedings and adjudicating cases before them, judges in immigration courts conduct an initial master calendar hearing to, among other things, ensure the applicant understands the immigration court proceedings and schedule the merits hearing, during which the judge hears claims for immigration relief, such as asylum. An individual in removal proceedings in immigration court may request multiple types of relief before an immigration judge, and, if deemed removable, the judge makes a decision as to whether the individual satisfies the applicable eligibility requirements of any requested relief. During the merits hearing, judges hear testimony from the respondent and any other witnesses, oversee cross-examinations by DHS’s U.S. Immigration and Customs Enforcement (ICE) trial attorneys, and review relevant evidence, including evidence related to claims for asylum or other relief. Additionally, the immigration judge may question the applicant or other witnesses. Judges render oral or written decisions at the end of immigration court proceedings. As a general matter, immigration judges have discretion in rendering decisions under 8 C.F.R. § 1003.10(b), which states that “n deciding the individual case before them, and subject to the applicable governing standards, immigration judges shall exercise their independent judgment and discretion and may take any action consistent with their authorities under the Act and regulations that is appropriate and necessary for the disposition of such cases.” In addition, asylum is a discretionary form of relief under U.S. immigration law, in contrast to a mandatory type of immigration relief or protection, such as withholding of removal. With respect to asylum, section 208(a) of the Immigration and Nationality Act (INA) provides that the Attorney General or the Secretary of Homeland Security may grant asylum to an applicant who meets the definition of a refugee under INA § 101(a)(42)(A). There are five possible outcomes of an asylum application—grant, denial, withdrawal, abandonment, or other. If a judge grants asylum, the asylee is eligible to apply for adjustment to lawful permanent resident status after one year. Individuals who have been granted asylum are considered qualified individuals for the purpose of eligibility for federal, and state or local, public benefits. Asylees are authorized for employment in the United States as a result of their asylum status. The other four possible outcomes of an asylum application—denial, withdrawal, abandonment, and other—do not result in an asylum grant, and therefore do not convey such benefits. According to EOIR headquarters officials, the outcome of an individual’s asylum application is not necessarily determinative of the outcome of the individual’s overall removal case. For example, an individual whose asylum application ends in an outcome of denial, withdrawal, or other may still be granted other forms of relief or protection from removal, such as withholding or cancellation of removal. Or, the individual may be found removable and not eligible for any form of relief or protection from removal. In this latter case, the individual would be subject to removal pursuant to the judge’s order of removal once it has become administratively final. According to EOIR headquarters officials, an outcome of other for an asylum application is recorded if the judge did not need to reach a decision on the merits of the asylum application. For example, ICE’s Office of the Principal Legal Advisor may exercise prosecutorial discretion in seeking, and the immigration judge may grant, administrative closure of removal proceedings for an individual whose case is not an enforcement priority for DHS. EOIR’s OLAP oversees various programs aimed at increasing access to legal services and information for individuals appearing before immigration court, as well as improving the effectiveness of EOIR’s adjudication process. According to EOIR, since April 2000, OLAP has worked to improve access to legal information and counseling and increase the level of representation for individuals appearing before the immigration courts. This has been carried out primarily through initiatives that facilitate access to information and help create new incentives for attorneys, non-profit organizations and their representatives, and law students to accept pro bono cases. In particular, OLAP established LOP and LOPC to provide legal information to targeted populations regarding immigration court processes and possible forms of relief, including asylum. LOP, which EOIR established in 2003, provides legal information to individuals in detention who are awaiting their removal proceedings regarding their rights and the immigration process to assist them in making better informed decisions earlier in immigration court proceedings. LOPC, which EOIR established in 2010, provides legal orientation presentations to custodians of unaccompanied alien children (UAC) released from custody from the Office of Refugee Resettlement, to ensure the child’s appearance at all immigration court hearings. To provide LOP and LOPC services, OLAP contracts with the Vera Institute of Justice (Vera), which subcontracts with non-profit organizations across the country. OLAP has also established other legal access services, including self-help materials and other programs intended to increase pro bono representation and serve vulnerable populations. A total of 740,922 individuals with asylum applications that were completed between fiscal years 1995 and 2014 met the criteria to be included in our sample. Of those, 595,795 (or 80 percent) were included in our analysis of asylum application completions and asylum grant rates. Since 2008, when we last reported on asylum outcomes, EOIR’s immigration judges granted asylum to between 4,508 and 6,090 individuals in our sample each year. The number of individuals granted affirmative asylum each year has ranged from 3,060 to 4,166. The number of individuals denied affirmative asylum decreased each fiscal year from fiscal year 2008 to fiscal year 2014. Figure 2 illustrates outcomes of completed affirmative asylum applications during this period. Since our 2008 report, the number of defensive asylum applications that were granted by immigration judges has ranged from 1,343 to 1,924 per year (fiscal years 2008 through 2014). As illustrated in Figure 3, the number of defensive asylum applications that were denied increased each fiscal year from 2011 to 2014. The number of defensive asylum applications with outcomes of “other” increased sharply from 828 in fiscal year 2009 to 3,960 in fiscal year 2014. As previously discussed, an outcome of “other” for an asylum application is recorded if the immigration judge did not need to reach a decision on the merits of the application. EOIR officials stated that the impact of DHS’s 2011 memorandum on prosecutorial discretion for immigration enforcement is a key reason for this increase—when DHS exercises prosecutorial discretion during removal proceedings, judges are able to administratively close removal cases without reaching a decision on the merits of the case, including associated asylum applications. For fiscal years 1995 through 2014, EOIR data indicate that affirmative and defensive asylum grant rates varied over time and across immigration courts, applicants’ country of nationality, and individual immigration judges within courts. In 2008, we reported the asylum grant rate as the number of asylum applications granted divided by the total number of all granted and denied applications. In other words, the grant rate depended on the number of completed asylum applications that ended in a decision by the immigration judge of either grant or denial. In this report, to provide data on all of the outcomes of completed asylum applications during our period of analysis, we included the five possible outcomes in calculating the asylum grant rate. These include applications that were granted and denied, as well as those that had an outcome of withdrawn, abandoned, or other. Thus, for the purposes of this report, we define the asylum “grant rate” as the number of granted asylum applications divided by the total number of completed applications (completions include applications that are granted, denied, withdrawn, abandoned, or end in an outcome of “other”) during the period of analysis. An expanded definition allows us to describe the outcomes of completed asylum applications, including outcomes other than granted or denied, and trends in those outcomes. Using this definition, annual grant rates for affirmative asylum applications ranged from 21 to 44 percent from fiscal year 2008 through fiscal year 2014. In the same time period, grant rates for defensive asylum applications ranged from 15 to 26 percent. Figure 4 illustrates asylum grant rates for fiscal years 1995 through 2014. In 2008, we reported that affirmative asylum grant rates varied by applicants’ country of nationality. Country conditions vary from one country to another, including countries’ political climates and human rights records. Thus, differences in the extent to which applicants from various countries are granted or denied asylum in the United States is not unexpected. For the period since our 2008 report, from May 2007 through fiscal year 2014, affirmative asylum grant rates continued to vary by applicant nationality, as shown in Figure 5. For example, the grant rate for affirmative applicants exceeded 50 percent for asylum applicants from some countries, including Sudan, Cameroon, Burma (Myanmar), Sri Lanka, Yugoslavia, China, Ethiopia, Egypt, and Eritrea. For other countries, the affirmative asylum grant rate was less than 5 percent, including El Salvador, Cuba, Mexico, Ecuador, Nicaragua, Guatemala, Honduras, and Philippines. In 2008, we reported that defensive asylum grant rates also varied by applicants’ country of nationality. From May 2007 through fiscal year 2014, defensive asylum grant rates continued to vary by country of nationality. For example, the grant rate for defensive applicants exceeded 50 percent for asylum applicants from some countries, including Cameroon, Iraq, China, Burma (Myanmar), Ethiopia, and Eritrea (see fig. 6). For other countries, the defensive asylum grant rate was less than 5 percent, including Laos, Philippines, and Mexico. In 2008, we reported that affirmative and defensive asylum grant rates varied depending on the immigration court that heard the case. We found similar levels of variation from May 2007 through fiscal year 2014. For example, the grant rate for affirmative applicants in the New York immigration court was 66 percent, while the grant rate in the Omaha and Atlanta immigration courts was less than 5 percent (see fig. 7). From May 2007 through fiscal year 2014, defensive asylum grant rates also continued to vary depending on the immigration court that heard the case. For example, the grant rate in the New York immigration court was 52 percent, while the grant rates in the Omaha, Atlanta, and Bloomington, Minnesota, courts were less than 5 percent (see fig. 8). From May 2007 through fiscal year 2014, within each immigration court, the asylum grant rate for individual immigration judges varied. Affirmative asylum grant rates for individual judges ranged from 0 to 83 percent. Among the four courts with more than 15 judges in our sample, the difference between the lowest and highest grant rates in each court, or the “range,” extended from 17 percentage points in Miami to 60 percentage points in New York, as illustrated in Table 1. Figure 9 illustrates the range of affirmative asylum grant rates for judges in their primary immigration courts from May 2007 through fiscal year 2014. From May 2007 through fiscal year 2014, defensive asylum grant rates across individual judges ranged from 0 to 80 percent. Among the four courts with more than 15 judges in our sample, the difference between the lowest and highest grant rates in each court, or the “range,” extended from 16 percentage points in Miami to 70 percentage points in New York, as illustrated in Table 2. Figure 10 illustrates the range of defensive asylum grant rates for judges in their primary immigration courts from May 2007 through fiscal year 2014. Immigration judges have discretion in rendering decisions and asylum is a discretionary form of relief under U.S. immigration law. Immigration judges we spoke with in six immigration courts stated that the judicial discretion provided for in U.S. immigration law is one reason that decisions on asylum applications, even among judges in the same court, could vary. For example, while a judge adjudicating an asylum claim is permitted by law to require that corroborating evidence be provided in support of otherwise credible, persuasive, and factually specific testimony, such testimony could also be legally sufficient for another judge to determine that the applicant has met his or her burden of proof without corroboration. In addition, researchers have offered potential explanations for variation in asylum application outcomes. For example, a study published in 2015 by researchers at the University of Texas at Dallas found that variation in asylum application outcomes is not unexpected given the institutional conditions under which judges operate, including the particular requirements of the law, the lack of corroborating evidence that is common in asylum cases, and the difficulty of assessing credibility. On the basis of our analysis of EOIR data from fiscal years 1995 through 2014, we found that asylum grant rates varied across courts and judges, holding constant various case and judge characteristics. While we were able to analyze various characteristics of cases, judges, and courts, the design of EOIR’s case management system did not allow us to measure and control for a number of factors—such as the nature or key characteristics of the claim of persecution or the gender of the applicant— that may be relevant to variability in asylum grant rates. EOIR’s case management system was designed to manage and track workloads across immigration courts rather than to collect all data on the details of individual proceedings. In addition, each asylum application presents unique facts and circumstances that judges must consider in rendering their decisions. As a result, our analysis could not hold constant the underlying facts and merits of individual asylum applications because EOIR’s case management system does not collect that information. Further, according to EOIR officials, immigration judges are not required to document each factor in the case management system they consider in their overall adjudication of an asylum claim. Some of these factors may be relevant to variation in asylum application outcomes, such as whether there was an adverse credibility determination. In addition, there may be other factors that could affect variation in asylum grant rates including whether a particular judge was assigned to a juvenile or other docket that does not randomly assign cases to judges. Nonetheless, the data available allowed us to control for certain factors of each asylum application, which enabled us to compare asylum outcomes across immigration courts and judges. We used multivariate statistical methods to estimate an expected asylum grant rate for a representative applicant, holding constant various characteristics of individual cases, judges, and courts. We estimated rates separately for affirmative and defensive asylum applications and for each of four time periods across fiscal years 1995 through 2014. Analyzing asylum grant rates for a representative applicant, holding constant factors such as whether the applicant was represented by counsel, applicant country of nationality, and judge gender, allowed us to compare asylum grant rates across courts and judges (see Appendix III for more details about our analysis). For the period since our 2008 report (May 2007 through fiscal year 2014), we estimate that, for each of the factors noted below, a representative affirmative asylum applicant would be granted asylum at a rate higher (or lower) than an applicant with differing case factors, and the difference would be statistically significant. The remaining factors we held constant—judge gender, most circuit courts, and judge and court asylum caseloads—had no statistically distinguishable associations with affirmative asylum grant rates for cases heard in immigration court. For example: Representation. Applicants who were represented by legal counsel were granted asylum at a rate 3.1 times higher than applicants who were not represented. Dependents. Applicants with at least one dependent were granted asylum at a rate 1.7 times higher than applicants without dependents. Date of affirmative asylum application. Applicants who applied within one year of entering the United States were granted asylum at a rate 2.4 times higher than applicants who applied later. Presidential administration under which judges were appointed. Judges who were appointed by the Attorney General during the administrations of Presidents George H.W. Bush, Reagan, Carter, Nixon, or Johnson were generally more likely to grant asylum than those appointed during the administrations of Presidents Clinton, George W. Bush, and Obama, holding constant years of experience as a judge. Judges appointed during the administrations of Presidents Clinton, George W. Bush, and Obama granted asylum at rates that were statistically indistinguishable from each other. Judge years of experience. Judges with more experience were less likely to grant asylum, holding constant the presidential administration of appointment. Judges with an additional 7 years of experience were 28 percent less likely to grant asylum. Many of the factors we analyzed had similar associations for both affirmative and defensive asylum grant rates. From May 2007 through fiscal year 2014, we estimate that, for each of the factors noted below, a representative defensive asylum applicant would be granted asylum at a rate higher (or lower) than an applicant with differing case factors, and the difference would be statistically significant. Judge experience and the presidential administration under which judges were appointed had no statistically distinguishable associations with defensive asylum grant rates. For example: Representation. Applicants who were represented by legal counsel were granted asylum at a rate 1.8 times higher than applicants who were not represented. Dependents. Applicants with at least one dependent were granted asylum at a rate 1.7 times higher than applicants without dependents. Date of defensive asylum application. Applicants who applied within one year of entering the United States were granted asylum at a rate 5.0 times higher than applicants who applied later. This association is substantially larger than the association for affirmative applications made during the same time, and the difference is statistically distinguishable from zero. Judge gender. Female judges granted asylum for defensive applications at a rate 1.4 times higher than male judges. There was no statistically meaningful association between judge gender and asylum grant rates among affirmative cases. From May 2007 through fiscal year 2014, we estimated that the affirmative asylum grant rate would vary by 29 percentage points if different immigration courts heard the case of a representative applicant with the same average characteristics we measured. As shown in table 3, the grant rate for a representative applicant in one court would be 19 percent, whereas it would be 48 percent in another court for the same representative applicant. The size of this range varied across the four time periods we analyzed, from a low of 10 percentage points in the first period to a high of 37 percentage points in the second period. For defensive asylum completions in the most recent period, we estimated that the defensive asylum grant rate would vary by 38 percentage points if different immigration courts heard the case of a representative applicant with the same average characteristics we measured. As shown in table 3, the grant rate for a representative applicant in one court would be 18 percent, whereas it would be 56 percent in another court for the same representative applicant. The size of this range varied across the four time periods we analyzed, from a low of 11 percentage points in the first period to a high of 38 percentage points in the third period. From May 2007 through fiscal year 2014, we estimated that the affirmative asylum grant rate would vary by 47 percentage points if different immigration judges heard the case of a representative applicant with the same average characteristics we measured. As shown in table 4, the grant rate for a representative applicant by one judge would be 13 percent, whereas it would be 60 percent before another judge for the same representative applicant. The size of this range varied across the four time periods we analyzed, from a low of 29 percentage points in the first period to a high of 47 percentage points in the fourth period. For completed defensive asylum applications in the most recent period, we estimated that the defensive asylum grant would vary by 57 percentage points if different immigration judges heard the case of a representative applicant with the same average characteristics we measured. As shown in table 4, the grant rate for a representative applicant by one judge would be 11 percent, whereas it would be 68 percent before another judge for the same representative applicant. The size of this range varied across the four time periods we analyzed, from a low of 22 percentage points in the first period to a high of 57 percentage points in the fourth period. Through LOP and LOPC, EOIR has provided legal orientations to approximately 450,000 individuals. EOIR established LOP in 2003 to provide legal orientations to persons in detention prior to their first hearing before an immigration judge. In 2010, EOIR established LOPC to provide legal orientation presentations to custodians of UAC released from custody from the Office of Refugee Resettlement to help ensure the child’s appearance at all immigration proceedings. LOP and LOPC provide legal information through group and individual orientations, as well as self-help workshops and pro bono legal referrals to those in removal proceedings in immigration court. According to DOJ and EOIR, LOP and LOPC are key efforts to, among other things, increase the efficiency of immigration court proceedings and improve access to basic legal services for individuals in such proceedings. For example, DOJ’s Congressional Budget Submission for Fiscal Year 2016 reported that LOP is designed to assist detained individuals in making better informed decisions earlier in their immigration court proceedings, thereby improving access to basic legal services, especially for low income individuals, while increasing the efficiency of the court hearing and detention process. Regarding LOPC, in February 2016, EOIR’s Director testified that LOPC “helps the immigration court process function more efficiently and effectively by providing valuable information to the custodians of children who arrive in the United States without a parent or guardian.” Since 2005, EOIR has contracted with the Vera Institute of Justice (Vera), which subcontracts with non-profit organizations, to administer LOP and LOPC. As of July 2016, EOIR administered LOP at 36 detention facilities, 2 non-detained locations and LOPC in 15 cities across the United States. According to EOIR’s September 2011 blanket purchase agreement with Vera and associated statements of work, LOP and LOPC at each site, are to provide, among other things, individual and group legal orientations and the dissemination of written legal orientation materials to individuals in immigration removal proceedings. LOP and LOPC sites provide self- help workshops, pro bono referral services and individual and group orientations. In particular, these orientations are to review the range of rights available to such individuals and the forms of relief from removal that may or may not be available to them. Table 5 provides information on the goals and objectives for LOP and LOPC in the 2011 blanket purchase agreement. Consistent with the 2011 blanket purchase agreement, Vera submits quarterly reports to EOIR with data on, for example, the number of unique individuals who attended legal orientations and the number of referrals to pro bono legal services during the prior quarter. According to Vera’s quarterly report summarizing LOP data through fiscal year 2015, between about 35,000 and about 65,000 individuals attended LOP legal orientations per year from fiscal years 2008 through 2015 (see fig. 11). According to EOIR headquarters officials, the decrease in the number of individuals attending LOP orientations since fiscal year 2011 mirrors the decrease in the number of individuals detained and placed in removal proceedings during this time period. Regarding LOPC, according to Vera’s quarterly report summarizing LOPC data through fiscal year 2015, legal orientations to custodians increased from about 1,500 in fiscal year 2011, when the program started, to almost 14,000 in fiscal year 2015 (see fig. 12). EOIR headquarters officials stated that they review information that Vera provides through the quarterly reports to check compliance with contract requirements and to monitor the programs’ progress against stated objectives. In addition, according to EOIR officials, Vera and EOIR officials conduct site visits of LOP and LOPC sites to meet with local legal service organizations to observe presentations and workshops and discuss program performance. Vera also conducts monthly meetings with site staff. EOIR officials responsible for overseeing LOP and LOPC also noted that they hold regular discussions with Vera staff and use the information collected by Vera to monitor progress. In particular, EOIR officials stated that they monitor Vera’s data to identify increases or decreases in the number of individuals served in each LOP and LOPC location to determine site staffing levels or changes to existing sites. EOIR monitors LOP and LOPC through a variety of mechanisms, but has not established a system of performance measures, including establishing a baseline, to regularly evaluate the effectiveness of LOP and LOPC to determine whether these programs are having a measurable impact in meeting program objectives. EOIR officials stated that they have monitored LOP and LOPC performance through site visits and monthly conference calls with Vera, as well as Vera’s quarterly reports, annual reports, and budget analyses. Regarding LOP, EOIR officials stated that they have used many of the findings and recommendations from a one-time evaluation of the program in 2008 as a guide for monitoring LOP performance. The evaluation, conducted by Vera at the request of EOIR, found that LOP participants moved faster through immigration courts, received fewer in absentia removal orders and that LOP could effectively prepare individuals to represent themselves in immigration courts, among other things. In the 2008 LOP evaluation, Vera also concluded that immigration judges stated that LOP increased immigration court efficiency and detention facility staff stated that LOP improved detention conditions. EOIR’s 2011 blanket purchase agreement related to LOP and LOPC states that EOIR can request that the Contractor (i.e., Vera) produce various deliverables as needed and/or as requested by EOIR, including an evaluation of LOP program outcomes and a “performance outcome measurement program” to accurately and continuously measure and obtain quantitative and qualitative data on LOP’s stated objectives. Although the 2008 evaluation provided EOIR officials with valuable insight into the effectiveness of the LOP program, EOIR officials stated that they have not requested that Vera conduct a similar comprehensive outcome performance measurement program consistent with the 2011 blanket purchase agreement. Further, as of July 2016, EOIR officials stated that they have not required Vera to develop a formal performance outcome measurement program, or other formal performance measures, for LOP as allowed for in the blanket purchase agreement because of the variation in how LOP providers operate programs at each site. Regarding LOPC, the 2011 blanket purchase agreement states that, as specified in an executed blanket purchase agreement task order, Vera is to develop a system for measuring the performance of the program against its stated objectives by collecting program data on the number of UAC custodians served and the number of UACs represented by counsel, among other things. In addition, EOIR officials stated that they requested that Vera evaluate LOPC’s performance in 2014, consistent with the 2011 agreement. In August 2016, EOIR provided us a copy of the final evaluation report. Among other things, the report states that in absentia rates were lower for UAC whose custodians attended an LOPC orientation. In addition, custodians who Vera surveyed after attending an LOPC orientation reported learning about children’s legal rights and options for relief, as well as the importance of appearing in immigration court. In the report, Vera recommended that EOIR and Vera, among other things, consistently identify UAC in EOIR’s case management system and follow up with custodians to encourage attendance at orientations. EOIR officials stated in July 2016 that they do not plan to request another evaluation of LOPC, but will use these evaluation findings and recommendations to make any necessary program improvements. Consistent with requirements outlined in GPRAMA, performance measurement is the ongoing monitoring and reporting of program accomplishments, particularly towards pre-established goals and agencies are to establish performance measures to assess progress towards goals. While GPRAMA is applicable to the department or agency level, performance goals and measures are important management tools to all levels of an agency, including the program, project or activity level. Agencies can use performance measurement to make various types of management decisions to improve programs and results, such as developing strategies and allocating resources, and identify problems and take corrective action. Because of its ongoing nature, performance measurement can serve as an early warning system to management and as a vehicle for improving accountability to the public. EOIR headquarters officials stated that they have not established performance measures for LOP and LOPC because of the variation in how providers operate these programs at detention facilities and non- detained immigration courts, which results in the inability to have a “one- size fits all” approach. Rather, EOIR headquarters officials explained that program managers at headquarters regularly assess LOP and LOPC sites on an individual basis to (1) identify the number of individuals served by each full time staff position with the local subcontracted organization and (2) determine whether demand for services has increased or decreased. Based on this information, headquarters officials make necessary adjustments, such as closing a site with decreased demand for services and opening a new site with new demand. EOIR officials stated that this process provides flexibility to make changes at LOP and LOPC sites as needed in response to differing conditions at each location. However, EOIR has not established baselines for these data it collects from Vera and therefore does not have adequate performance measurements against which to compare the data to determine whether the programs are achieving stated goals. Solely tracking increases or decreases in program data, such as changes in the number of individuals served in detention facilities, does not allow EOIR to fully evaluate its LOP and LOPC programs as such changes in the data may not be an indicator of program success or increased efficacy. Developing and implementing performance measures, including establishing a baseline, to independently and periodically determine whether LOP and LOPC are having a measurable impact would better position EOIR to make any adjustments necessary to improve the programs’ performance. EOIR’s primary mission is to adjudicate immigration cases in a careful and timely manner while ensuring the standards of due process and fair treatment for all parties involved. EOIR’s LOP and LOPC aim to achieve the dual goals of increasing the efficiency of immigration court proceeding, while also increasing individuals’ ability to make timely decisions about their immigration cases through receipt of early and accurate legal information. Our multivariate analysis of EOIR data on completed asylum applications from May 2007 through fiscal year 2014 indicates that whether an applicant has legal representation, in particular, can have a significant effect on the outcome of the application. Since 2008, EOIR has facilitated access to legal resources to thousands of individuals through LOP and LOPC legal orientations. While EOIR monitors LOP and LOPC through a variety of mechanisms, establishing a system of performance measures, including establishing a baseline, could better position EOIR to determine whether these programs are having a measurable impact in meeting program objectives and goals. To better assess whether the LOP and LOPC are having a measurable impact in meeting their program objectives, the Director of EOIR should develop and implement a system of performance measures, including establishing a baseline, to regularly evaluate the effectiveness of LOP and LOPC and assess whether the programs are achieving their stated goals. We provided a draft of this report to DOJ and DHS for their review and comment. DOJ did not provide official written comments to include in this report. However, in an e-mail received on October 24, 2016, an Associate General Counsel for EOIR stated that EOIR concurred with our recommendation. DHS did not provide written comments on our draft report. DOJ and DHS provided technical comments, which we incorporated as appropriate. Should you or your staff have questions about this report, please contact me at (202) 512-8777 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix IV. EOIR provides training to new immigration judges and annual training to all incumbent judges to assist them in rendering decisions on asylum applications. Since 2008, EOIR has expanded its training program for new immigration judges (see table 6). In addition to training requirements for new immigration judges, EOIR holds annual conferences for all immigration judges at EOIR headquarters. EOIR held an annual conference in person for incumbent immigration judges in fiscal years 2008, 2009, 2010 and 2015. According to EOIR officials, EOIR did not host the annual conference in fiscal years 2011, 2012, and 2013 due to resource constraints. In fiscal year 2014, EOIR planned to hold the conference, but canceled it due to the increase in workload that resulted from the large numbers of unaccompanied children and families who were apprehended at the southwest border and placed in removal proceedings in the summer of 2014, according to EOIR officials. According to the EOIR headquarters official responsible for training, EOIR decides whether to have the conference each year based on available funding. During years when the conference was not offered in person, EOIR video recorded conference sessions on discs and mailed them to immigration judges to watch. Our objectives were to (1) describe the extent of variation in the outcomes of completed asylum applications over time and across immigration courts and judges; (2) discuss the factors associated with variability in the outcomes of completed asylum applications; and (3) examine the extent to which the Executive Office for Immigration Review (EOIR) has taken action to facilitate access to legal resources, including representation, for asylum applicants. To address all three objectives, we reviewed EOIR documents describing asylum applications statistics; policies, procedures related to immigration court proceedings; manuals and documents describing EOIR’s case management system; guidance and training provided to judges for adjudicating asylum applications; and documentation on EOIR’s legal access programs. We interviewed EOIR headquarters officials responsible for overseeing immigration court proceedings; EOIR’s case management system; immigration judge training and guidance and legal access programs. We also visited 10 immigration courts in Tacoma, Washington; Seattle, Washington; New York, New York; Newark, New Jersey; Elizabeth, New Jersey; Los Angeles, California; Adelanto, California; Miami, Florida; Krome, Florida; and, Arlington, Virginia. At these locations, we interviewed supervisory immigration judges, immigration judges, court administrators and observed removal proceedings for individuals applying for asylum. We also interviewed supervisory immigration judges, immigration judges and court administrators by telephone at two additional immigration courts in El Paso, Texas and Atlanta, Georgia. Because immigration judges have large caseloads and constrained schedules, we interviewed judges who were available to speak with us during our scheduled interviews. We interviewed the court administrator and supervisory immigration judge for each immigration court we visited or contacted. During the immigration court interviews, we used semi-structured interview questions to ask about (1) potential factors associated with changes in asylum applications outcomes over time, (2) training and guidance provided to immigration judges for adjudicating asylum applications, and (3) EOIR immigration court efforts to facilitate access to legal resources for asylum seekers. We selected these sites based on a variety of factors, including courts that adjudicate a large number of asylum cases, detained and non-detained dockets, a range of grant rates, and circuit court jurisdictions. We also interviewed staff from U.S. Immigration and Customs Enforcement (ICE), Office of the Principal Legal Advisor, Offices of the Chief Counsel and asylum pro bono/advocacy organizations proximate to each immigration court interviewed to gain their perspectives on (1) potential factors associated with changes in asylum applications outcomes over time and (2) immigration court efforts to facilitate access to legal resources for asylum seekers. The results from our site visits cannot be generalized more broadly to all immigration courts or immigration judges. However, they provided important context and insights into EOIR’s efforts to assist immigration judges in adjudicating asylum applications, perspectives on training and guidance provided to immigration judges and EOIR efforts to facilitate access to legal resources. To describe the extent of variation in the outcomes of completed asylum applications, we analyzed data from EOIR about completions of asylum applications from fiscal year 1995 through fiscal year 2014, the most current data available at the time of our analysis. We obtained EOIR records of all immigration court removal proceedings that occurred during the period covered by our analysis. We selected those records where the immigration judge made the decision on the asylum application and eliminated decisions that were made after appeals. We selected only records for “lead” applicants, using the applicant’s alien number—a unique registration number that the Department of Homeland Security assigns to foreign nationals in immigration court proceedings—as the unit of analysis. We eliminated duplicate decisions for a spouse and/or dependent children because they derive from the decision on the lead applicant. As in our 2008 report, we selected the immigration courts and countries of nationality that contributed a minimum of 800 affirmative and 800 defensive asylum decisions on asylum applications from fiscal year 1995 through fiscal year 2014; our analysis in this report included applicants from 41 countries and 28 immigration courts. We selected the 800 minimum in each category to help ensure a sufficient number of completed asylum applications for our analysis. The results of our analysis cannot be generalized to asylum seekers from other countries or to other immigration courts. We used EOIR’s case management system to identify immigration court proceedings where an immigration judge had made a decision on an applicant’s asylum application. We assessed the reliability of the data used in our analyses through electronic testing, analyzing related database documentation, and working with agency officials to reconcile discrepancies between the data and documentation that we received. We determined that the EOIR data on completions of asylum applications were sufficiently reliable for the purposes of describing the extent of variation in the outcomes of completed asylum applications. We reported separately on affirmative and defensive completed asylum applications to control for characteristics shared by cases in each of those groups that could affect outcomes, such as whether the asylum application had already been reviewed by a U.S. Citizenship and Immigration Services (USCIS) asylum officer. We also obtained biographical information from EOIR on those immigration judges who had served during the time period of our analysis. We merged these biographical data with the EOIR immigration court proceedings data. In doing so, we produced a dataset for the analysis that combined proceedings records with information on the characteristics of the applicants, the immigration judges, the immigration courts, and the completion or decision on the applicants’ asylum applications. We selected immigration judges with completions on at least 50 affirmative and 50 defensive asylum applications from fiscal year 1995 through fiscal year 2014. We selected the 50 minimum in each category to help ensure having judges who completed a sufficient number of asylum applications for our analysis. In analyzing differences in asylum decision across immigration judges, we excluded those immigration judges who heard fewer than 50 affirmative cases in our analyses of affirmative asylum decisions and fewer than 50 defensive cases in our analyses of defensive asylum decision. We also excluded cases heard by immigration judges other than in their primary court in order to simplify the presentation and avoid reaching inappropriate conclusions that can occur when calculations are based on small numbers of cases. We assessed the reliability of the data used in our analyses through electronic testing and working with agency officials to reconcile discrepancies between the data and documentation that we received. We determined that the EOIR immigration judge biographical data were sufficiently reliable for the purposes of producing a dataset that included characteristics of immigration judges in order to describe the extent of variation in the outcomes of completed asylum applications. In 2008, we reported the asylum “grant rate” as the number of asylum applications granted divided by the total number of all granted and denied applications. In other words, the grant rate depended on the number of completed asylum applications that ended in a decision by the immigration judge of either grant or denial. In this report, to provide data on all of the outcomes of completed asylum applications during our period of analysis, we included the five possible outcomes in calculating the asylum grant rate. These include applications that were granted and denied, as well as those that had an outcome of withdrawn, abandoned, or other. Thus, for the purposes of this report, we define the asylum grant rate as the number of granted asylum applications divided by the total number of completed applications (completions include applications that are granted, denied, withdrawn, abandoned, or end in an outcome of “other”) during the period of analysis. An expanded definition allows us to describe the outcomes of completed asylum applications, including outcomes other than granted or denied, and trends in those outcomes. Although we analyzed data from fiscal year 1995 through fiscal year 2014, our reporting is focused on the time period from May 2007 through fiscal year 2014 because this is the most recent period and includes asylum completions since we last reported on asylum outcomes in 2008. To discuss the factors associated with variability in the outcomes completed asylum applications, we used multivariate statistical modeling that held constant various other factors that could be associated with asylum grant rates. Our analysis used multivariate statistical methods to attribute the unique contribution of each factor to variation in asylum grant rates. Our analysis updated our previous work on this issue, which took a similar but not identical approach. Previously, we used multiple logistic regression to estimate the associations between various case, judge, and court factors and the probability that an applicant would receive asylum. Our current analysis generally takes the same approach to update our prior findings with more recent data on asylum applications completed from May 2007 through fiscal year 2014. However, we revised aspects of our data collection, preparation, and analysis to adjust for changes to the available administrative data and to allow for more precise reporting on the results. For a more detailed discussion of our multivariate analyses, see Appendix III. As in our 2008 report, data limitations prevented us from fully isolating variation due to the unique judge or court. EOIR’s case management system collects information to meet EOIR’s administrative needs, such as the contact information of the applicant, the identity of the judge, and the languages spoken by the applicant. We used data from this system for statistical analysis because they are the primary data available on the population of interest. However, EOIR’s system does not collect data on all the details of individual proceedings that would be relevant to fully isolate variation across judges and courts. In particular, we cannot hold constant all relevant facts and circumstances of each case because EOIR’s case management system does not collect that information. Such facts and circumstances could be legally relevant and affect an applicant’s chance of receiving asylum. As a result, our estimates of the unique variation due to judges and courts may reflect circumstances of the cases that we cannot measure. Nonetheless, the data available allowed us to control for certain factors of each asylum application, enabling us to compare outcomes across immigration courts and judges. The data available allowed us to hold constant certain characteristics of each case, such as applicant language, applicant country of nationality, judge experience, and court district. Accounting for these characteristics improves upon a simple comparison of asylum grant rates across judges and courts, without any adjustment. Table 7 below lists the factors used in our analysis and the source of the data. These characteristics may be correlated with the underlying facts and circumstances of each case, and therefore may indirectly explain factors we cannot measure. Data limitations prevented us from controlling for factors other than those listed in table 7 that could have contributed to variability in asylum application outcomes. To examine the extent to which EOIR has taken action to facilitate access to legal resources, we reviewed the Legal Orientation Program (LOP) and the Legal Orientation Program for Custodians of Unaccompanied Alien Children (LOPC) program documents and data, including the 2011 blanket purchase agreement and statements of work covering fiscal years 2013 through 2016; quarterly reports, annual reports; site visit reports, and evaluation reports; and, data reported by the Vera Institute of Justice (Vera) on the number of unique individuals served by LOP (fiscal years 2008 through 2015) and LOPC (fiscal years 2011 through 2015). We analyzed these time periods because our 2008 report reviewed EOIR data through 2007 (for LOP) and LOPC was established in 2010. We also reviewed documentation on EOIR’s other legal access services, including self-help materials and programs intended to increase pro bono representation and serve vulnerable populations, the BIA Pro Bono Project, the Model Hearing Program, National Qualified Representative Program and the justice AmeriCorps Legal Service for Unaccompanied Children program. To obtain additional context on the LOP and LOPC, we reviewed DOJ’s Fiscal Year 2016 Congressional Budget Submission and testimony statements about LOPC provided by EOIR’s director. We also interviewed headquarters officials responsible for overseeing the LOP and LOPC, as well as officials from Vera, who administer LOP and LOPC through a contract with EOIR. We analyzed the documentation on LOP and LOPC and information provided by EOIR officials on these programs in light of principles outlined in the Government Performance and Results Act (GPRA) of 1993, as updated by the GPRA Modernization Act (GPRAMA) of 2010, to assess EOIR’s efforts to measure LOP and LOPC progress and results against performance measures. We focused our review on the LOP and LOPC because these are among EOIR’s longest-standing legal access programs, they have received more funding than EOIR’s Office of Legal Access Programs’ (OLAP) other programs, and they have served tens of thousands of individuals since 2003 at immigration courts throughout the United States. We conducted this performance audit from January 2015 to October 2016 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. To analyze how asylum grant rates varied across immigration judges and courts, we used multivariate statistical modeling that held constant various factors that could be associated with asylum grant rates. Below, we describe the goals of this analysis and the design and modeling methods we used. We describe the scope of our analysis and the data we analyzed in appendix II. The primary goal of our analysis was to isolate variation in asylum grant rates due to the unique immigration judge or court assigned to each case. Variation in asylum grant rates could arise from the facts and circumstances of each case, and researchers have found that variation is not unexpected given the institutional conditions under which judges operate, including the particular requirements of the law, the standard under which a judge may request corroborating evidence, and the difficulty of assessing credibility. We sought to hold constant relevant variables at the case, judge, and court levels, to estimate the amount of residual variation that remained across immigration judges and courts. Variation in asylum grant rates across immigration judges and courts could reflect various other factors that are statistically correlated with them. For example, if immigration courts tended to receive applications from asylum-seekers of the same country of nationality, asylum grant rates could potentially vary systematically based on nationality rather than on the unique nature of the judge or court. Similarly, the quality and accessibility of legal representation across the United States could potentially affect the outcomes of asylum applications. Since immigration judges’ decisions on asylum applications may incorporate many factors, such as credibility and the facts underlying the claims, simple univariate comparisons of asylum grant rates across judges and courts cannot distinguish among these various potential sources of variation. The data available from the Executive Office for Immigration Review’s (EOIR) case management system have a multilevel structure. Multiple applications for asylum are clustered within the same judges, courts, languages, and nationalities. These groups can be clustered among themselves, with or without nesting. Our data processing, discussed above, assigned one court to each judge, so that each judge was nested within the court in which they adjudicated the most cases. The remaining groups—courts, languages, and countries of nationality—were not necessarily nested. Each language could have been associated with multiple nationalities and vice versa. Each court could have been associated with multiple languages and countries of nationality; however, in practice, courts could have heard cases from a predominate combination of languages and nationalities, such as Chinese nationals who speak Mandarin and apply for asylum in New York. The scope of our analysis included all completed asylum applications that met the screening criteria discussed in appendix II and that ended in outcomes of grant, deny, withdrawal, abandonment, or “other.” However, we dichotomized the outcome of interest to reflect whether the applicant was granted asylum or the application ended with any of the other outcomes. Expanding the scope of our sample to include all completed asylum applications rather than only applications that were granted or denied allowed us to analyze the outcomes of all completed asylum applications. Dichotomizing the outcome produced asylum grant rates as a proportion of applications originally filed that meet our screening criteria, which prevented bias from potentially changing withdrawal practices over time. The data and outcome of interest suggested that a hierarchical or mixed logistic regression model would adequately reflect the data generation process. Accordingly, we developed a mixed model that represented the grouping variables—judge, court, country of nationality, and language, respectively—with random intercepts. Random effects allowed asylum grant rates to be correlated within and across groups, which parameterized our hypothesis that rates may systematically vary across groups, all else being equal on the factors we analyzed. Random effects made the model parsimonious because we could use the group variance parameters to concisely describe variation across groups with many levels. In contrast, modeling group variation with fixed effects would have required estimating several hundred explicit parameters, one for each group level, which would have consumed degrees of freedom and complicated model interpretation. Substantively, random effects accurately represented the random assignment of judges to cases, which EOIR generally uses as an administrative policy. Random assignment of countries of nationality, languages, and courts has less of a direct substantive interpretation, but would be consistent with an underlying data generation process where the sample of asylum cases heard in any particular time period would be drawn from an underlying population distribution of immigration courts and applicant nationalities and languages. We held constant case, judge, and court characteristics using covariates with fixed parameters. The smaller number of parameters associated with these covariates made a fixed effects approach easier to apply and interpret. We assumed that the covariate effects did not vary across groups, so that only the model’s intercept varies randomly. We had no prior expectation that specific covariate effects should have varied across groups. Moreover, increasing the number of random effects would have increased the complexity of the model and could have made it hard to estimate computationally. We modeled the data separately by asylum type (affirmative and defensive) and time period. This allowed all model parameters to vary between asylum types and over time. The alternative approach, pooling the data, potentially would have obscured important differences in the affirmative and defensive asylum processes and important changes in the processes over the 20 years that our data spanned. Specifically, we modeled Yi, a dichotomous variable indicating whether applicant i in the affirmative or defensive processes was granted asylum. Each applicant was associated with a judge j, court c, nation n, and language l. Consistent with a hierarchical logistic model, we assumed that x denoted a vector of covariates with fixed coefficients β. α (.) denoted the group random effects, each of which was normally distributed and centered on zero. α was the population average intercept, with intercepts for each group given by α + α (.). The variances of the random effects around the population average were denoted by σ (.). We used most of the covariates from our 2008 report on this issue. However, we excluded several covariates that were unassociated with outcome in that report and that were labor-intensive to measure. For example, measuring a judge’s prior work experience for our prior report involved biographical research on each judge. Specifically, the covariate vector x included the following: whether the applicant had one or more dependents (indicator); whether the applicant sought asylum within one year of entry into the United States (indicator); whether an applicant was represented by counsel recognized to practice in immigration court (indicator); whether the applicant was ever detained (indicator for being currently detained or having been detained and released, compared to never having been detained; defensive cases only); Presidential administration under which judges were appointed (vector of indicators, with the subsample mode set as the omitted level); judge years of experience (linear); judge gender (indicator); judge asylum caseload since October 1, 1994, the earliest date in our data, and in the 90 days prior to the completion of the asylum application, respectively (linear); Circuit court (vector of indicators, with the subsample mode set as the omitted level); and Court asylum caseload since October 1, 1994, the earliest date in our data, and in the 90 days prior to the decision, respectively (linear). For each subsample defined by asylum type (affirmative or defensive) and period, we rescaled the continuous covariates such that the vector of sample means equaled 0 and the vector of variances equaled 1. We rescaled each categorical covariate, including the groups used to define random effects, such that the first level identified the mode and served as the omitted level in a vector of indicator variables in xi for each variable. After rescaling, α estimates the overall asylum grant rate for an applicant having modal or mean values on x and α (.) . σ(.) GAO, U.S. Asylum System: Significant Variation Existed in Asylum Outcomes Across Immigration Courts and Judges, GAO-08-940 (Washington, D.C: Sept. 25, 2008). of asylum grant rates across judges, courts, nations, and languages around the population average for an applicant at the mode or mean of xi. The center of the data at α does not necessarily correspond to a realistic application for asylum. For example, all judges do not practice at the modal court and all languages may not be spoken in the modal nation. Nevertheless, rescaling facilitates estimation and interpretation of the model. All inference can be done on α and α (.) directly, with no transformation required. This allowed us to easily describe variation in asylum grant rates for a hypothetical representative case in the distribution of each covariate and group. The key parameters of interest are the variances of the group random , and implicitly, the fitted group-level distribution of asylum effects, σ(.) grant rates for a modal or mean applicant: To describe variation across groups on the probability scale, we estimated the quantiles of this group distribution on the logit scale and then transformed them using the inverse logistic function. We estimated the model using maximum approximated likelihood methods, as implemented in the lme4 package in R. We estimated the confidence intervals of fixed parameters using Wald approximations and the fitted covariance matrix. We estimated the confidence intervals of the group random effect variances using profiled likelihood methods, as implemented in lme4. We transformed the estimated confidence intervals from the logit scale to the probability scale using the inverse logistic calculation described above. Tables 8 through 14 report estimates of the fixed parameters on the exponentiated logit scale and estimates of the random effect variances on the logit scale, separately for affirmative and defensive applications. The exponentiated scale allows us to interpret the results as odds-ratios or semi-elasticities for categorical or continuous variables, respectively. We omit estimates for the fixed effect parameters on the logit scale to prevent the calculation of exact grant probabilities. Please see the body of our report for further interpretation of the results. In addition to the contact named above, Kathryn Bernet, Assistant Director; Joel Aldape, David Alexander, Emily Christoff, Dominick Dale, Jack Granberg, Grant Mallie, Taylor Matheson, Jan Montgomery, Jon Najmi, Mary Pitts, and Jeff Tessin made significant contributions to this report.

Tens of thousands of foreign nationals in the United States apply annually for asylum, which provides refuge to those who have been persecuted or fear persecution on protected grounds. EOIR's immigration judges decide asylum application outcomes in court proceedings. In 2008, GAO reported that EOIR data from October 1994 through April 2007 showed significant variation in the outcomes across immigration courts and judges (grants versus denials) of such applications. The Senate Appropriations Committee report for DHS Appropriations Act, 2015, included a provision for GAO to update its 2008 report. This report examines (1) variation in asylum applications outcomes over time and across courts and judges; (2) factors associated with variability; and (3) EOIR's actions to facilitate asylum applicants' access to legal resources. GAO analyzed EOIR data—using multivariate statistics—on asylum outcomes from fiscal years 1995 through 2014, the most current data available at the time of GAO's analysis; reviewed EOIR policies and procedures; and interviewed EOIR officials and immigration judges about court proceedings and legal access programs. GAO observed asylum hearings in 10 immigration courts selected on the basis of application data and other factors. GAO analyzed the outcomes of 595,795 asylum applications completed by the Department of Justice's Executive Office for Immigration Review (EOIR) between fiscal years 1995 and 2014, and identified outcome variation both over time and across immigration courts and judges. From fiscal years 2008 through 2014, annual grant rates for affirmative asylum applications (those filed with the Department of Homeland Security (DHS) at the initiative of the individual and referred to an EOIR immigration judge) ranged from 21 to 44 percent. In the same period, grant rates for defensive asylum applications (those initiated before an immigration judge) ranged from 15 to 26 percent. Further, EOIR data indicate that asylum grant rates varied by immigration court. For example, from May 2007 through fiscal year 2014, the grant rate was 66 percent (affirmative) and 52 percent (defensive) in the New York, New York, immigration court and less than 5 percent (affirmative and defensive) in the Omaha, Nebraska, and Atlanta, Georgia, immigration courts. GAO found that certain case and judge-related factors are associated with variation in the outcomes of asylum applications. For example, applicants who were represented by legal counsel were granted asylum at a rate 3.1 (affirmative) and 1.8 (defensive) times higher than applicants who were not represented. After statistically controlling for certain factors, such as judge experience and whether or not the applicant had dependents, GAO found variation remained in the outcomes of completed asylum applications across immigration courts and judges. For example, from May 2007 through fiscal year 2014, GAO estimated that the affirmative and defensive asylum grant rates would vary by 29 and 38 percentage points, respectively, for a representative applicant with the same average characteristics we measured, whose case was heard in different immigration courts. In addition, GAO estimated that the affirmative and defensive asylum grant rates would vary by 47 and 57 percentage points, respectively, for the same representative applicant whose case was heard by different immigration judges. GAO could not control for the underlying facts and merits of individual asylum applications because EOIR's case management system was designed to track and manage workloads and does not collect data on all of the details of individual proceedings. Nonetheless, the data available allowed GAO to hold constant certain factors of each asylum application, enabling GAO to compare outcomes across immigration courts and judges. EOIR provides legal resources to targeted populations, including asylum applicants, through the Legal Orientation Program (LOP) and Legal Orientation Program for Custodians of Unaccompanied Alien Children (LOPC). EOIR and its contractor use LOP and LOPC site visits, monthly conference calls, and quarterly reports to monitor these programs. However, EOIR has not established performance measures, consistent with principles outlined in the GPRA Modernization Act of 2010, to determine whether these programs are having a measurable impact in meeting program objectives. Developing and implementing performance measures, including establishing a baseline, to determine whether LOP and LOPC are having a measurable impact would better position EOIR to make any adjustments necessary to improve the programs' performance. GAO recommends that EOIR develop and implement a system of performance measures, including establishing a baseline, to regularly evaluate the effectiveness of LOP and LOPC. EOIR concurred with GAO's recommendation.

You are an expert at summarizing long articles. Proceed to summarize the following text: This summary report is based on our analysis of the information contained in our reviews of 27 agencies’ draft strategic plans. To do those 27 reviews and the related reports, we used the Results Act supplemented by OMB’s guidance on developing the plans (Circular A-11, part 2) as criteria to determine whether draft plans complied with the requirement for the six specific elements that are to be in the strategic plans. To make judgments about the overall quality of the plans, we used our May 1997 guidance for congressional review of the plans. We recognized in each instance that the plans were drafts and that our assessment thus represented a snapshot at a given point in time. To make judgments about the planning issues needing attention, we also relied on other related work, including our recent report on governmentwide implementation of the Results Act and our guidance for congressional review of Results Act implementation, as tools. The Results Act is the centerpiece of a statutory framework Congress put in place during the 1990s to address long-standing weaknesses in federal operations, improve federal management practices, and provide greater accountability for achieving results. Under the Results Act, strategic plans are the starting point and basic underpinning for results-oriented management. The Act requires that an agency’s strategic plan contain six key elements: (1) a comprehensive agency mission statement; (2) agencywide long-term goals and objectives for all major functions and operations; (3) approaches (or strategies) and the various resources needed to achieve the goals and objectives; (4) a description of the relationship between the long-term goals and objectives and the annual performance goals; (5) an identification of key factors, external to the agency and beyond its control, that could significantly affect the achievement of the strategic goals; and (6) a description of how program evaluations were used to establish or revise strategic goals and a schedule for future program evaluations. In addition to the Results Act, the statutory framework includes the Chief Financial Officers (CFO) Act, as expanded and amended by the Government Management Reform Act of 1994; and information technology reform legislation, in particular the Clinger-Cohen Act of 1996 and the Paperwork Reduction Act of 1995. Congress enacted the CFO Act to remedy decades of serious neglect in federal financial management by establishing chief financial officers across the federal government and requiring the preparation and audit of annual financial statements. The information technology reform legislation is based on the best practices used by leading public and private sector organizations to manage information technology more effectively. Under the information technology reform legislation, agencies are to better link their planned and actual use of technology to their programs’ missions and goals to improve performance. Congress has demonstrated its commitment to the Results Act and reinforced to executive agencies the importance it places on the full and complete implementation of the Act. One such prominent demonstration occurred on February 25, 1997, when the Speaker of the House, the Majority Leader of the Senate, and other senior members of the House and Senate sent a letter to the Director of OMB. The letter underscored the importance that the congressional Majority places on the implementation of the Results Act, noted a willingness on the part of Congress to work cooperatively with the administration, and established expectations for congressional consultations with agencies on their draft strategic plans. Under the Results Act, those consultations are to be an integral part of strategic planning. For example, consultations can help to create a basic understanding among the stakeholders of the competing demands that confront agencies and how those demands and available resources require careful and continuous balancing. In the House, the consultation effort was led by teams consisting of staff from various committees that focused on specific agencies. In an August 1997 letter, the House Majority Leader provided the Director of OMB with an overview of recent congressional consultations and highlighted some recurring themes, such as the need for interagency coordination. Although the consultation process in the Senate has been less structured than the one in the House, a number of consultations have been held there as well. In addition to consulting with agencies, several House and Senate authorizing committees also held hearings on draft strategic plans in July 1997, which further underscored congressional interest in agencies creating good strategic planning processes that support performance-based management. For example, these hearings included those held by the Subcommittee on Water and Power, House Committee on Resources; the House Committee on Science; the Subcommittee on Human Resources, House Committee on Government Reform and Oversight; the House Committee on Banking and Financial Services; the Subcommittee on Forests and Forest Health, House Committee on Resources; and the Senate Committee on Indian Affairs. The Senate and House appropriations committees have been expanding their focus on the Results Act as well. For example, the Senate Appropriations and Governmental Affairs committees held a joint hearing on the status of Results Act implementation, with particular emphasis on agencies’ strategic planning efforts. The Senate Appropriations Committee has included comments on the Results Act in its reports on the fiscal year 1998 appropriations bills. The report language has discussed the Committee’s views on the status and quality of individual agencies’ efforts to implement the Results Act and expressed the need for continuing consultations, among other issues. In the House, the Appropriations Committee has included a standard statement in its appropriations reports that strongly endorses the Results Act. This standard statement notes that each appropriations subcommittee “takes (the annual performance plan) requirement of the Results Act very seriously and plans to carefully examine agency performance goals and measures during the appropriations process.” A significant amount of work remains to be done by executive branch agencies before their strategic plans can fulfill the requirements of the Results Act, serve as a basis for guiding agencies, and help congressional and other policymakers make decisions about activities and programs. Although all 27 of the draft plans included a mission statement, 21 plans lacked 1 or more of the other required elements. Specifically, of the 27 draft strategic plans: 2 did not include agencywide strategic goals and objectives, 6 did not describe approaches or strategies for achieving those goals and 19 did not describe the relationship between long-term goals and objectives and annual performance goals, 6 did not identify key factors that are external to the agency and beyond its control that could affect the achievement of the goals and objectives, and 16 did not discuss program evaluations that the agency used to establish or revise goals and objectives or provide a schedule of future program evaluations. Moreover, while all but six of the plans were missing at least one required element, one-third were missing two required elements. Just over one-fourth of the plans failed to cover at least three of the required elements. Because most of the draft plans did not contain all six required elements, Congress did not have access to critical pieces of information for its consultations with the agencies on their draft strategic plans; and, if these elements are not included in the final plans, federal managers will not have a clear strategic direction upon which to base their daily activities. For example, agencies whose plans lacked strategic goals and strategies for achieving those goals will not have a solid foundation upon which to build the performance measurement and reporting efforts that are required by the Results Act. The incomplete or inadequate coverage of the six required elements in the plans is an indication of the amount of additional work necessary to fulfill the Act’s minimum requirements that agencies had to undertake prior to the submission of strategic plans to Congress on September 30, 1997. Many agencies showed progress in developing comprehensive mission statements upon which they can build strategic goals and strategies for achieving those goals. A mission statement is important because it focuses an agency on its intended purpose. It explains why the agency exists and tells what it does and is the basic starting point of successful planning efforts. However, our reviews of draft strategic plans for 27 agencies found several critical strategic planning issues that are in need of sustained attention to ensure that those plans better meet the needs of agencies, Congress, and other stakeholders and that agencies shift their focus from activities to results. These issues were: the lack of linkages among required elements in the draft plans, the weaknesses in long-term strategic goals, the lack of fully developed strategies to achieve the goals, the lack of evidence that agencies’ plans reflect coordination with other federal agencies having similar or complementary programs, the limited capacity of agencies to gather performance information, and the lack of attention to program evaluations. The majority of the draft strategic plans lacked critical linkages among required elements in the plans. We have noted in our Executive Guide and other recent reports that for strategic plans to drive an agency’s operations, a straightforward linkage is needed among its long-term strategic goals, strategies for achieving goals, annual performance goals, and day-to-day activities. First, as prior work has shown, a direct alignment between strategic goals and strategies for achieving those goals is important for assessing an agency’s ability to achieve those goals. Second, we have noted that the linkage between long-term strategic goals and annual performance goals is important because without this linkage, agency managers and Congress may not be able to judge whether an agency is making annual progress toward achieving its long-term goals. In several draft strategic plans, the agencies’ presentation of information on strategic goals, objectives, and strategies made it difficult to determine which strategy was supposed to achieve which goal or objective and what unit or component within the agency was supposed to carry out the strategy. For example, in the Small Business Administration’s (SBA) plan, objectives were listed as a group under goals, followed by strategies, which were also listed as a group. This presentation does not convey how specific strategies would lead to achieving specific goals. In another example, the Federal Emergency Management Agency (FEMA) listed several areas of focus and operational objectives under each of its five strategies, but if did not establish linkages among them or between the strategies and the agency’s strategic objectives. Accordingly, although an affiliation between specific strategies and objectives may exist, it was not readily apparent from these agencies’ draft strategic plans. In contrast, the Department of Education’s plan linked each strategic goal to a set of objectives that were, in turn, linked to a set of strategies. For example, the strategic goal to “build a solid foundation for learning” had as one of its objectives, “every eighth grader masters challenging mathematics, including the foundations of algebra and geometry.” Two of the strategies listed under this objective were to develop and use a national, voluntary test in mathematics as a means to encourage schools, school districts, states, businesses, and communities to move toward improving math curricula and instruction, among other things; and to increase public understanding and support of mastering mathematics by the end of eighth grade through partnerships with key education, mathematics, and professional organizations. As noted in our section on required elements, 19 of 27 draft plans did not describe the linkages between long-term strategic goals and annual performance goals. As we have reported, without this linkage, it may not be possible to determine whether an agency has a clear sense of how it will assess the progress made toward achieving its intended results. However, some agencies made good attempts at providing this linkage in their draft plans. For example, the Department of Education, the General Services Administration (GSA), and the Postal Service used a matrix to illustrate the linkages among their strategic goals, objectives, and the measures that are to be reflected in their annual performance goals. Our work on the draft plans found that clearly aligning required strategic planning elements is especially important in those cases where agencies, as allowed under OMB guidance, chose to submit a strategic plan for each of their major components and a strategic overview that under the guidance is to show the linkages among these plans, instead of a single agencywide plan. A few agencies, including the Departments of Agriculture (USDA), Labor, and the Interior, used this approach. USDA, Labor, and Interior are large agencies with disparate functions that are implemented by a number of subagencies. For example, USDA has 18 subagencies working in 7 different mission areas, such as farm and foreign agricultural services and food safety and inspection service. None of the three agencies adequately linked component-level goals to the agencywide strategic goals. For example, their plans did not consistently demonstrate how the components’ goals and objectives would contribute to the achievement of agencywide goals. Furthermore, Labor’s overview plan did not contain agencywide goals, even though the Secretary set forth agencywide goals in recent congressional testimony. Leading organizations we have studied set long-term strategic goals that were an outgrowth of a clearly stated mission. Setting long-term strategic goals is essential for results-oriented management, because such goals explain in greater specificity the results organizations are intending to achieve. The goals form a basis for an organization to identify potential strategies for fulfilling its mission and for improving its operations to support achievement of that mission. Congress recognized both the importance and difficulty of setting results-oriented strategic goals. Under the Results Act, all of an agency’s strategic goals do not need to be explicitly results oriented, although the intent of the Act is to have agencies focus on results to the extent feasible. Although most agencies attempted to articulate agencywide strategic goals and objectives in their plans, many of those goals and objectives tended to be weak. We often found that the draft plans contained goals and objectives that were not as results oriented as they could have been. For example, one of the Department of Veterans Affair’s (VA) goals, to “improve benefit programs,” could be more results oriented if VA identified the purpose of the benefit programs (e.g., to ease veterans’ transition to civilian life). In contrast, GSA’s goals and objectives reflect a positive attempt to define the results that it expects from its major functions. For example, one of the goals in the draft strategic plan states that GSA will become the space/supplies/telecommunications provider of choice for all federal agencies by delivering quality products and services at the best value. In several plans, agencies expressed goals and objectives in a manner that would make them difficult to measure or difficult to assess in the future. Although strategic goals need not be expressed in a measurable form, OMB guidance says goals must be expressed in a manner that allows for future assessment of whether they are being achieved. One example of an objective that was not measurable as written is the Social Security Administration’s (SSA) goal “to promote valued, strong, and responsive social security programs through effective policy development and research.” This goal recognized that program leadership cannot be achieved without a strong policy and research capability—the lack of which we have criticized SSA for in the past. Yet, the goal itself and the supporting discussion in the draft strategic plan were difficult to understand and the results SSA expects were unclear. In addition, the goal was not stated in a manner that allows for a future assessment of its achievement. Three plans were missing goals for major functions and operations that are reflected in statute or are otherwise important to their missions. The Department of Health and Human Services (HHS) stated in its draft plan that the plan’s goals relate to those activities that have HHS priority over the next 6 years and that the goals did not cover every HHS activity. However, we found that the plan made no mention of a major function—that is, HHS’ responsibilities for certifying medical facilities, such as clinical laboratories and mammography providers. The section on goals in the Agency for International Development’s (AID) draft plan also did not fully encompass the agency’s major functions, because the section did not specifically address some programs, such as assistance to Eastern Europe and the former Soviet Union and Economic Support Funds, which represent about 60 percent of AID’s budget. In addition, the Postal Service’s draft plan did not contain goals and objectives for two major functions: providing mail delivery service to all communities and providing ready access to postal retail services. In our reports on draft strategic plans, we noted that strategies should be specific enough to enable an assessment of whether they would help achieve the goals in the plan. In addition, the strategies should elaborate on specific actions the agency is taking or plans to take to carry out its mission, outline planned accomplishments, and schedule their implementation. However, many of the strategies in the plans we reviewed lacked descriptions of approaches or actions to be taken or failed to address management challenges that threatened agencies’ ability to meet long-term strategic goals. Incomplete and underdeveloped strategies were a frequent problem with the draft plans we reviewed. For example, the draft plan for the Department of State did not specifically identify the actions needed to meet the plan’s goals but rather often focused on describing the Department’s role in various areas. For example, the Department’s first strategy, “maintaining effective working relationships with leading regional states through vigorous diplomacy, backed by strong U.S. and allied military capability to react to regional contingencies,” did not describe how the Department planned to maintain effective working relationships or coordinate with the other lead agency, the Department of Defense (DOD), identified in the strategy. In some cases, such as in the plans of Justice and Energy, strategies frequently read more like goals or objectives, rather than approaches for achieving goals. Justice’s strategy to promote compliance with the country’s civil rights laws and Energy’s strategy to maintain an effective capability to deter and/or respond to energy supply disruptions did not describe what actions the agencies planned to take to implement their related goals. Instead, their labelled strategies sounded like additional goals and objectives in that they discussed what the agencies expected to achieve. In other cases, such as in the plans of HHS and Commerce, strategies read like program justifications. Under strategies for addressing alcohol abuse, HHS’ draft plan states that “he National Institutes of Health conducts research and develops and disseminates information on prevention and treatment effectiveness.” Under strategies for providing technical leadership for the nation’s measurement and standards infrastructure, the Commerce plan stated that the “laboratories of the National Institute of Standards and Technology provide companies, industries, and the science and technology community with the common language needed in every stage of technical activity.” Without fully developed strategies, it will be difficult for managers, Congress, and other stakeholders to assess whether the planned approach will be successful in achieving intended results. One purpose of the Results Act is to improve the management of federal agencies. Therefore, it is particularly important that agencies develop strategies that address management challenges that threaten their ability to meet long-term strategic goals as well as this purpose of the Act. However, we found that most of the plans did not adequately address the major management challenges and high-risk areas that we and others have identified. For example, in our recent high-risk report series, we noted that DOD has long-standing management problems in six high-risk areas, including financial management, information technology, infrastructure, and inventory management. However, DOD’s draft plan generally paid little—and in one case, no—attention to high-risk management issues. We also placed Medicare, one of the largest federal entitlement programs, on our high-risk list, because of Medicare’s losses each year due to fraudulent and abusive claims. For example, the recent audit of financial statements performed by the Inspector General of HHS disclosed improper payments of $23.2 billion nationwide, or about 14 percent of total Medicare fee for service benefit payments. However, HHS’ draft plan did not address the long-standing problem the agency has with Medicare claims processing. Another management-related issue that presents a challenge to agencies is ongoing and proposed restructuring of federal activities, which will likely require adjustments to agencies’ management practices, processes, and systems. For example, the administration has ongoing efforts to integrate (1) the Department of State, the U.S. Information Agency, and the Arms Control and Disarmament Agency into one agency with the intent to better serve the U.S. national interests and foreign policy goals in the 21st century; and (2) certain shared administrative functions of State and AID. However, State’s draft plan did not discuss how State planned to integrate these agencies into its organizational structure or address substantive support requirements for the reorganization. For many years, we have reported on federal agencies’ chronic problems in developing and modernizing their information systems. Given the government’s ever-increasing dependency on computers and telecommunications to carry out its work, agencies must make dramatic improvements in how they manage their information resources in order to achieve mission goals, reduce costs, and improve service to the public. Moreover, without reliable information systems, agencies will not be able to gather and analyze the information they need to measure their performance, as required by the Results Act. Yet most of the 27 plans did not cover strategies for improving the information management needed to achieve their strategic goals or provided little detail on specific actions that agencies planned to take in this critical area. In its draft plan, for example, DOD—which receives 15 percent of the federal budget—did not explicitly discuss how it plans to correct information technology investment problems. These problems led us to place its Corporate Information Management initiative on our high-risk list, because DOD continues to spend billions of dollars on automated information systems with little sound analytic justification. Without such discussions, Congress will not be able to assess the agencies’ planned approaches for upgrading information technology to improve the agencies’ performance. Furthermore, we have identified as high risk two technology-related areas that represent significant challenges for the federal government: resolving the need for computer systems to be changed to accommodate dates beyond the year 1999, which is referred to as the “year 2000 problem”; and providing information security for computer systems. Yet most of the plans did not contain discussions of how agencies intend to address the year 2000 problem, and none of the plans addressed strategies for information security. For example, the draft plan of the Office of Personnel Management (OPM) did not discuss the year 2000 problem even though many of its critical information systems are date dependent and exchange information with virtually every federal agency. In another example, DOD’s draft plan did not specifically address information security even though DOD recognizes that information warfare capability is one of a number of areas of particular concern, especially as it involves vulnerabilities that could be exploited by potential opponents of the United States. OMB’s guidance stated that agencies’ strategies for achieving goals should include a description of the process for communicating goals throughout an agency and for holding managers and staff accountable for achieving the goals. However, a few of the plans that we evaluated, such as those for Education and SSA, indicated that agencies had developed, or are planning to develop, approaches for communicating goals to employees or for holding managers and staff accountable for achieving results. We noted that assigning clear expectations and accountability to employees so that they see how their jobs relate to the agency’s mission and goals can be useful in implementing a strategic plan. It is especially important that managers and staff understand how their daily activities contribute to the achievement of their agencies’ goals and that they are held accountable for achieving results. In contrast to the lack of strategies in most plans for addressing management weaknesses, we found that a few plans had operational strategies that indicated agencies are beginning to consider management, financial, and information technology weaknesses that need to be corrected to ensure that management practices, processes, and systems support the achievement of agency goals. For example, Education took an important step toward implementing results-oriented management by outlining in its draft strategic plan changes needed in activities, processes, and operations to better support its mission. To illustrate, Education’s plan contained core strategies for the goal that schools are safe, disciplined, and drug-free. These strategies included proposals for new legislation, public outreach, improved data systems, and interagency coordination. Energy and Education were among those agencies that included agencywide strategies to address needed process and operational realignments that would better enable them to achieve their missions. For example, Energy’s plan discussed strategies that emphasize changing contracting approaches to focus on results, contractor accountability, and customer satisfaction. As we recently reported, a focus on results, as envisioned by the Results Act, implies that federal programs contributing to the same or similar results should be closely coordinated to ensure that goals are consistent and, as appropriate, program efforts are mutually reinforcing. This means that federal agencies are to look beyond their organizational boundaries and coordinate with other agencies to ensure that their efforts are aligned. Our work has underscored the need for such coordination efforts. Uncoordinated program efforts can waste scarce funds, confuse and frustrate program customers, and limit the overall effectiveness of the federal effort. Our recent report to you provided further information on mission fragmentation and program overlap in the federal government.We have often noted that the Results Act presents to Congress and the administration a new opportunity to address mission fragmentation and program overlap. OMB and Congress recognize that the Results Act provides an approach for addressing overlap and fragmentation of federal programs. OMB’s guidance stated that agencies’ final submission of strategic plans should contain a summary of agencies’ consultation efforts with Congress and other stakeholders, including discussions with other agencies on crosscutting activities. During its Summer Review of 1996, OMB provided feedback to agencies where it found little sign of significant interagency coordination to ensure consistent goals among crosscutting programs and activities. This feedback also underscored the need for such coordination. In an August 1997 letter to heads of selected independent agencies and members of the President’s Management Council, OMB reiterated the importance of interagency coordination and stated that during the 1997 Fall Budget Review, it intended to place a particular emphasis on reviewing whether goals and objectives for crosscutting functions or interagency programs were consistent among strategic plans. Congress has also shown active interest in using the Results Act to better ensure that crosscutting programs are properly coordinated. The February 25, 1997, letter from congressional Majority leaders to the Director of OMB outlined the leaderships’ interest in agencies’ strategic plans addressing how the agencies were coordinating their activities (especially for crosscutting programs) with other federal agencies working on similar activities. In addition, the staff teams in the House of Representatives, which were to coordinate and facilitate committee consultations with executive branch agencies, often have asked agencies about crosscutting activities and programs. Despite this interest, we found that 20 of the 27 draft plans lacked evidence of interagency coordination as part of the agency and stakeholder consultations and that some of the plans—including those from some agencies that are involved in crosscutting program areas where interagency coordination is clearly implied—lacked any discussion of coordination. For example: According to Energy, it does not have any crosscutting programs because its functions are unique. However, our review of draft strategic plans indicated areas of potential overlap concerning Energy’s programs. For example, Energy’s science mission was to maintain leadership in basic research and to advance scientific knowledge. The National Science Foundation’s (NSF) mission included promoting the progress of science and enabling the United States to uphold a position of world leadership in all aspects of science, mathematics, and engineering. NSF’s plan also did not discuss the possible overlap between the two missions. Another area of potential overlap for Energy included environmental and energy resources issues addressed by Energy as well as the Environmental Protection Agency (EPA) and other agencies. Similarly, nuclear weapons production issues involve Energy and DOD. The draft plan for HHS did not address coordination of alcohol and drug abuse prevention and treatment programs, even though these programs are located in several of its subagencies and in 15 other federal agencies. These other agencies include VA, Education, Housing and Urban Development, and Justice. In the June 27, 1997, consultation with congressional staff on OPM’s draft plan, OPM officials said that they had not yet involved stakeholders, including other federal agencies, in developing their strategic plan. Among the organizations with which OPM must work to achieve its desired results are the Interagency Advisory Group of federal personnel directors, the Personnel Automation Council, the National Partnership Council, the Security Policy Board and Security Policy Forum, the Federal Bureau of Investigation, the Equal Employment Opportunity Commission, the Federal Labor Relations Authority, and the Merit Systems Protection Board. Even if an agency’s draft plan recognized the need to coordinate with others, it generally contained little information about what strategies the agency pursued to identify and address mission fragmentation and program overlap. For example: State’s draft plan recognizes several crosscutting issues but does not clearly address how the agency will coordinate those issues with other agencies. State and over 30 agencies and offices in the federal government are involved in trade policy and export promotion, about 35 are involved in global programs, and over 20 are involved in international security functions. Treasury’s draft plan listed as a strategy that it will “continue participating in productive Federal, State, and local anti-drug task forces” but did not provide any detail about which bureaus or other federal agencies would participate in those task forces or what their respective responsibilities would be. Even though it recognized the roles of other organizations, Labor’s draft plan did not discuss how the agency’s programs could fit in with a broader national job training strategy and the coordination required to develop and implement such a strategy. In 1995, we identified 163 employment training programs spread across 15 federal agencies, including Labor. Commerce’s draft plan did not indicate how its emphasis on restructuring export controls to promote economic growth complements or contrasts with the strong emphasis of State’s Office of Defense Trade Controls and the U.S. Nuclear Regulatory Commission, which are both responsible for licensing exports overseas on safeguarding against proliferation of dual-use technology. To efficiently and effectively operate, manage, and oversee activities, we have reported that agencies need reliable information on the performance of agency programs, the financial condition of programs and their operations, and the costs of programs and operations. For example, agencies need reliable data during their planning efforts to set realistic goals and later, as programs are being implemented, to gauge their progress toward achievement of those goals. However, our prior work indicated that agencies often lacked information and that even when this information existed, its reliability was frequently questionable. On the basis of our recent report on implementing the Results Act, we found that some agencies lacked results-oriented performance information to use as a baseline for setting appropriate improvement targets. Our survey of federal managers done for that report suggested that those agencies were not isolated examples of the lack of performance information in the federal government. In this survey, we found that fewer than one-third of managers in the agencies reported that results-oriented performance measures existed for their programs to a great or very great extent. The existence of other types of performance measures also was reported as low. For example, of the managers reporting the existence of such measures to a great or very great extent, 38 percent reported the existence of measures of output, 32 percent reported the existence of customer satisfaction measures, 31 percent reported the existence of measures of product or service quality, and 26 percent reported the existence of measures of efficiency. Our prior work also suggests that even when information existed, its reliability was frequently questionable. In our report on the Department of Transportation’s (DOT) draft plan, we stated that we had identified information resources and database management as one of the top management issues facing DOT. For example, the Federal Aviation Administration, which is a component of DOT, may rely on source data that are incomplete, inconsistent, and inaccurate for an aviation safety database that is under development. In our report on the draft HHS strategic plan, we stated that the agency had only limited data on the Medicaid program, some of which were of questionable accuracy. Some of these data problems stemmed from data originating in the 50 states and the District of Columbia, which did not all use identical definitions for data categories. In addition to HHS, other agencies will likely have difficulties collecting reliable data from parties outside the federal government. Some agencies, such as Education, HHS, and EPA, planned to use or to strengthen partnerships with outside parties; thus, those agencies will also need to rely on those parties to provide performance data. During our recent review of analytic challenges that agencies faced in measuring their performance, agency officials with experience in performance measurement cited ascertaining the accuracy and quality of performance data as 1 of the top 10 challenges to performance measurement. The fact that data were largely collected by others was the most frequent explanation for why ascertaining the accuracy and quality of performance data was a challenge. In our report on implementing the Results Act, we also reported on the difficulties agencies were experiencing with their reliance on outside parties for data. These experiences suggest that agencies face many challenges in gathering reliable information and that it is important that agencies follow through with the implementation of the CFO Act, the Clinger-Cohen Act, and the Paperwork Reduction Act. These experiences also suggest that coherent strategies for using or strengthening partnerships with outside parties would also include a strategy for data collection and verification plans. To Education’s credit, its draft plan recognized that improvements were needed in these areas. For example, Education’s plan identified core strategies for improving the efficiency and effectiveness of operations through the use of information technology, such as development of an agencywide information collection and dissemination system. As another example, EPA’s draft plan discusses the agency’s initiative to draft “core performance measures” with the environmental commissioners of state governments. As we noted in our guide on assessing strategic plans, program evaluations are a key component of results-oriented management. In combination with an agency’s performance measurement system, evaluations can provide feedback to the agency on how well an agency’s activities and programs contributed to achieving strategic goals. For example, evaluations can be a potentially critical source of information for Congress and others in assessing (1) the appropriateness and reasonableness of goals; (2) the effectiveness of strategies by supplementing performance measurement data with impact evaluation studies; and (3) the implementation of programs, such as identifying the need for corrective action. In our recent report on the analytic challenges facing agencies in measuring performance, we stated that supplementing performance data with impact evaluations may help provide agencies with a more complete picture of program effectiveness. A recurring source of the programs’ difficulty in both selecting appropriate outcome measures and in analyzing their results stemmed from two features common to many federal programs: the interplay of federal, state, and local government activities and objectives and the aim to influence complex systems or phenomena whose outcomes are largely outside government control. Evaluations can play a critical role in helping to address the measurement and analysis difficulties agencies face. Furthermore, systematic evaluation of how a program was implemented can provide important information about why a program did or did not succeed and suggest ways to improve it. In that report, we also said that evaluation offices can provide analytical support for developing a performance measurement system. When asked where they needed assistance in performance measurement, agency officials were most likely to report that they could have used more evaluation help with creating quantifiable, measurable performance indicators and developing or implementing data collection and verification plans. Under the Results Act, program managers may wish to turn to their evaluation offices for formal program evaluations and for assistance in developing and using a performance measurement system. However, we have also reported that a 1994 survey found a continuing decline in evaluation capacity in the federal government. Although the Results Act requires agencies to discuss program evaluations in their strategic plans, 16 of the draft plans we reviewed did not contain such a discussion. Of the 11 plans that did contain a section on evaluations, most of those sections lacked critical information specified in OMB guidance, such as a discussion of how evaluations were used to establish strategic goals or a schedule of future evaluations. Given the importance of evaluation for results-based management and the continuing decline in evaluation capacity, it is important that agencies’ strategic plans systematically address this issue. It is clear that much work remains to be done if strategic plans are to be as useful for congressional and agency decisionmaking as they could be. We found that agencies’ draft strategic plans were very much works in progress. This situation suggests that agencies are struggling with the first step of performance-based management—that is, adopting a disciplined approach to setting results-oriented goals and formulating strategies to achieve the goals. As agencies continue their strategic planning efforts and prepare for the next step of performance-based management—measuring performance against annual performance goals—it is important that the agencies, working with Congress and other stakeholders, address those strategic planning issues that appear to need particularly sustained attention. Our past work has shown that leading organizations focus on strategic planning as a dynamic and continuous process and not simply on the production of a strategic plan. They also understand that stakeholders, particularly Congress in the case of federal agencies, are central to the success of their planning efforts. Therefore, it is important that agencies recognize that strategic planning does not end with the submission of a plan in September 1997 and that a constant dialogue with Congress is part of a purposeful and well-defined strategic planning process. Authorization, appropriation, budget, and oversight committees each have key interests in ensuring that the Results Act is successful, because once fully implemented, it should provide valuable data to help inform the decisions that each committee must make. In that regard, Congress can continue to express its interest in the effective implementation of the Results Act through iterative consultations with agencies on their missions and goals. Congress can also show its interest by continuing to ask about the status of agencies’ implementation of the Act during congressional hearings and by using performance information that agencies provide to help make management in the federal government more performance based. On September 3, 1997, we provided a draft of this report to the Director of OMB for comment. We did not provide a draft to individual agencies discussed in this report, because the drafts of the reports we prepared on individual agency plans in response to your request were provided to the relevant agency for comment. Those comments were reflected, as appropriate, in the final versions of those reports. On September 10, 1997, a senior OMB official provided us with comments on this report. He generally agreed with our observations and said that the report was a useful summary of the 27 reports we issued on agencies’ draft strategic plans. The official also said that by identifying areas of widespread compliance or noncompliance with requirements of the Results Act, the report can be used to focus on those parts of plans that may require further work. The senior OMB official did, however, raise an issue regarding program evaluations and the Results Act. He said that many strategic goals and objectives included in strategic plans will not require a program evaluation to help determine whether the goal was achieved. Thus, the absence of a schedule for future program evaluations should not be the basis for a categorical conclusion that a plan is deficient for this requirement. He also said that process evaluations can be useful in defining why a program is not working; they may be less instructive on why a program is succeeding. In his view, process evaluations are more aligned with the strategies section of a strategic plan than with determinations of whether strategic goals and objectives are being achieved. In addition, the OMB official said that an evaluation of program impact is beyond the scope of the Results Act and that agencies are not required or expected to define their goals or objectives in terms of impact. We note that the Results Act establishes two approaches for assessing an agency’s performance: annual measurement of program performance against performance goals outlined in a performance plan and program evaluations to be conducted by the agency as needed. Although the Act gives agencies wide discretion in determining the need for program evaluations, the Act also requires that agencies report to Congress and other stakeholders in their strategic plans on their planned use of evaluations to assess achievement of goals. Therefore, although program evaluations may not be necessary for determining whether every strategic goal in the strategic plan is achieved, a fuller discussion of how evaluations will, or will not, be used to measure performance is critical. Without this discussion, Congress and other stakeholders will not have assurances that agencies, as intended by the Act, systematically considered the use of program evaluations, where appropriate, to validate program accomplishments and identify strategies for program improvement. Thus, in cases where an agency concludes that program evaluations are not needed, we continue to believe that the agency’s plan would be more helpful to Congress if it contained such a statement and the reasons for the agency’s conclusion. Moreover, the Senate report that accompanied the Results Act described program evaluations in broad terms, specifically “including evaluations of . . . operating policies and practices when the primary concern is about these issues rather than program outcome.” In this context, program evaluations are to be used to assess both the extent to which a program achieves its results-oriented goals (outcome evaluations) and the extent to which a program is operating as it was intended (process evaluation.) Understanding how a program’s operations produced, or did not produce, desired outcomes is critical information for agencies’ senior managers and Congress to consider as decisions are being made about programs and strategic goals. Although the Act does not explicitly mention impact evaluations, it does require programs to measure progress toward achieving goals and explain why a performance goal was not met. Impact evaluations can be employed when external factors are known to influence the program’s objectives in order to isolate the program’s contribution to achievement of its objectives. Given the complexity of crosscutting federal programs as well as state and local programs, we continue to believe that in some circumstances, impact evaluations could be useful in helping to provide a more accurate picture of program effectiveness than might be portrayed by annual performance data alone or by other types of evaluations. As arranged with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its issue date. At that time, we will send copies of this report to the Minority Leader of the House; Ranking Minority Members of your Committees; other appropriate congressional committees; and the Director, Office of Management and Budget. We also will make copies available to others on request. If you or your staffs have any questions concerning this report, please contact me on (202) 512-2700. The major contributors to this letter are listed in appendix II. The Government Performance and Results Act (GPRA) is the primary legislative framework through which agencies will be required to set strategic goals, measure performance, and report on the degree to which goals were met. It requires each federal agency to develop, no later than by the end of fiscal year 1997, strategic plans that cover a period of at least 5 years and include the agency’s mission statement; identify the agency’s long-term strategic goals; and describe how the agency intends to achieve those goals through its activities and through its human, capital, information, and other resources. Under GPRA, agency strategic plans are the starting point for agencies to set annual goals for programs and to measure the performance of the programs in achieving those goals. Also, GPRA requires each agency to submit to the Office of Management and Budget (OMB), beginning for fiscal year 1999, an annual performance plan. The first annual performance plans are to be submitted in the fall of 1997. The annual performance plan is to provide the direct linkage between the strategic goals outlined in the agency’s strategic plan and what managers and employees do day-to-day. In essence, this plan is to contain the annual performance goals the agency will use to gauge its progress toward accomplishing its strategic goals and identify the performance measures the agency will use to assess its progress. Also, OMB will use individual agencies’ performance plans to develop an overall federal government performance plan that OMB is to submit annually to Congress with the president’s budget, beginning for fiscal year 1999. GPRA requires that each agency submit to the president and to the appropriate authorization and appropriations committees of Congress an annual report on program performance for the previous fiscal year (copies are to be provided to other congressional committees and to the public upon request). The first of these reports, on program performance for fiscal year 1999, is due by March 31, 2000; and subsequent reports are due by March 31 for the years that follow. However, for fiscal years 2000 and 2001, agencies’ reports are to include performance data beginning with fiscal year 1999. For each subsequent year, agencies are to include performance data for the year covered by the report and 3 prior years. In each report, an agency is to review and discuss its performance compared with the performance goals it established in its annual performance plan. When a goal is not met, the agency’s report is to explain the reasons the goal was not met; plans and schedules for meeting the goal; and, if the goal was impractical or not feasible, the reasons for that and the actions recommended. Actions needed to accomplish a goal could include legislative, regulatory, or other actions or, when the agency found a goal to be impractical or infeasible, a discussion of whether the goal ought to be modified. In addition to evaluating the progress made toward achieving annual goals established in the performance plan for the fiscal year covered by the report, an agency’s program performance report is to evaluate the agency’s performance plan for the fiscal year in which the performance report was submitted. (For example, in their fiscal year 1999 performance reports, due by March 31, 2000, agencies are required to evaluate their performance plans for fiscal year 2000 on the basis of their reported performance in fiscal year 1999.) This evaluation will help to show how an agency’s actual performance is influencing its plans. Finally, the report is to include the summary findings of program evaluations completed during the fiscal year covered by the report. Congress recognized that in some cases not all of the performance data will be available in time for the March 31 reporting date. In such cases, agencies are to provide whatever data are available, with a notation as to their incomplete status. Subsequent annual reports are to include the complete data as part of the trend information. In crafting GPRA, Congress also recognized that managerial accountability for results is linked to managers having sufficient flexibility, discretion, and authority to accomplish desired results. GPRA authorizes agencies to apply for managerial flexibility waivers in their annual performance plans beginning with fiscal year 1999. The authority of agencies to request waivers of administrative procedural requirements and controls is intended to provide federal managers with more flexibility to structure agency systems to better support program goals. The nonstatutory requirements that OMB can waive under GPRA generally involve the allocation and use of resources, such as restrictions on shifting funds among items within a budget account. Agencies must report in their annual performance reports on the use and effectiveness of any GPRA managerial flexibility waivers that they receive. GPRA called for phased implementation so that selected pilot projects in the agencies could develop experience from implementing GPRA requirements in fiscal years 1994 through 1996 before implementation is required for all agencies. When this part of the pilot phase concluded at the end of fiscal year 1996, a total of 68 pilot projects representing 28 agencies were project participants. OMB also was required to select at least five agencies from among the initial pilot agencies to pilot managerial accountability and flexibility for fiscal years 1995 and 1996; however, we found that the pilot did not work as intended. OMB did not designate as pilot projects any of the 7 departments and 1 independent agency that submitted a total of 61 waiver proposals because, among other reasons, changes in federal management practices and laws that occurred after the Act was enacted affected agencies’ need for the managerial flexibility waivers. Finally, GPRA required OMB to select at least five agencies, at least three of which have had experience developing performance plans during the initial GPRA pilot phase, to test performance budgeting for fiscal years 1998 and 1999. Performance budgets to be prepared by pilot projects for performance budgeting are intended to provide Congress with information on the direct relationship between proposed program spending and expected program results and the anticipated effects of varying spending levels on results. However, we found that the performance budgeting pilots are likely to be delayed. According to OMB, few agencies currently have either sufficient baseline performance or financial information or the ability to use sophisticated analytic techniques to calculate the effects that marginal changes in funding can have on performance. The Results Act: Observations on the Draft Strategic Plan of the Department of Agriculture (GAO/RCED-97-169R, July 10, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of Commerce (GAO/GGD-97-152R, July 14, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of Defense (GAO/NSIAD-97-219R, Aug. 5, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of Education (GAO/HEHS-97-176R, July 18, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of Energy (GAO/RCED-97-199R, July 11, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of Health and Human Services (GAO/HEHS-97-173R, July 11, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of Housing and Urban Development (GAO/RCED-97-224R, Aug. 8, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of the Interior (GAO/RCED-97-207R, July 21, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of Justice (GAO/GGD-97-153R, July 11, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of Labor (GAO/HEHS-97-172R, July 11, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of State (GAO/NSIAD-97-198R, July 18, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of Transportation (GAO/RCED-97-208R, July 30, 1997). The Results Act: Observations on the Draft Strategic Plan of the Treasury (GAO/GGD-97-162R, July 31, 1997). The Results Act: Observations on the Draft Strategic Plan of the Department of Veterans Affairs (GAO/HEHS-97-174R, July 11, 1997). The Results Act: Observations on the Draft Strategic Plan of the U.S. Agency for International Development (GAO/NSIAD-97-197R, July 11, 1997). The Results Act: Observations on the Draft Strategic Plan of the Environmental Protection Agency (GAO/RCED-97-209R, July 30, 1997). The Results Act: Observations on the Draft Strategic Plan of the Federal Emergency Management Agency (GAO/RCED-97-204R, July 22, 1997). The Results Act: Observations on the Draft Strategic Plan of the General Services Administration (GAO/GGD-97-147R, July 7, 1997). The Results Act: Observations on the Draft Strategic Plan of the National Aeronautics and Space Administration (GAO/NSIAD-97-205R, July 22, 1997). The Results Act: Observations on the Draft Strategic Plan of the National Science Foundation (GAO/RCED-97-203R, July 11, 1997). The Results Act: Observations on the Draft Strategic Plan of the Nuclear Regulatory Commission (GAO/RCED-97-206R, July 31, 1997). The Results Act: Observations on the Draft Strategic Plan of the Office of Management and Budget (GAO/GGD-97-169R, Aug. 1997). The Results Act: Observations on the Draft Strategic Plan of the Office of Personnel Management (GAO/GGD-97-150R, July 11, 1997). The Results Act: Observations on the Draft Strategic Plan of the U.S. Postal Service (GAO/GGD-97-163R, July 31, 1997). The Results Act: Observations on the Draft Strategic Plan of the Small Business Administration (GAO/RCED-97-205R, July 11, 1997). The Results Act: Observations on the Draft Strategic Plan of the Social Security Administration (GAO/HEHS-97-179R, July 22, 1997). The Results Act: Observations on the Draft Strategic Plan of the U.S. Trade Representative (GAO/NSIAD-97-199R, July 18, 1997). The Results Act: Observations on Federal Science Agencies (GAO/T-RCED-97-220, July 30, 1997). Financial Management: Indian Trust Fund Strategic Plan (GAO/T-AIMD-97-138, July 30, 1997). The Results Act: Observations on Draft Strategic Plans of Five Financial Regulatory Agencies (GAO/T-GGD-97-164, July 29, 1997). National Labor Relations Board: Observations on the NLRB’s July 8, 1997, Draft Strategic Plan (GAO/T-HEHS-97-183, July 24, 1997). The Results Act: Observations on the Forest Service’s May 1997 Draft Strategic Plan (GAO/T-RCED-97-223, July 23, 1997). Results Act: Observations on the Department of Energy’s August 15, 1997, Draft Strategic Plan (GAO/RCED-97-248R, Sept. 2, 1997). Managing for Results: Using the Results Act to Address Mission Fragmentation and Program Overlap (GAO/AIMD-97-146, Aug. 29, 1997). Managing for Results: The Statutory Framework for Improving Federal Management and Effectiveness (GAO/T-GGD/AIMD-97-144, June 24, 1997). The Results Act: Comments on Selected Aspects of the Draft Strategic Plans of the Departments of Energy and the Interior (GAO/T-RCED-97-213, July 17, 1997). Managing for Results: Prospects for Effective Implementation of the Government Performance and Results Act (GAO/T-GGD-97-113, June 3, 1997). The Government Performance and Results Act: 1997 Governmentwide Implementation Will Be Uneven (GAO/GGD-97-109, June 2, 1997). Managing for Results: Analytic Challenges in Measuring Performance (GAO/HEHS/GGD-97-138, May 30, 1997). Agencies’ Strategic Plans Under GPRA: Key Questions to Facilitate Congressional Review (GAO/GGD-10.1.16, May 1997). Performance Budgeting: Past Initiatives Offer Insights for GPRA Implementation (GAO/AIMD-97-46, Mar. 27, 1997). Measuring Performance: Strengths and Limitations of Research Indicators (GAO/RCED-97-91, Mar. 21, 1997). Managing for Results: Enhancing the Usefulness of GPRA Consultations Between the Executive Branch and Congress (GAO/T-GGD-97-56, Mar. 10, 1997). Managing for Results: Using GPRA to Assist Congressional and Executive Branch Decisionmaking (GAO/T-GGD-97-43, Feb. 12, 1997). Executive Guide: Effectively Implementing the Government Performance and Results Act (GAO/GGD-96-118, June 1996). The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Pursuant to a congressional request, GAO reviewed individual agencies' draft strategic plans, as required by the Government Performance and Results Act of 1993, focusing on: (1) summarizing the overall results of GAO's reviews of those plans; and (2) identifying, on the basis of those reviews, the strategic planning issues most in need of sustained attention. GAO noted that: (1) a significant amount of work remained to be done by executive branch agencies if their strategic plans are to fulfill the requirements of the Results Act, serve as a basis for guiding agencies, and help congressional and other policymakers make decisions about activities and programs; (2) although all 27 of the draft plans included a mission statement, 21 plans lacked 1 or more of 5 other required elements; (3) overall, one-third of the plans were missing two required elements; and just over one-fourth were missing three or more of the required elements; (4) GAO's reviews of agencies' draft strategic plans also revealed several critical strategic planning issues that are in need of sustained attention if agencies are to develop the dynamic strategic planning processes envisioned by the Results Act; (5) most of the draft plans did not adequately link required elements in the plans; (6) these linkages are important if strategic plans are to drive the agencies' daily activities and if agencies are to be held accountable for achieving intended results; (7) furthermore, 19 of the 27 draft plans did not attempt to describe the linkages between long-term strategic goals and annual performance goals; (8) long-term strategic goals often tended to have weaknesses; (9) although the Results Act does not require that all of an agency's strategic goals be results oriented, the intent of the Act is to have agencies focus their strategic goals on results to the extent feasible; (10) many agencies did not fully develop strategies explaining how their long-term strategic goals would be achieved; (11) most agencies did not reflect in their draft plans the identification and planned coordination of activities and programs that cut across multiple agencies; (12) the questionable capacity of many agencies to gather performance information has hampered, and may continue to hamper, efforts to identify appropriate goals and confidently assess performance; (13) the draft strategic plans did not adequately address program evaluations; and (14) evaluations are important because they potentially can be critical sources of information for ensuring that goals are reasonable, strategies for achieving goals are effective, and that corrective actions are taken in program implementation.

You are an expert at summarizing long articles. Proceed to summarize the following text: When the Congress enacted FACA in 1972, one of the principal concerns it was responding to was that certain special interests had too much influence over federal agency decision makers. In this act, the Congress articulated certain principles regarding advisory committees, including broad requirements for balance, independence, and transparency. Specifically, FACA requires that the membership of committees be “fairly balanced in terms of points of view presented and the functions to be performed by the advisory committee.” Courts have interpreted this requirement as providing agencies with broad discretion in balancing their committees. Further, FACA requires that any legislation or agency action that creates a committee contain provisions to ensure that the advice and recommendations of the committee will be independent and not inappropriately influenced by the appointing authority (the agency) or any special interest. Finally, FACA generally requires that agencies announce committee meetings ahead of time and give notice to interested parties about such meetings. With some exceptions, the meetings are to be open to the public, and agencies are to prepare meeting minutes and make them available to interested parties. FACA also set broad guidelines for the creation and management of federal advisory committees, most of which are created or authorized by the Congress. Agencies also establish committees using their general statutory authority, and some are created by presidential directives. Further, the act requires that all committees have a charter, and that each charter contain specific information, including the committee’s scope and objectives, a description of duties, and the number and frequency of meetings. As required by FACA, advisory committee charters generally expire at the end of 2 years unless renewed by the agency or by the Congress. This requirement encourages agencies to periodically reexamine their need for specific committees. GSA, through its Committee Management Secretariat, is responsible for prescribing administrative guidelines and management controls applicable to advisory committees governmentwide. However, GSA does not have the authority to approve or deny agency decisions regarding the creation or management of advisory committees. To fulfill its responsibilities, GSA has developed guidance to assist agencies in implementing FACA requirements, provides training to agency officials, and was instrumental in creating the Interagency Committee on Federal Advisory Committee Management. GSA also has created and maintains an online FACA database (available to the public at www.fido.gov/facadatabase) for which the agencies provide and verify the data, which include committee charters; membership rosters; budgets; and, in many cases, links to committee meeting schedules, minutes, and reports. The database also includes information about a committee’s classification (e.g., scientific and technical, national policy issue, or grant review). While GSA’s Committee Management Secretariat provides FACA guidance to federal agencies, each agency also develops its own policies and procedures for following FACA requirements. Under FACA, agency heads are responsible for issuing administrative guidelines and management controls applicable to their agency’s advisory committees. Generally, federal agencies have a reasonable amount of discretion with regard to creating committees, drafting their charters, establishing their scope and objectives, classifying the committee type, determining what type of advice they are to provide, and appointing members to serve on committees. In addition, to assist with the management of their federal advisory committees, agency heads are required to appoint a committee management officer to oversee the agency’s compliance with FACA requirements, including recordkeeping. Finally, agency heads must appoint a designated federal official for each committee to oversee its activities. Among other things, the designated federal official must approve or call the meetings of the committee, approve the agendas (except for presidential advisory committees), and attend the meetings. OGE is responsible for issuing regulations and guidance for agencies to follow in complying with statutory conflict-of-interest provisions that apply to all federal employees, including special government employees serving on federal advisory committees. A special government employee is statutorily defined as an officer or employee who is retained, designated, appointed, or employed by the government to perform temporary duties, with or without compensation, for not more than 130 days during any period of 365 consecutive days. Many agencies use special government employees, either as advisory committee members or as individual experts or consultants. Special government employees, like regular federal employees, are to provide their own best judgment in a manner that is free from conflicts of interest and without acting as a stakeholder to represent any particular point of view. Accordingly, special government employees appointed to federal advisory committees are hired for their expertise and skills and are expected to provide advice on behalf of the government on the basis of their own best judgment. Special government employees are subject to the federal financial conflict-of-interest requirements, although ones that are somewhat less restrictive than those for regular federal government employees. Specifically, special government employees serving on federal advisory committees are provided with an exemption that allows them to participate in particular matters that have a direct and predictable effect on their financial interest if the interest arises from their nonfederal employment and the matter will not have a special or distinct effect on the employee or employer other than as part of a class. This exemption does not extend to a committee member’s personal financial and other interests in the matter, such as stock ownership in the employer. If a committee member has a potential financial conflict of interest that is not covered under this or other exemptions, a waiver of the conflict-of- interest provisions may be granted if the appointing official determines that the need for the special government employee’s services outweighs the potential for conflict of interest or that the conflict is not significant. This standard for granting waivers is less stringent than the standard for regular government employees. The principal tool that agencies use to assess whether nominees or members of advisory committees have conflicts of interest is the OGE Form 450, Executive Branch Confidential Financial Disclosure Report, which special government employees are required to submit annually. The Form 450 requests financial information about the committee member and the member’s spouse and dependent children, such as sources of income and identification of assets, but it does not request filers to provide the related dollar amounts, such as salaries. Even if committees are addressing broad or general issues, rather than particular matters, committee members hired as special government employees are generally required to complete the confidential financial disclosure form. Agencies appoint ethics officials who are responsible for ensuring agency compliance with the federal conflict-of-interest statutes, and OGE conducts periodic audits of agency ethics programs to evaluate their compliance and, as warranted, makes recommendations to agencies to correct deficiencies in their ethics programs. Under administrative guidance initially developed in the early 1960s, a number of members of federal advisory committees are not hired as special government employees, but are instead appointed as representatives. Members appointed to advisory committees as representatives are expected to represent the views of relevant stakeholders with an interest in the subject of discussion, such as an industry, a union, an environmental organization, or other such entity. That is, representative members are expected to represent a particular and known bias—it is understood that information, opinions, and advice from representatives are to reflect the bias of the particular group that they are appointed to represent. Because these individuals are to represent outside interests, they do not meet the statutory definition of federal employee or special government employee and are therefore not subject to the criminal financial conflict-of-interest statute. According to GSA and OGE officials, in 2004 reliable governmentwide data on the number of representative members serving on federal advisory committees were not available. In 2004, we concluded that additional governmentwide guidance could help agencies better ensure the independence of federal advisory committee members and the balance of federal advisory committees. We found that OGE guidance to federal agencies had shortcomings and did not adequately ensure that agencies appropriately appoint individuals selected to provide advice on behalf of the government as special government employees. We found that some agencies were inappropriately appointing members as representatives who, as a result, were not subject to conflict-of-interest reviews. In addition, GSA guidance to federal agencies, and agency-specific policies and procedures, needed to be improved to better ensure that agencies elicit from potential committee members information that could be helpful in determining their viewpoints regarding the subject matters being considered—information that could help ensure that committees are, and are perceived as being, balanced. Specifically, we found the following: OGE guidance on the appropriate use of representative or special government employee appointments to advisory committees had limitations that we believed were a factor in three of the agencies we reviewed continuing the long-standing practice of essentially appointing all members as representatives. That is, the Department of Energy, the Department of the Interior, and the Department of Agriculture had appointed most or all members to their federal advisory committees as representatives—even in cases where the members were called upon to provide advice on behalf of the government and thus would be more appropriately appointed as special government employees. Because conflict-of-interest reviews are required only for federal or special government employees, agencies do not conduct conflict-of-interest reviews for members appointed as representatives. As a result, the agencies could not be assured that the real or perceived conflicts of interest of their committee members who provided advice on behalf of the government were identified and appropriately mitigated. Further, allegations that the members had conflicts of interest could call into question the independence of the committee and jeopardize the credibility of the committee’s work. In addition to the FACA requirement for balance, it is important that committees are perceived as balanced in order for their advice to be credible and effective. However, we reported that GSA guidance did not address what types of information could be helpful to agencies in assessing the points of view of potential committee members, nor did agency procedures identify what information should be collected about potential members to make decisions about committee balance. Consequently, many agencies did not identify and systematically collect and evaluate information pertinent to determining the points of view of committee members regarding the subject matters being considered. For example, of the nine agencies we reviewed, only the Environmental Protection Agency (EPA) consistently (1) collected information on committee members appointed as special government employees that enabled the agency to assess the points of view of the potential members and (2) used this information to help achieve balance. Without sufficient information about prospective committee members prior to appointment, agencies cannot ensure that their committees are, and are perceived as being, balanced. We identified several promising practices for forming and managing federal advisory committees that could better ensure that committees are, and are perceived as being, independent and balanced. These practices include (1) obtaining nominations for committees from the public, (2) using clearly defined processes to obtain and review pertinent information on potential members regarding potential conflicts of interest and points of view, and (3) prescreening prospective members using a structured interview. In our view, these measures reflect the principles of FACA by employing clearly defined procedures to promote systematic, consistent, and transparent efforts to achieve independent and balanced committees. In addition, we identified selected measures that could promote greater transparency in the federal advisory committee process and improve the public’s ability to evaluate whether agencies have complied with conflict- of-interest requirements and FACA requirements for balance, such as providing information on how the members of the committees are identified and screened and indicating whether the committee members are providing independent or stakeholder advice. Implemented effectively, these practices could help agencies avoid the public criticisms to which some committees have been subjected. That is, if more agencies adopted and effectively implemented these practices, they would have greater assurance that their committees are, and are perceived as being, independent and balanced. Because the effectiveness of competent federal advisory committees can be undermined if the members are, or are perceived as, lacking in independence or if committees as a whole do not appear to be properly balanced, we made 12 recommendations to GSA and OGE to provide additional guidance to federal agencies under three broad categories: (1) the appropriate use of representative appointments; (2) information that could help ensure committees are, in fact and in perception, balanced; and (3) practices that could better ensure independent and balanced committees and increase transparency in the federal advisory process. While our report focused primarily on scientific and technical federal advisory committees, the limitations of the guidance and the promising practices we identified pertaining to independence and balance are pertinent to federal advisory committees in general. Thus, our recommendations were directed to GSA and OGE because of their responsibilities for providing governmentwide guidance on federal ethics and advisory committee management requirements. GSA and OGE have taken steps to implement many, but not all, of the recommendations we made in 2004. Regarding representative appointments, we recommended that guidance from OGE to agencies could be improved to better ensure that members appointed to committees as representatives were, in fact, representing a recognizable group or entity. OGE agreed with our conclusion that some agencies may have been inappropriately identifying certain advisory committee members as representatives instead of special government employees and issued OGE guidance documents in July 2004 and August 2005 that clarified the distinction between special government employees and representative members. In particular, as we recommended, OGE clarified that (1) members should not be appointed as representatives purely on the basis of their expertise, (2) appointments as representatives are limited to circumstances in which the members are speaking as stakeholders for the entities or groups they represent, and (3) the term “representative” or similar terms in an advisory committees’ authorizing legislation or other documents does not necessarily mean that members are to be appointed as representatives. We also recommended that OGE and GSA modify their FACA training materials to incorporate the changes in guidance regarding the appointment process, which they have done. In addition, we recommended that GSA expand its FACA database to identify each committee member’s appointment category and, for representative members, the entity or group represented. GSA quickly implemented this recommendation and now has data on appointments beginning in 2005. We also recommended that OGE and GSA direct agencies to review their appointments of representative and special government employee committee members to make sure that they were appropriate. OGE’s 2004 and 2005 guidance documents addressed this issue by, among other things, recommending that agency ethics officials periodically review appointment designations to ensure that they are proper. OGE’s guidance expressed the concern that some agencies may be designating their committee members as representatives primarily to avoid subjecting them to the disclosure statements required for special government employees to identify potential conflicts of interest. The guidance further stated that such improper appointments should be corrected immediately. OGE also suggested that for the committees required to renew their charters every 2 years, agencies use the rechartering process to ensure that the appointment designations are correct. In March 2008, the Director of GSA’s Committee Management Secretariat told us that while GSA has not issued formal guidance directing agencies to review appointment designations, it has addressed this recommendation by examining the types of appointments agencies are planning when it conducts desk audits of committee charters for both new and renewed committees and by providing information on appropriate appointments at quarterly meetings with committee management staff and at FACA training classes. The GSA official said that when GSA sees questionable appointments—for example, subject matter experts being appointed as representatives instead of as special government employees—it recommends that agency staff clear this decision with their legal counsel. However, he added that agencies are not compelled to respond to GSA guidance, and some have not changed their long-standing appointment practices despite GSA’s questions and suggestions. He noted that, under FACA, GSA has the authority to issue guidance but not regulations. Neither OGE nor GSA implemented our recommendation aimed at ensuring that committee members serving as representative members do not have points of view or biases other than the known interests they are representing. Because members appointed to committees as representatives do not undergo the conflict-of-interest review that special government employees receive, we recommended that representative members, at a minimum, receive ethics training and be asked whether they know of any reason their participation on the committee might reasonably be questioned—for example, because of any personal benefits that could ensue from financial holdings, patents, or other interests. OGE neither agreed or disagreed with this recommendation when commenting on our draft report but subsequently stated in its comments on the published report that it does not have the authority to prescribe rules of conduct for persons who are not employees or officers of the executive branch, such as committee members appointed as representatives. The GSA official said while the agency supports the intent of our recommendation, it defers to OGE on ethics matters. However, in this case, given the limitations OGE identified, it may be more appropriate for GSA to take the lead on implementing this recommendation under FACA. Regarding the importance of ensuring that committees are, in fact and in perception, balanced in terms of points of view and functions to be performed, we recommended that GSA issue guidance to agencies on the types of information that they should gather about prospective committee members. While GSA has not issued formal guidance in this regard, its does include in its FACA training materials examples of agency practices that do ask prospective members about, for example, their previous or ongoing involvement with the issue or public statements or positions on the matter being reviewed. Finally, to better ensure independent and balanced committees and increase transparency in the federal advisory process, we recommended that GSA issue guidance to agencies to help ensure that the committee members, agency and congressional officials, and the public better understand the committee formation process and the nature of the advice provided by advisory committees. Specifically, we recommended that GSA issue guidance that agencies should identify the committee formation process used for each committee, particularly how members are identified and screened and how the committees are assessed for balance; state in the appointment letters whether the members are special government employees or representatives and, in cases where appointments are as representatives, the letters should further identify the entity or group that they are to represent; and state in the committee products the nature of the advice that was to be provided—that is, whether the product is based on independent advice or on consensus among the various identified interests or stakeholders. In its comments on our draft 2004 report and in a July 2004 letter regarding the published report, GSA stated that addressing these recommendations would require further consultation with OGE and affected executive agencies. In the ensuing years, GSA has not issued formal guidance implementing these recommendations. In March 2008, the Director of the Committee Management Secretariat told us that he generally supports the intent of the recommendations but that GSA is reluctant to direct agencies to carry out these aspects of their personnel or advisory committee practices without the statutory authority to do so. He noted that regarding the recommendation addressing the committee formation process, GSA’s FACA management training materials provide information on the best practice employed by some of EPA’s federal advisory committees of articulating their committee formation process and providing this information on their committees’ Web pages. We consider this action a partial implementation of the recommendation. You asked us to provide recommendations for improving the Federal Advisory Committee Act. Regarding the key recommendations we made aimed at addressing the inappropriate use of representative appointments, while both OGE and GSA were fully responsive to our recommendations to issue guidance to federal agencies clarifying such appointments, appointment data we reviewed raise questions about agency compliance. For example, in 2004, we reported that three of the nine agencies we reviewed had historically used representative appointments for all or most of their advisory committees, even when the agencies called upon the members to provide independent advice on behalf of the government. Overall, based on our review of the latest data on committee appointments, for these three agencies, this appointment practice continued through fiscal year 2007. Further, of these three agencies, which we identified as having questionable practices with respect to appointments for scientific and technical committees in 2004, one is still appointing members to scientific and technical committees primarily as representatives, and one has reduced the number of representative appointments but still has a majority of representative appointments. The third shifted substantially away from representative appointments for its scientific and technical committees in 2006 following our report—but made appointments to two new committees in 2007 with representative members that might be more appropriately appointed as special government employees. Regarding the agency that is still primarily using representative members on its scientific and technical committees, not only do the subject matters being considered by many of these committees suggest that the government would be seeking independent expert advice rather than stakeholder advice, but the agency’s identification of the entities or persons some representatives are speaking for suggests this agency is not abiding by the OGE and GSA guidance regarding representative appointments. For example, for some committees, this agency identifies the entity that all of the individual representative members are speaking for as the advisory committee itself. We believe these instances likely reflect an inappropriate use of representative rather than special government employee appointments. In addition, we note that some members appointed as representatives are described in the FACA database as representing an expertise or “academia” generally. As discussed above, the OGE guidance clarified that generally members may not be appointed as representatives to represent classes of expertise. Thus, it is not clear that agencies inappropriately using representative appointments have taken sufficient corrective action or that such actions will be sustained despite steps OGE and GSA have taken to clarify the appropriate use of representatives in response to our recommendations. Governmentwide data collected by GSA show that from 2005 (when GSA began to collect the data in response to our recommendation to do so) through 2007, the percentage of committee members appointed as special government employees increased from about 28 percentage to about 32 percent; the members appointed as representatives declined from just over 17 percent to about 16 percent. In March 2008, the Director of the Committee Management Secretariat at GSA told us that it is not clear whether these data indicate that the problem of inappropriate use of representative appointments has been fixed. He emphasized that GSA can suggest to agencies that they change the type of committee appointments they make but cannot direct them to do so. He noted that the agencies that historically have relied on representative appointments may not feel compelled to comply with the guidance because “it is not in the law.” Finally, he said GSA would support incorporating the substance of our recommendations regarding representative and special government employees into FACA. Clarifying appointment issues in the act could resolve questions about or challenges to GSA’s authorities and thereby better support agency compliance with GSA and OGE guidance on this critical issue. In consideration of the above, the Subcommittee may want to consider amendments to FACA that could help prevent the inappropriate use of representative appointments and better ensure the independence of committee members by clarifying the nature of advice to be provided by special government employees versus representative members of advisory committees and require that all committee members, not just special government employees, be provided ethics training. In addition, as discussed above, our 2004 recommendations to GSA addressing (1) committee balance and (2) practices that could better ensure independent and balanced committees and increase transparency have either not been implemented or have been partially addressed. We believe it is significant that, on the basis of its understanding of its authorities and its experience in overseeing federal advisory committees— including trying to convince agencies to follow its guidance and training materials—GSA told us in March 2008 that it would support incorporating the substance of our recommendations in these areas into FACA. Not only are our recommendations consistent with four categories (or objectives) of amendments to the act that GSA told us the agency generally supports, but they identify actions that GSA believes could help achieve its objectives, such as enhancing the federal advisory committee process and increasing the public’s confidence both in the process and in committee recommendations. Consequently, we believe the Subcommittee may also wish to incorporate into FACA the substance of our recommendations addressing (1) the types of information agencies should consider in assessing prospective committee members’ points of view to better ensure the overall balance of committees, (2) the committee formation process, clarity in appointment letters as to the type of advice members are being asked to provide, and (3) identifying in committee products the nature of the advice provided. Along these lines, we understand that the proposed legislative amendments to FACA that may be introduced today may incorporate some of our 2004 recommendations. Overall, we believe that additions to FACA along the lines discussed in our testimony and detailed in our 2004 report could provide greater assurance that committees are, and are perceived as being, independent and balanced. Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions that you or other Members of the Subcommittee may have at this time. For further information about this testimony, please contact Robin M. Nazzaro on (202) 512-3841 or [email protected]. Contact points for our Congressional Relations and Public Affairs Offices may be found on the last page of this statement. Contributors to this testimony include Christine Fishkin (Assistant Director), Ross Campbell, Carol Kolarik, Nancy Crothers, Richard P. Johnson, and Jeanette Soares. This is a work of the U.S. government and is not subject to copyright protection in the United States. This published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Because advisory committees provide input to federal decision makers on significant national issues, it is essential that their membership be, and be perceived as being, free from conflicts of interest and balanced as a whole. The Federal Advisory Committee Act (FACA) was enacted in 1972, in part, because of concerns that special interests had too much influence over federal agency decision makers. The General Services Administration (GSA) develops guidance on establishing and managing FACA committees. The Office of Government Ethics (OGE) develops regulations and guidance for statutory conflict-of- interest provisions that apply to some advisory committee members. As requested, this testimony discusses key findings and conclusions in our 2004 report, Federal Advisory Committees: Additional Guidance Could Help Agencies Better Ensure Independence and Balance; GAO's recommendations to GSA and OGE and their responses; and potential changes to FACA that could better ensure the independence and balance of advisory committees. For our 2004 work, we reviewed policies and procedures issued by GSA, OGE, and nine federal agencies that sponsor many committees. For this testimony, we obtained information from GSA and OGE on actions they have taken to implement our recommendations; we also reviewed data in GSA's FACA data base on advisory committee appointments. In 2004, GAO concluded that additional governmentwide guidance could help agencies better ensure the independence of federal advisory committee members and the balance of federal advisory committees. For example, OGE guidance to federal agencies did not adequately ensure that agencies appoint individuals selected to provide advice on behalf of the government as "special government employees" subject to conflict-of-interest regulations. Further, GAO found that some agencies were inappropriately appointing most or all members as "representatives"--expected to reflect the views of the entity or group they are representing and not subject to conflict-of-interest reviews--even when the agencies call upon the members to provide advice on behalf of the government and thus should have been appointed as special government employees. In addition, GSA guidance to federal agencies and agency-specific policies and procedures needed to be improved to better ensure that agencies collect and evaluate information, such as previous or ongoing research, that could be helpful in determining the viewpoints of potential committee members regarding the subject matters being considered and in ensuring that committees are, and are perceived as being, balanced. GAO also identified several promising practices for forming and managing federal advisory committees that could better ensure that committees are independent and balanced as a whole, such as providing information on how the members of the committee are identified and screened and indicating whether the committee members are providing independent or stakeholder advice. To help improve the effectiveness of federal advisory committees so that members are, and are perceived as being, independent and committees as a whole are properly balanced, GAO made 12 recommendations to GSA and OGE to provide additional guidance to federal agencies under three broad categories: (1) the appropriate use of representative appointments; (2) information that could help ensure committees are, in fact, and in perception, balanced; and (3) practices that could better ensure independence and balanced committees and increase transparency in the federal advisory process. GSA and OGE implemented our recommendations to clarify the use of representative appointments. However, current data on appointments indicate that some agencies may continue to inappropriately use representatives rather than special government employees on some committees. Further, GSA said it agrees with GAO's other recommendations, including those relating to committee balance and measures that would promote greater transparency in the federal advisory committee process, but has not issued guidance in these areas as recommended, because of limitations in its authority to require agencies to comply with its guidance. In light of indications that some agencies may continue to use representative appointments inappropriately and GSA's support for including GAO's 2004 recommendations in FACA--including those aimed at enhancing balance and transparency--the Subcommittee may wish to incorporate the substance of GAO's recommendations into FACA as it considers amendments to the act.

You are an expert at summarizing long articles. Proceed to summarize the following text: IRS is responsible for administering our nation’s voluntary tax system in a fair and equitable manner. To do so, IRS has roughly 100,000 employees, many of whom interact directly with taxpayers. In fiscal year 1994, IRS processed over 200 million tax returns, issued about 86 million tax refunds, handled about 39 million calls for tax assistance, conducted about 1.4 million tax audits, and issued about 19 million collection notices for delinquent taxes. These activities resulted in millions of telephone and personal contacts with taxpayers. Many of these interactions have the potential to make taxpayers feel as if they have been mistreated or abused by IRS employees with whom they have dealt or by the “tax system” in general. IRS has several offices that are involved in handling taxpayers’ concerns about how they have been treated, including those alleging taxpayer abuse, which are not resolved through normal daily operations. IRS’ Inspection Service (Inspection), which includes the Internal Audit and Internal Security Divisions, is to investigate taxpayer allegations involving potential criminal misconduct by IRS employees. Problem Resolution Offices in IRS’ district offices and service centers are to help taxpayers who have been unable to resolve their problems through normal IRS channels with other IRS staff. IRS’ Office of Legislative Affairs is to track responses to congressional inquiries, often on behalf of constituents, as well as direct correspondence with the Commissioner or other IRS executives involving the tax system or IRS’ administration of it. OIG and DOJ may also get involved with taxpayer abuse allegations. OIG may investigate allegations involving senior IRS officials, those who serve in General Schedule (GS) grade-15 positions or higher, as well as IRS Inspection employees. IRS employees accused of criminal misconduct may be prosecuted by a DOJ U. S. Attorney. IRS employees who are sued by taxpayers for actions taken within the employees’ official duties may be defended by attorneys with the DOJ Tax Division. In our 1994 report on IRS’ controls to protect against taxpayer abuse, we were unable to determine the overall adequacy of IRS’ controls and made several recommendations to improve them. Foremost among our recommendations was that IRS define taxpayer abuse and collect relevant management information to systematically track its nature and extent. At that time, in the absence of an IRS definition, we defined taxpayer abuse to include instances when (1) an IRS employee violated a law, regulation, or the IRS Rules of Conduct; (2) an IRS employee was unnecessarily aggressive in applying discretionary enforcement power; or (3) IRS’ information systems broke down, e.g. when taxpayers repeatedly received tax deficiency notices and payment demands despite continual contacts with IRS to resolve problems with their accounts. Other recommendations in our 1994 report addressed such concerns as unauthorized access to computerized taxpayer information, improper use and processing of taxpayer cash payments, and the need for IRS notification of potential employee liability for trust fund recovery penalties. IRS did not agree with the need to define taxpayer abuse—a term it found objectionable—nor to track its nature and extent; but IRS agreed to take corrective action on many of our other recommendations. To determine the adequacy of IRS’ current controls over taxpayer abuse, we identified and documented actions taken by IRS in response to the recommendations in our 1994 report. We also identified any additional actions that IRS has initiated since then, relative to how IRS treats taxpayers. Finally, we discussed with IRS officials a recent commitment they made to define and establish a taxpayer complaints tracking system and the current status of this effort. To determine the extent of information available concerning the number and outcomes of abuse allegations received and investigated by IRS, OIG, and DOJ, we interviewed officials from the respective organizations and reviewed documentation relative to their information systems. We were told that the information systems maintained by these organizations do not include specific data elements for alleged taxpayer abuse. However, these officials said they believed that examples of alleged taxpayer abuse may be found within other general data categories in five IRS systems, two DOJ systems, and an OIG system. For example, IRS officials indicated that alleged taxpayer abuse might be found in a system used to track disciplinary actions against employees. This information is captured under the general data categories of “taxpayer charge or complaint” and “misuse of position or authority.” Similar examples were provided by officials from each organization as described in appendix II. We discussed the general objectives and uses of the relevant information systems with officials from the respective agencies. We also reviewed examples of the data produced by these systems under the suggested general data categories to ascertain if it was possible from these examples to determine whether taxpayer abuse may have occurred. We did not attempt to verify the accuracy of the data we received, because to do so would require an extensive, time-consuming review of related case files. This was beyond the scope and time available for this study. To determine OIG’s role in investigating allegations of taxpayer abuse, we obtained and reviewed Treasury orders and directives establishing and delineating the responsibilities of OIG, as well as a 1994 Memorandum of Understanding between OIG and IRS outlining specific procedures to be followed by each staff for reporting and investigating allegations of misconduct and fraud, waste, and abuse. We also obtained statistics from OIG staff concerning the number of allegations they received and investigations they conducted involving IRS employees for fiscal year 1995—the latest year for which data were available. In addition, we discussed OIG’s role and the relationship between OIG and IRS staffs with senior officials from both OIG and IRS. We requested comments on a draft of this report from the Commissioner of Internal Revenue, the Treasury Inspector General, and the Attorney General. On August 9, 1996, we received written comments from IRS, which are summarized on page 15 and are reprinted in appendix III. We also received written comments, which were technical in nature, from both the Treasury’s OIG and DOJ. These comments have been incorporated in the report where appropriate. We performed our audit work in Washington, D.C., between April and July 1996 in accordance with generally accepted government auditing standards. While IRS has made improvements in its controls over the treatment of taxpayers since our 1994 report, we are still unable to reach a conclusion at this time on the overall adequacy of IRS’ controls. We cannot determine the adequacy of these controls because IRS officials have not yet established a capability to capture management information, which is needed to ensure that abuse is identified and addressed and to prevent its recurrence. We are, however, encouraged by a recent commitment on the part of IRS’ Deputy Commissioner to establish a tracking system for taxpayer complaints. Such a system has the potential to greatly improve IRS’ controls to protect against taxpayer abuse and better ensure that taxpayers are treated properly. In exploring how IRS could satisfy a mandate included in the recently enacted Taxpayer Bill of Rights 2 to report annually to Congress on employee misconduct and taxpayer complaints, IRS recognized and acknowledged that such a mandate could not be satisfied with its existing information systems and that a definition for “taxpayer complaints” would be necessary, along with sufficient related management information to ensure that complaints are identified, addressed, and analyzed to prevent their recurrence. Although IRS said it still believes the term “taxpayer abuse” is misleading, inaccurate, and inflammatory, IRS decided to use the basic elements that we used in our 1994 report definition for taxpayer abuse as a starting point to develop a definition for taxpayer complaints. The basic elements from our report included when (1) an IRS employee violated a law, regulation, or the IRS Rules of Conduct; (2) an IRS employee was unnecessarily aggressive in applying discretionary enforcement power; or (3) IRS’ information systems broke down, e.g. when taxpayers repeatedly received tax deficiency notices and payment demands despite continual contacts with IRS to resolve problems with their accounts. With input from members of IRS’ Executive Committee, an IRS task group decided upon the following definition for taxpayer complaints: an allegation by a taxpayer or taxpayer representative that (1) an IRS employee violated a law, regulation, or the IRS Rules of Conduct; (2) an IRS employee used inappropriate behavior in the treatment of taxpayers while conducting official business, such as rudeness, overzealousness, excessive aggressiveness, discriminatory treatment, intimidation, and the like; or (3) an IRS system failed to function properly or within prescribed time frames. This definition was endorsed by the IRS Deputy Commissioner in a June 17, 1996, memorandum. IRS has decided to use the Problem Resolution Office Management Information System (PROMIS), with modifications, as a platform for compiling information about taxpayer complaints involving inappropriate employee behavior and systemic breakdowns. However, numerous decisions remain concerning how to track and assess the handling of all taxpayer complaints. For example, IRS already has two systems that are designed to capture data relevant to alleged employee misconduct. PROMIS is currently designed to capture data relevant to possible systemic breakdowns. The two systems capturing misconduct information, however, do not capture data in a manner that is comparable to one another or to PROMIS. IRS officials readily concede that at present, there is no IRS information system designed to capture data relevant to complaints of inappropriate employee behavior. They realize that to capture and compile information relevant to all three elements of the taxpayer complaints definition in a comparable and uniform manner will be a considerable challenge, especially for the highly subjective element involving inappropriate employee behavior. However, the officials assured us that they are now committed to rising to that challenge. While we are encouraged by IRS’ commitment, we recognize the formidable challenge IRS faces to capture complete, consistent, and accurate information about the IRS definition for taxpayer complaints. Rising to the challenge, however, is critical for IRS to have adequate controls to protect against taxpayer abuse as well as being able to satisfy its new requirement to annually report to Congress on employee misconduct and taxpayer complaints. Since our 1994 study, IRS has initiated various actions to implement our recommendations, as described in appendix I. For example, among other actions, IRS has initiated the following : Regarding unauthorized employee access to computerized taxpayer accounts, IRS (1) issued a 12-point Information Security Policy to all employees in January 1995, stressing the importance of taxpayer privacy and the security of tax data and (2) has begun development of an Information System Target Security Architecture to include management, operational, and technical controls for incorporation in the Tax System Modernization Program—a long-term effort to modernize IRS’ computer and telecommunications systems. Regarding the improper use and processing of taxpayer cash payments, IRS (1) included statements in its 1995 forms and instructions encouraging taxpayers to make payments with either a check or money order rather than cash and (2) is instructing its managers to conduct periodic unannounced reconciliations of cash receipts used by the IRS staff who collect taxes from taxpayers. Regarding the need for IRS to notify employers of the potential liability of their officers and employees for a trust fund recovery penalty when businesses fail to collect or pay withheld income, employment, or excise taxes, IRS has included notices of this liability in both Publication 334, “Tax Guide for Small Businesses” and Circular E, “Employer’s Tax Guide.” In addition to these actions, IRS has recently undertaken other initiatives in anticipation of some provisions included in the recently enacted Taxpayer Bill of Rights 2. In January 1996, IRS announced a series of initiatives designed to reduce taxpayer burden and make it easier for taxpayers to understand and exercise their rights. These initiatives included (1) enhanced powers for the Taxpayer Ombudsman, such as explicit authority to issue a refund to a taxpayer to relieve a severe financial hardship; (2) notification of a spouse regarding any collection action taken against a divorced or separated spouse for a joint tax liability; (3) increased computerized record storage and electronic filing options for businesses; (4) expedited appeals procedures for employment tax issues; and (5) a test of an appeals mediation procedure. IRS has also started to use information on taxpayer problems captured in PROMIS. IRS recently used this system to identify the volume of taxpayer problems categorized by various major issues, such as refund inquiries, collection actions, penalties, and the earned income tax credit. The Ombudsman has requested IRS’ top executives to review the major issues identified for their respective offices or regions in an effort to devise cost-effective ways to reduce these problems. While we did not test the implementation of these various initiatives, they appear to be conceptually sound and thus we believe that, if effectively implemented, they should help to strengthen IRS’ overall controls and procedures to identify, address, and prevent the recurrence of taxpayer abuse. It is not possible to readily determine the extent to which allegations of taxpayer abuse are received and investigated from the information systems maintained by IRS, OIG, and DOJ. These systems were designed as case tracking and resource management systems intended to serve the management information needs of particular functions, such as IRS’ Internal Security Division. None of these systems include specific data elements for “taxpayer abuse;” however, they contain data elements that encompass broad categories of misconduct, taxpayer problems, or legal actions. Without reviewing specific case files, information contained in these systems related to allegations and investigations of taxpayer abuse is not easily distinguishable from information on allegations and investigations that do not involve taxpayers. Consequently, as currently designed, these systems cannot be used individually or collectively to account for IRS’ handling of all instances of alleged taxpayer abuse. Officials of the respective organizations indicated that several information systems might include information related to taxpayer abuse allegations—five maintained by IRS, two by DOJ, and one by OIG—as described in appendix II. For example: Two of the IRS systems—the Internal Security Management Information System (ISMIS) and the Automated Labor and Employee Relations Tracking System (ALERTS)—capture information on cases involving employee misconduct, which may in some cases involve taxpayer abuse. ISMIS is used to determine the status and outcome of Internal Security investigations of alleged employee misconduct; ALERTS is used to track disciplinary actions taken against employees. While ISMIS and ALERTS both track aspects of alleged employee misconduct, these systems do not share common data elements or otherwise capture information in a consistent manner. IRS also has three systems that include information on concerns raised by taxpayers. These systems include two maintained by the Office of Legislative Affairs—the Congressional Correspondence Tracking System and the Commissioner’s Mail Tracking System—as well as PROMIS, which we described earlier. The two Legislative Affairs systems basically track taxpayers’ inquiries, including those made through congressional offices, to ensure that responses are provided by appropriate IRS officials. PROMIS tracks similar information to ensure that taxpayers’ problems are resolved and to determine whether the problems are recurring in nature. OIG has an information system known as the OIG Office of Investigations Management Information System (OIG/OIMIS) that is used to track the status and outcomes of OIG investigations as well as the status and outcomes of actions taken by IRS in response to OIG investigations and referrals. As discussed further in the next section of this report, most OIG investigations do not involve allegations of taxpayer abuse because those IRS employees that OIG typically investigates—primarily senior-level officials—usually do not interact directly with taxpayers. DOJ has two information systems that include data that may be related to taxpayer abuse allegations and investigations. The Executive Office of the U. S. Attorneys maintains a Centralized Caseload System that is used to consolidate the status and results of civil and criminal prosecutions conducted by offices of the U. S. Attorney throughout the country. Cases involving criminal misconduct by IRS employees would be referred to and may be prosecuted by the U.S. Attorney in the particular jurisdiction in which the alleged misconduct occurred. The Tax Division also maintains a Case Management System that is used for case tracking, time reporting, and statistical analysis of litigation cases conducted by the Tax Division. Lawsuits against either IRS or IRS employees are litigated by the Tax Division, with representation provided to IRS employees if the Tax Division determines that the actions taken by the employees were within the scope of employment. The officials familiar with these systems stated that, while the systems include data elements in which potential taxpayer abuse may have occurred, they do not include a specific data element for taxpayer abuse, which could be used to easily distinguish abuse allegations from others not involving taxpayers. For example, officials from the Executive Office for the U. S. Attorneys stated that the public corruption and tort categories of their Case Management System may include instances of taxpayer abuse, but the system could not be used to identify such instances without a review of individual case files. From our review of data from these systems, we concluded that none of them, either individually or collectively, have common or comparable data elements that can be used to identify the number or outcomes of taxpayer abuse allegations or related investigations and actions. Rather, each system was developed to provide information for a particular organizational function, usually for case tracking, inventory, or other managerial purposes relative to the mission of that particular function. While each system has data elements that could reflect how taxpayers have been treated, as described in appendix II, the data elements vary and may relate to the same allegation and same IRS employee. Without common or comparable data elements and unique allegation and employee identifiers, these systems do not collect information in a consistent manner that could be used to accurately account for all allegations of taxpayer abuse. OIG is responsible for investigating allegations of misconduct and waste, fraud, and abuse involving senior IRS officials, GS-15s and above, as well as IRS Inspection employees. OIG also has oversight responsibility for the overall operations of Inspection. Since November 1994, OIG has had increased flexibility for referring allegations involving GS-15s to IRS for investigation or administrative action. This was due to resource constraints and an increased emphasis by OIG on investigations involving criminal misconduct and procurement fraud across all Treasury bureaus. In fiscal year 1995, OIG conducted 44 investigations—14 percent of the 321 allegations it received—for the most part, implicating senior IRS officials. OIG officials stated that these investigations rarely involved allegations of taxpayer abuse because senior IRS officials and Inspection employees usually do not interact directly with taxpayers. OIG and Inspection have a unique relationship, relative to that of OIG and other Treasury bureau audit and investigative authorities. The IRS Chief Inspector, who reports directly to the IRS Commissioner, is responsible for IRS internal audits and investigations as well as coordinating Inspection activities with OIG. Inspection is to work closely with OIG in planning and performing its duties, and is to provide information on its activities and results to OIG for incorporation into OIG’s semiannual report to Congress. Disputes the IRS Chief Inspector may have with the Commissioner can be resolved through OIG and the Secretary of the Treasury, to whom OIG reports. The Department of the Treasury established the Office of the Inspector General (IG) consistent with the authority provided in the “Inspector General Act of 1978,” although Treasury already had internal audit and investigation capabilities for the Department as well as its bureaus. The existing capabilities included Inspection, which was responsible for all audits and investigations of IRS operations. Among OIG’s express authorities were the investigation of allegations implicating senior IRS officials and the oversight of Inspection’s audit and investigative activities. OIG resources to discharge these responsibilities were augmented in fiscal year 1990, by the transfer of 21 staff years from IRS’ appropriations to that of OIG. The IG Act was amended in 1988 with special provisions included to, among other things, ensure the privacy of tax-related information. These provisions did not limit OIG’s authority but required an explicit accounting of OIG’s access to tax-related information in performing audits or investigations of IRS operations. The OIG’s authorities were also articulated in Treasury Order 114-01 signed by the Secretary of the Treasury in May 1989. Specifically related to OIG investigative authorities, in September 1992, the Treasury IG issued Treasury Directive 40-01 summarizing the authority vested in OIG and the reporting responsibilities of various Treasury bureaus. Among the responsibilities of law enforcement bureaus, including IRS, are to (1) provide a monthly report to OIG concerning significant internal investigative and audit activities, (2) notify OIG immediately upon receiving allegations involving senior officials or internal affairs or inspection employees, and (3) submit written responses to OIG detailing actions taken or planned in response to OIG investigative reports and OIG referrals for agency management action. Under procedures established in a Memorandum of Understanding between OIG and IRS in November 1994, the requirement for immediate referrals to OIG of all misconduct allegations was reiterated and supplemented. OIG has the discretion to refer any allegation to IRS for appropriate action, i.e., either investigation by Inspection or administrative action by IRS management. If IRS officials believe that an allegation referred by OIG warrants OIG attention, they may refer the case back to OIG requesting that OIG conduct an investigation. OIG officials advised us that under the original 1992 directive, they generally handled most allegations implicating Senior Executive Service (SES) and Inspection employees, while reserving the right of first refusal on GS-15 employees. Under the procedures adopted in 1994, which were driven in part by resource constraints and OIG’s need to do more criminal misconduct and procurement fraud investigations across all Treasury bureaus, OIG officials stated they have generally referred allegations involving GS-15s and below to IRS for investigation or management action. The same is true for allegations against any employees, including those in SES, involving administrative matters and allegations dealing primarily with tax disputes. OIG officials said that a determination is made by OIG after a preliminary review of the merits of the allegations whether to investigate, refer to IRS to either investigate or take administrative action, or to take no action at all. Table 1 summarizes the number and disposition of allegations received by OIG involving IRS in fiscal year 1995. In fiscal year 1995, OIG received 321 allegations, many of which involved senior IRS officials. After a preliminary review, OIG decided no action was warranted on 71 of the allegations, referred 201 to IRS—either for investigation or administrative action—investigated 44, and closed 5 others for various administrative reasons. OIG officials stated that, based on their investigative experience, most allegations of wrongdoing by IRS staff that involve taxpayers do not involve senior level IRS officials or Inspection employees. Rather, these allegations typically involve those IRS Examination and Collection employees who most often interact directly with taxpayers. OIG officials are to assess the adequacy of IRS’ actions in response to OIG investigations and referrals as follows: (1) IRS is required to make written responses on actions taken within 90 days and 120 days, respectively, on OIG investigative reports of completed investigations and OIG referrals for investigations or management action; (2) OIG investigators are to assess the adequacy of IRS’ responses before closing the OIG case; and (3) OIG Office of Oversight is to assess the overall effectiveness of IRS Inspection capabilities and systems through periodic operational reviews. In addition to assessing IRS’ responses to OIG investigations and referrals, each quarter the IG, Deputy IG, and Assistant IG for Investigations meet to brief the IRS Commissioner, Deputy Commissioner, and Chief Inspector on the status of allegations involving senior IRS officials, including those being investigated by OIG and those awaiting IRS action. While officials from both agencies agree that the arrangement is working well to ensure allegations involving senior IRS officials and Inspection employees are being handled properly, OIG officials expressed some concern with the amount of time IRS typically takes to respond with actions on OIG investigations and referrals. IRS officials acknowledged that responses are not always within OIG time frames because, among other reasons, determinations about taking disciplinary actions and imposing such actions may take a considerable amount of time. Also, they said some cases must be returned for additional development by OIG, which may prolong the time for completion. The IRS officials, however, also suggested that actions on OIG referrals are closely monitored as evidenced by their inclusion in discussions during quarterly IG briefings with the Commissioner. While we did not independently test the effectiveness of this OIG/IRS arrangement, we found no evidence to suggest these allegations are not being properly handled. IRS has taken specific steps in relation to certain recommendations made in our 1994 report and initiated other actions to strengthen its controls over taxpayer abuse by its employees. Even so, at this time, we remain unable to determine the adequacy of IRS’ system of controls to identify, address, and prevent instances of abuse. However, we are encouraged by IRS’ recent decision to develop a taxpayer complaint tracking system that essentially adopts the definition of taxpayer abuse included in our 1994 report as a starting point for defining the elements of taxpayer complaints. We believe this is a critically important commitment that IRS must sustain. If effectively designed and implemented, IRS should have an enhanced ability to identify, address, and protect against the mistreatment of taxpayers by IRS employees or the tax system in general. While we are encouraged by IRS’ commitment, we also recognize the formidable challenge IRS faces in developing an effective complaints tracking system. IRS needs a more effective complaints tracking system because, while IRS, OIG, and DOJ information systems contain data about the treatment of taxpayers, the data relevant to employee misconduct or taxpayer complaints are not readily or easily distinguishable from other allegations that do not involve taxpayers. The systems do not have the same employee identifiers or common data elements. Nor are the data captured in a consistent manner that allows for consolidation relative to the number or outcome of taxpayer complaints using the definition IRS is adopting. Given IRS’ recent commitment and related efforts it has under way to design and implement a taxpayer complaints tracking system and the recently enacted Taxpayer Bill of Rights 2, we are making no new recommendations at this time. The IRS Chief, Management and Administration commented on a draft of this report by letter dated August 9, 1996, (see app. III) in which he reiterated IRS’ commitment to preserving and enhancing taxpayers’ rights. The Treasury’s OIG and DOJ also provided technical comments, which we incorporated in this report where appropriate. As agreed with your staff, unless you announce the contents of this report earlier, we plan no further distribution of this report until 15 days from the date of this letter. At that time, we will send copies of this report to the Ranking Minority Member, Senate Committee on Finance; the Chairman and the Ranking Minority Member, Senate Committee on Governmental Affairs; and the Chairman and the Ranking Minority Member, House Committee on Ways and Means. We will also send copies to other interested congressional committees, the Commissioner of Internal Revenue, the Treasury Inspector General, the Attorney General, and other interested parties. We will also make copies available to others upon request. The major contributors to this report are listed in appendix IV. If you have any questions concerning this report, please contact me at (202) 512-9044. Establish a servicewide definition of taxpayer abuse or mistreatment and identify and gather the management information needed to systematically track its nature and extent. IRS has recently established a definition for “taxpayer complaints” and is now committed to establishing a complaints tracking process. Ensure that Tax Systems Modernization provides the capability to minimize unauthorized employees access to taxpayer information in the computer system that eventually replaces the Integrated Data Retrieval System. Issued a 12-point Information Security Policy to all IRS staff; published “High-Level Security Requirements;” and started development of an Information System Target Security Architecture. Revise the guidelines for information gathering projects to require that specific criteria be established for selecting taxpayers’ returns to be examined during each project and to require that there is a separation of duties between staff who identify returns with potential for tax changes and staff who select the returns to be examined. Issued an updated memorandum to field staff regarding the highly sensitive nature of information gathering projects. Reconcile all outstanding cash receipts more often than once a year and stress in forms, notices, and publications that taxpayers should use checks or money orders whenever possible to pay their tax bills, rather than cash. IRS is instructing its managers to conduct random unannounced reconciliations of cash receipts used by IRS staff who receive cash payments from taxpayers. Revised Publication 594, “Understanding the Collection Process,” Publication 17, “Your Federal Income Tax,” and the 1995 1040 tax package to encourage taxpayers to pay with checks or money orders, rather than cash. Better inform taxpayers about their responsibility and potential liability for the trust fund recovery penalty by providing taxpayers with special information packets. Revised Publication 334, “Tax Guide for Small Business,” and Circular E, “Employer’s Tax Guide,” to explain the potential liability for the trust fund recovery penalty if amounts withheld are not remitted to the government; and started including Notice 784, “Could You Be Personally Liable for Certain Unpaid Federal Taxes?” with the first balance due notice for business taxes. Provide specific guidance for IRS employees on how they should handle White House contacts other than those involving tax checks of potential appointees or routine administrative matters. No actions taken or planned. Because we did not find instances of improper contacts, IRS is of the opinion that current procedures covering third-party contacts are adequate. Seek ways to alleviate taxpayers’ frustration in the short term by analyzing the most prevalent kinds of information-handling problems and ensuring that requirements now being developed for Tax Systems Modernization information systems provide for long-term solutions to those problems. Requested top executives to review major issues the Ombudsman identified via the Problem Resolution Program that have resulted in repeat taxpayer problems. Internal Security management use this system to track the status of investigations and for operational and workload management. Labor Relations staff use this system to track the status and results of possible disciplinary action relative to IRS employee behavior. IRS - Problem Resolution Office Management Information System (PROMIS) Problem Resolution Office staff use this system to monitor the status of open taxpayer problems to generate statistics on the volume of problems received by major categories. IRS - Commissioner’s Mail Tracking System Legislative Affairs staff use this system to track correspondence to the Commissioner and other IRS office heads/executives. Legislative Affairs staff use this system to track correspondence from congressional sources and from referrals by the Treasury Department and the White House. OIG management and desk officers use the system to monitor the status of OIG investigations and to monitor whether required responses to OIG investigations and referrals to the Treasury bureaus, such as IRS, have been received. DOJ EOUSA - Centralized Caseload System EOUSA management use the system to monitor the status and results of civil and criminal prosecutions and to oversee field office caseloads. Tax Division management uses the system to monitor the status and results of civil and criminal cases, manage attorney caseloads, and prepare internal and external reports, such as for the Office of Management and Budget and the Congress. Rachel DeMarcus, Assistant General Counsel Shirley A. Jones, Attorney Advisor The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. 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Pursuant to a congressional request, GAO examined the: (1) adequacy of the Internal Revenue Service's (IRS) controls to protect against abuse of taxpayers; (2) extent of information available concerning abuse allegations received and investigated by IRS, the Department of the Treasury Office of the Inspector General (OIG), and the Department of Justice (DOJ); and (3) OIG role in investigating abuse allegations. GAO found that: (1) the adequacy of IRS controls against taxpayer abuse is uncertain because IRS does not have the capability to capture management information on taxpayer abuse; (2) IRS is establishing a tracking system to handle taxpayer complaints and reviewing its management information systems to determine the best way to capture relevant information for the complaint system; (3) the tracking system will enable IRS to better identify instances of taxpayer abuse and ensure that actions are taken to prevent their recurrence; (4) IRS is improving controls over its employees' access to computerized taxpayer accounts, establishing an expedited appeals process for some collection actions, and classifying recurring taxpayer problems by major issues; (5) it is not possible to determine the extent to which allegations of taxpayer abuse are received and investigated, since IRS, OIG, and DOJ information systems do not include specific data elements on taxpayer abuse; (6) OIG has increased the number of investigations involving senior IRS employees' alleged misconduct, fraud, and abuse; (7) OIG refers most of these allegations to IRS for investigation and administrative action; and (8) IRS is taking a considerable amount of time to respond to OIG investigations and referrals regarding senior IRS officials' disciplinary actions.

You are an expert at summarizing long articles. Proceed to summarize the following text: The Academy is headed by a Superintendent. The Superintendent reports directly to the head of MARAD, the Maritime Administrator. MARAD, an agency of the Department, is responsible for overseeing and monitoring the Academy. A Deputy Superintendent and four Assistant Superintendents—Administration, Regimental Affairs, Academic Affairs, and Plans, Assessment, and Public Affairs—report directly to the Superintendent and are the principal officials responsible for carrying out the Academy’s operations. Academy components with respect to the issues discussed in this report include the following. The Department of Resource Management (DRM) provides bookkeeping, payroll, and other administrative support services for the Academy. Further, for most of fiscal years 2006 and 2007, the director of DRM was also the head of the Fiscal Control Office (FCO) NAFI. During fiscal years 2006 and 2007, the Director of DRM reported to the Academy’s Deputy Superintendent. When the position of Deputy Superintendent was not occupied, the Director of DRM reported directly to the Superintendent. The Department of Waterfront Activities operates the waterfront area of the Academy’s property, maintains the Kings Pointer and other training vessels, and provides training to midshipmen. Further, the Department of Waterfront Activities collaborates with two NAFIs on waterfront related activities (the Sail, Power and Crew Association, and the Global Maritime and Transportation School (GMATS)), and the Sailing Foundation, a private non-profit foundation. The Director of Waterfront Activities reported to the Deputy Superintendent, or when that position was not occupied, the Director reported directly to the Superintendent. The Department of Information Technology provides information technology services for all Academy operations and midshipmen. The Director of Information Technology reported to the Deputy Superintendent or when that position was not occupied, the Director reported directly to the Superintendent. The Department of Health Services provides medical and dental services to midshipmen. The Director reported to the Assistant Superintendent for Administration as well as the Deputy Superintendent or the Superintendent. An overview of the organizational relationships of the Department of Transportation, MARAD, selected components within the Academy, as well as the Academy’s affiliated NAFIs and foundations is provided in figure 1. The Academy carries out its mission and operations primarily using appropriated funds. The Academy’s 14 affiliated NAFIs operate using the proceeds from their own operations, rather than with appropriated funds. NAFIs are organizations that typically provide for the morale, welfare, and recreation (MWR) of government officers and employees. These are items and services that support the efforts of government employees and officers to carry out the government’s business by fulfilling their MWR needs. For example, tailoring, hair cuts, and laundry services provided by the Academy’s NAFIs are examples of MWR services that generally should not be paid from appropriated funds. In addition to the 12 MWR type NAFIs, the Academy has two other affiliated NAFIs. The Fiscal Control Office (FCO) provides bookkeeping, payroll, and other administrative support services and the Global Maritime and Transportation School (GMATS) provides training to other federal agencies and to the maritime industry. The activities of the FCO with respect to the issues discussed in this report include the following. The FCO was responsible for bookkeeping, payroll, and administrative support services for 12 of the other 13 NAFIs and also handled payroll for the Athletic Association. The Athletic Association handled its own bookkeeping, and the GMATS handled all of its own bookkeeping and payroll functions. The FCO was also responsible for the collection of all midshipmen fees for the Academy and the payment of amounts to other NAFIs, vendors and others from the fees collected. The FCO also collected funds from GMATS that were provided for the use and benefit of the Academy. Further, the FCO was responsible for maintaining books and records for “prior years’ reserves” from the excess of midshipmen fees collected over payments made as discussed in this report. The FCO maintained various commercial checking accounts for activities related to its collection and payment responsibilities for Academy funds. The functions of the FCO and DRM staff and managers were interchangeable. The manager of the FCO (the same individual as the head of DRM) reported on FCO matters to the Deputy Superintendent or when that position was not occupied, the FCO manager reported directly to the Superintendent. The Academy’s 14 affiliated NAFIs and 2 affiliated foundations are listed in table 1. Appendix II provides more detail on the relationships and financial activity between the Academy and its affiliated organizations. Table 2 shows the amount and sources of the Academy’s funding for fiscal years 2006 and 2007. Amounts received by the Academy for capital improvement, totaling $15.9 million and $13.8 million for fiscal years 2006 and 2007, respectively, were to be used for capital assets, including certain related expenses. The Academy’s payments to NAFIs and total expenses for fiscal years 2006 and 2007 are shown in Appendix III. The Academy’s payment activity with its 14 NAFIs was significant in relation to the Academy’s total expenses. For fiscal year 2006 Academy expenses of $55.7 million included $9.6 million to its affiliated NAFIs, representing over 17 percent of total Academy expenses. Similarly, for fiscal year 2007, Academy expenses of $62.0 million included $13.4 million to its NAFIs, representing over 21 percent of total Academy expenses. Payments to NAFIs were generally classified in the Academy’s financial records as contractual services; operations and maintenance; and gifts and bequests. The total amount of payments that the Academy made to its NAFIs in fiscal years 2006 and 2007 are shown in table 3. The Academy is to provide each midshipman with free tuition, room and board as well as limited medical and dental care. However, under MARAD regulations, the Academy requires each midshipman to pay fees for items or services generally of a personal nature (hereafter “goods or services” or “personal items”) each academic year. The Academy treats all fees collected as non-appropriated funds when the good or service is provided by a NAFI, such as services for laundry and haircuts that are provided by the Ship’s Services Store, or by a department of the Academy, such as Information Technology that provides internet services and personal computers to the midshipmen. The FCO collects all midshipmen fees on behalf of the Academy and also makes payments to vendors and others from the fees collected. For fiscal years 2006 and 2007, the FCO collected about $7 million in total midshipmen fees. In the 2007-2008 academic year, fees collected represented $15,560 per midshipmen over the course of a 4-year education and ranged in amount from $2,410 to $7,020, depending on class year. Details on midshipmen fee collections for fiscal years 2006 and 2007 are shown in table 4. Our review identified instances of improper and questionable sources and uses of funds by the Academy and its affiliated NAFIs, some of which violated laws, including the ADA. Specifically, we identified improper and questionable sources and uses of midshipmen fees and questionable financial activity associated with GMATS and other NAFIs. The improper and questionable activities and transactions that we identified demonstrate the Academy did not have assurance that it complied with applicable fund control requirements, including those in the ADA. Further, the Academy could not effectively carry out its important stewardship responsibilities with respect to maintaining accountability over the collection and use of funds, including assuring that funds were collected and used only for authorized purposes. As discussed in this report, the primary causes of these improper and questionable sources and uses of funds can be attributed to a weak control environment and the flawed design and implementation of internal controls at the Academy, including inadequate oversight and monitoring by the Academy and MARAD. MARAD regulations provide that the Academy can collect fees from all midshipmen to pay for “personal” goods and services. However, we found a number of improper and questionable activities concerning the Academy’s and its affiliated NAFIs’ collection and use of midshipmen fees. Specifically, we identified improper and questionable midshipmen fee- related transactions with respect to: (1) collections for goods and services that were not the midshipmen’s responsibility, (2) collected amounts that exceeded the actual expense to the Academy for the goods or services provided to the midshipmen, and (3) the use of accumulated fee reserves for questionable purposes. We also identified improper and questionable uses of the fees collected. For fiscal years 2006 and 2007, the Academy collected fees of approximately $7 million from midshipmen. We nonstatistically selected four midshipmen fee categories for review. We found that the total fees collected for these four midshipmen fee categories of about $1.5 million were questionable because they did not appear to be items of a personal nature to each midshipman, but rather, expenses that would normally be paid by the Academy from appropriated funds. Specifically, over the 2006 and 2007 fiscal years, we found that the Academy collected questionable midshipmen fees for waterfront activities, processing services, information technology services, and medical services. We also identified potentially improper payments from these questionable fee collections totaling approximately $1.2 million that were paid to NAFIs and vendors, including the Sail, Power and Crew Association (SP&C) for waterfront activities, the FCO for processing services, and vendors for information technology services. There may be other improper and questionable collections and uses of midshipmen fees that our review did not identify. To the extent these collections and the uses of these funds improperly covered Academy expenses that are chargeable to Academy appropriations, the Academy improperly augmented its appropriated funds, which may have resulted in violations of the ADA, 31 U.S.C. §1341(a), by incurring obligations or expenditures in excess of available appropriations. We did not independently assess the amount of such improper augmentations. Waterfront activities: We found that for the 2006 and 2007 fiscal years, a total of $318,187 was collected from all midshipmen for these activities. All fees collected for waterfront activities do not represent personal midshipmen services that qualify as chargeable to all midshipmen because not all midshipmen used the Academy’s waterfront facilities. For example, such waterfront activities as sailing competitions, varsity water sport teams, and power vessel training are elective activities in the Academy’s curriculum for midshipmen. Processing services: We found that for the 2006 and 2007 fiscal years, the FCO collected $65,712 from the midshipmen for FCO’s processing services. The FCO retained all processing fees without adequate supporting documentation for how the amount collected was determined, why a processing fee was due, or why the amount should be funded by collections from all midshipmen. Processing expenses incurred by FCO represent administrative expenses. The administrative expenses may be attributable to services provided by FCO to midshipmen. However, without adequate supporting documentation, we could not make such a determination. Information technology services: We found that for the 2006 and 2007 fiscal years, the Academy collected $839,309 from the midshipmen for information technology services. Such services are not all “personal” to the Academy’s midshipmen. However, the Academy used these fees to support operations of the Department of Information Technology that are otherwise funded by Academy appropriations. Medical services: We found that for the 2006 and 2007 fiscal years the Academy used $2,293,884 in appropriated funds to pay for medical and dental services for midshipmen under a contractual agreement with a local hospital. However, it also collected $288,813 in midshipmen fees for the same services. Academy officials did not provide us with any support for how the annual amounts assessed midshipmen for contracted hospital services were determined. The midshipmen fees collected were, according to Academy officials, held by the FCO in a reserve for “rainy-day” purposes. We were told by the same officials that the fees collected from the midshipmen represented the amount the Academy believed to be necessary to cover possible rate adjustments under the contract with the hospital. We reviewed the payments by the Academy to the hospital for the years 2006 and 2007 and found that the amounts paid based on actual usage were less than the estimated expense per the contract. In addition to assessing and collecting fees unrelated to goods or services that are personal to all midshipmen, we found that the Academy collected fees from midshipmen that exceeded its actual expenses for providing goods or services to its midshipmen. For example, the Academy collected $2,400 from each plebe midshipman during fiscal years 2006 and 2007 for computers, including a printer and peripheral equipment. For the 2006 and 2007 fiscal years, available records show the Academy collected a total of $1,278,266 from the midshipmen in fees for these personal computers and related equipment. Over the same period, the Academy paid a total of $863,859 to vendors for computers and related equipment—leaving an excess of $414,407 in collections over the related expenses. Thus, the amount collected from the midshipmen for computers represented 148 percent of the actual expense to the Academy for these items over a 2-year period. Academy officials told us they were aware of these excessive collections, but did not take action to refund excess collections or reduce fees charged the midshipmen for this equipment, but instead chose to utilize the excess collections to support its operations. The Academy, using the FCO, had inappropriately used “off-book” reserves accumulated from the excess of midshipmen fees collected over payments made to vendors and others for goods and services. For example, a “Superintendent’s Reserve” was created and used to make discretionary payments authorized by the Academy Superintendent. Our review of available records determined that for the 3 years ended September 30, 2008, deposits to the “off-book” reserves totaled $1,325,669 and payments and transfers from the account totaled $605,347, with a balance of $999,315 at September 30, 2008. We found no evidence that the $605,347 in payments from these “off-book” reserves were for purposes consistent with the fee collections. Consequently, we consider the entire $605,347 in payments from these reserves as questionable and, to the extent used to cover Academy expenses, constitute an improper augmentation of the Academy’s appropriations, which result in violations of the ADA, 31 U.S.C. §1341(a) if the obligations incurred exceed available appropriations. For example, use of the excess fee amounts to support the Academy’s Department of Information Technology constitutes an improper augmentation of the Academy’s appropriation for its operations. We did not independently assess the amount of such improper augmentations. As summarized in table 5, and briefly discussed in the text that follows the table, our analysis of FCO’s records of 10 payments selected on a nonstatistical basis illustrates the types of questionable payments made from FCO’s accumulation of excess midshipmen fees from prior years’ midshipmen fee reserves during the 3-year period ending September 30, 2008, on behalf of the Academy. 1. Blackbaud accounting system for the FCO: This system is used by FCO to provide bookkeeping services for the 12 NAFIs for which the FCO provides such service. The total consulting fee and installation cost for the system, per a February 2008 contract, between the vendor and the FCO was $75,000. As a NAFI system, the entire cost of the new system should have been funded using non-appropriated funds. Through January 2009, we found that payments of $51,173, including the $4,965 payment we reviewed, were made to the vendor using midshipmen fees. An additional $10,581 was paid using Academy appropriated funds, $5,963 was paid using FCO funds, and $5,963 was paid using GMATS funds. Academy officials said that midshipmen fees as well as Academy appropriated funds were used to partially fund the system because other funding was not available at the time to pay the Blackbaud invoices. 2. Payroll costs for Academy employee: An Academy official said that the payment was to transfer funds from the midshipmen fee account to the FCO’s account to cover the payroll for the upcoming fiscal year for an Academy employee that reported directly to the Academy’s academic dean. 3. Settlement of complaint: The payment support consisted of a copy of the check stub with the notation “Settlement fee for EEO complaint.” No documentation was provided to us to support why such a payment should be funded using midshipmen fees. 4. Donation to start-up Museum NAFI: The payment support consisted of a copy of the payment stub with the notation “To start-up Museum NAFI.” No documentation was provided to us on how the payment related to fees collected from midshipmen. 5. Payroll for Regimental Morale Fund Association NAFI: The support for this payment was a check stub with the explanation: “To cover the amount due to FCO for Morale Fund payroll according to a June 30, 2006 FCO analysis.” No information was provided as to why payroll of the Regimental Morale Fund Association NAFI would be paid from midshipmen fees. We were told that of 45 employees of the Morale Fund, 25 were paid from non-appropriated funds, 19 were paid from appropriated funds, and 1 was paid with a combination of appropriated and non-appropriated funds. The payment support indicates that the payment is for adjustments to the payroll costs for several of the persons paid from non-appropriated funds. 6. Education program on alcohol: Payment was for an educational program for the midshipmen on alcohol. Academy officials did not provide any explanation as to why this item of expense was not considered as an ordinary and necessary expense of the Academy payable from appropriated funds. 7. Weight control program: Payment was for “At Work Series,” a Weight Watchers International program. However, we were provided with no information on either why this item was not considered a personal expense of the midshipmen in the weight control program, or why the item was not considered a necessary expense of the Academy payable from appropriated funds. 8. Transfer to current year’s midshipmen fees account: The only documentation supporting this payment was a copy of the payment voucher with the explanation “transfer prior year computer money to current.” An FCO official told us that the payment was to transfer prior year midshipmen fees for computer services—excess of collections over payments made for goods and services—to the current years midshipmen fees account to be used to pay for numerous invoices to the Academy from a provider of information technology services. Academy officials did not provide any information on why expenses payable from the Academy’s appropriated funds would be paid from midshipmen fees collected. 9. Tire chain system for Academy ambulance: Academy officials did not provide us with any information on why this item was not considered a necessary expense of the Academy payable from appropriated funds, rather than from funds collected through midshipmen fees. 10. Computer equipment lease: The $71,833 in midshipmen fee reserves was paid toward a $106,217 installment on a 3-year computer equipment lease (under a “lease to purchase agreement”). The balance of the installment payment was paid with current year midshipmen fees. Payments totaled $318,651 under this agreement and the amount funded with prior years’ midshipmen fees was $178,050 (including the $71,833 above) and $140,601 was funded with current year midshipmen fees over 3 fiscal years. An Academy official told us that prior years’ and current year’s midshipmen fees were used for these payments because “the Academy did not have sufficient appropriated funds to dedicate to this purchase.” Academy officials did not provide any information on why amounts payable from the Academy’s appropriated funds would be paid, in part, from midshipmen fees collected. The Academy did not provide us with any information as to why excess fees collected from all midshipmen and transferred to prior years’ reserves were considered an appropriate source of funds for any of these payments. We found that the Academy (1) improperly entered into sole-source agreements with GMATS to provide training services to other federal agencies and (2) inappropriately accepted and used GMATS funds. In addition, we found other improper and questionable transactions, including the Academy’s obligating and transferring appropriated funds to the FCO in order to preserve or “park” the funds for future use, and the Athletic Association NAFI’s retention of fees paid to this NAFI for use of the Academy’s property. During fiscal years 2006 and 2007, the Academy improperly entered into over $6 million in agreements with GMATS to provide training services to other federal agencies on a non-competitive basis by GMATS. The Academy accepted interagency orders under the Economy Act as legal authority for its use of sole-source procurements. Based on our review of the transactions between the Academy and GMATS, we concluded that the Academy’s non-competitive awards to GMATS and the lack of proper contractual agreements under the Federal Acquisition Regulation may be improper procurements. For example, the Department provided us with no documentation to support a legitimate justification for the Academy’s non-competitive awards to GMATS. Although the services were provided by GMATS to the Academy (that, in turn, provided the services to other federal agencies under the Economy Act) under what likely constitute improper non-competitive contracts, the Department did not provide us with information supporting its reimbursements to GMATS of approximately $6 million for its costs under these agreements. During 2006 and 2007, the Academy also received funds from the GMATS NAFI and directed the GMATS NAFI to make payments on the Academy’s behalf without clear legal authority. Specifically, in fiscal years 2006 and 2007, we found that the FCO received $193,022 and $186,113, respectively, which were described in GMATS records as annual contributions for the benefit of the Academy of 5 percent of GMATS’s gross profits. The records of GMATS further described these amounts as funds to be utilized by the Academy for incremental costs incurred from GMATS’s use of the Academy’s campus facilities. The Academy did not have records or analysis of whether the amount received bore any relationship to estimated or actual costs the Academy may have incurred. We also found that GMATS made payments to the FCO that were held in a reserve for subsequent disbursement at the direction of Academy officials. We were told that the payments to the FCO were to compensate the Academy for various items such as use of the engineering lab; use of the ship’s bridge simulator, a specialized training device; and use of a professor’s time—all for GMATS business. According to GMATS records, the amount paid by GMATS for these items totaled $52,124 in 2006; Academy officials told us that this practice was discontinued in 2007. In February 2008, the Administrator reported to the Deputy Secretary of Transportation that the use of these reserves may have violated the ADA’s prohibition on obligating or expending amounts in excess of available appropriations. We found that the Academy also may have violated the “Miscellaneous Receipts” statute, 31 U.S.C. § 3302(b), by failing to immediately deposit all the funds received from GMATS into the general fund of the U.S. Treasury. Further, the use of the Superintendents Reserve fund for official Academy expenses appears to constitute an improper augmentation of the Academy’s appropriated funds, which results in violations of the ADA, 31 U.S.C. §1341(a), if the obligations incurred exceed available appropriations. We found that the Academy improperly entered into agreements with the FCO NAFI to prevent a cumulative total of almost $389,000 in annual appropriations from expiring (“parking funds”) at the ends of fiscal years 2006 and 2007. The Academy later transferred the $389,000 to the FCO for future use rather than allowing the funding to expire in accordance with the appropriation account closing law, 31 U.S.C. §1553. For example, one agreement for $200,000 stated that the purpose was to provide accounts payable services to the Academy during fiscal year 2007 year-end. These agreements were improper because there was no underlying economic substance to them and there was not any description of deliverables under the agreement, such as a statement of work. We were told that the agreement with FCO was entered into to reserve funds at the end of the year that would otherwise have expired. We also found that, of the $389,000 received from the Academy, FCO used approximately $175,000 to subsequently pay for items of expense and, at the direction of MARAD, returned $214,000 to the Academy in March 2008. In addition, we found that in October 2007, FCO transferred $270,000 from this reserve to the FCO’s payroll checking account for what FCO officials described as a “payroll loan”. The loan was repaid in full on December 11, 2007. However, Academy officials told us they did not have any support and that their inquiries on this issue had not produced an explanation as to why Academy resources would be used for a loan to the FCO. We were told by FCO officials that the transactions were based on a need for the funds as determined by staff and that no formal loan documents or other written supporting documentation existed. The Secretary of Transportation reported to the President, the Congress, and the Comptroller General in March 2009, numerous unidentified transactions in fiscal years 2005, 2006, and 2007, totaling $397,740, as violations of section 1341(a)(1)(B) of the ADA, which prohibits the involvement of the government in a contract or obligation before an appropriation is made. As discussed above, the Academy recorded obligations against its fixed-year appropriated funds to reflect transfers to the FCO, via a MARAD “Form 949.” MARAD officials investigated transactions occurring in fiscal years 2005, 2006, and 2007 to determine if these transfers constituted illegal “parking” of fiscal year appropriations and violations of the ADA. They found that the executed forms, in a net amount totaling $397,740, did not represent bona fide needs of the Academy for specific goods or services at the time they were made and, therefore, did not reflect valid obligations. Recording invalid obligations against current fixed-year appropriations for the purpose of using the appropriations in a subsequent year constitutes illegal parking of the funds. We found questionable billing and payment transactions related to the use of the Academy’s training ship and other Academy boats. Specifically, we found that the SP&C NAFI, and not the Academy, billed the user of the Kings Pointer, GMATS. The GMATS NAFI used the Academy’s 224-foot training vessel, the Kings Pointer, as well as other Academy vessels, to provide training and education to other organizations or individuals from the marine community during fiscal years 2006 and 2007. GMATS remitted payments to the Academy for the use of its vessels, for which the Academy then remitted a portion of the funds to another Academy NAFI (the Sail, Power and Crew Association) and retained a portion. Available records show that of the $366,906 the Academy received for use of the Kings Pointer during fiscal years 2006 and 2007, the Academy made payments totaling $217,848 to SP&C. The portion of fees the Academy received that were remitted to the SP&C varied from about 50 percent of receipts to over 70 percent based on directions received from SP&C. However, no documentation was provided to support the amount or percentages of these Academy payments to the SP&C. Further, we found that the Academy may have violated the “Miscellaneous Receipts” statute, 31 U.S.C. §3302(b), by failing to immediately deposit all the funds received from GMATS into the general fund of the U.S. Treasury. Finally, without adequate supporting documentation, the entire $217,848 in Academy payments to the SP&C related to the outside use of the Kings Pointer during fiscal years 2006 and 2007 is questionable. We found that the Athletic Association NAFI operated camps and clinics on Academy property and that the Athletic Association NAFI, and not the Academy, was compensated for the use of government property. We also found that instructors who were compensated in part by the Academy participated in these commercial activities on Academy property in return for a share of the proceeds from those activities. During fiscal year 2008, the Athletic Association collected $94,077 in fees for conducting athletic camps and clinics. Of the funds collected, $72,847 was paid to instructors, $19,327 was retained by the Athletic Association as a facility fee, and $1,903 was either retained by the Athletic Association or used for other payments not identified in our review. According to Athletic Association staff, $62,122 of the $72,847 paid to instructors were payments for fee-sharing arrangements with 6 instructors, 5 of whom are current or former Academy employees. Further, an Academy official described the Athletic Association’s retention of $19,327 as being essentially the net profit from the camps and clinics that was retained as a facility fee. However, no portion of the $19,327 was paid to the Academy for the use of the Academy’s facilities. Academy payroll activities contributed to three separate violations of the ADA. First, the Academy incurred approximately $525,000 more for salaries and benefits in fiscal year 2006 than the $23,512,000 appropriated for its salaries and benefits. The payments were for performance awards that Academy personnel earned in fiscal year 2006 that the Academy erroneously charged against fiscal year 2007 appropriations. Academy officials told us the amounts could not be corrected with prior year’s funds because the Academy lacked a sufficient unobligated balance in its fiscal year 2006 salaries and benefits appropriation to transfer the charge from the fiscal year 2007 appropriations. This resulted in a violation of the ADA, which was included in the Secretary’s reports of March 9, 2009, to the President and the Congress that included multiple ADA violations. Second, in March 2009 the Secretary of the Department of Transportation reported to the President and the Congress that the Department violated section 1342 of the ADA, which prohibits the acceptance of voluntary services and the employment of personal services. Specifically, it determined the Academy paid over $4 million in both fiscal years 2006 and 2007 under agreements with the FCO for illegal personal services from the Academy’s NAFIs that were provided by as many as 90 employees who performed exclusively Academy functions, and reported to Academy supervisors. These expenses were recorded as contracted services in the Academy’s books and records. The Secretary concluded that many agreements called for the employment of personal services, which are characterized as an employee-employer relationship. For example, an agreement between the FCO and the Academy for information technology services, dated November 14, 2006, and as modified through August 16, 2007, provided that the Academy would pay FCO $941,681 during fiscal year 2007 for services described in the agreement as professional services to the Department of Information Technology, and administrative support services. A supporting schedule to the agreement detailed the annual salaries for 11 staff by name, the general schedule (GS) equivalent grade for each staff except 1, the amounts for the salaries of 2 NAFI contractors, and amounts for fringe benefits and cost of living adjustments. The information technology agreement covered all the staffing needs for the Academy’s Department of Information Technology except for one individual. Thus, through this agreement the Academy paid 100 percent of the salary and benefit costs for all 11 FCO staff and the full cost of the NAFI contractors listed. Each of the staff covered by the agreement with the FCO performed Academy functions under the supervision of a government employee, but the expense for their services was classified as contract services and not as payroll. A similar agreement for services related to athletics, dated November 14, 2006 as modified through August 16, 2007, between the FCO and the Academy provided that the Academy would pay the FCO $481,132 during fiscal year 2007 for services described in the agreement as professional services to the Academy’s Department of Athletics. The supporting schedule to the agreement detailed the annual salary amount for 32 staff by name and amounts for fringe benefits and cost of living adjustments. The Academy was responsible for 40 to 100 percent of the total cost by individual. These expenses were also classified as contract services and not as payroll. We asked Academy and MARAD officials for an analysis supporting the portion of the payroll that was assigned to the Academy under the agreement for information technology and athletics services. We were told by the Academy’s Assistant CFO and the MARAD CFO that there was no overall analysis that would support the distribution of amounts between the Academy’s appropriated funds and NAFI expense for the payroll covered by any of the agreements between the Academy and the FCO. In addition to the issues discussed above, the Secretary reported in the March 2009 report to the President and the Congress that the Academy also violated section 1342 of the ADA over the past 4 years by employing about 50 adjunct professors under illegal personal services contracts valued at $2.4 million. The Academy funded these services out of the Academy’s fiscal year appropriations that were unavailable for salaries. We found that a weak overall control environment and the flawed design and implementation of internal controls were the root causes of the Academy’s inability to prevent, or effectively detect, the numerous instances of improper and questionable sources and uses of funds discussed previously. Specifically, we found the Academy lacked an accountability structure that clearly defined organizational roles and responsibilities; policies and procedures for carrying out its financial stewardship responsibilities; an oversight and monitoring process; and periodic, comprehensive financial reporting. We found that there was little evidence of awareness or support for strong internal control and accountability across the Academy at all levels, and risks, such as those that flow from a lack of clear organizational roles and responsibilities and from significant activities with affiliated organizations, that were not addressed by Academy management. The internal control weaknesses we identified were systemic and could have been identified in a timely manner had Academy and MARAD management had in place a more effective oversight and monitoring regimen. Further, we found that the Academy did not routinely prepare financial reports and information for use by internal and external users that could have helped to identify the improper and questionable sources and uses of funds. An entity’s organizational accountability structure provides the framework within which its activities for achieving its mission objectives are planned, executed, and controlled. The process of identifying and analyzing risk is a critical component of effective internal control. GAO’s Internal Control Implementation Tool provides that management should periodically evaluate its organizational structure and the risks posed by its reliance on related parties and the significance and complexity of the activities it undertakes. Further, as discussed previously, one of the primary requirements of the ADA is to establish accountability for the obligations and expenditure of federal funds. In carrying out its mission operations, the Academy has close relationships with its 14 affiliated NAFIs and 2 foundations. Therefore, it is important for the Academy to recognize and appropriately manage the risks posed by the organizational and transactional relationship between it and its NAFIs. These risks and the volume of activities between the Academy and the NAFIs should have signaled to Academy management that there was a need for strong oversight and accountability over these activities and relationships. Our review indicated that 11 NAFIs do not have approved governing documents, such as charters and by-laws, and the remaining 3 NAFIs with approved governing documents perform some duties and functions which fall outside of the narrow scope of authority set out in those documents. Further, the relationships between the Academy and its 14 NAFIs are complex, and we found that they often involve numerous financial transactions, the business purpose of which is frequently not readily apparent. As such, it is not always clear where the respective responsibilities of the Academy and its NAFIs begin and end. In addition, we found that the Academy did not address the risks posed by its organizational structure, including not establishing a system of checks and balances over the sources and uses of funds with its NAFIs. Further, the inappropriate practices and improper use of Academy resources by Academy managers that we found occurred and continued for years. For example, the collection of questionable midshipmen fees for hospital services, among others: the accumulation of excess fees “off-books” in commercial bank accounts for discretionary or “rainy day” purposes: and the preserving or “parking” of Academy appropriated funds with the FCO, all occurred within a culture of lax accountability involving both Academy and NAFI management that was accepting of these types of activities. Further, the risks posed by the Academy’s relationship with its NAFIs led to improper transactions. For example, as previously discussed in this report, GMATS provided a percentage of its profits each year to the FCO for the benefit and use of the Academy. However, there was no agreement covering these transactions. We also found insufficient review of the Academy’s use of GMATS funds and no indication that there was consideration of the legality or appropriateness of those transactions. There was also insufficient consideration of the legal and internal control ramifications of Academy agreements with the FCO for personal services. As previously discussed in this report, the services provided by these agreements totaled over $4 million per year, which represented about 17 percent of the annual Academy appropriation for salaries and benefits. Also, the Academy did not provide us with information on the authority for establishing the prior years’ reserves, or the rules, policies, and procedures for operation of the reserves, including, for example, specifics on authorized uses of the funds. Standards for Internal Control in the Federal Government provides that for an agency to run and control its operations, it must have relevant, reliable information, both financial and non-financial. For example, those charged with governance should have timely information on the amount and sources of the Academy’s resources. This includes information on the Academy’s appropriated funds as well as funds it receives from other sources, such as midshipmen fees and receipts from affiliated organizations for goods and services provided to them by the Academy. If such information had been produced routinely by the Academy and made available to decision makers and those charged with governance, they may have identified red flags that signaled the need for attention. For example, financial reports for the Academy that provided detailed financial information may have signaled the need for inquiry as to the reasons for such things as the Academy annually paying approximately $4 million from appropriated funds for contracted personal services and reflecting such expenses as other than payroll in its books and records. We found that for fiscal years 2006 and 2007, the Academy did not routinely prepare financial reports separately presenting information on all its financial activities, including its sources and uses of funds, and amounts due to and from others. The Academy’s activities are included in MARAD’s financial reports, but its activity and balances are not separately identified. As a result, users of MARAD’s financial reports could not readily identify the sources and uses of funds attributable to the Academy or the amounts due to and from others by the Academy. Such information is typical in financial reports and statements. We found that the Academy prepared and reported selected financial information from time to time for use by its managers. However, Academy officials told us that such reports were sporadic, unreliable, and were not used for decision making. For example, the head of the Academy’s Department of Information Technology told us that, among other things, the expense and obligation information that he received was typically not timely and that the information provided to him was inaccurate and could not be relied upon. An Assistant Superintendent told us that he did not typically receive financial information on the significant business activities that he was responsible for, including a $6 million, 5-year contract for medical services with a local hospital. We also found that comprehensive financial reports on Academy activities and balances were not routinely prepared and made available for review by Academy or MARAD management. The Academy did not fully comply with a legal requirement to annually provide the Congress with a statement of the purpose and amount of all expenditures and receipts. We reviewed the reports submitted to the Congress for fiscal year 2008 and found that the reports included some, but not all expenditure and receipt information. For example, the reports included information on gifts and bequests received and tuition receipts by GMATS. However, the reports did not include any information on gifts and bequests received by the Academy and paid to others, receipts and expenditures of GMATS, or midshipmen fees collected or expenditures made from the fees collected by FCO. The inquiry and analysis necessary to prepare and file a complete report may have provided information to address the issues we discussed previously in this report involving GMATS and midshipmen fees. The MARAD CFO told us in August 2008 that the Academy would take actions to include information for all NAFIs and midshipmen fee activities in future reports to the Congress. However, we were subsequently told that such information was not included in the May 2009 report that accompanied the Department’s budget justification document because the necessary analysis had not been completed. MARAD officials subsequently told us that they would submit an amended report with this data. Further, we found that the Department did not comply with a 1994 legal requirement to annually report to Congress any changes in midshipmen fee assessments for “any item or service” in comparison with fees assessed in 1994. We identified changes in the nature and the amount of fees collected by the Academy from 1994 forward that were not reported by the Department to the Congress. A MARAD official told us that changes in the fees had occurred since 1994, but he did not know why the reports had not been filed. Had changes in midshipmen fees over the last 15 years been reported to the Congress, red flags may have been raised about the increases and the total amount of midshipmen fees being charged that could have been addressed by those charged with oversight and monitoring. Further, a systematic process to identify changes in midshipmen fees from year to year and to report the changes to those officials charged with reporting to the Congress on these matters may have functioned as an important early detection control. Standards for Internal Control in Federal Government provides that an entity’s control environment should include management’s framework for monitoring program operations to ensure its objectives are achieved. However, the absence of effective oversight by MARAD contributed directly to the opportunity for improper practices and questionable activities and payments and for the continuation of such practices over long periods of time without detection. Our review found a number of instances in which effective oversight procedures could have helped identify and address the Academy fund control deficiencies we discussed previously. For example, we found that MARAD did not have or did not enforce basic prevention and detection controls such as requiring periodic financial reports of Academy’s sources and uses of funds or performing high level analytical reviews of reported revenues and expense of the Academy. Also, MARAD did not enforce the existing policies for monitoring of NAFI activities, such as the requirements for submission and review of annual audited financial statements for each NAFI. We found a wide range of activities between the Academy and its 14 NAFIs that lacked transparency and for which there was insufficient review and consideration by Academy and MARAD officials. Some of these activities were reflected in the Academy’s books and records, and some were apparent only from looking beyond the form of the transaction to find underlying cross subsidies and barter arrangements. For example, we found there were no independent reviews, either by the Academy, by MARAD officials, or by both, conducted before entering into agreements for training services that were provided to external federal agencies by GMATS and not the Academy. Our analysis of costs charged against the Academy’s no-year capital improvement appropriation identified some costs that were recorded as repairs and maintenance expenses that appeared to represent capitalizable assets. For example, under the no-year capital improvement appropriation, we identified $779,731 of recorded expenses in 2007 for payments to one vendor for items of furniture and equipment. The MARAD CFO told us that he was aware that timely reviews were not performed of the Academy’s expenses in either 2006 or 2007. Such reviews are important because of the large amount of capital improvement projects at the Academy and could have identified items that should have been capitalized with necessary adjustments made before the books were closed for the year and financial and budgetary reports prepared. The Academy received $15.9 million and $13.8 million for fiscal years 2006 and 2007, respectively, in no-year appropriations for its capital improvement projects. At our request MARAD reviewed selected categories of expenses for fiscal years 2006 and 2007 and identified $3,380,528 for 2006, and $1,695,670 for 2007 (including the $779,731 described above) that should have been capitalized as assets. The payments were appropriately funded using the Academy’s no-year appropriations. These officials told us that adjustments to correct for the errors of $5,076,198 were made during fiscal year 2009. MARAD also identified additional expenses of $1,459,103 and $1,972,622 for 2006 and 2007, respectively, which were improperly funded with the no-year capital improvement appropriation. In June 2009, these officials told us that adjustment to correct for these errors would also be considered before the close of fiscal year 2009 in conjunction with the other matters that we identified in this report that may require adjustment to the Academy’s appropriation accounts. The Academy lacked adequate procedures and controls to maintain effective accountability over the amounts charged to midshipmen and to ensure that midshipmen fees collected were used only for their intended purpose—- covering the costs of goods or services provided to the midshipmen that are generally of a personal nature. The Academy has no policy on what midshipmen fees activity and balances should be reflected in its official records and reports or what is properly excludable. As discussed previously, these deficiencies resulted in the Academy’s charging midshipmen fees for items that were not of a personal nature and in amounts that were in excess of the related expenses for the goods or services. Further, the treatment of midshipmen fee activities “off-book” did not provide necessary accountability for the collection and use of the fees. We also found that the FCO’s records did not consistently support the activity in the midshipmen fee accounts. DRM, FCO, and Academy staff and officials, as well as the Academy’s Assistant CFO informed us that the support we requested for specific transactions could not be located, including memorandums from staff and officials describing or authorizing fees or supporting amounts collected or paid. We were also told that the activities reflected in the bank accounts that held the prior years’ reserves were not reconciled to FCO records for any month in the 3 years covered by our review. We found that reports provided to us for monthly activity— increases and decreases—in reserve balances for each of the separate categories did not always reflect complete information on the sources and uses of the reserves. For example, we found that the FCO’s September 2007 activity report for the prior years’ reserves account included transactions that reduced the reserve account balances for 4 of the 8 reserve sub accounts by a total of $100,000, but did not identify the payee or other information on the use of funds. FCO staff told us that this difference was due to an error. The Academy’s Assistant CFO told us that no further documentation or explanation for this activity was available. As indicated, the FCO was responsible for paying bills using midshipmen fees that were presented for processing by officials with responsibility for Academy departments such as Health Services and Information Technology as well as requests for payments from the Academy’s Superintendent and other officials. However, we found that FCO staff did not appropriately question the items presented for payment to determine the sufficiency of the support for the payment that was requested. The Academy entered into agreements to provide training services to other federal agencies that were provided by GMATS and not the Academy. Federal accounting standards provide that an entity should recognize revenue and expenses when the entity provides goods or services to another entity in an exchange, such as by contracting to provide training to another entity. However, we found that the Academy recognized revenue and expenses even though it was not a party to the exchange of services and resources. These improperly recognized revenues and expenses were reflected in MARAD’s budget and financial reports. Further, the Academy paid GMATS for the funds received from other federal agencies when reviewing and approving officials did not have proper support for the payments. A summary of the revenue and expenses that the Academy recorded for transactions between GMATS and other federal agencies is shown in table 7. In addition, the Academy did not provide proper accountability for the acceptance and use of annual contributions from GMATS by using another NAFI, the FCO, as recipient of the funds on behalf of the Academy. Neither the receipt nor the use of those funds was reflected in the Academy’s accounting records. Further, the amounts accepted for the Academy by the FCO from GMATS were not supported by appropriately detailed billings or analysis from the Academy to GMATS. Instead, the amounts of contributions paid from GMATS to the Academy were unilaterally determined by GMATS and were paid to the FCO and, at times, directly to vendors on behalf of the Academy. Federal accounting standards provide that entities should establish accruals only for amounts expected to be paid as a result of transactions or events that have already occurred. Further, federal appropriation law provides that such accruals, which are legal obligations, must represent a bona fide need of the agency for the fiscal year in which the accrual is recognized and that there must be appropriations available to charge. However, we found the Academy inappropriately recorded over $389,000 during fiscal years 2006 and 2007. Academy officials accomplished these transactions by preparing agreements between the Academy and FCO using the Department’s form MA 949, Supply, Equipment or Service Order/Contract. We also found unauthorized and unsupported loans to the FCO from the Academy funds that were improperly “parked” with the FCO. The Academy lacks adequate controls to prevent these improper transactions. We found the Academy lacked policies and procedures and adequate internal controls over the use of Academy training vessels. For example, controls did not specify required documentation or approval for payments with respect to the GMATS’s use of the Academy’s Kings Pointer during fiscal years 2006 and 2007, and the related transfer of funds to the SP&C NAFI. GMATS would pay the Academy for the full amounts billed by SP&C. However, the Academy would pay a portion of the funds received from GMATS to the SP&C. Academy payments to the SP&C for the use of the Kings Pointer, totaling $217,848 for the 2-year period of our review, were questionable in that (1) they were determined on a case-by-case basis by the SP&C management and (2) no supporting documentation was provided for these payments. We also found that the usage rates for use of the Academy’s training vessels was not supported and not based on consideration of current costs of operation. Billings to others for the use of government-owned property should be made by the government agency, in this case the Academy, that owns the property. The SP&C’s billing to others for the use of Academy-owned vessels and directing how much of the usage fees the FCO should remit to the Academy and to itself demonstrates how intertwined the activities and personnel of the Academy’s Waterfront Department were with those of the SP&C. Further, these activities, along with the Academy’s payment of funds to the SP&C without sufficient support for those payments, illustrates the lack of control over the source and use of the Academy’s financial resources. We were also told that the underlying study and analysis to determine hourly usage fees charged for Academy marine asset use during fiscal years 2006 and 2007 was performed in 1996 or 1997. However, we were told that supporting documentation was not retained either for the initial rate study or for the rates in the updated 2004 and 2008 rate booklets. We also found that the hourly rates per the 2008 rate booklet did not change from those in the 2004 rate booklet and had not changed from those used in 1996-1997. Consequently, the Academy has no assurance that the usage fees cover the full cost of operating the Kings Pointer and other Academy- owned boats. Fees for the use of government-owned property should be the property of the agency that holds it, in this case the Academy. However, we found the Academy and its Athletic Association NAFI lacked policies and procedures and other internal controls to properly account for the uses of fees collected by the Athletic Association from conducting athletic camps and clinics using the Academy’s athletic facilities. We found that the lack of controls over Academy payroll activities resulted in the over expenditure of payroll in relation to appropriations and arrangements for illegal personal services. Also, for fiscal years 2006 and 2007, approximately half of the Academy’s annual appropriations were designated for payroll; however, we found that internal controls over payroll were inadequate and did not reflect consideration of the limits on annual appropriations or the risks posed by errors or weaknesses in the administration of payroll activities. For example, Academy internal controls did not prevent improper payroll- related transactions that violated the ADA. Specifically, MARAD stated that challenges in working with MARAD’s own payroll process and systems contributed to delays in determining actual payroll expenses for Academy employees. The payroll for these federal employees is processed by the Academy’s DRM using MARAD’s existing arrangement with another federal agency as the payroll servicer. Further, the Academy used NAFI employees performing work for the Academy under Academy employees’ supervision to assist in carrying out Academy mission functions. The FCO and other NAFIs would hire staff as employees of their own organizations and then contract with the Academy for a fee, which the NAFIs then used to pay the payroll and related expenses of the NAFI staff. Annually, the Academy would execute agreements with the NAFIs to provide the Academy with services using one of the Department’s standard forms designed for use with external parties (MA 949, Supply, Equipment or Service Order/Contract). These expenses were recorded as contracted services in the Academy’s books and records. There was insufficient consideration by Academy officials of the legal and internal control ramifications of these personal services agreements. The Administrator reported to the Deputy Secretary in his February 2008 report that the relationships between the Academy and individual employees appeared to constitute one of personal services, which reflect an employer-employee relationship instead of an independent contractual one. The expenses for the services provided by these agreements totaled over $4 million per year, which represented about 17 percent of the annual Academy appropriation for salaries and benefits. Over the course of our review, we found that various actions were taken, and were in process, that were intended to improve the Academy’s and its affiliated organizations’ internal controls. For example, on October 1, 2007, MARAD established the Academy Fiscal Oversight and Administrative Review Board (Oversight Board). The Oversight Board is chaired by the MARAD CFO and is charged with providing fiscal oversight and administrative management of the Academy in coordination with the Maritime Administrator and other MARAD and Academy officials. Another significant action was the creation in July 2008 of the position of Assistant Chief Financial Officer for the Academy with direct reporting responsibility to the MARAD CFO. This position was initially temporary, but made permanent in March 2009. It provides for a senior financial official at the Academy to conduct oversight and monitoring of Academy financial activities on a real time basis. This action, combined with much needed organizational support by MARAD officials, provides an important signal emphasizing a focus on the importance of financial accountability. MARAD also subsequently submitted a legislative proposal to Congress seeking authority to convert the NAFI positions to civil service employment positions. In the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, Congress provided the Administrator with authority to appoint current NAFI employees to competitive civil service positions for terms of up to 2 years. Further, MARAD submitted a legislative proposal to Congress seeking statutory authority to enter into personal services contracts with part-time adjunct professors. In the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, Congress provided the Administrator with temporary authority for the 2008-2009 academic year to contract with up to 25 individuals to provide personal services as adjunct faculty. We also found that the Department and MARAD made a number of improvements in its controls during the course of our review. For example, following discussions with the Department’s Chief Financial Officer, the MARAD CFO, and the Inspector General and staff during October 2008, the MARAD CFO shortly thereafter took steps to secure and protect the accumulated prior years’ balances—held in commercial bank accounts—of midshipmen fees that totaled approximately $1 million as well as excess funds from the current year’s fees that also may be as much as $1 million. We also found that action has been taken or is under way on a number of other important issues as well, including: MARAD directed the Academy to stop facilitating reimbursable contracts on behalf of GMATS. A billing methodology for certain services provided by the Academy to GMATS is under development. The use of FCO to obtain over $4 million a year in illegal personal services was discontinued in 2008. MARAD is working with Academy officials to address the inappropriate commingling of activities that we describe in this report involving the Academy athletics and waterfront departments and certain NAFIs. In October 2008, the Maritime Administrator announced the selection of a new Superintendent. We met with the Superintendent, the MARAD CFO, and the Academy’s Assistant CFO to discuss the Academy’s significant flaws in controls and the business risks that our work was identifying. We also communicated our view that the Academy should aggressively move forward with change efforts and not wait for a formal report from us with targeted recommendations for action. The Superintendent agreed with our suggestions. On March 9, 2009, the Secretary reported several violations of the ADA at the Academy to the President, the Congress, and the Comptroller General, as required by the act. The Secretary estimated that the multiple violations totaled as much as $20 million. Further, the Secretary reported that corrective and disciplinary action had been taken with respect to the officials responsible for the violations and that MARAD and the Academy had revised internal control procedures and taken actions and had other actions under way to improve internal controls at the Academy. Finally, the Omnibus Appropriations Act, 2009, placed certain restrictions and limitations on the use of appropriations made for the Academy for fiscal year 2009. For all apportionments made (by the Office of Management and Budget) of these appropriations for the Academy, the act required the Secretary to personally make all allotments to the MARAD Administrator, who must hold all of the allotments. In addition, the act conditioned the availability of 50 percent of the amount appropriated on the Secretary’s, in consultation with the MARAD Administrator, completing and submitting to the congressional appropriations committees a plan on how the funding will be expended by the Academy. The problems we identified concerning improper or questionable sources and uses of funds involving the Academy and its affiliated organizations, including the known and possible violations of the ADA described in this report, undermines the Academy’s ability to carry out its basic stewardship responsibilities and to comply with the ADA and other legal and regulatory requirements, and may also impair its ability to efficiently achieve its primary mission—to educate midshipmen. These problems can be attributed to a weak overall control environment and the flawed design and implementation of internal controls. Revelations of such activities call into question the stewardship responsibilities of the Academy and signal failures of oversight and governance responsibilities. Moreover, such activities reflect unmitigated risks posed by the Academy’s close organizational and transactional relationships with its NAFIs, including the lack of clearly defined roles and responsibilities. If such improper and questionable activities are not prevented or detected in a timely manner, they may adversely impact the Academy’s credibility. The Academy, MARAD, and the Department have begun important steps to improve the control environment and address internal control weaknesses at the Academy, including new leadership at the top and newly energized oversight and monitoring practices. However, a comprehensive strategy for addressing these weaknesses and establishing internal control policies and procedures across virtually all aspects of the Academy’s financial activities are not yet in place. Further, given the amount of improper and questionable uses of funds detailed in this report, MARAD and the Academy should consider recovering funds that were improperly paid. Vigilance by MARAD and the Department in their oversight and monitoring of the Academy and greater transparency in the Academy’s relationships and transactions with its affiliated organizations will be crucial to achieving effective accountability over the Academy’s funds and other resources. Sustained commitment to sound accountability practices by leaders and management at the Department, MARAD, and especially at the Academy will be critical to long-term success. We make 47 recommendations to the Department of Transportation directed at improving internal controls and accountability at the Academy and to address issues surrounding the improper and questionable sources and uses of funds. We recommend that the Secretary of the Department of Transportation take the following actions: To determine whether the Academy complied with the ADA, we recommend that the following actions be taken: Determine whether legal authority exists to retain payments to the Academy from GMATS, both in Academy appropriations accounts and in commercial bank accounts of affiliated organizations, and if not, adjust the Academy’s appropriations accounts to charge available Academy appropriations and expense accounts for the amount of official Academy expenses that were paid by funds received from GMATS or paid directly by GMATS on behalf of the Academy. To the extent that insufficient appropriations remain available for these expenses report ADA violations as required by law. Determine the amount of midshipmen fees that were used to cover official Academy expenses without legal authority to do so and adjust the Academy’s accounts, as necessary, to charge available appropriations for such expenses. To the extent that insufficient appropriations remain available, report ADA violations as required by law. To provide reasonable assurance that the Academy will comply with the ADA and other applicable laws and regulations, we recommend that the following action be taken: Perform a review of the funds control processes at the Academy and take actions to correct any deficiencies that are identified. We recommend that the Secretary of the Department of Transportation direct the Administrator of MARAD, in coordination with the Superintendent of the Academy, to take the following actions: To improve the design and operation of the internal control system at the Academy, we recommend that the following actions be taken: Establish a comprehensive risk-based internal control system that addresses the core causes and the challenges to proper administration that we identify in this report, including the risks and challenges that flow from the close organizational and transactional relationships between the Academy and its affiliated organizations and implement internal controls that address the elements of our Standards for Internal Control in the Federal Government, including the role and responsibilities of management and employees to establish and maintain a positive and supportive attitude toward internal control and conscientious management, and the responsibility for managers and other officials to monitor control activities. Implement a program to monitor the Academy’s performance, including: reviews of periodic financial reports prepared by Academy officials; and reviews of the Academy’s documentation and analysis from its review of its periodic financial reports and associated items, such as the results of its follow-up on unusual items and balances. To improve internal controls over activities with its affiliated organizations, we recommend that the Academy take the following actions: Perform a comprehensive review and document the results of an analysis of the risks posed by the Academy’s organizational structure and its relationships with each of its affiliated organizations, including: address the inherent organizational conflicts of interest that we identify in this report regarding Academy managers having responsibility for activities with affiliated organizations that are in conflict with the managers’ Academy responsibilities, and determine whether the current organizational structure should be maintained or whether an alternative organizational structure would be more efficient and effective, while at the same time reducing risk and facilitating improvement in internal control and accountability. Require that all affiliated organizations have approved governing documents and that the functions they will perform in the future are consistent with their scope of authority. Perform an analysis to identify each activity involving the Academy and its affiliated organizations and for each activity determine: the business purpose; the reason for Academy involvement; the business risk that each activity presents; and if the activity complies with law, regulation, and policy. Design a robust system of checks and balances for each activity with each affiliated organization that is consistent with the business risk that each activity presents considering, among other things, the nature and volume of the activities with each affiliated organization. Establish formal written policies and procedures for each activity involving the Academy and an affiliated organization and specify for each activity: the required documentation requirements, necessary approvals and reviews, and requirements for transparency (e.g., require regular financial reports for each activity for review and approval by Academy management and MARAD officials charged with oversight). Establish internal controls for each activity with each affiliated organization, including (1) the planned timing of performance of the control activity (e.g., periodic reconciliations of billings with collections); (2) the responsibilities for oversight and monitoring and the documentation requirements for those performing oversight and monitoring functions; and (3) the necessary direct, compensating and mitigating controls for each activity. To improve accountability and internal controls over midshipmen fee activities and to resolve potential issues surrounding the past collections and uses of midshipmen fees, the Academy should take the following actions: Perform an analysis to identify all midshipmen fee collections for fiscal years 2006, 2007, and 2008, to include: identifying those items for which the fee collected is attributable to (1) an activity between the midshipmen as customer and a NAFI as service provider (e.g., collections for haircuts); and (2) an activity between the midshipmen as customer and the Academy as service provider (e.g., collections for personal computers). Determine if the (1) fee collected for each item was for a personal item of the midshipmen and consistent with law, regulation, and policy for such collections; (2) amount of the fee collected for each item was properly supported, based on, among other things, an analysis of the cost to the Academy for the good or service; and (3) amount collected exceeded the cost of the good or service. Determine if any liability may exist for collections that (1) are not consistent with law, regulation, and policy as personal items of the midshipmen; (2) were not properly supported, in whole or part; and (3) exceeded the cost to the Academy for the good or service. Perform an analysis to identify all payment activity and other uses of the funds collected for midshipmen fees for fiscal years 2006, 2007, and 2008, to include: reviewing payment activity to identify the payees, amounts, and other characteristics of the uses of the funds collected and conducting a detailed review of payment activity and other uses (e.g., transfers to prior years’ reserves) for items considered as high risk. Review all questionable payments, and other questionable uses of funds, such as transfers to commercial checking accounts for the excess of collections over funds used, as well as the questionable payments that we identify in this report. For each payment and other use of funds that is determined to be for other than a proper governmental purpose and that is not consistent with law, regulation, and policy, consider pursuing recovery from the organization or individual that benefited from the payment. Establish policies and procedures that require those charged by the Academy with the responsibility for midshipmen fee collections and payments to: (1) maintain detailed accounting records for all midshipmen fee activity that reflect accurate and fully supported information on collections, payments, and other activity that is consistent with document retention practices; (2) implement written review and approval protocols for all midshipmen fee collections and uses of funds consistent with policies and procedures established by the Academy and MARAD; and (3) provide monthly detailed reports of all midshipmen fee activity in the aggregate and by item to Academy and MARAD officials. Establish policies and procedures and perform the necessary analysis to support annual reports to the Congress to address changes in “any item or service” in midshipmen fees from that existing in 1994 as required by law. Establish written policy and criteria for determining the baseline items that are properly due from midshipmen for personal items, the amount of fees to be collected (based on underlying studies), and the approved uses of the fees collected. Establish written policy for the underlying analysis that is required and the approvals that must be obtained before changes are made in the baseline of midshipmen fee items, or before a change is made in the amount of such fees, or in the approved uses of the fees collected. Utilize the information obtained from the analysis of midshipmen fees collected in prior years and other work to determine the amount of midshipmen fees that should be charged to midshipmen for personal items in subsequent years. Establish written policy for internal reviews of monthly reports of midshipmen fee activity and balances, identified anomalies, and questioned items as well as the results from the associated follow-up. Perform an analysis to determine whether and, if applicable, the extent to which appropriated funds and midshipmen fees collected should be used to pay for contracted medical services. To improve internal controls over financial information, the Academy should take the following actions: Implement financial reporting policies and procedures that, among other things, will provide visibility and accountability to Academy activities and balances to facilitate oversight and monitoring, including: (1) periodic reporting of actual and budget amounts for revenues and expenses for the current and cumulative period; (2) periodic reporting of amounts for activity and balances with affiliated organizations in detail; and (3) identification of items of revenue and expense for each funding source, including annual and no-year appropriated funds and other collections. Implement comprehensive policies and procedures for the review of financial reports, to include requiring: reviews by the preparers of the financial reports as to their completeness and accuracy; evidence of departmental management reviews; and written records of identified anomalies and questioned items, as well as requirements for maintaining evidence of the results from associated follow-up on all identified anomalies and questioned items. Identify and evaluate the potential misstatements of amounts in the financial records for the Academy in fiscal years 2006, 2007, and 2008 to determine if restatement or reassurance of budget and financial reports and statements prepared from those records is appropriate, including: $5,076,198 of errors in accounting for repairs and maintenance expenses and capital additions, and $3,431,725 of expenses that were improperly funded with no-year capital improvement appropriations; $6,410,242 and $6,038,061 of recorded revenue and expenses, respectively, from GMATS training programs; amounts for midshipmen fee collections and payment activity including effects on reported revenues, expenses, assets and liabilities; and amounts for sources and uses of funds handled “off- book” that we identify in this report, including transactions in three Superintendent’s Reserves and with GMATS and FCO. Implement policies and procedures to obtain the information necessary to timely comply with the requirement identified in this report for annual reports to the Congress that provides all expenditure and receipt information for the Academy and its affiliated organizations. To improve accountability and internal controls over the acquisition of personal services from NAFIs, and to resolve potential issues surrounding past personal services activities and payments, the Academy should take the following actions: Perform an analysis to identify the nature and full scope of personal services activities and the associated sources and uses of funds to include a review of all questionable payments, including those that we identify in this report for personal services totaling more than $8 million for fiscal years 2006 and 2007. For each such personal services arrangement: (1) determine if the amounts paid were consistent with the services received by the Academy; (2) quantify the amounts, if any, paid by the Academy for personal services that were not received by the Academy; and (3) document the decisions made with respect to any payments by the Academy for personal services that were not received, including decisions to seek recovery from other organizations for such amounts. Develop written policy guidance on acquiring services from NAFIs that complies with the requirements of law, regulation, and policy on the proper use of funds by the Academy. To address funds held in commercial bank accounts of the FCO from prior years’ reserves and Superintendent’s Reserves and to resolve issues surrounding the past collections and uses of funds for excess midshipmen fee collections, the Academy should take the following actions: Perform an analysis to identify all activities in the prior years’ and other reserves including all sources and uses of funds for fiscal years 2006, 2007 and 2008. Review all the questionable payments and other activity, including payments that we identify in this report that according to FCO records total $605,347. For each payment that is determined to be for other than a proper governmental purpose and that is not consistent with law, regulation, and policy, consider pursuing recovery from the organization or individual that benefited from the payment. Investigate the unexplained $100,000 transaction(s) in September 2007 per the off-line or “cuff” accounting records maintained by FCO and take actions as appropriate. Finalize actions to protect and recover Academy funds held in commercial bank accounts by the FCO from current and prior years’ midshipmen fees that totaled approximately $2 million at September 30, 2008. Require that: (1) bank reconciliations be prepared for all activity in the commercial bank accounts of the FCO used for these reserves during fiscal years 2006, 2007 and 2008; (2) documentation be prepared for all questionable items as well as the related follow-up; and (3) going forward such bank reconciliations be timely prepared and independently reviewed by Academy staff with no direct involvement in the reconciliations or the activity in the bank accounts. To improve internal controls over activities with GMATS, the Academy should take the following actions: Perform an analysis to identify all activities between the Academy and the NAFI, GMATS, during fiscal years 2006 and 2007 and determine for each activity: the nature of the activity; the amounts collected by the Academy or others for the benefit of the Academy; the nature and amounts paid, by the Academy or by others for the benefit of the Academy from the funds collected; the business purpose; the reason for Academy involvement; and if the activity complies with law, regulation, and policy. For each payment that is determined to be for other than a proper governmental purpose and that is not consistent with law, regulation, and policy, consider pursuing recovery from the organization or individual that benefited from the payment. Establish formal written policies and procedures that, among other things, specify the allowable activities and transactions between the Academy and GMATS, and details the necessary approvals and reviews required for each activity. Establish targeted internal controls for each direct and indirect activity between the Academy and GMATS. To improve internal controls over accruals and to resolve potential issues surrounding past “parking” of appropriated funds, the Academy should take the following actions: Perform an analysis to identify all activities involving accrual accounts used to “park” appropriated funds with the FCO, including all sources and uses of funds for fiscal years 2006 and 2007. For each payment that is determined to be for other than a proper governmental purpose, consider pursuing recovery from the organization or individual that benefited from the payment. Establish written policy guidance on the accrual of items of expense at year-end. Establish targeted internal controls that, among other things, provide the criteria for accruals, specify the documentation requirements for accruals, and provide management’s review and approval procedures. To improve internal controls over activities from usage of the training vessel—Kings Pointer and other Academy-owned boats—by others, the Academy should take the following actions: Perform an analysis to identify all activity involving the use of the Kings Pointer and Academy-owned boats by others, including all sources and uses of funds for fiscal years 2006 and 2007. Identify and recover the cost of any unreimbursed non- governmental uses, to the extent authorized by law. For each payment, including payments to affiliated organizations, that is determined to be for other than a proper governmental purpose and that is not consistent with law, regulation, and policy, consider pursuing recovery from the organization or individual that benefited from the payment. Establish written policies and procedures to govern the use of the Academy-owned training vessel the Kings Pointer and other boats, including addressing issues for ship’s crews, insurance, security, billing procedures, and other responsibilities. Perform or contract out for a comprehensive usage-rate study to establish usage rates. Such a study should include (1) consideration of the full cost to the Academy of the training vessels and other boats, including salaries and benefits of Academy personnel, major repairs, routine maintenance, non-routine maintenance and long-term repairs, fuel and dockage; and (2) identification of indirect expenses and imputed costs as appropriate (e.g., depreciation). Establish policy for the timing and extent of the analysis required for periodic updates to the usage-rate study. In coordination with the Department or MARAD legal counsel, as appropriate, determine if the Academy had the legal authority to retain and use any collections from the use of the Academy-owned training vessel the Kings Pointer and other boats; otherwise, deposit them in the general fund of the U.S. Treasury. To improve internal controls over camps and clinics operated by the Athletics Association NAFI or others on Academy property, the Academy should take the following actions: Perform an analysis to identify practices at the Academy involving camps and clinics operated by the Athletics Association or others using Academy property and other assets. Document the nature and scope of such activities, including all sources and uses of funds for fiscal years 2006 and 2007 and take corrective action on any improper transactions. Establish written policies and procedures for camps and clinics operated by the Athletics Association NAFI or others on Academy property. Establish targeted internal controls that include: approvals required; costs to be recovered by the Academy; requirements (such as advance approval) for participation by Academy employees in the activities; and other matters of importance such as, insurance requirements, security, and required accountings to be provided to the Academy on the sources and uses of funds from each event. To improve internal controls over processing of vendor invoices and accounting for repairs and maintenance expenses and additions to capital assets, the Academy should take the following actions: Perform an analysis to identify the causes of the errors in the recording of repairs and maintenance expenses that should have been capitalized totaling $5,076,198, and $3,431,725 of expenses that were improperly funded with the no-year capital improvement appropriation, during fiscal years 2006 and 2007. Establish written policies and procedures for repairs and maintenance expenses and capital asset additions that require: (1) periodic reviews of recorded amounts for repairs and maintenance expenses and capital asset additions to identify and timely address issues requiring management attention; and (2) correction of errors before financial reports are prepared from the books and records. Establish polices and procedures for periodic reporting of financial information for repairs and maintenance expenses and capital additions to assist users in monitoring these items as well as the funding sources—annual appropriations or no-year appropriations for long-term improvement projects. We received written comments from the Department of Transportation on a draft of this report (see app. V). The Department stated that the Academy and MARAD have initiated many corrective actions to address the internal control weaknesses identified in our draft report and that management at the Academy, MARAD, and the Department take very seriously our findings and recommendations. The Department also stated that MARAD will produce a comprehensive strategy and corrective action plan to address all of the internal control weaknesses, as well as a detailed response to each recommendation. The Department also separately provided technical comments that we incorporated, as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. We will then send copies to other appropriate congressional committees, the Secretary of Transportation; the Administrator, Maritime Administration; and the Superintendent, United States Merchant Marine Academy. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-2600 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. This report responds to your request that we study the internal control environment and selected activities and expenditures of the Academy and its non-appropriated fund instrumentalities (NAFIs), in addition to the oversight and monitoring practices by the Maritime Administration (MARAD), an operating administration of the Department of Transportation. Our specific objectives were to determine whether there (1) were any potentially improper or questionable uses of funds by the Academy, including transactions with its affiliated organizations; (2) was an effective control environment with key controls in place over the Academy’s sources and uses of funds, including transactions with its affiliated organizations; and (3) were any actions taken, under way, or planned to improve controls and accountability over the Academy’s funds and resources. To address the first two objectives, we analyzed whether the Academy’s policies and procedures were adequate to ensure that Academy funds were used as intended and for proper governmental purposes and assessed the Academy’s internal controls over its activity and balances against our Standards for Internal Control in the Federal Government, Internal Control Management and Evaluation Tool, Guide for Evaluating and Testing Controls Over Sensitive Payments, and Strategies to Manage Improper Payments. Specifically, we reviewed laws, regulations, policies, and procedures over Academy operations and activities; reviewed the MARAD report and discussed the objectives, scope, and methodology of the internal control review with MARAD officials; interviewed selected Department, Department—Office of Inspector General (OIG), MARAD, Academy, and NAFI staff and officials to obtain an understanding of (1) their roles and responsibilities, (2) the internal control environment at the Academy, including the Academy’s organizational structure and relationships to the NAFIs and management’s attitude towards and knowledge of internal controls; (3) the internal controls over selected Academy payments and activities with its affiliated organizations—the 14 NAFIs and 2 foundations; and (4) MARAD and Department practices for overseeing and monitoring the Academy; and obtained an understanding of the sources of funding for both the Academy and the NAFIs, including the appropriated funds of the Academy. We obtained a database of Academy expenses at the transaction level covering fiscal years 2006 and 2007 and compared these data to amounts reported for the Academy by MARAD in the Department’s annual performance and accountability reports; compared the total amounts—MARAD including the Academy—in the database provided to us with the amounts in the statements of net cost that MARAD submitted to the Department; reconciled the MARAD Statement of Net Cost in the database to the Department’s audited financial statements by agreeing the net cost amounts for MARAD including the Academy that were reported in the audited financial statements and separately identified in consolidating statements of net cost schedules for the Department; analyzed Academy and NAFI payments, Academy collections of midshipmen fees, and funds from the FCO and GMATS to identify selected payments for further testing; and reviewed available documentation supporting selected Academy payment transactions and requested additional support and explanations from Academy and NAFI officials to justify the purpose of these transactions and the sources of funds used. To review the collection of current year’s fees from midshipmen and use of those fees for fiscal years 2006 and 2007, as well as prior years’ reserve activity for fiscal years 2006 to 2008, we analyzed the collection and payment activity reflected in records maintained by the FCO; requested and reviewed available support to justify the amounts collected from the midshipmen; interviewed Academy and NAFI officials with responsibility for midshipmen fee collections; discussed the results of our analysis with Academy and FCO officials and as appropriate requested additional information and explanations from these officials; and considered the support and responses we received to assess whether the collection and use of midshipmen fees were questionable. We identified numerous improper or questionable activities and uses of funds. However, the results of our work are not generalizable to the population of transactions as a whole because we selected transactions on a nonstatistical basis. We selected transactions that were significant to the Academy or the NAFIs and appeared to have a higher risk of being improper. Consequently, there may be other improper or questionable activities and transactions that our work did not identify. We reviewed the March 9, 2009, report of the Secretary to the President, the Vice President (as President of the Senate), the Speaker of the House, and the Acting Comptroller General to report several violations of the Antideficiency Act that occurred over several years and that the Department estimated totaled as much as $20 million. To address our third objective, we obtained relevant documentation on actions taken, under way, or planned, including the MARAD order establishing the Academy’s Fiscal Oversight and Administrative Review Board. During our review, we visited the Academy in Kings Point, New York, and MARAD and Department headquarters in Washington, D.C. We also held teleconferences with Academy officials in New York and MARAD and Department officials in Washington, D.C. We also reviewed prior OIG and GAO reports for items of possible relevance to MARAD and Academy activities and internal controls. We conducted this performance audit from June 2008 to August 2009 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The following presents the organizational environment in which the Academy operates and illustrates the nature and amount of some of the activity that occurred during fiscal year 2007 between the Academy and its affiliated organizations. Payments to NAFIs Total expenses ( $ 0.4) The ADA is one of the major laws in the statutory scheme by which the Congress exercises its constitutional control of the public purse. The ADA contains both affirmative requirements and specific prohibitions, as highlighted below. The ADA: Prohibits the incurring of obligations or the making of expenditures in advance or in excess of an appropriation. For example, an agency officer may not award a contract that obligates the agency to pay for goods and services before the Congress makes an appropriation for the cost of such a contract or that exceeds the appropriations available. Requires the apportionment of appropriated funds and other budgetary resources for all executive branch agencies. An apportionment may divide amounts available for obligation by specific time periods (usually quarters), activities, projects, objects, or a combination thereof. OMB, on delegation from the President, apportions funds for executive agencies. Requires a system of administrative controls within each agency, established by regulation, that is designed to (1) prevent obligations and expenditures in excess of apportionments or reapportionments; (2) fix responsibility for any such obligations or expenditures; and (3) establish the levels at which the agency may administratively subdivide apportionments, if it chooses to do so. Prohibits the incurring of obligations or the making of expenditures in excess of amounts apportioned by OMB or amounts of an agency’s subdivision of apportionments (i.e., “allotments”). Prohibits the acceptance of voluntary services or the employment of personal services, except where authorized by law. Specifies potential penalties for violations of its prohibitions, such as suspension from duty without pay or removal from office. In addition, an officer or employee convicted of willfully and knowingly violating the prohibitions may be fined not more than $5,000, imprisoned for not more than 2 years, or both. Requires that for violations of the act’s prohibitions, the relevant agency report immediately to the President and to the Congress all relevant facts and a statement of actions taken with a copy to the Comptroller General of the United States. The requirements of the ADA and the enforcement of its proscriptions are reinforced by, among other laws, the Recording Statute, 31 U.S.C. § 1501(a), which requires agencies to record obligations in their accounting systems, and the 1982 law commonly known as the Federal Managers’ Financial Integrity Act of 1982, 31 U.S.C. § 3512(c), (d), which requires executive agencies to implement and maintain effective internal controls. Federal agencies use “obligational accounting” to ensure compliance with the ADA and other fiscal laws. Obligational accounting involves the accounting systems, processes, and people involved in collecting financial information necessary to control, monitor, and report on all funds made available to federal agencies by legislation—including both permanent, indefinite appropriations and appropriations enacted in annual and supplemental appropriations laws that may be available for 1 or multiple fiscal years. Executive branch agencies use obligational accounting, sometimes referred to as budgetary accounting, to report on the execution of the budget. “ personal services contract is one that, by its express terms or as administered, makes the contractor personnel appear, in effect, government employees. FAR §§ 37.101, 37.104(a). The government is normally required to obtain its employees by direct hire under competitive appointment or other procedures required by the civil service laws. FAR § 37.104(a). Obtaining personal services by contract, rather than by direct hire, circumvents those laws unless Congress has specifically authorized acquisition of the services by contract. Id. Agencies may not award personal services contracts unless specifically authorized by statute to do so. FAR § 37.104(b).” Matter of: Encore Management, Inc., B- 278903.2, Feb. 12, 1999. In addition to the contact named above, staff members who made key contributions to this report include Robert Owens, Assistant Director; Lisa Brownson; F. Abe Dymond, Assistant General Counsel; Tony Eason; Frederick Evans; Tiffany Epperson; Jehan-Abdel-Gawad; Thomas Hackney; Paul Kinney; Scott McNulty; and Meg Mills.

The U.S. Merchant Marine Academy (Academy), a component of the Department of Transportation's Maritime Administration (MARAD), is one of five U.S. service academies. The Academy is affiliated with 14 non-appropriated fund instrumentalities (NAFI) and two foundations. GAO was asked to determine whether there (1) were any potentially improper or questionable sources and uses of funds by the Academy, including transactions with its affiliated organizations; (2) was an effective control environment with key controls in place over the Academy's sources and uses of funds; and (3) were any actions taken, under way, or planned to improve controls and accountability. GAO analyzed selected transactions from fiscal years 2006, 2007, and 2008 to identify improper or questionable sources and uses of funds and reviewed documents and interviewed cognizant officials to assess the Academy's internal controls, and identify corrective actions to improve controls. GAO identified numerous instances of improper and questionable sources and uses of funds by the Academy and its affiliated organizations. These improprieties and questionable payments GAO identified demonstrate that, while MARAD and the Academy have been taking action to improve the Academy's internal controls, the Academy did not have assurance that it complied with applicable fund control requirements, including the Antideficiency Act (ADA). Further, the Academy had numerous breakdowns in its important stewardship responsibilities with respect to maintaining accountability over the receipt and use of funds. For example, GAO identified improper and questionable midshipmen fee transactions related to: (1) fee collections and uses of fees unrelated to goods and services provided to all midshipmen, (2) fee collections that exceeded the actual expense to the Academy for the goods or services, and (3) the use of accumulated excess midshipmen fees for improper and questionable purposes. GAO found that a weak overall control environment and the flawed design and implementation of internal controls were the root causes of the Academy's inability to prevent or effectively detect numerous instances of improper and questionable sources and uses of funds. Specifically, GAO found that there was a lack of awareness or support for strong internal control and accountability across the Academy at all levels and risks, such as those that flow from a lack of clear organizational roles and responsibilities and from significant activities with affiliated organizations. The internal control weaknesses GAO identified were systemic and could have been identified in a timely manner had Academy and MARAD management had a more effective oversight and monitoring regimen. For example, GAO found that the Academy did not routinely prepare financial reports and information for use by internal and external users. GAO found that various actions were taken and in process that were intended to improve the Academy's internal controls, including actions to address issues of accountability with its affiliated organizations. For example, a permanent position of Assistant Chief Financial Officer (CFO) for the Academy was established in March 2009 with direct reporting responsibility to the MARAD CFO. This action provides a senior financial official at the Academy with authority to conduct needed oversight and monitoring of financial activities on a real time basis. Further, following discussions GAO had with Department and MARAD officials, the MARAD CFO took steps to secure and protect accumulated reserves held in commercial bank accounts of an affiliated organization. However, even though MARAD and the Academy have taken actions, much more needs to be done, including determining the amount of midshipmen fees that were used to cover official Academy expenses, performing a comprehensive analysis of the risks posed by the Academy's organizational structure and its relationships with its affiliated organizations, and establishing and implementing policies, procedures, and internal controls over many Academy activities.

You are an expert at summarizing long articles. Proceed to summarize the following text: Free over-the-air television broadcasts have been available to Americans for more than 50 years. According to the National Association of Broadcasters, the average television market includes over-the-air signals from at least seven local broadcast stations. Commercial stations may get their programming content through an affiliation with one of the top seven television networks (ABC, CBS, Fox, NBC, PAX, UPN, and WB) or they may be an independent broadcaster. Some commercial television stations are owned by large media companies or other corporations; others are owned by individuals or small companies. The United States also has 380 public television stations that receive funding from a variety of sources, including federal funding, state funding, commercial grants and donations, and private donations from individuals. Public stations tend to show more educational and arts programming, and many of these stations are affiliated with the Public Broadcasting Service (PBS). In addition to over-the-air availability, most broadcasters are carried on local cable television systems along with numerous cable programming channels. Also, satellite television providers now offer subscribers the signals of local broadcasters in approximately 40 television markets. In fact, according to FCC, more than 86 percent of television households nationwide now subscribe to some type of multichannel video programming service, such as a cable or satellite provider, rather than relying solely on over-the-air broadcast television. Since its inception, the broadcast television industry has relied on “analog” technologies to transmit over-the-air television signals. During the last few decades, however, media of all types have been transitioning to “digital” technologies. Because digital technologies can provide greater versatility and higher quality pictures and audio than traditional analog technologies, the broadcast television industry supported, and Congress and FCC mandated, a transition of broadcast television stations from analog to digital technology. This decision was based on the notion that a transition to digital television would bring the broadcast television industry into the 21st century with current and competitive technology, and would help to preserve for consumers the benefits of a healthy free over-the-air television service in the future. Traditional television broadcasting uses the radiofrequency spectrum to transmit analog signals—that is, signals in which motion pictures and sounds have been converted into a “wave form” electrical signal. Traditional analog signals fade with distance, so consumers living farther from a broadcast tower will experience pictures that are distorted or full of “snow.” With digital technology, the analog wave form is converted into a stream of digits consisting of zeros and ones. Although digital signals also fade over distance, because each bit of information is either a zero or a one, the digital television set or receiver can adjust for minor weaknesses in the signal to recreate the zeros and ones originally transmitted. Pictures and sound thus remain perfect unless significant fading of the signal occurs, at which point the transmission cannot be corrected and there is no picture at all. Digital technology also makes it easier to offer high definition television (HDTV). With HDTV, roughly twice as many lines of resolution are transmitted, creating a television picture that is much sharper than traditional analog television pictures. Another advantage of digital television is that “digital compression” technologies allow for more efficient use of the radiofrequency spectrum than analog technologies. Using digital compression, broadcasters will have the opportunity to use the 6 megahertz of spectrum required to broadcast one analog television show to transmit four or five different digital “standard definition” television shows simultaneously. This process of using the digital spectrum to show multiple programs at once is known as multicasting. To enjoy HDTV broadcasts or to be able to see multicasts of digital signals, consumers must own a television monitor that is capable of displaying these features and a digital tuner that is capable of receiving the broadcasts. The DTV transition involves a substantial overhaul and replacement of the stations’ transmitting and studio equipment as well as the eventual replacement of consumers’ analog television sets or the attachment of “digital converter boxes” to those analog sets. Thus, building DTV stations involves a large outlay of capital and effort by the broadcast television industry. Sometimes a new broadcast tower or significant modifications to an existing tower are required for the digital antennas. Broadcasters must purchase digital transmission equipment, obtain digital programming, and acquire equipment for converting analog programming to digital. One station representative with whom we spoke noted that broadcasters must then incur the costs of running two stations simultaneously during the transition period, even though viewership and advertising revenues are likely to remain roughly the same. To facilitate the transition, Congress and FCC temporarily provided each full-power television station (both commercial and public) with another 6 megahertz of radiofrequency spectrum so that they could begin broadcasting a digital signal. A transition period was established during which broadcasters would build their DTV stations and simultaneously transmit both analog and digital signals. In 1997, FCC established a timeline for this transition period. By May 1, 1999, the affiliate stations of the 4 largest networks (ABC, CBS, Fox, and NBC) in the top 10 television markets in the country were to have a digital signal on the air. By November 1, 1999, the affiliates of the 4 largest networks in the top 11 to 30 television markets were to have a digital signal on the air. By May 1, 2002, all full-power commercial television stations across America are to have a DTV signal on the air. By May 1, 2003, all public stations are to be broadcasting a DTV signal as well. The few stations that missed the earlier 1999 deadlines were granted extensions by FCC. In March 2002, FCC closed an application period for stations that have May 2002 deadlines to file for extensions. FCC said it will not issue any type of blanket waiver of the deadline, but it would allow extensions on a case-by-case basis. According to FCC, it also has the authority to sanction stations that do not meet their deadlines. FCC said it is currently considering what those sanctions might be and under what circumstances the sanctions might be imposed. The goal is for the transition period to end in December 2006. By that time, the analog signals presumably are to be shut off, and Americans are to be watching DTV broadcasts on either a DTV set or on an analog set with some form of a digital converter box. The government is supposed to “repack” the digital stations within channels 2 to 51. The federal government has reallocated some of the spectrum in channels 52 to 69 for public safety needs and some for commercial uses (such as mobile phone services). The public safety spectrum is currently being licensed, and the spectrum set aside for commercial uses will be auctioned later this year. However, Congress created exceptions to the 2006 date. In the Balanced Budget Act of 1997, Congress stated that no analog television station license was to be extended beyond December 31, 2006, except in cases where (1) one or more of the top four network affiliates in a market is not yet on the air in digital, (2) digital converter technology is not generally available in the market, or (3) 15 percent or more of the households in the market cannot receive DTV signals. The last exception—often referred to as “the 85 percent rule”—has the potential to significantly delay the cutoff of analog signals and the turnback of some spectrum beyond 2006. This is because the 85 percent rule might rely on consumer adoption of DTV equipment, which is currently market-driven (i.e., based on consumer demand, rather than on a government mandate) and does not appear at the present time to be progressing at a rate that will reach 85 percent in the next 4 years. In this section, we address several issues related to the progress of broadcasters to date in getting digital signals on the air. In particular, we discuss (1) the status of broadcasters in building the DTV stations; (2) the amount of digital, high definition, or multicast programming that stations are showing or planning to show; and (3) the stations’ perceptions of consumer interest in DTV and how broadcasters are promoting or planning to promote DTV to consumers. As of April 12, 2002, 24 percent of commercial television stations (298 of 1,240) had completed construction of DTV stations and were broadcasting a digital signal. Most Americans now have available to them an over-the-air signal from at least 1 DTV station, and many Americans living in larger television markets have several DTV signals available to them. Only 119 of the 298 current DTV stations were mandated to be broadcasting a digital signal before May 2002. Thus, some stations have elected to build their DTV stations and begin broadcasting a digital signal before they were required to do so. As for the progress of transitioning stations, we conducted interviews with representatives from a few transitioning stations and found them to be in various stages of building their DTV facilities. For example, one station had just begun planning for the construction of its DTV station and was currently analyzing its tower and equipment requirements, while another station was almost ready to start broadcasting a digital signal, several months before the deadline. Once on the air with a digital signal, broadcasters have been given some flexibility in determining how to structure their DTV services. A station can simply duplicate the programming shown on its analog channel by “converting” it to digital, or it can provide programming actually filmed in digital, which can include HDTV. A station also can choose to multicast or to take advantage of the ability of DTV to transmit text or data, such as stock quotes or electronic newspapers. There are concerns that if broadcast stations use their digital channel largely to duplicate the programming from their analog channel, consumers would have little incentive to purchase digital televisions sets and cable systems would have little incentive to carry broadcasters’ DTV channels. This lack of DTV adoption could delay the goal of having broadcasters vacate the spectrum in channels 52 to 69 by the end of 2006 to make the spectrum fully available for public safety and other uses. We asked current DTV stations what services they were offering over their digital spectrum, and they responded as follows: Seventy-four percent of current DTV stations are providing some amount of HDTV content on their digital broadcast channel. These stations reported an average of 23 hours of HDTV content per week. Affiliates of CBS—one of the biggest supporters of HDTV—reported providing more HDTV programming than affiliates of other networks. CBS affiliates of current DTV stations reported an average of 33 hours per week of HDTV programming. Affiliates of the smaller television networks (PAX, UPN, and WB) reported broadcasting no HDTV. Twenty-eight percent of current DTV stations said they are producing some of their own content in digital format, either in standard definition digital or high definition. In addition to offering high definition content, 22 percent of current DTV stations said that some of their programming included the multicasting of two or more programs simultaneously over their digital channel. We contacted a number of these stations to learn precisely what they were doing with their multicasting. We were told by several stations that they are providing a second 24-hour local weather channel or showing a local weather radar picture. Another station told us that they broadcast live feeds from several traffic cameras throughout the state to give current traffic and weather information. Our survey showed that within the first year of broadcasting in digital, commercial transitioning stations plan to do the following: Forty-three percent plan to show nothing more than content that has been converted from analog to digital. Thirty-four percent plan to provide some HDTV content. Eight percent plan to do some multicasting. Our finding that transitioning stations expect to show less digital content than current DTV stations are showing is likely because many of the current DTV stations are affiliates of the top four networks and are in major television markets. By contrast, transitioning DTV stations are more likely than current DTV stations to be unaffiliated with the top four networks or to be in smaller television markets. Unaffiliated stations have less access to the increasing amount of HDTV or other digital content that is provided by the major networks. Smaller stations sometimes rely more on syndicated shows—such as game shows, talk shows, or reruns of popular network programming—that are less likely to have been filmed in digital or high definition. Smaller stations also have fewer resources to buy the equipment necessary to film and produce their own digital content. In fact, only 10 percent of transitioning stations with annual revenues less than $2 million said that they expect to produce any digital content of their own within their first year of digital broadcasting. We asked current DTV stations to describe the overall interest level in digital broadcasts by the consumers in their markets. According to these stations, few consumers have a high interest in DTV. Seven percent of the stations said that consumers in their markets had no interest in DTV, and another 56 percent of the stations described overall consumer interest in their digital broadcasts as “low.” Stations that reported providing more high definition content did not report higher consumer interest than current DTV stations as a whole. Despite broadcasters’ perceptions of low consumer demand for digital and high definition television, only some of the current DTV stations reported undertaking promotion activities that have significant cost in order to promote or market their digital broadcasts. The two most prominent ways stations chose to promote their DTV channel—methods that do not involve great expense—were through a digital or high definition identifier running at the beginning of the program (52 percent) and by making information about digital programming available on the stations’ Web sites (50 percent). In addition to these methods, current DTV stations reported the following: Thirteen percent said they use advertising spots or promotions for specific shows available in high definition, and 22 percent said they advertise their DTV channel. Twelve percent said that their DTV channel is mentioned in the local television listings. Twenty-three percent said they do not promote their DTV channel. Compared with current DTV stations, only 6 percent of transitioning stations reported that they do not plan to promote their DTV channel. Thirty-five percent of transitioning stations said they plan to use advertising spots or promotions regarding their digital channel, 16 percent plan to advertise their high definition programming, and 33 percent said they plan to have their DTV channel mentioned in the local television listings. Transitioning stations answered our survey based on future plans and may or may not promote their DTV channels to the level they indicated on our survey. In this section, we address several issues related to the experiences of broadcasters to date in building their DTV stations. In particular, we discuss (1) the financial costs associated with building the DTV stations, (2) the problems stations reported experiencing (or the problems they expect to experience) in building the DTV stations, and (3) the various government reviews that are involved in building the DTV stations. Broadcasters must make large capital investments to begin broadcasting in digital, and many of the stations we surveyed reported problems in raising the necessary capital. We asked stations to report or estimate the approximate total cost they incurred or expect to incur in complying with the initial requirements for digital transmission—including expenses for a new tower or construction on an existing tower, transmission line, antenna, digital transmiters and encoders, consultants, licensing, and other capital expenditures. Our comparisons of reported costs by station types showed that the average reported costs per station among different types of stations were not dramatically different. Figure 1 shows that current DTV stations and larger stations on average reported somewhat higher costs than transitioning stations and smaller stations. For example, current DTV stations reported an average cost of $3.1 million per station to comply with the initial requirements for digital transmission, while transitioning stations reported an average of $2.3 million per station. Some of the lower cost reported by transitioning stations may be due to recent rule changes by FCC that were designed to reduce the amount stations must spend to meet the initial requirements for digital transmission. For example, FCC’s new rules allow stations to build less than maximum broadcast facilities. FCC staff said they believe that the costs of meeting the requirements for building DTV stations are significantly lower than the costs reported in our survey. The amounts reported to us may be due in part to stations’ reporting their actual costs of construction, even where construction exceeded FCC’s minimum requirements. At a recent meeting of the National Association of Broadcasters, one broadcaster said he was able to go on the air for approximately $125,000 and that most of the equipment he was using could be upgraded to higher power. However, another speaker stated that for some stations, FCC’s minimum requirements are not a long-term solution, particularly for stations that plan to show HDTV, and that upgrading the equipment at a later date could be problematic. Thus, some stations prefer to spend the money initially to build their DTV stations to exceed FCC’s minimum requirements for broadcasting a digital signal. Although there were no dramatic differences in the overall costs of building DTV facilities among various types of stations, our analysis of the reported overall expenditures as a percentage of station annual revenue did show considerable differences among various types of stations. For example, among current DTV stations the overall expenditures averaged 11 percent of annual revenues, while for transitioning stations the overall expenditures averaged 63 percent of annual revenues. For stations with annual revenues below $2 million (based on all stations), the overall expenditures averaged 242 percent of annual revenues. Thus, the overall cost of building the DTV stations appears to be more burdensome for some broadcasters than for others. Given the significant costs reported for getting a DTV signal on the air, it is not surprising that survey respondents cited funding as one of the most common problems they had experienced or expected to experience. Although the overall costs of building the DTV stations reported by broadcasters were fairly similar, the annual revenues of stations and the funding sources available to stations differed. Thus, the problem of obtaining funding did not appear to affect all stations equally. While 14 percent of the current DTV stations said they had experienced problems in the area of funding, 55 percent of transitioning stations reported funding as a problem. This difference raises concerns about the ability of some transitioning stations to pay for construction of their DTV stations and meet the May 1, 2002, deadline for broadcasting in digital. We asked stations what sources of funding they used or expected to use to pay for the building of their DTV stations. Almost half of all commercial stations that responded reported multiple sources of funding. As shown in figure 2, the most commonly cited source of funding for both current DTV stations and transitioning stations was funding from the station owner or parent company. Over 79 percent of current DTV stations had relied, in whole or in part, on their owner or parent company to provide money for their DTV construction. For transitioning stations, 62 percent reported obtaining some amount of funding from the station owner or parent company. This difference may be explained, in part, because stations with earlier DTV deadlines were more likely to have a large corporate parent, whereas transitioning stations are somewhat less likely to be owned by a large parent company. Regarding funding sources, survey respondents also reported the following: Transitioning stations were more than twice as likely to rely on debt financing than current DTV stations. Forty-three percent of transitioning stations reported that they had borrowed or planned to borrow money to fund the construction of their DTV stations, while 16 percent of current DTV stations said they had relied on debt capital. Six percent of the transitioning stations said they were considering sale of the station as a way to fund the DTV transition. We met with a representative of one TV station who said that sale of the station to a larger ownership group might be the only way for the station to fund its transition to DTV. Concerns about a reduction in the number of small, independent broadcasters serving local communities could arise should such sales actually take place. Seventeen percent of transitioning stations reported that they did not know how they would completely fund the construction of the DTV station. This uncertainty raises concerns about whether these stations will be able to broadcast a digital signal on time, given that our survey was conducted only 7 months before the May 2002 deadline. We also asked stations to select the primary funding source from the funding sources that they reported using. Both current DTV stations and transitioning stations most often named funding from the station owner or parent company as their primary funding source. However, 72 percent of current DTV stations said funding from the station owner or parent was their primary source, while 45 percent of transitioning stations listed a station owner or parent as the primary source. Eleven percent of transitioning stations reported that they did not know what would be their primary funding source. Some industry executives noted that there are ways to mitigate the initial costs of the DTV transition. We asked about some of these methods in our survey, and the responses showed the following: Some stations reported sharing a broadcast tower with other stations, which can be less expensive than having an individual, private tower. However, we found no relationship between reported shared tower use and reported lower average overall cost for construction of the DTV station. We were told by industry executives that a temporary or “side-mount” antenna can be less expensive to mount on the broadcast tower and can be used to delay the construction of a new tower. Twenty-seven percent of current DTV stations reported having an antenna in a temporary location; 26 percent of transitioning stations said that they plan to temporarily install an antenna. FCC currently allows a broadcaster to transmit a DTV signal at less than full power. For the broadcaster, this can save money on equipment purchases and energy bills. However, broadcasting at less than full power can reduce the effective market coverage and mean that fewer consumers can receive the over-the-air digital signal. Forty-five percent of current DTV stations reported that they are operating at less than full power and full market coverage, and 50 percent of transitioning stations told us they plan to operate at less than full power when they begin broadcasting in digital. One of the key physical facilities that broadcasters must have in place is the broadcast tower, which supports the digital antenna. We were told by industry executives that some broadcasters can mount the digital antenna on their current analog tower. However, other broadcasters need to increase the height of or reinforce their current tower, while still others must construct an entirely new broadcast tower on which to install their digital antenna. We asked stations what changes they required or expected to require from their existing analog towers. There was great variance among the stations in the need for tower work. While 18 percent of current DTV stations and 20 percent of transitioning stations reported being able to use their current tower without modification, 21 percent of current DTV stations and 25 percent of transitioning stations reported that they needed to build an entirely new tower. Once a station determines its tower needs, it can run into various problems related to constructing the broadcast towers and other facilities needed for DTV transmission. One of the most commonly cited problems among all stations, for example, was weather. Frozen ground, wind, and snow can cause complications in tower work, particularly in the northern states during the winter months, and can lead to delays in DTV construction schedules. Of the stations answering our survey, 41 percent of current DTV stations and 57 percent of transitioning stations cited the weather as a problem that had arisen or that was expected to arise. We spoke with representatives of three tower crew companies who told us that certain types of weather require tower work to be delayed. The tower crew company representatives noted that wind is a particular problem in tower work because the wind patterns above 1,000 feet can be significantly stronger than at ground level, making the work too difficult and dangerous to attempt. We also asked one of the tower crew representatives if the May deadline—following winter—created more problems with regard to weather. The tower crew representative told us that a fall or winter deadline may have been better because May through October were the best months for tower work and tower construction. Another concern noted by many broadcasters—again related to tower work—was “manpower availability.” The digital transition has caused many stations to be requiring tower work within a short time period. Broadcasters said that there are a limited number of tower crews in the United States that are qualified to do the type of work involved in constructing or reinforcing broadcast television towers and mounting broadcast antennas. According to our survey, 30 percent of current DTV stations and 56 percent of transitioning stations cited manpower availability as a problem area or expected problem area. Despite these views by broadcasters, we were told by representatives of the three tower crew companies that, although they are currently busy and have a significant amount of tower worked scheduled for the next few months, they do not feel overwhelmed by work related to the installation of digital antennas and are generally able to provide the services requested by broadcast stations. Broadcasters reported various other problems with building DTV stations, as shown in figure 3. We also examined whether any governmental reviews were necessary during the DTV transition process and, if so, whether such reviews had been the cause of any delays for the stations. Generally, these issues fell under the licensing or review authority of various government entities. Specifically, we asked stations if issues had arisen or were expected to arise regarding the following: (1) review, permitting, or processing by FCC; (2) review or permitting by local authorities; (3) environmental review by state or local authorities; (4) review by the Federal Aviation Administration (FAA); (5) review by the Bureau of Land Management; (6) review by the National Park Service; and (7) coordination with Canadian or Mexican governments. We also asked stations whether the review took longer or was taking longer than they anticipated and whether lengthy reviews or permit processing was considered a problem area. In general, the stations responded as follows: Some stations reported needing multiple reviews by various governmental agencies. For example, 15 percent of current DTV stations and 30 percent of transitioning stations told us they required reviews by three or more government entities. Stations located near a border with another country may require a review by Canadian and Mexican governments for coordination. Of the stations that reported they required such a review, 50 percent of current DTV stations and 73 percent of transitioning stations said the process of getting necessary approvals from Canadian or Mexican authorities had taken longer than they expected. Of the transitioning stations needing Canadian or Mexican review, 65 percent reported they had yet to resolve the international coordination issues. Review by FAA—which often must approve changes to the height of an existing tower or the construction of a new tower, in coordination with FCC—was noted by 19 percent of current DTV stations. Of those, 32 percent said the issue took longer than expected. For transitioning stations, 25 percent reported having or expecting to have an FAA review. In this section, we address several issues related to the progress of transitioning stations in meeting the May 2002 deadline to be on the air with a digital signal. In particular, we discuss (1) the number of transitioning stations that reported they have had problems or expect problems that might keep them from meeting the deadline; (2) the lengths of extensions to the deadline that stations reported would be realistic for their situations; and (3) the dates when stations reported they would have built DTV stations if the transition were based on market forces rather than government mandate. Seventy-four percent of transitioning stations told us that they had problems or expected problems that might keep them from meeting the May 1, 2002, deadline for having a digital signal on the air. In particular: Eighty-five percent of transitioning stations with annual revenues of less than $2 million reported that they had problems that might keep them from meeting the May 2002 deadline. Eighty-four percent of transitioning stations outside of the largest 100 television markets reported that they had problems that might keep them from meeting the May 2002 deadline. Stations that said they might not meet the deadline reported higher incidences of all types of problems. Funding was the most common problem, cited by 66 percent of stations that might not meet the deadline (funding problems were noted by 26 percent of stations that do not expect problems with meeting the deadline). In addition, of the stations that may not meet the deadline, 64 percent reported problems with manpower availability, 55 reported problems with equipment availability, 59 percent reported weather-related problems, and 45 percent reported lengthy permit or review problems. In contrast, of the transitioning stations that do not expect problems with meeting the deadline, 34 percent reported problems with manpower availability, 24 percent reported problems with equipment availability, 49 percent reported weather-related problems, and 26 percent reported lengthy permit or review problems. Station network affiliation and size of the station owner (based on how many broadcast stations the owner held) had little relationship to whether a station expected problems with meeting the deadline. In March 2002, FCC closed an application period for stations with a May 2002 deadline to apply for extensions of time to construct their digital stations. FCC is handling the stations’ applications on a case-by-case basis. FCC allowed stations that applied for an extension to note technical, legal, financial, or other reasons (e.g., natural disaster) for the extension request. Applicants had to show support for the reasons given and mention steps taken to solve or mitigate the problems. In our survey of broadcasters, we asked whether stations should be required to show a “good faith effort” in meeting the deadline before being granted an extension. Seventy percent of current DTV stations and 52 percent of transitioning stations thought that a station should be required to show a good faith effort. As of April 3, 2002, FCC had received applications for extension from 810 commercial stations and had granted 476 of these stations a 6-month extension. FCC granted extensions for more than 200 of these stations on the basis of technical problems alone (e.g., equipment delays). Over 180 stations were given extensions that were based on some combination of technical, legal, financial, or other reasons. No stations were granted extensions that were based solely on financial reasons. The 334 stations not initially granted an extension were sent Letters of Inquiry by FCC in order to obtain more specific information. FCC staff said that many of the letters sought more financial and technical information with respect to finalizing DTV construction plans and that most of the letters gave stations 15 days to respond. In our survey of broadcasters, we asked transitioning stations to estimate a “realistic extension” if FCC were to extend its deadline for them to be on the air with a digital signal. In general, smaller stations were most likely to believe that an extension of more than 2 years was realistic for them. Of the transitioning stations that expected problems with meeting the May 2002 deadline, only 19 percent considered an extension of 6 months or less to be sufficient, while 54 percent said that an extension of 2 years or more was realistic for their situation. Under commission standards, FCC staff may grant up to two extensions, each not to exceed 6 months. Further requests by a station for an extension of its DTV deadline would have to be granted at the commission level. From the responses to our survey, it appears that the 6-month extensions that FCC has granted so far may be insufficient for many transitioning stations and that additional rounds of applications for extension appear likely. We asked broadcasters to estimate when they would likely have begun broadcasting a digital signal—assuming they had been given the spectrum but were not under any government deadline to transition to digital—on the basis of market forces such as competition, technology, and viewer demand. While many current DTV stations said they would have broadcast digitally by the end of 2002, most transitioning DTV stations reported they would have begun broadcasting digitally much later, as shown in figure 4. A small percentage of stations reported that without a government mandate, they never would have chosen to transition to digital technologies. The digital television transition timeline established by FCC included an ambitious construction schedule for DTV stations. The level of difficulty in readying digital broadcasting facilities that was reported to us by transitioning stations indicates that many stations will have problems meeting the timeline. But even after construction of all DTV stations, only part of the DTV transition will have been completed. Because of the 85 percent rule (i.e., the requirement that 85 percent of households in a market be able to receive a digital signal before the analog signals are discontinued), much of the spectrum is likely to remain encumbered by analog broadcast stations until consumers adopt the necessary digital technologies. According to our survey, however, broadcasters currently perceive little consumer demand for digital and HDTV programming. Nonetheless, it appears that the broadcasters will move forward—some more slowly than others—with building the DTV stations. Other market participants—cable and satellite companies, content providers, consumer electronics manufacturers, and others—also play important roles in influencing the speed of the DTV transition. FCC recently addressed the role of these other market participants as well as that of the broadcasters in a letter from Chairman Michael K. Powell to Senator Ernest F. Hollings and Representative W.J. “Billy” Tauzin. In the letter, Chairman Powell proposed voluntary industry actions to speed the DTV transition by calling for the provision of more HDTV or other value-added DTV programming, more cable carriage of DTV channels, the provision of cable set-top boxes that allow for the display of HDTV programming, and the inclusion of over-the- air DTV tuners into almost all new television receivers by the end of 2006. If embraced by the industry, these actions could help to keep the DTV transition on track since their combined effect would be to encourage consumers to adopt DTV technologies. We will examine these critical issues in our next report on the digital television transition, which we expect to issue in November 2002. We provided a draft of this report to FCC staff for their review and comment. FCC staff believes that its Memorandum Opinion and Order on Reconsideration, which was adopted on November 8, 2001, may have a substantial impact on certain survey responses made before that date. In the order, the commission modified its rules to permit stations to adopt a more graduated approach to providing DTV service, initially operating with lower powered—and therefore less expensive—DTV facilities, while retaining the right to expand their coverage area as the transition continues to progress. We added information related to FCC’s order in this report. FCC staff also provided technical comments that were incorporated throughout this report as appropriate. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 10 days after the date of this letter. At that time, we will send copies to interested congressional committees; the chairman, FCC; and other interested parties. We will also make copies available to others upon request. If you have any questions about this report, please contact me at 202-512-2834 or [email protected]. Key contacts and major contributors to this report are listed in appendix VIII. To provide information on the progress in building digital television (DTV) stations and on broadcaster problems and concerns, we mailed surveys to all full-power, on-the-air commercial and public broadcasting stations. To develop our survey questions, we interviewed officials at the Federal Communications Commission (FCC) as well as officials of organizations representing industries affected by the transition to DTV. We also reviewed relevant documents, such as FCC orders and proposed rulemakings. We then conducted pretests with several individual broadcast stations to help further refine our questions, identify any unclear portions of the survey, and identify any potentially biased questions. These pretests were conducted in-person and by telephone with stations covering a number of different metropolitan areas. Two versions of our survey were developed, one for stations that had begun broadcasting a digital signal (“current DTV stations”) and one for stations that had not begun broadcasting a digital signal (“transitioning stations”). The survey questions and detailed survey results for commercial stations are contained in appendixes IV and V, and the questions and results for public stations are contained in appendixes VI and VII. To provide the population information, we acquired the MEDIA Access Pro database of BIA Financial Network, Inc., which is a private firm that specializes in broadcast industry data. This database provided us with the names, addresses, and other contact information of broadcast stations as well as information on such things as station size and ownership, station revenues, market size, and station operating status. We also used this database to determine which stations were commercial and which were public as well as which were broadcasting in digital and which were not. The digital broadcasting status listed in BIA’s database was combined with information from the National Association of Broadcasters’ Web site to determine which version of the survey to mail to each station. We mailed surveys to all full-power commercial and public television stations on the air at the end of September 2001. We sent a different survey to any station that indicated that we had misclassified its digital broadcasting status. As such, some of the stations that filled out the survey for digital stations began that service after September 2001. Our survey was not sent to low- power commercial broadcast stations because these stations have not been required by FCC to transition to digital technologies. In addition, the survey was not mailed to the eight stations in New York City whose broadcast towers atop the World Trade Center were destroyed in the September 11 terrorist attacks. Instead, we spoke directly to a representative of each of these stations to gather information about how the events of September 11 affected their operations generally and affected their DTV plans in particular. A discussion of the situations of the stations in New York City is provided in appendix II. We also adjusted the survey population to exclude the few stations that (1) had recently gone off the air, (2) indicated that they were not assigned a digital channel, or (3) were broadcasting outside of the United States. The resulting population to which we sent surveys consisted of 1,182 full-power commercial television stations and 372 full-power public television stations on the air at the end of September 2001. We first mailed our survey in early October 2001. However, on October 15, 2001, all incoming mail to our headquarters was halted due to the receipt of letters containing anthrax by several federal agencies in the Washington, D.C., area. We received no U.S. mail for more than 2 months. On December 27, 2001, we conducted a second mailing of the survey to all stations from which we had not received a survey response before October 15, 2001. This time, surveys were mailed from and returned to our Boston field office. The second mailing went only to commercial stations due to time constraints on the research phase created by the mail stoppage. For commercial stations that may have completed and returned the survey twice, only the original survey from the October mailing was analyzed. We made a third and last attempt to contact the commercial station nonrespondents in telephone reminder calls during the first 2 weeks of March. These telephone contacts resulted in an additional 237 questionnaires from late respondents (approximately 27 percent of all commercial responses). Of the population of broadcast stations, we received 1,036 of 1,554 usable questionnaires, for an overall response rate of 67 percent. We received 135 of 168 surveys from commercial current DTV stations (80 percent response rate) and 15 of 37 surveys from public current DTV stations (41 percent response rate). We received 727 of 1,014 surveys from commercial transitioning stations (72 percent response rate) and 159 of 335 public transitioning stations (47 percent response rate). We conducted two types of analyses of commercial stations to evaluate the possibility that the respondents might differ from nonrespondents. Although there is some evidence of differences, these are not sufficiently consistent nor large enough to provide a basis for adjusting our survey responses. The first type of analysis directly compared two measures of the size of the responding and nonresponding stations. The nonrespondents tended to be from larger markets and from larger ownership groups. For the transitioning stations, for example, 40 percent of the nonrespondents and 31 percent of the respondents were from the top 50 markets. The second analysis compared the early responses (sent between October and February) with the later responses (sent in March). The evidence was mixed as to whether the earlier or later responding stations might have more difficulties in meeting the DTV station deadline. On the one hand, transitioning early respondents were less likely than transitioning late respondents to give the direct assessment that they might have problems in meeting the deadline (73 percent and 80 percent, respectively). On the other hand, early respondents were more likely than late respondents to report experiencing specific types of digital transition problems. For example, a funding problem was reported by 19 percent of digital early respondents versus 5 percent of digital late respondents, and 62 percent of transitioning early respondents versus 43 percent of transitioning late respondents. No definite pattern emerges from these findings, and it is unclear whether differences are due to actual differences in the station characteristics of early and later respondents or to the differing proximity to the deadline for broadcasting a digital signal. Questionnaires were mailed to station managers but were completed by station managers, station engineers, or officials of the station owner or parent company. All returned questionnaires were reviewed, and we called respondents to obtain information where clarification was needed. All data were double keyed and verified during entry, and computer analyses were performed to identify any inconsistencies or other indications of errors. Because the questionnaires were mailed to all broadcast stations in the appropriate population, percentage estimates do not have sampling errors. Other potential sources of errors associated with the questionnaires, such as question misinterpretation and question nonresponse, may be present. This appendix focuses on the special circumstances of the broadcast television stations in New York City following the terrorist attacks of September 11, 2001. We did not mail our survey to the New York City stations, but instead conducted telephone interviews with the stations in December 2001 and January 2002. Since the attacks, the eight local broadcasters whose antennas and other equipment were located atop the twin towers of the World Trade Center have struggled to restore over-the- air service to their viewers. Of these eight stations, six said they had completed building their DTV stations by September 11 and were broadcasting digital signals. All six digital antennas were also lost in the collapse of the World Trade Center. All of the broadcasters with whom we spoke stated that restoration of their full-power analog signals was their highest priority. The destruction of the World Trade Center buildings on September 11, 2001, also destroyed the antennas, transmitters, and associated equipment of eight broadcast television stations. Lacking immediate backup transmission equipment or other immediate contingency plans, the stations ceased over-the-air broadcasts entirely on September 11. Several of the stations had direct fiber links to some or all of the cable systems on which their analog signal was carried; thus these stations were able to continue providing a signal to some portion of their cable viewers on September 11. In addition, several of the broadcasters were carried on the direct broadcast satellite (DBS) systems of DirecTV and EchoStar and, although in some cases the broadcast signals were momentarily disrupted, local broadcast channel service continued for satellite subscribers on September 11. Within 10 days of September 11, most of the stations said they had resumed over-the-air broadcasting from a temporary tower in Alpine, N.J. However, the broadcasters considered the move to Alpine a short-term solution. Station executives with whom we spoke said that, although they were pleased that the site was immediately available, they were disappointed to discover that signal weakness from the site meant that only about 70 percent of their viewers could be reached. Some stations attempted to increase coverage by arranging for additional cable providers to carry their signals via fiber links. However, we were told that large numbers of viewers—particularly in Brooklyn and Queens—do not subscribe to cable service. Station executives told us that fully restoring their over-the-air analog broadcasts was of the highest priority. It is the analog signal—not the digital signal—that the stations count on for their revenue stream. One executive estimated that his station’s signal is still lost to over 3 million viewers since September 11. We were told that it will take up to 3 years to achieve full analog signal restoration because each station must repair transmission lines, install new antennas, acquire backup generators, and negotiate for temporary and permanent space on rooftops and towers. An immediate need for the broadcasters was to negotiate the terms of placing antennas, transmitters, and other equipment atop the Empire State Building, which was the favored temporary location due to its more than 100-story height. By mid-October, nearly every local TV station had begun to broadcast from the roof of the Empire State Building. Although the Empire State Building seemed initially to be an effective substitute for the World Trade Center location, unanticipated constraints arose, including limited physical space, an aging infrastructure, and the lower height (as compared with the World Trade Center). First, we were told that space on the Empire State Building’s rooftop is severely limited. Many of New York City’s radio stations have broadcast from the rooftop for decades, and, as the rooftop is currently configured, there is little room for the TV stations to install new broadcasting equipment. Second, the station representatives said that television broadcasting is limited by engineering constraints related to the Empire State Building’s aging infrastructure. Unlike the World Trade Center buildings, the Empire State Building’s infrastructure is more than 70 years old. While considered a safe building for workers, it is nonetheless a fragile physical plant on which to place the amount of broadcasting equipment required by eight television stations. The aging infrastructure also creates wiring and powering issues. One station representative said that it simply may not be possible to wire the Empire State Building to power the necessary antennas, transmitters, and associated equipment. Third, the broadcasters used antennas perched on a 343-foot tower rising from a 110- story base when they were using the World Trade Center. The Empire State Building offers either operation from a 200-foot tower atop the somewhat lower roofline or operation from the 81st floor. In either case, nearby Manhattan buildings—even the Empire State Building itself—cause interference with the stations’ signals and prevent reception for some viewers. One executive we spoke with believed that the Empire State Building would serve more effectively as a backup transmission location. Another executive noted the importance of this backup role, since the events of September 11 so dramatically demonstrated the need for “transmission redundancy.” Broadcasting at less than their accustomed levels of power and sharing limited space at and near the Empire State Building’s roof, stations have continued to experience difficulty in reaching their entire audience. The Alpine site also reduces stations’ market coverage. Reaching Brooklyn and Queens has been particularly problematic because viewers in these boroughs must contend with signals that are weakened or blocked by a variety of Manhattan obstructions. One station executive told us that he is currently reaching only about 80 percent of his viewers citywide. Concomitant with securing temporary tower space at the Empire State Building is the stations’ need to find a new permanent location for their antennas. Currently, industry stakeholders are negotiating to select a location that is acceptable to all parties. Station executives with whom we spoke said that their preference is Governor’s Island, which is currently owned by the federal government and located in New York Harbor near lower Manhattan.The station executives consider the island to be a nearly optimal location because it is unused, virtually vacant, and lacks private residents who might object to the construction of broadcast towers. In addition, use of the island would allow all stations to be located together, thus obviating the need for each station to secure its own space in Manhattan proper. While station executives attempt to secure permanent broadcasting space, they must grapple with a range of budget and finance matters. We were told that, in particular, stations are dealing with (1) ensuring redundancy in equipment placement, which requires negotiating twice for building rent, consulting services, and other key purchases; (2) seeking reimbursement from insurers for losses directly attributable to the events of September 11; and (3) retaining high-quality programming so that affected viewers will return when the analog signal is fully restored. Station executives with whom we spoke emphasized the need for “redundancy” of their broadcast signal as a precaution against future terrorist attacks, natural disasters, or other calamities. This redundancy requires stations to invest at least twice the amount that would be required simply to replace the equipment that was destroyed on September 11, contract twice for the services of design and engineering consultants, and seek permits and negotiate rent at two distinct locations. In addition, stations are currently negotiating with their insurance companies to determine precisely what is reimbursable in the wake of the September 11 events. One station executive told us that his “complex claim” could surpass $30 million. Although some of this amount represents lost hardware, he said, some of it represents a request for reimbursement of lost revenue. The amount of lost advertising revenue is difficult to estimate and insurers have argued that the events of September 11 are not the sole cause of lower advertising revenues. Six of the eight stations had completed building their DTV stations before September 11, 2001, and all six lost their digital antennas. The other two stations were in the process of building their DTV infrastructure. Station executives with whom we spoke said that restoring full traditional analog service was their immediate priority. However, one executive noted the importance of regaining digital broadcasting capabilities in the long term. Ultimately, he said, viewers will want high definition content and other digital services. Another station executive mentioned that reacquiring digital capability was essential to recoup earlier financial investments in digital technologies. The eight stations’ reported costs-to-date on the digital transition ranged from $250,000 to $27 million. The station executives reiterated their commitment to high definition content, although they acknowledged that the viewers of New York City had yet to express widespread interest in HDTV. However, the executives anticipated that this will change as equipment prices decline and as HDTV is more aggressively promoted in coming years. Before September 11, 2001, local stations were broadcasting sports (such as the games of the New York Mets), cultural programs (such as Live from the Met), children’s shows, nature shows, and other special programming in high definition format. One station had plans for a high definition broadcast of the Tournament of Roses Parade on January 1, 2002. Stations with whom we spoke were unable to estimate precisely when they might have their digital signals back on the air, although one station was hoping to be broadcasting a limited digital signal by May 2002. We were told by the station executives that, in the wake of the World Trade Center attacks, FCC was cooperative, supportive, and accommodating—a full partner in helping to restore broadcast television service to the New York metropolitan area. Specifically, according to the station executives, FCC offered temporary licenses, facilitated stations’ moves to Alpine and the Empire State Building, and issued necessary waivers. One station executive said that FCC acknowledged and approved requests “in minutes, rather than days or weeks,” while another expressed appreciation that FCC had granted it temporary permission to file requests electronically. This executive expressed satisfaction with the proactive nature of FCC’s involvement, noting that an FCC official called him within a day of the World Trade Center attacks to ask how the agency might facilitate the rebuilding process. The executives felt that other federal, state, and local government agencies have been similarly cooperative, including the U.S. Department of Commerce, the Federal Emergency Management Agency, the Federal Aviation Administration, and the Port Authority of New York & New Jersey. The federal mandate that all full-power broadcast television stations must transition to digital technologies also applies to the nation’s 380 public television stations. FCC has ordered that these stations have a digital signal on the air by May 1, 2003. We mailed surveys to all full-power, on- the-air public stations. Public stations were sent the same survey as commercial stations. Just as with the commercial stations, they were sent one version of the survey if they were already broadcasting a digital signal (“current DTV stations”) and another version of the survey if they had not begun broadcasting a digital signal (“transitioning stations”). We did one mailing to the public stations in early October 2001. For more information on our response rates, see appendix I. Our survey responses from public stations were often similar to the responses of commercial stations. In this appendix, we report mostly on areas where survey results differed from those of the commercial stations. See appendixes VI and VII for complete results from the public stations. As of April 12, 2002, according to FCC, there were 60 public stations on the air with a digital signal. Costs reported for the digital transition were $3.0 million for public current DTV stations and $2.6 million expected for public transitioning stations. Again, the costs are not dramatically different (the costs for commercial stations having been $3.1 million for current DTV stations and $2.3 million for transitioning stations). One of the biggest differences between public and commercial stations was the reported funding sources for building the DTV station. Commercial stations often relied on funding from the corporate parent or owner. For public stations, the most reported funding sources were state government funding, station cash reserves, federal funding or grants from the National Telecommunications and Information Administration, and fund-raising or private grants. Both public current DTV stations and transitioning stations reported that they relied heavily on state government funding sources. Current DTV stations also reported relying heavily on station cash reserves. The public stations that had already gone on the air with a digital signal— all of which chose to do so ahead of the schedule set by FCC—reported that they were often providing their viewers with high definition content. Eighty percent of public current DTV stations said they were offering some HDTV programming. Many had their digital signal on the air constantly; the stations averaged 50 hours per week of HDTV content and 66 hours per week of multicasting. Two-thirds of current DTV stations said they were producing some of their own content in digital. Of the transitioning stations, most had various plans for their digital channel, including 84 percent that said they planned some amount of HDTV and 73 percent that said they planned some amount of multicasting. Fifty-three percent plan to produce their own content in digital. As for problems that the public stations were experiencing or expecting, funding ranked as the most reported problem. Similar to the commercial stations, funding was said to be a problem by 76 percent of transitioning stations. Weather was reported as a problem by 57 percent of transitioning stations, and lengthy permit reviews were reported by 30 percent of transitioning stations. Another difference from the commercial stations was the number of public transitioning stations that said they might not make the deadline for broadcasting a digital signal. While 74 percent of commercial stations said this, 45 percent of public stations said this. It is likely that the additional year given to public stations in the FCC’s schedule partly explains the lower number of public stations that think they will fail to meet their deadline. There were also differences in the extensions that public stations felt they might need from FCC. Thirty-eight percent of public stations said they would need an extension of 2 years or more, compared with 54 percent of commercial stations that said this. Lastly, public stations were more optimistic about when they would have had a DTV signal on the air had they not been given a timeline. Fifty-two percent of public transitioning stations said they would have been on the air in digital by 2006 (compared with 46 percent of commercial transitioning stations). In addition to those named above, Naba Barkakati, Jason Bromberg, Aaron Casey, Michael Clements, Michele Fejfar, James M. Fields, Rebecca Medina, Christopher Miller, Emma Quach, Kevin Tarmann, Thomas Taydus, Madhav Panwar, Mindi Weisenbloom, and Alwynne Wilbur made key contributions to this report. The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. 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U. S. broadcast television stations are now switching from analog to digital television (DTV). The transition to digital technologies was sought by many broadcasters and was mandated by Congress and the Federal Communications Commission (FCC). FCC established 2006 as the target date for ending analog transmissions---a deadline later codified by Congress. At least 24 percent of all commercial television stations are now broadcasting a digital signal. However, these stations report little interest in receiving DTV. Transitioning stations reported that funding was one of the most prevalent problems. Seventy-four percent of transitioning stations indicated that the problems they are facing are so significant that they may not be able to begin broadcasting a DTV signal by May 2002, as required. Sixty-eight percent of transitioning stations said that a realistic extension for them would be one year or more. Thirty-one percent of the transitioning stations that said they might miss their May 2002 deadline reported that, if the transition were driven by market forces such as competition, technology, and consumer demand, they likely would not be on the air with a digital signal until after 2010. Another four percent of these stations reported that without a government mandate, they likely would never transition to digital.

You are an expert at summarizing long articles. Proceed to summarize the following text: DOD is one of the largest and most complex organizations in the world. In fiscal year 2003, DOD reported that its operations involved over $1.1 trillion in assets, over $1.5 trillion in liabilities, approximately 3.3 million military and civilian personnel—including guard and reserve components, and disbursements of over $416 billion. Execution of these operations spans a wide range of defense organizations, including the military services and their respective major commands and functional activities, numerous large defense agencies and field activities, and various combatant and joint operational commands that are responsible for military operations for specific geographic regions or theaters of operations. To execute these military operations, the department performs an assortment of interrelated and interdependent business functions, including logistics management, procurement, health care management, and financial management. To support its business functions, DOD reported in April 2003 that it relied on about 2,274 business systems, including accounting, acquisition, logistics, and personnel systems. To support its existing systems environment, DOD requests billions of dollars annually. The Assistant Secretary of Defense for Networks and Information Integration—DOD’s CIO—is responsible for compiling and submitting the department’s IT budget reports to Congress and the Office of Management and Budget (OMB). According to a DOD CIO official, the information in the IT budget request is initially prepared by various DOD components and processed through their respective CIOs and comptrollers. The information is then forwarded to the DOD CIO office, where it is consolidated before being sent to OMB and Congress. The DOD component CIOs and comptrollers are responsible for, and are required to certify, the reliability of the information about their respective initiatives that is included in the IT budget request. DOD continues to confront pervasive, decades-old financial and business management problems related to its systems, processes (including internal controls), and people (human capital). These problems have (1) resulted in a lack of reliable information needed to make sound decisions and report the status of DOD’s activities through financial and other reports; (2) hindered its operational efficiency; and (3) left the department vulnerable to fraud, waste, and abuse. For example: Of the 481 mobilized Army National Guard soldiers from six GAO case study Special Forces and Military Police units, 450 had at least one pay problem associated with their mobilization. DOD’s inability to provide timely and accurate payments to these soldiers, many of whom risked their lives in recent Iraq or Afghanistan missions, distracted them from their missions, imposed financial hardships on the soldiers and their families, and has had a negative impact on retention. Some DOD contractors have been abusing the federal tax system with little or no consequence and DOD is not collecting as much in unpaid taxes as it could. Under the Debt Collection Improvement Act of 1996, DOD is responsible—along with the Department of the Treasury—for offsetting payments made to contractors to collect funds owed, such as unpaid federal taxes. However, we found that DOD had collected only $687,000 of unpaid taxes as of September 2003. We estimated that at least $100 million could be collected annually from DOD contractors through effective implementation of the levy and debt collection program. Our review of fiscal year 2002 data revealed that about $1 of every $4 in contract payment transactions in DOD’s MOCAS system was for adjustments to previously recorded payments—$49 billion of adjustments out of $198 billion in disbursement, collection, and adjustment transactions. According to DOD, the cost of researching and making adjustments to accounting records was about $34 million in fiscal year 2002, primarily to pay hundreds of DOD and contractor staff. Tens of millions of dollars are not being collected each year by military treatment facilities from third-party insurers because key information required to effectively bill and collect from third-party insurers is often not properly collected, recorded, or used by the military treatment facilities. The long-standing problems continue despite the significant investments made in DOD business systems each year. The challenges continue, in part, because of DOD’s inability to effectively modernize its business systems. For example, our March 2003 report and testimony concluded that DOD had not effectively managed and overseen its planned investment of over $1 billion in four DFAS systems modernization efforts. DOD has terminated two of the four DFAS systems modernization projects—the Defense Procurement Payment System (DPPS) and the Defense Standard Disbursing System (DSDS). The DOD Comptroller terminated DPPS in December 2002 after more than 7 years of effort and an investment of over $126 million, citing poor program performance and increasing costs. DFAS terminated DSDS in December 2003 after approximately 7 years of effort and an investment of about $53 million, noting that a valid business case for continuing the effort could not be made. These two projects were planned to provide DOD the capability to address some of its long-standing contract and vendor payment problems. Since 1990, we have identified DOD’s management of secondary inventories (spare and repair parts, clothing, medical supplies, and other items to support the operating forces) as a high-risk area. One primary factor contributing to DOD’s inventory management weaknesses is its outdated and ineffective systems. These system deficiencies have hindered DOD’s ability to (1) support its reported inventory balances; (2) provide inventory visibility; and (3) provide accurate financial and management information related to its property, plant, and equipment. For example: DOD incurred substantial logistical support problems as a result of weak distribution and accountability processes and controls over supplies and equipment shipments in support of Operation Iraqi Freedom activities, similar to those encountered during the prior Gulf War. These weaknesses resulted in (1) supply shortages, (2) backlogs of materials delivered in theater but not delivered to the requesting activity, (3) a discrepancy of $1.2 billion between the amount of materiel shipped and that acknowledged by the activity as received, (4) cannibalization of vehicles, and (5) duplicate supply requisitions. Inadequate asset visibility and accountability resulted in DOD selling new Joint Service Lightweight Integrated Suit Technology—the current chemical and biological protective garment used by our military forces—on the Internet for $3 each (coat and trousers) while at the same time buying them for over $200 each. DOD has acknowledged that these garments should have been restricted to DOD use only and therefore should not have been available to the public. Our analysis of data on more than 50,000 maintenance work orders opened during the deployments of six battle groups indicated that about 29,000 orders (58 percent) could not be completed because the needed repair parts were not available on board ship. This condition was a result of inaccurate ship configuration records and incomplete, outdated, or erroneous historical parts demand data. Such problems not only have a detrimental impact on mission readiness, they may also increase operational costs due to delays in repairing equipment and holding unneeded spare parts inventory. Transformation of DOD’s business systems and operations is critical to the department having the ability to provide Congress and DOD management with accurate and timely information for use in the decision-making process. One of the key elements we have reported as necessary to successfully execute the transformation is establishing and implementing an enterprise architecture. In this regard, the department has undertaken a daunting challenge to modernize its existing business systems environment through the development and implementation of a BEA or modernization blueprint. This effort is an essential part of the Secretary of Defense’s broad initiative to “transform the way the department works and what it works on.” As previously noted, the department has designated seven domain owners to be responsible for implementing the BEA, which includes (1) performing system reviews and approving initiative funding as part of investment management and (2) enforcing compliance with the BEA. In April 2003, DOD reported that its business systems environment consisted of 2,274 systems and systems acquisition projects spanning numerous business operations that were divided into the seven domains and established a domain leader for each area. DOD’s efforts to manage the modernization initiative include a strategy to vest the domains with the authority, responsibility, and accountability for business transformation, extension and implementation of the architecture, and investment management. We have also recommended that DOD establish an investment management structure to gain control over business system investments by (1) establishing a hierarchy of investment review boards from across the department, (2) establishing a standard set of investment review and decision-making criteria for its ongoing IT system projects, and (3) directing the boards to perform a comprehensive review of all ongoing business system investments. Two of the business systems modernization efforts DOD has under way to address some of its inventory problems are DLA’s BSM and the Army’s LMP. These two business systems represent approximately 19 percent of the $770 million of the modernization funding requested in fiscal year 2004 for logistics systems. DLA and the Army are using the same commercial-off- the-shelf (COTS) enterprise resource planning software package. DLA and the Army are using the inventory management portion of the package. BSM. In November 1999, DLA initiated an effort to replace its materiel management systems—the Standard Automated Materiel Management System (SAMMS) and the Defense Integrated Subsistence Management System—with BSM. DLA has used the two existing systems for over 30 years to manage its inventory. BSM is intended to transform how DLA conducts its operations in five core business processes: order fulfillment, demand and supply planning, procurement, technical/quality assurance, and financial management. BSM was deployed in July 2002 and is operating at the Defense Supply Center Columbus—Columbus, Ohio; the Defense Supply Center Philadelphia—Philadelphia, Pennsylvania; the Defense Supply Center Richmond—Richmond, Virginia; the Defense Distribution Center—New Cumberland, Pennsylvania; the DLA Logistics Information Service—Battle Creek, Michigan; and DLA headquarters—Fort Belvoir, Virginia. The initial deployment included low-volume, low-dollar- value items. BSM has about 900 users and is populated with over 170,000 inventory items valued at about $192 million. Once it becomes fully operational, BSM is expected to have about 5,000 users and control and account for about 5 million inventory items valued at about $12 billion. DLA currently estimates that it will invest approximately $850 million to fully deploy BSM. LMP. In February 1998, the U.S. Army Materiel Command (AMC) began an effort to replace its existing materiel management systems—the Commodity Command Standard System and the Standard Depot System— with LMP. The Army has used the existing systems for over 30 years to manage its inventory and depot maintenance operations. LMP is intended to transform AMC’s logistics operations in six core processes: order fulfillment, demand and supply planning, procurement, asset management, materiel maintenance, and financial management. LMP is a 12-year acquisition requirements contract. LMP became operational at the U.S. Army Communications and Electronics Command (CECOM), Fort Monmouth, New Jersey, and Tobyhanna Army Depot, Tobyhanna, Pennsylvania, in July 2003. The initial deployment of LMP consisted of inventory items such as electronics; electronic repair components; and communications and intelligence equipment such as night vision goggles, electronic components such as circuit boards, and certain munitions such as guidance systems included in missiles. Currently, LMP has 4,500 users at 12 locations and is populated with over 2 million inventory items valued at about $440 million. When LMP is fully implemented, its capacity is expected to include more than 15,000 users at 149 locations and will be populated with 6 million Army-managed inventory items valued at about $40 billion. The Army currently estimates that it will invest approximately $1 billion to fully deploy LMP. For fiscal year 2004, DOD requested approximately $28 billion in IT funding to support a wide range of military operations as well as DOD business system operations, of which approximately $18.8 billion is for the reported 2,274 business systems—$4.8 billion for business systems development/modernization and about $14 billion for operation and maintenance. As shown in figure 1, the $28 billion is spread across the military services and defense agencies. The $28 billion represents a $2 billion increase over fiscal year 2003. The department’s business systems are used to record the events associated with DOD’s functional areas, such as finance, logistics, personnel, and transportation. Table 1 shows how business system funding is spread across the various DOD components. OMB requires that funds requested for IT projects be classified as either steady state (referred to by DOD as “current services”) or as development/modernization. Current services are funds for operating and maintaining systems at current levels (i.e., without major enhancements). The development/modernization budget category represents funds for developing new IT systems or making major enhancements to existing systems. Some systems, such as BSM, have both current services and development/modernization funding. For BSM, while current services are to be used for operating the system at various DLA locations, development/modernization funds are to be used for activities such as developing additional system functionality. For fiscal year 2004, DLA’s IT budget request, including BSM, was $452 million for current services and $322 million for development/modernization. Generally, current services are financed through the Operation and Maintenance appropriations, whereas development/modernization funding can come from any one or combination of several funding sources, such as the Research, Development, Test, and Evaluation appropriations; the Procurement appropriations; or the Defense Working Capital Fund. As part of DOD’s ongoing business systems modernization efforts, DOD’s Business Management Modernization Program (BMMP) and Business Management and Systems Integration (BMSI) office are creating a repository of the department’s existing business systems. DOD reported that as of April 2003, this environment consisted of 2,274 systems and system acquisition projects. To provide for investment management, DOD assigned the systems to the seven domains. For example, DOD assigned 565 systems to the logistics domain, 210 of which primarily perform inventory functions and 32 of which perform transportation functions. Similarly, the accounting and finance domain has 542 systems of which 240 primarily perform finance and accounting functions. Table 2 presents the composition of DOD’s reported business systems by domain and functional area. Table 2 clearly indicates that there are numerous redundant systems operating in the department today. For example, DOD has reported that it has 16 vendor pay systems that are used to pay contractors for services provided. A further illustration is the department’s statement that the Defense Integrated Military Human Resources System, which is to serve as DOD’s integrated military personnel and pay system, will replace a reported 79 existing systems. BMSI officials stated that they are validating the 2,274 different systems and related functional area categories, as illustrated in table 2, with the domains. Although the systems are different, functional area categories may be the same among the domains. For example, the Accounting and Finance and Strategic Planning and Budgeting domains both report having systems that perform finance and accounting functions. BMSI officials have stated that through the BMSI office’s validation efforts, the functional area categories may be renamed or systems may be reclassified to other functional areas. For example, BMSI officials explained that the finance and accounting functional area within the Strategic Planning and Budgeting domain may be changed to Budgetary Financial Data. Although the BMSI office has created an initial repository of 2,274 business systems to support DOD’s systems modernization efforts, its systems inventory is currently neither complete nor informative enough for decision making. For example, according to logistics domain officials, there are currently about 3,000 systems just within the logistics domain. Of that amount, about 1,900 systems have been validated by the DOD components as logistics systems—that is, they are not merely a spreadsheet or a report. Such a determination has not been made for the other 1,100. Our analysis showed that of the 1,900 systems, 253 systems are included in DOD’s reported 2,274 business systems. According to logistics domain officials, they are in the process of determining if the remaining systems should be classified as a business system or a national security system. The BMSI office has not reported additional systems since April 2003 because it is continuing to reconcile its inventory with two other databases—the IT Registry and the Information Technology Management Application (ITMA). This reconciliation is necessary because the three databases are not integrated. The IT Registry is a database of mission- critical and mission-essential IT systems maintained by the DOD CIO. As reported by the DOD Inspector General (IG), each DOD component could determine whether a system should be reported as mission critical or mission essential in the IT Registry. Since the definitions were subject to interpretation, the DOD IG concluded that the IT Registry would not necessarily capture the universe of DOD business systems. The ITMA is an application used by the DOD CIO to collect system information for the development of the department’s annual IT budget request. Each of these databases—the IT Registry, the ITMA, and the BMMP systems inventory— contains varying information, some of which overlaps. For example, the IT Registry includes warfighting systems as well as some business systems, while the BMMP inventory includes only systems related to the department’s business operations. The ITMA includes initiatives and programs, such as the department’s BEA effort, that are not IT systems. Although DOD recognizes that it needs an integrated repository of systems information in order to control and prioritize its IT investments, the difficulty of developing a single source is compounded by the fact that DOD has not developed a universal definition of what should be classified as a business system. Lacking a standard definition that is used consistently across the entire department, DOD does not have reasonable assurance that it has identified all of its business systems. As a result, DOD does not have complete visibility over its business systems to permit analysis of gaps and redundancies in DOD’s business systems environment and to assist in preventing the continuing proliferation of redundant, stovepiped business systems. Furthermore, DOD cannot provide reasonable assurance to Congress that its IT budget request includes all funding for the department’s business systems. For example, we reported in December 2003, that DOD’s IT budget submission to Congress for fiscal year 2004 contained material inconsistencies, inaccuracies, or omissions that limited its reliability. We identified discrepancies totaling about $1.6 billion between two primary parts of the submission—the IT budget summary report and the detailed capital investments reports on each IT initiative. These problems were largely attributable to insufficient management attention and limitations in departmental policies and procedures, such as guidance in DOD’s Financial Management Regulation, and to shortcomings in systems that support budget-related activities. DOD continues to lack effective management oversight and control over business systems modernization investments. While the domains have been designated to oversee business systems investments, the actual funding, as shown in table 1, continues to be spread among the military services and defense agencies, thereby enabling the numerous DOD components to continue to develop stovepiped, parochial solutions to the department’s long-standing financial management and business operation challenges. Furthermore, the department does not have reasonable assurance that it is in compliance with the fiscal year 2003 defense authorization act, which provides that obligations in excess of $1 million for systems improvements may not be made unless the DOD Comptroller makes a determination that the improvements are in accordance with the criteria specified in the act. Lacking a departmentwide focus and effective management oversight and control of business systems investment, DOD continues to invest billions of dollars in systems that fail to provide integrated corporate solutions to its business operation problems. In response to our September 2003 report, DOD said that it was taking several actions to improve the control and accountability over business systems investments. However, as of March 2004, many of these actions had not been finalized. As a result, the department has not put into place the organizational structure and process controls to adequately align business system investments with the BEA. Each DOD component continues to make its own investment decisions, following different approaches and criteria. The lack of an institutionalized investment strategy has contributed to the department’s current complex, error-prone, nonintegrated systems environment and precluded the development of corporate system solutions to long-standing business problems. In particular, DOD has not clearly defined the roles and responsibilities of the domains, established common investment criteria, and conducted a comprehensive review of its ongoing IT investments to ensure that they are consistent with the BEA. As we have previously reported, best practices recommend that investment review boards be established to control an entity’s systems investments and that the boards use a standard set of investment review and decision-making criteria to ensure compliance and consistency with the architecture. We have also recommended that the department establish investment review boards to better control investments and that each board be composed of representatives from across the department. DOD has decided that in lieu of the investment review boards, the domains will be responsible for investment management. In March 2004, the Deputy Secretary of Defense signed an IT portfolio investment management policy and assigned overall responsibility to the domains. However, the specific roles and responsibilities of the domains had not been formalized and standard criteria for performing systems reviews have not been finalized. According to DOD officials, the related detailed directive and instructions will outline the specific roles and responsibilities of the domains and how they are to be involved in the overall business systems investment management process. The department is drafting a memorandum that will require the domains to develop a plan for implementing the investment management policy. Further, the department has developed draft system review and certification process guidance that outlines the criteria that are to be used by the domains and program managers to assess system compliance with the BEA. The systems covered in the review process consist of new system initiatives, ongoing system developmental projects, and systems in sustainment. According to DOD, once a system is placed in sustainment, modernization funding cannot exceed $1 million. The system review and certification process guidance has been integrated with the department’s existing acquisition guidance—commonly referred to as the DOD 5000 series. The acquisition guidance requires that certain documentation be prepared at different stages—known as milestones—within the system’s life-cycle process. This documentation is intended to provide relevant information for management oversight and for decision making on whether the investment of resources is cost beneficial and technically feasible. DOD officials noted that the system review process would be further enhanced because the DOD Comptroller will have to certify that the proposed investment is consistent and aligned with the BEA at each milestone decision. According to DOD, the certification process will help ensure that the obligation of funds of over $1 million for the modernization of a system are in accordance with the criteria set forth in the fiscal year 2003 defense authorization act. While these actions are aimed at improving the control and accountability over business systems investments, we have previously reported that the department did not adhere to the milestone decision-making and oversight processes it established to ensure the economical and technical risks associated with systems modernizations have been mitigated. For example, our March 2003 report noted that DOD had not effectively managed and overseen its planned investment of over $1 billion in four DFAS system modernization efforts. One project’s estimated cost had increased by as much as $274 million, while the schedule slipped by almost 4 years. For each of these projects, DOD oversight entities—DFAS, the DOD Comptroller, and the DOD CIO—could not provide documentation that indicated they had questioned the impact of the cost increases and schedule delays, and allowed the projects to proceed in the absence of the requisite analytical justification. Such analyses provide the requisite justification for decision makers to use in determining whether to invest additional resources in anticipation of receiving commensurate benefits and mission value. Two of the four projects—DPPS and DSDS—were terminated in December 2002 and December 2003, respectively, after an investment of approximately $179 million that did not improve the department’s business operations. While DOD is continuing to work toward establishing the structure and processes to manage its business systems investments, it has not yet conducted a comprehensive system review of its ongoing IT investments to ensure that they are consistent with its BEA efforts. The domains have raised concerns that they did not have sufficient staff to perform the system reviews. To assist the domains with their system reviews, in December 2003, the Deputy Secretary of Defense allotted the domains 54 additional staff. Despite concerns over the sufficiency of staff resources and the lack of organizational structure and processes for controlling system investments, the department has acted to curtail the funding for some systems. For example, effective October 2003, the DOD Comptroller directed that the Defense Joint Accounting System (DJAS) be put into sustainment. That is, funding would be provided to operate and maintain the system, but not to upgrade or modernize the system. In June 2000, the DOD Inspector General (IG) reported that DFAS was developing DJAS at an estimated life-cycle cost of about $700 million without demonstrating that the program was the most cost-effective alternative for providing a portion of DOD’s general fund accounting. DJAS is only being operated at two locations—Fort Benning, Georgia, and the Missile Defense Agency— and there are no longer any plans to implement the system at other locations. Another system that DOD has placed into sustainment is the Joint Computer Aided Acquisition and Logistics Support (JCALS) system. JCALS was initiated in June 1992 to enable the services to streamline DOD’s logistical and acquisition functions through business process reengineering and eliminating existing systems. In May 2003, Gartner, Inc., reviewed the cost, efficiency, and effectiveness of JCALS and reported that the program is costly to operate and maintain. The study recommended freezing all software and technology spending. According to DOD’s fiscal year 2004 IT budget, over $1 billion had been invested in JCALS since the inception of the program. Placing DJAS and JCALS in sustainment is a step in the right direction. However, execution of a comprehensive review of all modernization efforts by DOD before substantial money has been invested will reduce the risk of continuing the department’s track record of business systems modernization efforts that cost more than anticipated, take longer than expected, and fail to deliver intended capabilities. Further, in developing the fiscal year 2005 budget request, the DOD Comptroller denied DFAS’s request for approximately $32 million for the development of an accounting and budget execution system. The DOD Comptroller appropriately noted that there should not be investments in a new system before the domains define the requirements and the system is justified through the appropriate DOD approval process. The DOD Comptroller also denied DFAS’s request for funding of the Disbursing Transformation Program, which was a proposed $41 million initiative through fiscal year 2009. According to DFAS, the program was to be funded from resources that were budgeted for DSDS, which, as previously mentioned, was terminated in December 2003. The DOD Comptroller noted that the department should not pay for salaries, software development, and systems modernization for a disbursing system before disbursing functionality is defined according to the BEA. It was further stated that it is premature for DFAS to create a new disbursing system when it cannot explain any of the program’s requirements in broad or detailed terms and numerous disbursing systems already exist. It is encouraging to see the DOD Comptroller acting to eliminate budget requests by DFAS for systems that are not justified. However, DFAS, which is under the auspices of the DOD Comptroller, represents a very small percentage—slightly over 2 percent ($103 million of $4.8 billion)—of the total modernization funding. Given that the department lacks a comprehensive inventory of its business systems, it is unknown how many other modernization projects should be questioned. However, since the roles and responsibilities of the domain owners have not been clarified, they have not been empowered to make investment decisions similar to those of the DOD Comptroller. As we have previously recommended, the department needs to assess its current systems and limit current investments to deployment of systems that have already been fully tested and involve no additional development or acquisition cost; stay-in-business maintenance needed to keep existing systems management controls needed to effectively invest in modernized new systems or existing system changes that are congressionally directed or are relatively small, cost-effective, and low risk and can be delivered in a relatively short time frame. As noted in our September 2003 report, DOD had not yet defined and implemented an effective approach for selecting and controlling business system investments. Absent the rigors of these stringent criteria, DOD will continue to invest in systems that perpetuate its existing incompatible, duplicative, and overly costly systems environment that does not optimally support mission performance. DOD has not yet defined and implemented an effective investment management process to proactively identify and control system improvements exceeding $1 million in obligations. DOD officials have acknowledged that the department does not have a systematic means to identify and determine which systems improvements should be submitted to the DOD Comptroller for review and, in essence, depend on system owners coming forward to the domain owners and requesting approval. DOD was unable to provide us comprehensive information on all systems improvements with obligations greater than $1 million since passage of the act. However, based upon limited information provided by the military services for fiscal years 2003 and 2004, we found that modernizations with obligations totaling at least $479 million were not submitted to the DOD Comptroller for any factual determination. The act states that as a condition of making any obligation in excess of $1 million for system improvements, the obligation be reviewed by the DOD Comptroller who must make a determination whether the request is in accordance with criteria specified in the act. To comply with the legislative requirement, the DOD Comptroller issued a memorandum on March 7, 2003, to DOD’s component organizations stating that the BMSI office—which is responsible for overseeing the development and implementation of the BEA—must review all system improvements with obligations in excess of $1 million. In addition, the memorandum directs the DOD components, as an integral part of the review and approval process, to present information to DOD Comptroller officials and relevant domain owners that demonstrates that each investment (1) complies with the BEA and (2) is economically justified. To support that the investment is economically justified, information on the cost and benefit and return on investment, including the break-even point, must be provided. DOD officials acknowledge that the department could utilize the IT budget to assist in the identification of systems that could be subject to the act’s requirements. While we recognize that this is budgetary data, rather than the obligational data referred to in the act, this information could provide a starting point for the domains identifying potential projects that should be submitted to the DOD Comptroller. For example, we analyzed the DOD IT budget request for fiscal years 2003 through 2005 and identified over 200 systems in each year’s budget, totaling over $4 billion per year that could involve obligations of funds that exceed the $1 million threshold. Table 3 presents our summary analysis by DOD component. The list in table 3 may not be complete. According to the DOD CIO and military service officials, the “All Other” category in the IT budget exhibits includes system projects that do not have to be identified by name because they fall below the $2 million reporting threshold for budgetary purposes. In an attempt to substantiate that the obligations for business systems modernization were in accordance with the act, we requested that DOD activities provide us with a list of obligations greater than $1 million for fiscal year 2003 and fiscal year 2004, as of December 2003. As of February 2004, we received responses from the Army, the Navy, and the Air Force, but did not receive responses from any of the defense agencies such as DFAS and DLA. To ascertain if the DOD Comptroller had made the determination required in the act, we compared a list of system approvals provided by the BMSI office with the obligational data (by system) provided by the military services. Based upon a comparison of the limited information available, we identified $479 million in reported obligations over $1 million by the military services for system improvements that were not submitted to the DOD Comptroller for review and determination as required by the act. Table 4 summarizes our analysis. Examples of DOD system improvements included in table 4 that were not submitted include the Air Force obligating over $9 million in fiscal year 2003 and about $4 million in fiscal year 2004 for the Integrated Maintenance Data System, the Navy obligating about $18 million in fiscal year 2003 and about $6 million in fiscal year 2004 for the Electronic Military Personnel Records System, and the Army obligating about $22 million in fiscal year 2003 and about $10 million in fiscal year 2004 for the Transportation Coordinators' Automated Information for Movements System. Appendix III provides a list of modernization projects with obligations totaling over $1 million that were reviewed by the DOD Comptroller as required by the act. Appendix IV provides a detailed list of the individual systems not submitted to the DOD Comptroller and the related amount of the total obligations for fiscal years 2003 and 2004. The act places limitations on the legal authority of individual program and government contracting officials to obligate funds in support of the systems for which they are responsible, but DOD has yet to proactively manage investments to avoid violations of the limitations and to review investments in any meaningful way to enforce these statutory limitations. Until DOD strengthens its process for selecting and controlling business system investments and adopts an effective governance concept, it remains exposed to the risk of spending billions of dollars on duplicative, stovepiped, nonintegrated systems that do not optimize mission performance and accountability and, therefore, do not support the department’s transformation goals. We also identified inconsistencies in how the military services categorized systems. For example, the Air Force did not categorize its Global Combat Support System as a business system, while the Army and the Navy consider their respective Global Combat Support Systems business systems. Additionally, the Navy categorized the Defense Message System as a business system, but the Army and the Air Force did not. This inconsistency further reiterates the need for a standard database and uniform definition of a business system that properly categorizes DOD’s numerous systems. For those systems that were submitted for review, we found that most had the supporting documentation called for in the DOD Comptroller’s March 7, 2003, memorandum. For example, the return on investment was identified. However, the one common element lacking was the assertion that the system projects were compliant with the BEA or otherwise met the criteria set out in the act. As noted earlier, BMMP has developed a draft BEA system compliance assessment certification for program managers to use; however, the process has not been finalized. The inability to assert compliance with the BEA is consistent with our September 2003 report, which noted that the BEA lacked the details needed to provide DOD with a common vision and constrain or control investments. We also identified instances in which the justification for the approval was questionable. These investments were made without DOD knowing whether these systems are aligned or consistent with part of DOD’s long-term system modernization strategies. For example: In October 2003, the DOD Comptroller approved obligations of $8 million for the Standard Procurement System (SPS) even though the supporting documentation noted that there was insufficient documentation to validate all requirements and some were found to be noncompliant with the BEA. We and the DOD IG have previously reported concerns with the overall management and implementation of SPS and the ability to deliver its intended capability. Initiated almost 10 years ago in November 1994, the system was to provide DOD with a single automated system to perform all functions related to contract management within DOD’s procurement process for all DOD organizations and activities. The system was also intended to replace the contract administration functions currently performed by MOCAS, a system implemented in 1968 and still operating today. Further, as will be discussed later in this report, difficulty with the implementation of SPS is one of the factors that contributed to the slippage in DLA’s BSM implementation schedule. In May 2003, the DOD Comptroller approved funding of about $4 million for the Army’s Integrated Facilities System (IFS). Initially, the Director of the BMSI office denied the funding request in part because it was noted that the system would be replaced by an enterprise solution. In response, the installations and environment domain noted that a final system solution had not been determined and stated that if IFS was found to be compliant with the “yet to be determined revised business process,” it could be designated the enterprisewide solution. The response also noted that IFS “might prove to have the best functionality and technical capabilities for a DOD real property inventory solution.” However, until the department’s BEA becomes more robust, it remains unclear if this system will be part of the ultimate system solution. Until that decision is made, it is unknown what benefit will be derived from further investment in this system. We also identified some instances in which the DOD Comptroller’s approval depended on specific actions being taken by a given date. However, prior to December 2003, the BMSI office did not have a process in place to track and follow up on required actions and did not have reasonable assurance that the required actions were taken. For example: In April 2003, the DOD Comptroller approved the expenditure of about $53 million for the convergence of four separate Navy enterprise resources planning solutions into one initiative. This approval was subsequent to an approval in February 2003 of about $21 million for the continuance of two of the four Navy efforts. The approval memorandum outlined three specific actions that needed to be taken and established time frames for the completion of each action. As of February 2004, BMSI officials were not able to attest to whether these actions had been completed. However, the Navy continues to move forward with this effort. The DOD Comptroller approved a pilot project for the National Security Agency on March 7, 2003, for $13.4 million. The approval depended on the completion of an overall planning document that outlined the various areas that were to be addressed. This document was to be completed by March 16, 2003. As of February 2004, BMSI officials stated that only minimal supporting documentation had been provided. Thus, even for the systems modernization efforts approved by the DOD Comptroller, serious questions remain as to whether these investments are justified. BSM and LMP were initiated in November 1999 and February 1998, respectively, prior to DOD undertaking the BEA and establishing the domains. As such, they are not directed toward a corporate solution to resolving the department’s long-standing weaknesses in the inventory and logistics management areas, such as total asset visibility or an integrated systems environment. Both projects are more focused on DLA’s and the Army’s respective inventory and logistics management operations. If effectively implemented, BSM and LMP are expected to provide benefits associated with private industry’s logistics reengineering efforts, such as inventory reduction, improved cycle time, improved customer satisfaction, and increased response time. Additionally, BSM and LMP are intended to improve supply and demand forecast planning, maintenance workload planning, provide a single source of data, and improve data quality. However, the initial deployment of BSM and LMP did not operate as intended and, therefore, did not meet DLA’s and Army’s component-level needs. In large part, these operational problems were due to DLA and the Army not effectively implementing the disciplined process that are necessary to manage the development and implementation of BSM and LMP in the areas of requirements management and testing. DLA and Army program officials have acknowledged that requirements and testing defects were factors contributing to these operational problems as well as schedule slippages and cost increases. Further, BSM and LMP have accumulated numerous lessons learned and have assembled teams to analyze these lessons and to develop an implementation strategy for corrective action. Additionally, to their credit, DLA and the Army have decided that future deployments of BSM and LMP will not go forward until they have reasonable assurance that the deployed systems will operate as expected for a given deployment. Effectively managing and overseeing the department’s $19 billion investment in its business systems is key to the successful transformation of DOD’s business operations. The transformation also depends on the ability of the department to develop and implement business systems that provide users and department management with accurate and timely information on the results of operations and that help resolve the numerous long-standing weaknesses. As DOD moves forward with continued development and implementation of its BEA, it needs to ensure that the department’s business systems modernization projects are part of a corporate solution to preclude the continued proliferation of duplicative, stovepiped systems. Three of the long-standing problems in logistics and inventory management have been related to total asset visibility, integrated systems, and valuation of inventory. We found that BSM and LMP will not resolve problems associated with total asset visibility and integrated systems and the first deployment of LMP did not provide for the valuation of inventory at the depot in accordance with federal accounting standards and departmental guidance. Details on each of these areas follow. Although BSM and LMP are enterprise resource planning systems based on commercial software that incorporates best business practices for logistics supply chain management, their planned capabilities do not provide a corporate solution for total asset visibility—a key gap in DOD’s capabilities to track and locate items across the department. A corporate solution for total asset visibility depends on the successful development and implementation of other systems. The time frame and costs associated with these other system projects have not been fully defined. To illustrate the lack of asset visibility, in October 2002, a DLA official testified that BSM would provide improved control and accountability over the Joint Service Lightweight Integrated Suit Technology (JSLIST)—a chemical/biological suit. The official stated that the JSLIST suits would be included in BSM at the earliest practicable date, which was estimated to be December 2003. BSM, however, is not designed to provide the corporate total asset visibility necessary to locate and track the suits throughout DOD’s supply chain. While the suits are expected to be included in a future deployment of BSM, program officials have not yet specified a date when they will be included. Even when the suits are included, BSM is designed to provide visibility over the suits only within the DLA environment— something DLA has stated already exists within its current legacy system environment. As we have previously reported, the lack of integrated systems hinders DOD’s ability to know how many JSLIST it has on hand and where they are located once they leave the DLA warehouse. For example, we found that military units that receive JSLIST from DLA warehouses maintained inventory data in nonstandard, stovepiped systems that did not share data with DLA or other DOD systems. The methods used to control and maintain visibility over JSLIST at the units we visited ranged from stand- alone automated systems, to spreadsheet applications, to pen and paper. One military unit we visited did not have any inventory system for tracking JSLIST. BSM does not address asset visibility outside of DLA’s supply chain for the JSLIST, and thus cannot provide total asset visibility for this critical inventory item. Having the ability to readily locate sensitive items, such as JSLIST, is critical, particularly if a defect is found and the items must be recalled. A case in point is the JSLIST predecessor, the Battle Dress Overgarment (BDO). Over 700,000 of these suits were found to be defective and were recalled. Since DOD’s systems did not provide the capability to identify the exact location of each suit, a series of data calls were conducted, which proved to be ineffective. We reported in September 2001 that DOD was unable to locate approximately 250,000 of the defective suits and therefore was uncertain if the suits were still in the possession of the military forces, or whether they had been destroyed or sold. Subsequently, we found that DOD had sold many of these defective suits to the public as excess, including 379 that we purchased in an undercover operation. In addition, DOD may have issued over 4,700 of the defective BDO suits to local law enforcement agencies. This is particularly significant because local law enforcement agencies are most likely to be the first responders to a terrorist attack, yet DOD failed to inform these agencies that using these suits could result in death or serious injury. BSM will not provide DOD with the capability to readily locate JSLIST for any reason, including the need to recall defective suits. Similar to BSM, LMP will not provide the Army with total asset visibility until a suite of other systems has been developed and implemented. Specifically, Army officials have stated that LMP will require integration with other Army systems that are under development in order to achieve total asset visibility within the Army. These additional systems are the Product Lifecycle Management Plus (PLM+) and Global Combat Support System—Army (GCSS–A). According to the Army, PLM+ is to integrate LMP and GCSS–A to create a seamless end-to-end solution for Army logistics. According to information provided by the Army, PLM+ was initiated in December 2003. No estimates have been developed as to the cost of this project, nor has a time frame for development and implementation been established. The Army has stated that GCSS–A will provide visibility of supplies and equipment in storage and in transit. The Army began development of GCSS–A in fiscal year 1997 and since then has invested approximately $316 million in this effort. In May 2003, the Army decided to pursue a COTS solution for GCSS–A rather than continue to develop the system in house. The Army recently stated that the total cost of GCSS–A cannot be accurately estimated until all of the “to be” business processes are identified, which is expected to occur in October 2004. However, the fiscal year 2004 capital investment report shows that the Army estimates that it will invest over $1 billion in GCSS–A through fiscal year 2009. To help provide for departmentwide total asset visibility, DLA is undertaking the implementation of the Integrated Data Environment (IDE) program. According to DLA, this initiative is intended to provide the capability for routing data from multiple systems within DLA and DOD into one system. According to DLA, the contract was signed in September 2003, and IDE is expected to reach full operational capability in August 2007. The current estimated cost of the effort is approximately $30 million. However, the completion date of August 2007 depends on other departmental efforts being completed on time, for example, PLM+, for which a completion date has not been established. One of the long-standing problems within DOD has been the lack of integrated systems. This is evident in the many duplicative, stovepiped systems among the 2,274 that DOD reported as its systems environment. Lacking integrated systems, DOD will have a difficult time obtaining accurate and reliable information on the results of its business operations and will continue to rely on either manual reentry of data into multiple systems, convoluted system interfaces, or both. These system interfaces provide data that are critical to day-to-day operations, such as obligations, disbursements, purchase orders, requisitions, and other procurement activities. For BSM and LMP, we found that the system interfaces were not fully tested in an end-to-end manner, and therefore DLA and Army did not have reasonable assurance that BSM and LMP would be capable of providing the intended functionality. We previously reported that Sears and Wal-Mart, recognized as leading- edge inventory management companies, had automated systems that electronically received and exchanged standard data throughout the entire inventory management process, thereby reducing the need for manual data entry. As a result, information moves through the data systems with automated ordering of inventory from suppliers; receiving and shipping at distribution centers; and receiving, selling, and reordering at retail stores. Unlike DOD, which has a proliferation of nonintegrated systems using nonstandard data, Sears and Wal-Mart require all components and subsidiaries to operate within a standard systems framework that results in an integrated system and do not allow individual systems development. For the first deployment, DLA has had to develop interfaces that permit BSM to communicate with more than 23 systems, including 3 DFAS, 6 DOD- wide, and 14 DLA systems. The Army has had to develop 215 interfaces that permit LMP to communicate with more than 70 systems, including 13 DFAS, 6 DLA, 2 Navy, 5 Air Force, and over 24 Army systems. Figures 2 and 3 illustrate BSM’s and LMP’s numerous required system interfaces. When BSM and LMP became operational, it became evident that the system interfaces were not working as intended. Such problems have led BSM, LMP, and organizations with which they interface—such as DFAS—to perform costly manual reentry of transactions, which can cause additional data integrity problems. For example: BSM's functional capabilities were adversely affected because a significant number of interfaces were still in development or were being executed manually once the system became operational. Since the design of system interfaces had not been fully developed and tested, BSM experienced problems with receipts being rejected, customer orders being canceled, and vendors not being paid in a timely manner. At one point, DFAS suspended all vendor payments for about 2 months, thereby increasing the risk of untimely payments to contractors and violating the Prompt Payment Act. In January 2004, the Army reported that due to an interface failure, LMP had been unable to communicate with the Work Ordering and Reporting Communications System (WORCS) since September 2003. WORCS is the means by which LMP communicates with customers on the status of items that have been sent to the depot for repair and initiates procurement actions for inventory items. The Army has acknowledged that the failure of WORCS has resulted in duplicative shipments and billings and inventory items being delivered to the wrong locations. Additionally, the LMP program office has stated that it has not yet identified the specific cause of the interface failure. The Army is currently entering the information manually, which as noted above, can cause additional data integrity errors. While these numerous interfaces are necessary because of the existing stovepiped, nonintegrated systems environment, they should have been fully developed and tested prior to BSM and LMP being deployed. In moving forward with the future deployments of BSM and LMP, it is critical that program officials ensure that the numerous system interfaces are operating as intended. Additionally, until the business enterprise architecture is further developed and DOD has decided which systems will be part of the future business systems environment, there is uncertainty as to the number of these systems with which BSM and LMP will continue to interface. Federal accounting standards require inventories to be valued based on historical costs or a method that approximates historical costs. DOD’s inability to account for and control its huge investment in inventories effectively has been an area of major concern for many years. DOD’s antiquated, duplicative systems do not capture the information needed to comply with federal accounting standards. BSM and LMP are to provide DOD the capability to comply with federal accounting standards in the valuation of its billions of dollars of inventory. DLA has stated that BSM has the capability to compute the value of inventory in accordance with federal accounting standards. Based upon information provided by DLA and our analysis, we found that the value of the inventory recorded in BSM changed each time new items were procured to reflect a moving average (historical) cost valuation of the inventory—which is an acceptable method permitted by federal accounting standards and is in accordance with DOD’s stated policy. However, the first deployment of LMP did not have the capability to value all inventory in accordance with federal accounting standards. In its evaluation of LMP, the Army Audit Agency found that it had the capability to compute the value of inventory in accordance with federal accounting standards at the command level—CECOM—but not at the depot level. The Army decided to proceed with deployment of LMP, recognizing that the issue would have to be resolved prior to further deployments to the other depots. The Office of the DOD Comptroller has also directed that there is to be no further deployment of LMP until the inventory valuation problem has been fixed. BSM and LMP experienced significant problems once they became operational at the first deployment sites. Although BSM and LMP were not designed to provide a corporate enterprise solution for inventory and logistics management, the first deployment did not address DLA’s and Army’s component-level operational needs as intended. These problems have resulted in schedule slippages and cost increases. Detecting such problems after the system is placed into operation leads to costly rework due to factors such as (1) fixing the defect, (2) entering transactions manually, and (3) adjusting reports manually. Furthermore, the manual processes required to enter the transactions and adjust related reports may introduce data integrity errors. Our analysis indicated that many of the operational problems experienced by DLA and the Army can be attributed to their inability to effectively implement the disciplined requirements management and testing processes, as discussed in this report. In fact, DLA and Army program officials acknowledged that requirements and testing defects were factors contributing to the operational problems and stated that they are working to develop more effective processes. DLA and the Army recognized that serious operational problems exist and have decided that future deployments will not go forward until they have assurance that the deployed system operates as expected for a given deployment. Operational problems include the following: Army and DFAS officials reported that LMP’s operational difficulties at CECOM and Tobyhanna Army Depot have resulted in inaccurate financial management information. More specifically, the depot is not (1) producing accurate workload planning information; (2) generating accurate customer bills; and (3) capturing all repair costs, which is impeding the Army’s ability to calculate accurate future repair prices. These problems can also hinder the Army’s ability to accurately report the results of its depot operations and limits customers’ ability to develop accurate budget estimates. LMP users experienced difficulty in providing contract information to MOCAS. Due to the operational problems, DFAS was unable to electronically process contract modifications and contract payment terms and make disbursements to contractors, thereby increasing the risk of not making timely payments to contractors and violating the Prompt Payment Act. BSM experienced significant data conversion problems associated with purchase requisitions and purchase orders that were created in SAMMS. Moving the data from SAMMS to BSM proved difficult because BSM required more detailed information, which was not identified during the requirements phase. This additional information needed to be manually entered into BSM, resulting in numerous errors that caused vendors not to be recognized and shipments from the depot to be rejected. As a result of these problems, additional tables, such as vendor master files, were created within BSM to process orders for the converted purchase requisitions and purchase orders. BSM users experienced a number of problems, such as incorrect information on customer orders, customer orders never being sent, and vendor invoices not being paid in a timely manner. These operational problems have been at least partially responsible for schedule slippages and cost increases for both systems. In the case of BSM, it was originally scheduled to achieve full operational capability (FOC) in September 2005. However, BSM is now expected to reach FOC during the second quarter of fiscal year 2006. Further, BSM’s estimated cost has increased by approximately $86 million since the program was initiated in November 1999. Figure 4 shows the schedule slippages and cost increases. Part of the schedule slippage and cost increase can be attributed to problems encountered with DLA’s effort to implement SPS, which was to provide BSM with the required procurement functionality. Since a large part of DLA’s overall business is the procurement of inventory items, difficulties in establishing a viable system solution for this critical aspect of its business seriously impaired DLA’s ability to meet BSM’s schedule and cost goals. We have previously reported that DOD’s ineffective management approach for SPS put the project at risk. During the initial implementation of BSM, program officials found that SPS did not have the capability to handle DLA’s large volume of procurement requisitions. According to BSM program officials, DLA will spend about $9 million to resolve the shortcoming in SPS. Since SPS will not meet its needs when BSM is fully operational at all sites, DLA has negotiated with the BSM software developer to purchase new procurement software as the long-term solution. DLA estimated that this software would cost approximately $30 million, which contributed to the increased BSM program costs. Similar to BSM, LMP has also experienced schedule slippages and cost increases since the project was approved in February 1998. Figure 5 shows the schedule slippages and cost increases. As shown in figure 5, as of March 2004, the current estimated cost of LMP is over $1 billion, with more than $400 million spent to fund the project during the past 5 years. In October 1999, we reported that the Army’s estimated cost of LMP over the 10-year period of the contract was approximately $421 million. However, as discussed in that report, the $421 million estimate did not include an additional $30.5 million per contract year that would be needed for data processing. The amount allowed for data processing in the original estimate was based directly on the percentage of data processing performed by the contractor, with the Defense Information Systems Agency performing the residual processing. Further, the original estimate was based on a 10-year contract and the current estimate is based on a 12-year contract, and each additional contract year can be as much as $65 million. Considering these two factors, a more accurate cost estimate in 1999 would have been approximately $856 million. In our discussions with LMP program officials, additional factors were identified that have caused the cost of LMP to increase to over $1 billion. For example, since the initiation of LMP, the Army has directed that the program be (1) integrated with the Army Single Stock Fund effort and (2) extended to the Army depot maintenance operations. These additional capabilities were not part of the standard LMP software package and were not envisioned to be part of LMP when the original cost estimate was developed. Therefore, additional development and implementation costs were incurred and increased the overall cost of the program by over $91 million. Further, the LMP program manager acknowledged that the 1999 estimate did not include adequate DOD program management costs. The additional program management costs are estimated to be about $104 million and include such items as personnel and travel. Additionally, as shown in figure 5, the original FOC date was scheduled for fiscal year 2004. However, because of the operational problems that were identified with the first deployment, the Army is in the process of developing a new deployment schedule, and as of March 2004, no future deployment dates had been established. The problems we identified in the areas of schedule, cost, and performance of the two systems can be linked, at least in part, to DLA’s and the Army’s failure to follow disciplined processes in the key areas of requirements management and testing. While there may have been contributing factors in other areas of the system acquisition efforts, we selected these two areas because our assessments, as well as others, have shown that agencies do not invest adequately for success in these areas, which form the foundation for success or failure. Lacking such disciplined processes exposes these projects to the unnecessary risk that costly rework will be required, which in turn, will continue to adversely affect these projects’ cost, schedule, and performance goals. Our analysis of selected BSM and LMP key requirements and testing processes found that (1) the functionality to be delivered was not adequately described or stated to allow for quantitative evaluation; (2) the traceability among the various process documents (e.g., operational requirements documents, functional or process scenarios, and test cases) was not maintained; and (3) system testing was ineffective. Because of the weaknesses in these key processes, program officials do not have reasonable assurance that (1) the level of functionality that will be provided by a given deployment is understood by the project team and users and (2) the resulting system will provide the expected functionality. We have previously reported concerns with BSM’s lack of a documented requirements development and management plan. Such a plan provides a road map for completing important requirements development and management activities. Without it, projects risk either not performing important tasks or not performing them effectively. Historically, projects that experience the types of requirements and testing process weaknesses found in BSM and LMP have a high probability of not meeting schedule, cost, and performance objectives. Disciplined processes have been shown to reduce the risks associated with software development and acquisition efforts to acceptable levels and are fundamental to successful systems acquisition. Said another way, a disciplined software development and acquisition process can maximize the likelihood of achieving the intended results (performance) within established resources (costs) on schedule. Although a “standard cookbook” of practices that will guarantee success does not exist, several organizations, such as the Software Engineering Institute and the Institute of Electrical and Electronics Engineers (IEEE), and individual experts have identified and developed the types of policies, procedures, and practices that have been demonstrated to reduce development time and enhance effectiveness. Key to having a disciplined system development effort is to have disciplined processes in multiple areas, including project planning and management, requirements management, configuration management, risk management, quality assurance, and testing. Effective processes should be implemented in each of these areas throughout the project’s life cycle since constant changes occur. In reviewing BSM and LMP, we focused on requirements management and testing. Requirements represent the blueprint that system developers and program managers use to design, develop, and acquire a system. Requirements should be consistent with one another, verifiable, and directly traceable to higher-level business or functional requirements. It is critical that requirements be carefully defined and that they flow directly from the organization’s concept of operations (how the organization’s day-to-day operations are or will be carried out to meet mission needs). Improperly defined or incomplete requirements have been commonly identified as a cause of system failure and systems that do not meet their costs, schedules, or performance goals. Without adequately defined requirements that have been properly reviewed and tested, significant risk exists that the system will need extensive and costly changes before it will achieve its intended capability. According to IEEE—a leader in defining the best practices for such efforts—good requirements have several characteristics, including the following: The requirements fully describe the software functionality to be delivered. Functionality is a defined objective or characteristic action of a system or component. For example, for inventory, key functionality as previously discussed includes total asset visibility and valuation in accordance with federal accounting standards. The requirements are stated in clear terms that allow for quantitative evaluation. Specifically, all readers of a requirement should arrive at a single, consistent interpretation of it. Traceability among various requirement documents is maintained. Requirements for projects can be expressed at various levels depending on user needs. They range from agencywide business requirements to increasingly detailed functional requirements that eventually permit the software project managers and other technicians to design and build the required functionality in the new system. Adequate traceability ensures that a requirement in one document is consistent with and linked to applicable requirements in another document. Industry best practices, as well as DLA’s and Army’s own system planning documents, indicate that detailed system requirements should be documented to serve as the basis for effective system testing. Both projects documented their high-level or operational requirements and had designed hierarchical processes for documenting the various requirements and related documents needed to build and design tests at the transaction level as well as tests of chains of transactions that flow together to support multiple business functions and processes. Because requirements provide the foundation for system testing, specificity and traceability defects in system requirements preclude an entity from implementing a disciplined testing process. That is, requirements must be complete, clear, and well documented to design and implement an effective testing program. Absent this, an organization is taking a significant risk that its testing efforts will not detect significant defects until after the system is placed into production. Industry experience indicates that the sooner a defect is recognized and corrected, the cheaper it is to fix. As shown in figure 6, there is a direct relationship between requirements and testing. Although the actual testing activities occur late in the development cycle, test planning can help disciplined activities reduce requirements-related defects. For example, developing conceptual test cases based on the requirements derived from the concept of operations and functional requirements stages can identify errors, omissions, and ambiguities long before any code is written or a system is configured. Disciplined organizations also recognize that planning testing activities in coordination with the requirements development process has major benefits. Our analysis and evaluation of DLA’s and the Army’s requirements management and testing processes found that BSM and LMP program officials did not effectively implement the disciplined processes associated with requirements management and testing in developing and implementing their systems. We identified numerous instances in which each documented requirement used to design and test the system did not build upon the next in moving through the hierarchy. Specifically, the requirements (1) lacked the specific information necessary to understand the required functionality that was to be provided and (2) did not describe how to determine quantitatively, through testing or other analysis, whether the systems would meet DLA’s and Army’s respective needs. One reason that users have not been provided with the intended systems capabilities is because of the breakdown in the requirements management process. As a consequence, DLA and the Army have been forced to implement error- prone, time-consuming manual workarounds as a means to minimize disruption to critical operations. DLA and Army officials acknowledged that improvements in their requirements management processes are needed and have stated that they are working to develop more specific requirements that better describe required system functionality and support more effective system testing. DLA’s basic hierarchical approach to developing BSM requirements was to (1) define high-level requirements, commonly referred to as operational requirements; (2) define more specific blueprint requirements; (3) develop functional scenarios; (4) define functional designs; (5) define technical designs; (6) create test cases; and (7) define test conditions. Similarly, the Army’s basic approach to developing LMP system requirements was to (1) develop a blueprint of its business processes following the Integration Definition for Function modeling standards established by the National Institute of Standards and Technology and IEEE, (2) define high-level requirements, (3) develop process scenarios, (4) develop test cases, and (5) use subject matter experts to determine whether the application met the business processes envisioned by the users and as developed by a contractor to provide the functionality currently provided by the Army’s existing systems. If effectively implemented, either methodology can be used to develop and implement a system. The key is that each step of the process builds upon the previous one. Accordingly, unidentified defects in one step migrate to the subsequent steps where they are more costly to fix and increase the risk that the project will experience adverse impacts on its schedule, cost, and performance objectives. The following are examples of the BSM and LMP requirements that we reviewed that lacked the specificity necessary to describe the functionality to be delivered. One BSM requirement stated that the system should be able to reconcile inventory between the depots (where inventory items are located) and the inventory control point and that the reconciliation should be performed daily. It also stated that the inventory control point must request that the depot perform a physical count once inventory differences have met certain criteria, such as dollar value or large quantities. However, the various requirement documents did not (1) define what is meant by “large” or (2) specify how the notification of the requirement to conduct the inventory was to be accomplished, for example, by e-mail. Without such specificity, it is unclear how this requirement could be tested since an evaluator would not be able to design a test of the trigger for a physical count because the quantity difference had not been defined. For LMP, the operational activity “Manage Assets” did not adequately describe how to maintain visibility over all assets. Specifically, the requirement states that the system “maintains wholesale and retail asset balances and provides visibility of On-Hand Asset Balances by identifying assets being repaired, modified, or tested at depots, contractor and intermediate level repair facilities as well as those on- hand at storage sites, retail activities and other services.” However, there is no further information that specifies how asset visibility is maintained or the sources that are to be used in accumulating these data. Therefore, the risk is increased that the Army will not be able to maintain asset visibility over all Army-managed assets. In fact, in January 2004, the Army reported that it was having difficulty obtaining accurate data related to material movement (in-transit), assets received, and assets issued or shipped. In reviewing the process documents that DLA and Army used to define their requirements, that is, operational requirement, functional scenario, functional design, technical design, and test case, we found that the forward and backward traceability defined by IEEE, and as described by BSM’s and LMP’s hierarchical approaches and management plan, was not always maintained. Traceability allows the user to follow the life of the requirement both forward and backward through these documents and from origin through implementation. Traceability is also critical to understanding the parentage, interconnections, and dependencies among the individual requirements. This information, in turn, is critical to understanding the impact when a requirement is changed or deleted. Without an effective traceability approach, it is very difficult to perform actions such as (1) accurately determining the impact of changes and making value-based decisions when considering requirement changes, (2) maintaining the system once it goes into production, (3) tracking the project's progress, and (4) understanding the impact of a defect discovered during testing. For almost all of the requirements we analyzed, we found that traceability was not maintained. For example: An operational requirement stated that BSM maintain the effective date for pricing information. The subsequent requirements document stated that all amendments/modifications to the award instrument—purchase orders and requisitions—should be documented on the prescribed General Services Administration form. In our analysis, we were only able to trace portions of the requirements through BSM’s hierarchical process. Since traceability was not maintained through the key documents, it was unclear why the testing documents included requirements that were not included in the functional scenarios, technical design, or test conditions, since these documents should have provided the detailed information necessary to test the requirements. Further, since traceability is lacking, it is uncertain how DLA will ensure that BSM will meet this requirement. One capability of LMP is to support workload planning for the Army’s depot maintenance facilities. Data related to scheduled and historical depot maintenance activities that should be considered in developing budget requirements, such as assets due in for repair or maintenance, price data, assets in stock, and maintenance schedules, were included in the requirement. However, we found that only the prior month’s sales data were used in designing the test case—not the information specified in the requirement. As a result, the risk is increased that LMP is determining workload-planning requirements for the Army’s depot maintenance facilities using incorrect data. This resulted in the Army reporting in January 2004 that Tobyhanna Army Depot was unable to develop its working capital fund budget submissions for its operations and that it will have to perform complex manual calculations to satisfy its budgetary planning requirements. BSM and LMP did not implement disciplined testing activities. Not carrying out this recognized best practice materially increases the risk that defects would not be detected until the systems were placed into production and that costly rework will be needed to satisfy end-user requirements, including materiel readiness in support of military operations. Testing is the process of executing a program with the intent of finding errors. Furthermore, if a requirement has not been adequately defined, it is unlikely that a test will discover a defect. System testing is a critical process utilized by disciplined organizations and improves an entity’s confidence that the system will satisfy the requirements of the end user and will operate as intended. Since requirements provide the foundation for system testing, requirement defects discussed earlier, such as the lack of specificity, significantly impaired and will continue to impair the ability of DLA and the Army to detect defects during system testing. As a result of requirement defects and ineffective testing, DLA and the Army testing activities did not achieve the important goal of reducing the risk that BSM and LMP would not operate as intended. For example: One BSM requirement involved preparing customer payments. The system, according to the test case, was required to (1) prepare a summary bill and (2) present the sales summary report in federal supply class sequence. The actual result for one test stated that the system passed this test even though only one item was used to generate the summary bill. It was unclear from this test case whether the system (1) could summarize multiple items and (2) had any limitations on the number of items that could be summarized. Furthermore, the test that evaluated the sorting of items by federal supply class divided the cost of the sales summary report by two. If this result matched the expected result, BSM passed the test. However, documentation was not available to explain why the item cost needed to be divided by two. Based on our review of the test cases linked to this requirement, we could not validate that the requirement had been adequately tested. Therefore, DLA does not have reasonable assurance that BSM can perform this required functionality. Based on our analysis of LMP’s December 2003 and January 2004 project status reports, we found that the Army continued to experience problems with the accuracy of data related to budgeting; workload planning and forecasting and depot maintenance operations; and accounting records such as customer orders, purchase orders and requisitions, obligations, and disbursements. DFAS and Army officials acknowledged that these problems were attributable to relying on subject matter experts to develop tests for their respective functional areas, such as budgeting, accounting, and workload planning, and not performing testing end to end across the various functional areas. Rather, the testing was stovepiped in that subject matter experts performed tests for their own respective areas. As a result of the specific problems discussed in this report related to BSM and LMP, such as the lack of total asset visibility, DLA and the Army cannot be assured that BSM and LMP will routinely generate timely, accurate, and useful financial information. The inaccuracy and unreliability of financial information has been a long-standing DOD weakness. As mentioned previously, BSM and LMP rely on information received from and sent through the various systems. However, the interfaces with these multiple systems were not fully developed, nor were they tested when BSM and LMP become operational. As a result, DLA and the Army do not have reasonable assurance that their respective systems are capable of providing the intended capability. In fact, the reported operational problems clearly indicate that BSM and LMP are not providing accurate data. For example, the manual workarounds that were required to compensate for the data conversion problems associated with SAMMS caused additional errors, which affected the accuracy of data produced. In the case of LMP, the Army has acknowledged that accurate information on its depot operations is not readily available. This problem severely impairs the Army’s ability to develop accurate prices for its depot operations. Inaccurate prices could result in customers being charged too much or too little for the services provided. Furthermore, the overall concerns we raised with regard to DLA and the Army not following disciplined processes in the key areas of requirements management and testing further expose BSM and LMP to unnecessary risks. Specifically, the resulting systems will not provide the accurate and complete information that is crucial to making informed decisions and controlling assets so that DOD’s mission and goals are efficiently and effectively accomplished. Further, although DLA and the Army have asserted that BSM and LMP, respectively, are compliant with the requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA), we have concerns with the methodology followed in reaching that conclusion. FFMIA builds on the foundation laid by the Chief Financial Officers Act (CFO) of 1990 by emphasizing the need for agencies to have systems that can generate reliable, useful, and timely information with which to make fully informed decisions and to ensure accountability on an ongoing basis. FFMIA requires the 23 major departments and agencies covered by the CFO Act to implement and maintain financial management systems that comply substantially with (1) federal financial management systems requirements, (2) applicable federal accounting standards, and (3) the U.S. Government Standard General Ledger (SGL) at the transaction level. DLA’s and the Army’s assertions are based upon self-assessments of the financial management requirements that were reviewed by independent parties. For both systems, testing of transactions was not performed to validate that they would be able to process the data as intended. For example, in the case of BSM, for one requirement the contractor stated that “a sample of transactions were reviewed, it appears that BSM properly records transactions consistent with the SGL posting rules.” However, we found no indication that this requirement was tested, and therefore, we cannot conclude whether BSM has the capability to meet this requirement. In the case of LMP, we found that the Army relied upon Joint Financial Management Improvement Program (JFMIP) testing for 147 requirements because JFMIP had validated these requirements when it tested the vendor’s commercial software used for LMP during fiscal year 1999. JFMIP testing should not be considered a substitute for individual system testing of the actual data that will be used by the entity. Further, JFMIP’s tests of the software do not address entity-specific integrated tests of end-to-end transactions or system interfaces. Because the Army had to make modifications to the basic commercial software package to accommodate some of its business operations, the Army cannot be assured, without retesting, that these 147 requirements will produce the intended results. Without adequate documentation to support testing of the FFMIA requirements and based on our findings, it is questionable whether BSM and LMP are substantially compliant with FFMIA. As a result, DLA and the Army cannot provide reasonable assurance that BSM and LMP will routinely generate timely, accurate, and useful information with which to make informed decisions and to ensure accountability on an ongoing basis. DOD has made limited progress in achieving effective management oversight, control, and accountability over its $19 billion in business system investments. As a result, DOD cannot provide Congress reasonable assurance that the billions of dollars being spent annually on system modernizations are not being wasted on projects that will perpetuate the current costly, nonintegrated, duplicative systems environment. Our two cases studies—BSM and LMP—are prime examples of DOD business system modernization projects costing billions of dollars that are not directed toward a corporate solution for resolving some of DOD’s long- standing financial and inventory management problems. Rather, these efforts are more narrowly focused on DLA’s and the Army’s business operations, but even within that more restricted scope, weaknesses in project management have resulted in problems in delivering the intended capabilities. As the department moves forward with the continued development and implementation of the business enterprise architecture, it is critical that actions be taken to gain more effective control over business system funding. Maintaining the status quo of permitting each of the military services and DOD agencies to manage and oversee its business systems investments only serves to perpetuate the existing nonintegrated and duplicative systems environment and continues to impede the department’s overall transformation as envisioned by the Secretary of Defense. The manner in which business system funding is currently controlled hampers the development and implementation of broad-based, integrated corporate system solutions to address DOD-wide problems. Each military service and defense agency receives its own funding and is largely autonomous in deciding how to spend these funds, thereby enabling multiple system approaches to common problems. This funding structure has contributed to the duplicative, nonintegrated, error-prone systems environment that exists today. To improve management oversight, accountability, and control of the department’s business systems funding, Congress may wish to consider the following four legislative initiatives: Assign responsibility for the planning, design, acquisition, deployment, operation, maintenance, modernization, and oversight of business systems to domain leaders (e.g., the Under Secretary of Defense for Acquisition, Technology and Logistics and the DOD CIO). Direct the Secretary of Defense, in coordination with the domain leaders, to develop a defense business system budget that (1) identifies each business system for which funding is being requested, (2) identifies all funds by appropriation type and whether they are for current services or modernization, and (3) provides justification for expending funds on system(s) that are not in compliance with the department’s business enterprise architecture. Appropriate funds to operate, maintain, and modernize DOD’s business systems to domain leaders rather than the military services and defense agencies. Direct that each domain establish a business system investment review board that is to be composed of representatives from the military services and defense agencies who will be responsible for review and approval of all business system investments. To help improve the department’s (1) control and accountability over its business systems investments and (2) future deployments of BSM and LMP, we are making the following four recommendations. We recommend that the Secretary of Defense direct: The Under Secretary of Defense (Comptroller) and the Assistant Secretary of Defense for Networks and Information Integration to develop a standard definition for DOD components to use to identify business systems. The Assistant Secretary of Defense for Networks and Information Integration to expand the existing IT Registry to include all business systems. The Under Secretary of Defense (Comptroller) to establish a mechanism that provides for tracking all business systems modernization conditional approvals to provide reasonable assurance that all specific actions are completed on time. The Director, Defense Logistics Agency, and the Commanding General, Army Materiel Command, to take the following actions: Develop requirements that contain the necessary specificity to reduce requirements-related defects to acceptable levels. The requirements management process used to develop and document the requirements should be adequate to ensure that each requirement (1) fully describes the functionality to be delivered; (2) includes the source of the requirement; (3) is stated in unambiguous terms that allow for quantitative evaluation; and (4) is consistent, verifiable, and traceable. Conduct thorough testing before (1) making further deployment decisions and (2) adding functionality to existing deployment locations. We received written comments on a draft of this report from the Acting Under Secretary of Defense (Comptroller) (see app. II). DOD agreed with our four recommendations to the Secretary of Defense and two of the four matters for congressional consideration. With regard to the recommendations to the Secretary of Defense, the department identified actions it has under way and planned to address the concerns discussed in the report. For example, the department stated that a system has been developed that will track all business systems modernization conditional approvals until all required actions are completed. In addition, the department acknowledged that the initial implementations of BSM and LMP experienced problems that could be attributed to the lack of adequate requirements determination and system testing. To address these inadequacies, the department noted that requirements analysis had been expanded to include greater specificity and to require the successful completion of comprehensive testing prior to further implementation of either system. The department also stated that industry best practices would be followed. With regard to our matters for congressional consideration, the department disagreed that (1) responsibility for the planning, design, acquisition, deployment, operation, maintenance, modernization, and oversight of business systems be assigned to domain leaders (e.g., the Under Secretary of Defense for Acquisition, Technology and Logistics and the DOD CIO) and (2) funds to operate, maintain, and modernize DOD’s business systems be appropriated to domain leaders rather than the military services and defense agencies. On the first matter, the department stated that it is developing its business enterprise architecture and its business IT investment management structure and that these structures will provide the necessary management and oversight responsibility. DOD also noted that business system portfolio management would be an integral part of its oversight efforts. Further, DOD noted that the domain leaders will work closely with component acquisition executives and the DOD CIO, who have statutory responsibilities for IT related investment activities. We continue to believe that Congress may wish to consider assigning to the domains the responsibility for the planning, design, acquisition, deployment, operation, maintenance, modernization, and oversight of business systems. DOD components being responsible for these functions has resulted in the existing business system environment of at least 2,274 systems that are not capable of providing DOD management and Congress accurate, reliable, and timely information on the results of the department’s vast operations. DOD has recently stated that the actual number of systems could be twice the amount currently reported. Further, because the various DOD components are largely autonomous, despite DOD’s assertion that component acquisition executives will work more closely with domain leaders under current statutory structure, there is no incentive for them to seek corporate solutions to problems. Our two case studies— BSM and LMP—clearly demonstrate that these two system modernization efforts are not directed toward a corporate solution to resolving the department’s long-standing weaknesses in areas such as inventory and logistics management. Within the current departmental organization structure, DOD components are able to develop multiple system approaches to common problems. With regard to the funding being provided to the domains, the department stated that the portfolio management process being established—to include investment review boards—would provide the appropriate control and accountability over business system investments. DOD also noted that beginning with the fiscal year 2006 budget review process, the domains will be actively involved in business system investment decisions. While the establishment of the investment review boards is consistent with our previous recommendations, we continue to believe that appropriating funds for DOD business systems to the domains will significantly improve accountability over business system investments. DOD’s comments indicate that the domains will be more accountable for making business system investment decisions, but unless they control the funding, they will not have the means to effect real change. Continuing to provide business system funding to the military services and defense agencies is an example of the department’s embedded culture and parochial operations. As a result of DOD’s intent to maintain the status quo, there can be little confidence that it will not continue to spend billions of dollars on duplicative, nonintegrated, stovepiped, and overly costly systems that do not optimize mission performance and accountability and, therefore, do not support the department’s transformation goals. As agreed with your offices, unless you announce the contents of this report earlier, we will not distribute it until 30 days after its date. At that time, we will send copies to the Chairmen and Ranking Minority Members, Senate Committee on Armed Services; Subcommittee on Defense, Senate Committee on Appropriations; House Committee on Armed Services; Subcommittee on Defense, House Committee on Appropriations; Senate Committee on Governmental Affairs; and House Committee on Government Reform. We are also sending copies to the Director, Office of Management and Budget; the Under Secretary of Defense (Comptroller); the Under Secretary of Defense (Acquisition, Technology and Logistics); the Assistant Secretary of Defense (Network and Information Integration); the Director, Defense Logistics Agency; and the Commanding General, Army Materiel Command. Copies of this report will be made available to others upon request. The report is also available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions on matters discussed in this report, please contact Gregory D. Kutz at (202) 512-9505 or [email protected] or Keith A. Rhodes at (202) 512-6412 or [email protected]. GAO contacts and key contributors to this report are listed in appendix V. We reviewed the Department of Defense’s (DOD) $28 billion fiscal year 2004 information technology (IT) budget request to determine what portion of the budget relates to DOD business systems. We reviewed the budget to determine, of the approximately $19 billion related to the department’s business systems, the amount allocated for operation, maintenance, and development. Additionally, we reviewed DOD’s business systems inventory, as reported by the department in April 2003, to ascertain if the systems were identified in the budget request. To obtain an overview of how an IT budget request is developed, we also met with officials in the offices of the DOD Comptroller and DOD Chief Information Officer (CIO), as well as CIO and financial management officials from the military services. To determine the effectiveness of DOD’s control and accountability over its business systems investments, we met with DOD officials to obtain an update on the status of our prior recommendations. We also met with appropriate officials in the DOD Comptroller and DOD CIO offices to discuss the status of various draft policies and guidance that are aimed at improving the department’s control and accountability over business system investments. We also reviewed and analyzed the DOD budget requests for fiscal years 2003 through 2005 to identify the business systems investments that could be subject to the requirements of the Bob Stump National Defense Authorization Act for Fiscal Year 2003, which requires the DOD Comptroller to review all system improvements with obligations exceeding $1 million and make a determination whether the improvement is in accordance with criteria specified in the act. To assess DOD’s compliance with the act, we also obtained and reviewed departmental guidance, memorandums, DOD Comptroller review decisions, and other documentation provided by the Business Management Systems Integration (BMSI) office. Additionally, we requested that DOD provide us obligational data in excess of $1 million for business systems for fiscal years 2003 and 2004, as of December 2003. We received obligational data from the military services, but did not receive any information from the defense agencies. We then compared the obligation data provided by the military services with the information from the BMSI office to determine if the modernizations were reviewed as stipulated by the act. To augment our document reviews and analyses, we interviewed officials from various DOD organizations, including the Office of the Under Secretary of Defense (Comptroller); Office of the Under Secretary of Defense (Network and Information Integration)/Chief Information Officer; Office of the Under Secretary of Defense (Acquisition, Technology and Logistics); and CIO and financial management officials from the military services. To determine if selected DOD business system projects are being effectively managed and will help resolve some of DOD’s long-standing business operation problems, we selected the logistics domain from which we chose individual case studies for detailed review. We selected the logistics domain because it represents $770 million, or 16 percent, of modernization funding requested in fiscal year 2004 for the department’s business systems. The logistics domain was also selected because of its significance to DOD operations and its long-standing and inherent inventory and related financial management weaknesses, such as the inability to support its inventory balances and provide total asset visibility. We selected the Defense Logistics Agency’s (DLA) Business Systems Modernization (BSM) and the Army’s Logistics Modernization Program (LMP) for detailed review. For these two business systems, we focused on two key processes, requirements management and testing. To assess whether DLA and the Army had established and implemented disciplined processes related to requirements management and testing, we reviewed DLA’s and the Army’s procedures for defining requirements management frameworks and compared these procedures to their current practices; reviewed guidance published by the Institute of Electrical and Electronics Engineers and the Software Engineering Institute and publications by experts to determine the attributes that should be used for developing good requirements; reviewed BSM’s system requirement documents related to finance, order fulfillment, planning, and procurement and LMP’s system requirement documents related to planning and budget development, asset management, inventory management, and maintenance analysis and planning; and selected 13 of BSM’s 202 system requirements and 12 of LMP’s 293 system requirements and performed an in-depth review and analysis to determine whether they had the attributes normally associated with good requirements and whether these requirements traced between the various process documents. To augment these document reviews and analyses, we interviewed DLA and Army program officials and Defense Finance and Accounting Service (DFAS) officials. To identify the costs associated with BSM and LMP, we reviewed data provided by DLA and Army program officials. We also reviewed prior GAO, DOD Inspector General, and service auditors’ reports, as well as DOD’s agencywide financial statements to obtain further information on inventory costs. We conducted our work at the Office of the Under Secretary of Defense (Comptroller); the Office of the Under Secretary of Defense (Acquisition, Technology and Logistics); the Office of the Assistant Secretary of Defense (Network and Information Integration)/Chief Information Officer; DLA; the Army Materiel Command; and the CIO and financial management offices for the military services. We also visited two locations—the Defense Supply Center in Richmond, Virginia, and the Army’s contractor site (Computer Sciences Corporation) in Moorestown, New Jersey—to gain an understanding of user involvement in the development and operation of BSM and LMP, as well as the business processes associated with each system. We conducted our work from August 2003 through March 2004 in accordance with U.S. generally accepted government auditing standards. We did not verify the accuracy and completeness of the cost information provided by DOD for the two projects we reviewed. We requested comments on a draft of this report from the Secretary of Defense or his designee. We received written comments on a draft of this report from the Acting Under Secretary of Defense (Comptroller), which are reprinted in appendix II. Air Force Financial Information Resource System Navy Enterprise Resource Planning Pilots National Security Agency Pilot Initiative Navy Enterprise Resource Planning Program Defense Integrated Military Human Resources System DFAS Mechanization of Contract Administration Services Rehost DFAS PowerTrack (SCR) Army Integrated Facilities System (SCR) Navy Enterprise Maintenance Automated Information System DFAS e-Biz Capital Investment Reprogramming DFAS Operational Data Store (SCR)Composite Health Care System II DFAS General Accounting and Finance System Rehost Air Force Reserve Travel System DFAS Automated Time, Attendance and Production System (SCR) DFAS Defense Joint Military Pay System—Active Component (SCR) DFAS Defense Joint Military Pay System—Reserve Component (SCR) DFAS Defense MilPay Office (SCR) DFAS Defense Retired and Annuitant Pay System (SCR) DFAS Marine Corps Total Force System (SCR) Transportation Coordinators’ Automated Information for Movements System II Army Recruiting Information Support System Defense Civilian Personnel Data System- Sustainment MEPCOM Management Information Reporting System Joint Computer-Aided Acquisition and Logistics Support Navy Tactical Command Support System Marine Corps Common Hardware Suite Electronic Military Personnel Records System Navy Standard Integrated Personnel System Conventional Ammunition Integrated Management System Shipyard Management Information Systems- Financials SPAWAR Financial Management - ERP MSC Afloat Personnel Management Center Transportation Coordinators’ Automated Information for Movements System II $4.4 (Continued From Previous Page) Military Sealift Command Financial Management System Asset Tracking Logistics and Supply System Integrated Logistics System – Supply Depot Maintenance Accounting and Production System Supply Working Capital Fund Decision Support System (Keystone) Reliability and Maintainability Information System For fiscal year 2004, DOD did not report obligational data. Staff members who made key contributions to this report were Beatrice Alff, Johnny Bowen, Francine DelVecchio, Stephen Donahue, Francis Dymond, Jeffrey Jacobson, Jason Kelly, Mai Nguyen, Michael Peacock, David Plocher, and Katherine Schirano. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through the Internet. 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Despite its significant investment in business systems, the Department of Defense (DOD) continues to have long-standing financial and inventory management problems that prevent it from producing reliable and timely information for making decisions and for accurately reporting on its billions of dollars of inventory. GAO was asked to (1) identify DOD's fiscal year 2004 estimated funding for its business systems, (2) determine if DOD has effective control and accountability over its business systems investments, and (3) determine whether selected business systems will help resolve some of DOD's long-standing problems and whether they are being effectively managed. DOD requested approximately $19 billion for fiscal year 2004 to operate, maintain, and modernize its reported 2,274 business systems. This stovepiped and duplicative systems environment evolved over time as DOD components--each with its own system funding--developed narrowly focused, parochial solutions to their business problems. As a result of this uncontrolled spending, DOD reported over 200 inventory systems and 450 personnel systems. DOD's fundamentally flawed business systems affect mission effectiveness and can contribute to the fraud, waste, and abuse that GAO continues to identify. Further, the number of business systems is likely understated in part because DOD does not have a central systems repository or a standard business system definition. DOD does not have an effective management structure for controlling business systems investments and the business domains' roles and responsibilities have not been defined. Further, DOD does not have reasonable assurance that it is in compliance with the National Defense Authorization Act for Fiscal Year 2003, which requires the DOD Comptroller to determine that system improvements exceeding $1 million meet the criteria specified in the act. Based on limited information provided by DOD, system improvements with at least $479 million of obligations over $1 million were not reviewed by the DOD Comptroller. GAO's two case studies are examples of DOD spending hundreds of millions on business systems that will not result in corporate solutions to its longstanding inventory and related financial management problems. While these efforts should provide some improvement to the Defense Logistics Agency's and the Army's business operations, implementation problems have resulted in schedule slippages, cost increases, and critical capabilities not being delivered. These issues can be attributed, in part, to the lack of disciplined processes in the areas of requirements management and testing. If not corrected, the problems will result in two more costly, nonintegrated systems that only marginally improve DOD business operations and further impede DOD's transformation as envisioned by the Secretary of Defense.

You are an expert at summarizing long articles. Proceed to summarize the following text: Since the September 11th attacks, the key dynamic taking place in the insurance industry has been a shifting of the risk for terrorism-related losses from reinsurers to primary insurers and then to the insured. Reinsurers and insurers have begun shedding their exposure to terrorism risk as insurance contracts come up for renewal, leaving policyholders increasingly exposed to losses from a terrorist attack. Prior to September 11, 2001, insured losses resulting from terrorism in this country were extremely infrequent. Insurance companies considered the risk so low that they did not identify or price potential losses from terrorist activity separately from the general property and liability coverage provided to businesses. But after the September 11th attacks, insurance companies recognized that their risk exposure was both real and potentially enormous. As a result, they began to express concern about continuing to include terrorism coverage as an unpriced component of commercial P/C insurance contracts. Insurers pointed out that experience with major terrorist events has been so limited, and the potential losses so large, that setting an actuarially sound price for such coverage is virtually impossible. Many insurers now consider terrorism an uninsurable risk, at least for the moment. Their response to any risk they consider uninsurable, as many Californians living on fault lines have found, is not to offer insurance. This trend has become evident in the case of terrorism insurance. Reinsurers—companies that routinely take on some of the risk that direct primary insurers face in return for a share of the premiums—are now unwilling to participate in terrorism coverage because of the enormous losses they suffered after September 11th and the newly recognized difficulties of pricing terrorism insurance. Reinsurance is a vitally important element of the insurance industry’s capacity to provide coverage to policyholders. As a mechanism for spreading the risks taken by insurance companies, reinsurance allows primary insurers to accept large risks and, by reinsuring a portion of those risks, to protect themselves from a potentially catastrophic loss. Like syndications of large loans by groups of lenders, reinsurance provides a way to insure large risks without exposing a single insurer to the possibility that its entire capital base would be wiped out because of a single event. Reinsurance companies also provide a channel through which investors can introduce capital to insurance markets without having to develop the extensive distribution channels required by direct primary insurers. However, because reinsurance markets are global in scope and because reinsurance transactions are considered to be contracts between sophisticated parties, neither the prices nor the conditions of such coverage are subject to direct regulation. As a result, after September 11th, reinsurers had little difficulty excluding terrorism from coverage. Generally, these exclusions become effective on the policy renewal date. As stated by witnesses before this Subcommittee in October, a large share of those contracts expired at the beginning of January. Industry sources confirm that little reinsurance is being written today that includes coverage for terrorism. There are exceptions. Low and medium risks, particularly in industries or geographic locations where there is little perceived exposure to a terrorist event, are the least affected. However, large companies, businesses of any size perceived to be in or near a target location, or those with some concentration of personnel or facilities are unlikely to be able to obtain a meaningful level of terrorism coverage at an economically viable price. Where coverage is available, it tends to have high deductibles and tight limits on the level of coverage. In general, reinsurers are being very selective on the exposures they will accept, if any. The higher the risk, the less likely it is that reinsurance coverage will be available. And even in those limited cases in which some reinsurance coverage for terrorism is still available, the prices are very high. As reinsurers walk away from terrorism insurance, primary insurers’ exposure increases, at least in the short run. However, while reinsurance contract renewals tend to be concentrated at the beginning of January and July, primary insurance contracts tend to renew at a relatively even rate over the year. As a result, industry observers and participants have told us that primary insurers’ exposures have increased dramatically and will not fall unless and until they can, in turn, exclude terrorism from their coverage. Faced with this kind of exposure and a risk they do not believe can be priced, industry observers and participates mentioned that primary insurers will need to emulate their reinsurance counterparts and exclude terrorism coverage from some commercial insurance policies. However, a number of factors are affecting both the speed and the extent to which primary insurers can insulate themselves from terrorism. First, in contrast to reinsurance, changes to the coverage provided by direct insurers require regulatory approval in most states, at least for low- and medium- risk companies. This regulatory hurdle caused ISO, acting on behalf of P/C insurers, to file a request in every state for permission to exclude terrorism from all commercial insurance coverage. As of February 22, 2002, 45 states and the District of Columbia and Puerto Rico had approved the ISO exclusion, according to information received by ISO and the National Association of Insurance Commissioners (NAIC). The other five states either denied the suggested language from ISO or are still considering the language for approval or disapproval. States that have not approved the ISO exclusion expressed concerns about various issues. Among them are the low thresholds for exclusion ($25 million or 50 serious casualties); the all-or-nothing nature of the threshold (insurers pay nothing if either threshold is reached); the aggregation of all losses from multiple incidents within a 72-hour period and across most of North America into one event if they “appear to be carried out in concert or to have a related purpose or common leadership”; fear that the exclusion would leave some small and medium-sized businesses that could least afford the losses from a terrorist attack totally unprotected; and worry that the included definition of terrorism is overly broad. Nevertheless, because of regulatory concerns about the solvency of primary insurers who cannot get reinsurance, ISO’s exclusion language has been approved in 45 states and the District of Columbia and Puerto Rico. Primary insurers in those states can now exclude terrorism from coverage on various lines of commercial policies. While only five states have not (yet) accepted the ISO exclusion language, those five states account for more than 35 percent of the total U.S. commercial insurance market. Second, even though direct insurers now have regulatory approval to exclude terrorism from commercial P/C insurance contracts in most states, such a change in coverage generally would have to wait until the renewal date. According to some insurance regulators with whom we spoke, losing reinsurance would not generally be a sufficient reason for canceling or changing coverage for policyholders during the policy period. Moreover, even when an insurance policy terminates, insurers generally have to give 30 to 60 days advance notice to policyholders before non- renewing a policy or making a significant change in coverage. As a result, it could be as much as a year after a direct insurer loses reinsurance coverage for terrorism before a similar exclusion could be passed on to all its policyholders. Finally, even at renewal, laws existing in some or most states will affect the extent to which insurers can completely end their exposure to losses resulting from terrorist events. For example, laws in nearly all states preclude a workers’ compensation insurer from excluding coverage for a particular type of event. Workers’ compensation must cover all the risks to which an employee is exposed while at work, irrespective of the cause. Industry sources estimate that approximately 10 percent of the losses resulting from the World Trade Center attack will be due to payments for workers’ compensation claims. Similarly, insurance laws in approximately 30 states include what is called “standard fire policy” language, according to ISO officials. In that language, insurers are required to pay losses resulting from fire, irrespective of the cause. Thus, in an explosion like the World Trade Center attack, a terrorism exclusion would protect insurers from liability for losses resulting from the direct effects of the explosion, but not for the losses caused by the resulting fire. Estimates suggest that the fire, rather than the explosion itself, caused a substantial portion of the losses in the World Trade Center attacks. Industry sources have said that they expect an effort to change this requirement. In all of the states where the standard is written into state statutes, an act of the state legislature would be required to modify it. Thus, even though many reinsurers can and have moved quickly to exclude terrorism from reinsurance coverage, primary insurers’ ability to exclude terrorism is more limited, at least in the short run. However, the rapid submission of the ISO exclusion language to state insurance regulators, and their generally rapid and positive response, clearly indicate the urgency of primary insurers’ desire to be able to exclude terrorism from commercial P/C insurance coverage. Early indications suggest that many businesses, particularly those in large metropolitan areas, are already beginning to experience difficulty obtaining terrorism coverage as their insurance policies come to renewal. In our discussions with insurance industry participants, observers, and policyholders, we found that large commercial enterprises were among the first to feel the impact of terrorism exclusions. Some large property owners or developers reported that they are having to underinsure or “go bare” by self-insuring for terrorist risks because of the lack of available coverage or very limited coverage for the quoted prices. While the extent of the negative economic impacts of a lack of terrorism coverage is not yet clear, the potential for more severe economic impacts is increasing as the level of uninsured risk climbs. Over the next year, the level of uninsured risk for terrorism-related incidents is expected to continue to rise as commercial policies renew between primary insurers and policyholders and insurers seek to exclude terrorism-related coverage from policies they cannot reinsure. Therefore, the economic burden of another terrorist attack would fall increasingly on policyholders as the insurance industry sheds or limits its risks to such exposures, raising the potential for more devastating economic consequences should such an event occur. Additionally, as insurers exit the market for terrorism-related coverage, so too does their claims-processing capacity for administering recovery assistance to victims of a terrorist event. Even in the absence of another terrorist event, adverse impacts due to the lack of adequate terrorism coverage appear to be surfacing, although their ultimate impact on the economy as a whole cannot yet be gauged. Additional cases of adverse economic impacts to individual firms caused by the absence or high price of coverage for terrorism-related events are likely to become more evident as policies continue to be renewed over the next year. Many of the most severe potential negative consequences resulting from the lack of terrorism insurance coverage will only become evident if another terrorist attack occurs. The shifting of risk from reinsurers to primary insurers to commercial policyholders and other affected parties could place more risk and economic burden on businesses and the public at large should another terrorist attack similar to September 11th occur. Consequently, a lack of such coverage in the event of another attack could have much broader effects on the economy. Recent estimates of the losses paid by insurers as a result of the attacks on the World Trade Center are about $50 billion, of which reinsurers are expected to ultimately pay about two-thirds. If another terrorist event of similar magnitude were to take place, all those losses would still be incurred. However, depending on the timing of the event, the effect would be very different, because even today the reinsurers would be responsible for a much smaller share of the losses. As the event moves farther into the future and primary insurers successfully exclude terrorism from insurance coverage, the losses will increasingly be left to the affected businesses and their employees, lenders, suppliers, and customers. Because these entities lack the ability to spread such risks among themselves the way insurers do, another terrorist attack similar to that experienced on September 11th could have significant economic effects on the marketplace and the public at large. These effects could include bankruptcies, layoffs, and loan defaults. Another significant consequence of the insurers’ exiting the market for terrorism coverage is the absence of a claims-processing mechanism that can effectively and efficiently respond to victims of an attack. After September 11th, insurance companies, working with public risk- management groups, are reported to have mobilized extensive resources to pay many claims quickly. The administrator of the special government program to compensate victims in the aftermath of the September 11th attacks has noted the challenges of creating a mechanism for identifying victims and properly disbursing aid, even several months after the attacks. If, without insurers, the government should emerge as a principal source of financial recovery after another attack, it would first have to create the infrastructure to process claims and disburse financial assistance to victims, duplicating the mechanism already in place in the insurance industry. Therefore, the potential economic impacts of another incident on the scale of a September 11th attack could become even more devastating absent insurance mechanisms to quickly help businesses recover and restore economic activity. The current movement by insurers to insulate themselves from terrorism-related losses, however, means that their involvement in the recovery process after another terrorist event would also likely be substantially lessened. Even if no other terrorist attacks occur, some adverse conditions are beginning to appear in the marketplace due to the lack of adequate terrorism coverage, though the impacts on the economy as a whole are still unclear. As noted earlier, commercial property owners and businesses are now facing higher P/C rates coupled with substantially reduced protection for terrorism-related risks as P/C policies renew over the coming year. Insurance industry observers and policyholders report that while limited coverage for terrorism-related losses is currently available at very high rates, full coverage is often not available at any price, forcing larger commercial policyholders to operate with little or no coverage for such risks. Cases of adverse economic impacts to individual firms caused by the absence or high price of coverage for terrorism-related events are likely to become more evident as policies continue to be renewed over the next year. Some examples of large projects canceling or experiencing delays have surfaced, with the lack of terrorism coverage being cited as a principal contributing factor. Overall, it is still unclear to what extent financing arrangements for existing or planned projects will be jeopardized as lenders and investors are faced with the prospect of absorbing additional terrorism-related risks that cannot be insured. These financing arrangements encompass both development and resale markets, where financing is contingent upon full insurance coverage for collateral assets backing the loan or investment. Some industry observers believe private markets will eventually develop and expand the capital available for terrorism insurance coverage, but whether or how quickly an adequate market can materialize is not yet evident. Our contacts with various industry and regulatory sources indicate that some financial problems are surfacing due to the lack of terrorism coverage, though it is still too early to gauge how widespread these problems will become. Though we could not independently validate each of the assertions provided, we found consistency among the sources in the reasons contributing to delays or cancellation of projects. These reasons can be attributed to uncertainty and an unwillingness among lenders and investors to accept risks that cannot yet be reasonably estimated and that insurance companies are unable to price. Two of the most common adverse impacts being cited by commercial sources, particularly owners and developers, are the conditions of having to go bare or only partially insure assets against terrorism due to the inability to obtain meaningful terrorism coverage. Even when limited coverage is available, uncertainties about the frequency and cost of future events cause insurers to set premiums very high. This condition appears to be particularly acute for properties located in central business districts of major metropolitan areas. Specifically, several property owners that we spoke to with properties across the United States reported not being able to purchase the amount of terrorism coverage they need because the capacity they require is not available in the current market. As a result, these owners are largely bare for terrorism risks and liable for any uninsured damages that would result from a terrorist attack on their properties. For instance, a major North American commercial real estate firm that owns trophy properties and office buildings in the central business districts of several major U.S. cities reported that it cannot find enough terrorism insurance to cover the value of its properties. This firm previously had a blanket property insurance policy providing $1 billion of total coverage—including terrorism—that expired in October of 2001. Since that time, the firm has been able to find only one insurer who would offer it a quote for stand-alone terrorism insurance for a maximum $25 million of coverage. The firm stated that minimal damage to its buildings could surpass $25 million in claims and that this limit was inadequate. In another example, a New York insurance brokerage firm reported that it tried to obtain terrorism coverage for a client’s portfolio of non-trophy office buildings in New York City. The incumbent insurer agreed to provide $100 million of insurance coverage on the portfolio that included terrorism, at double the cost of the previous year’s $500 million policy. The broker could not find more terrorism coverage for these properties. Industry consultants also reported that their clients were experiencing difficulty finding sufficient liability insurance for terrorism risk. An owner and operator of a midwestern city’s principal airport and several smaller area airports reportedly experienced a 280 percent increase in its aviation liability premium for 2002. The new policy does not include war risk. The insurer offered $50 million in war risk and terrorism coverage back to the airport owner in a stand-alone policy for a premium of $1 million. The owner needs $500 million in coverage to satisfy its obligation to customers. Property owners’ search for terrorism coverage has been driven not only by the fear of personal liability for terrorist attacks to their properties, but also by the fact that lenders are requiring this coverage on the collateral backing existing mortgage loans. Therefore, the shifting of risk back to the policyholders is also creating adverse business conditions for lenders and investors. Lenders typically require borrowers to carry all-risk insurance coverage to protect the value of loan collateral. Lenders and investors are now voicing their concern over their increasing exposure to terrorism-related risks as collateral assets on mortgages become uninsured for such risks. Post-September 11th, many lenders began notifying borrowers with properties considered at risk for terrorism of the requirement to carry insurance for the risk of terrorism. If borrowers cannot obtain the requisite terrorism coverage, lenders may find them in violation of their loan covenants. Lenders and investors are now being faced with the dilemma of either allowing their risk exposure to increase or acting to terminate existing loan agreements because terrorism coverage is not available to satisfy insurance requirements on the agreement. Overall, it is not yet clear how financial institutions will react to borrowers that cannot satisfy insurance requirements on existing loans. In one case, a firm that develops large-scale buildings and that owns over a hundred non-trophy office and residential buildings both in the suburbs and central business districts of cities in several East Coast states reported that it cannot find enough terrorism coverage to cover the replacement value of its holdings and satisfy the lenders’ insurance requirements. The firm currently has mortgage loans on each of its properties with over 30 different lenders ranging from local savings banks to investment banks, pension funds, and the securities market. All of the firms’ lenders notified the firm that insurance policies on the properties must include the risk of terrorism. As the firm’s current umbrella policy expires in March 2002, the firm began looking for the requisite insurance coverage to maintain compliance with the lenders’ terms. For fiscal year 2001–2002, the firm had purchased a blanket property insurance policy covering $300 million per property per occurrence for a premium of $1 million. The firm reported that the same amount of coverage was available for 2002–2003 for $5 million, but it excluded terrorism. The firm found only one insurer who would offer a quote for a stand-alone terrorism insurance policy. This quote specified a maximum coverage of $75 million for a premium of 1.5 percent, or $1,125,000. As $75 million is not enough to cover the replacement value of any of the buildings it owns, the firm stated that it would be in technical default of its loan covenants when its current insurance policy expired. In another case, the owners of a major midwestern mall reported that when their all-risk insurance policy on the property expired at the end of 2001, they purchased a terrorism-excluded insurance policy because they could not find one that would cover the risk of terrorism. The mall’s mortgage lender objected to the policy’s terrorism exclusion and argued that it violated the “all-risk” insurance requirement stipulated in the loan documents. Consequently, the lender notified the owners that it had purchased a stand–alone $100 million terrorism insurance policy to protect the mall from this risk. Furthermore, the lender demanded repayment by the mall of the $750,000 premium. The mall owners protested the lender’s action, arguing that they could not be required to purchase insurance that was not available to them or other owners of similar properties. The owners successfully sought a temporary restraining order from the courts to prevent the lender from forcing repayment of the insurance premium. Similarly, another lender described the adverse business relationships created as the bank responded to the technical default of mortgages when full terrorism insurance was not in force. From the bank’s perspective, it is being asked to absorb risk that it had not previously priced into the mortgages and is therefore putting pressure on its mortgage holders to obtain terrorism coverage. At the same time, the bank recognizes that the unavailability or increased cost of terrorism coverage will also negatively impact the mortgage holder’s ability to service the loans. Consequently, the bank’s likely course of action will be to review each loan on a case-by- case basis. While owners with existing mortgages are not sure what actions lenders will take if sufficient terrorism coverage is not available, firms interested in buying and selling properties reported that the lack of adequate terrorism coverage has delayed or prevented certain projects. Several developers, financiers, and insurance industry observers noted a number of examples where lenders or investors were reluctant to commit resources to projects that could not be insured against terrorist acts. A common financing requirement places the responsibility on borrowers to fully insure the assets used as collateral in lending arrangements. In these instances, lenders and investors were unwilling to supply financing because the buyer or seller could not obtain adequate terrorism coverage on the property. For instance, a general contracting firm in New York City reported that its bank will not provide financing for a proposed construction project unless it obtains all-risk insurance that includes terrorism coverage. The planned project is a 30-story apartment building in a high-risk area in New York City. The firm reported it has not been able to find an insurer that will sell it terrorism coverage at any price. Without this coverage, the firm cannot obtain the financing needed to hire construction workers and begin construction. The firm stated it typically hires 500 construction workers for projects such as this one. Similarly, a firm stated that it could not obtain mortgage financing on an office building it owns on the East Coast because the firm could not purchase enough terrorism insurance to cover the replacement value of the property. Only one insurer offered a quote—for a premium of $800,000, at a level far below what the lender is requiring. Before September 11th, the insurance for this building, including terrorism coverage, was $60,000 for $80 million of coverage. The firm stated the mortgage lender refused to lend the money, despite the fact that the building had a guaranteed multimillion-dollar cash flow for the next 20 years. Without this loan and others like it, the firm’s future growth potential is severely limited. In another case, an insurance broker stated that a client who was interested in purchasing a major property found terrorism coverage available in the needed amount to satisfy the lender, but the coverage was too expensive to make the deal economically viable. This buyer needed $300 million in terrorism insurance to cover the replacement value of the asset and satisfy the lender’ s insurance requirements. According to the broker, the buyer received a quote of $6 million for a $300 million stand- alone terrorism insurance policy. Although the buyer was able to find coverage, he was unable to purchase it, as the building in question generates only $75 million annually in rent. The buyer had budgeted $750,000 for all of the building’s insurance needs. Given all the other expenses associated with the building’s operation, maintenance, and loan service, the buyer believed that he could not afford terrorism insurance at that price. However, without that insurance, the buyer could not obtain financing for the deal and it was not completed. Again, a mortgage broker reported that a client interested in the purchase of a trophy property in New York City could not obtain the $200 million necessary to finance its purchase. The broker stated that arrangements for financing with one lender were almost complete before the events of September 11th. After the terrorist attacks, the lender’s credit committee reportedly decided it would not approve the loan unless the client could get enough terrorism coverage to cover the replacement value of the property. The prospective buyer could not find coverage or another bank that would lend the money without it. In some cases investors have been unwilling to buy securities when the availability of terrorism coverage on assets backing the securities is uncertain. One example included a large insurance company with a loan of approximately $250 million on an office building in New York. An investment firm reported that this loan was scheduled for securitization as a way for the company to reduce exposure. Potential investors in the loan reportedly said they would not buy shares of the loan without terrorism coverage. The investment firm stated that since the insurance company cannot reduce its exposure in this type of loan, it is unlikely to provide capital for similar projects in the future unless terrorism coverage becomes available. In a second example, a capital management firm stated that it led the marketing effort for a domestic commercial mortgage- backed securities deal in the United States at the end of 2001. Investment firms in the United States and Europe chose not to purchase these securities primarily out of concern that terrorism insurance would not be available in the future. The examples cited above do not allow definitive conclusions about the ultimate economic effects of the ongoing risk shift from reinsurers to insurers and on to property owners and businesses. However, they do indicate greater uncertainty, which may affect both financial decisions and real economic activity. Our government leaders continue to warn of imminent and credible terrorist threats. Should one of these threats become a reality in a world where insurers are no longer the first line of protection for businesses, the economic consequences could be very different from those following September 11th. As businesses both large and small are faced with uninsured losses that threaten their ability to survive, Congress could be faced with a time-critical decision to intervene or not. A decision not to act could have debilitating financial consequences for businesses, together with their employees, lenders, suppliers, and customers. At the same time, a decision by Congress to act could be difficult to implement quickly—and extremely expensive. Even if, as we all fervently hope, another terrorist attack does not occur, there are indications that the lack of adequate terrorism insurance is beginning to affect firms in some sectors of the national economy. The ultimate scope of these effects is uncertain at this time, but they could become potentially significant in an economy recovering from a recession. Deciding whether Congress should act to help businesses obtain insurance against losses caused by terrorism is properly a matter of public policy. The consequences of continued inaction, however, may be real and are potentially large. Madam Chairman, this concludes my statement. I would be happy to respond to any questions that you or other members of the Subcommittee may have. For further information regarding this testimony, please contact Richard J. Hillman, Director, or Lawrence D. Cluff, Assistant Director, Financial Markets and Community Investment Issues, (202) 512-8678. Individuals making key contributions to this testimony include James Black, Rachael DeMarcus, Thomas Givens III, Ronald Ito, Stefanie Jonkman, Monty Kincaid, Barry Kirby, and Angela Pun. The Insurance Services Office (ISO) develops standardized policy contract language - forms and endorsements - for use by property-casualty (P/C) insurers. Last October, ISO developed terrorism exclusion language and filed the language with each state’s insurance department for use by its insurer-customers. ISO also offered the use of these endorsements for free to insurers that were not its clients. Insurers operating in states that have approved ISO’s endorsements can choose to incorporate them into their insurance policies; insurers operating in states that have rejected or have not yet approved ISO’s endorsements typically cannot. Generally, ISO’s endorsements describe, among other things, events that are considered “terrorism” and “war,” define various thresholds that trigger the exclusion of insurance coverage, and describe events that would trigger the exclusion of all insurance coverage. For terrorism events, ISO wrote endorsements that could be used for different lines of insurance to explain when claims are not covered by an insurance policy. These endorsements contain essentially the same language. Concerning commercial property insurance lines, two endorsements were written – one for states that have statutory requirements for fire coverage and one for states without such a requirement. Another endorsement was written for commercial general liability policies. As of February 22, 2002, forty-five states, the District of Columbia and Puerto Rico have adopted ISO’s terrorism exclusions, while five states have either rejected the exclusions or are still evaluating them, according to NAIC officials. To gain further insight at the state regulatory level, GAO interviewed NAIC and several state regulators. According to NAIC officials, ISO initially developed very broad exclusionary language and filed it with insurance regulators across the country. State insurance regulators raised concerns about the overly broad exclusionary language and recommended that ISO develop more consumer-friendly language that did not endanger insurer solvency. Late last year, when NAIC assessed that Congress would not be passing a federal solution, NAIC facilitated communications between ISO and state insurance regulators to narrow the impact of the exclusionary language. ISO has amended that language. NAIC and many state regulators that GAO interviewed said that their primary motive for adopting the ISO endorsements was to protect insurer solvency. NAIC officials also told GAO that they have worked with ISO in developing a level of coverage that individual insurers could bear. NAIC agreed with insurers that without reinsurance, insurers’ solvency could be at risk if they were required to provide insurance for terrorism. However, regulators told us that they were uncomfortable with ISO’s original proposal to exclude all terrorism, from the first dollar of losses, because of the potential to exclude acts that may not be the result of terrorism. NAIC officials stated that the $25 million threshold was acceptable because it reflected the maximum losses that a single company could absorb. They told GAO that losses of $25 million born by a single insurer would threaten the solvency of 886 insurers representing approximately 44% of the P/C insurance companies writing commercial lines of insurance in the United States. Some state regulators have not yet adopted ISO’s terrorism exclusion endorsements for various reasons. These states include California, Florida, Georgia, New York and Texas. GAO interviewed these state regulators to obtain their views and concerns. In general, their concerns were related to the definition of terrorism, the loss thresholds for which coverage would apply, and the impact that such exclusions would have on small businesses in their states. One state regulator maintained that ISO’s definition of terrorism is overly broad, and could exclude insurance coverage of relatively minor incidents such as vandalism. ISO officials told us that the $25 million threshold, in effect, addresses lower levels of events that may come from domestic terrorism or vandalism. Another state regulator said the $25 million threshold is too low and that a minor incident in a central business district would trigger the total loss of coverage. One regulator found the exclusion language reasonable, but was concerned about the exposure small businesses would bear because they are least able to afford terrorism insurance. ISO endorsements contain several key elements. One key aspect of the endorsements is its definition of terrorism. ISO’s definition of a terrorist act provides that: Terrorism means activities against persons, organizations or property of any nature: 1. That involve the following or preparation for the following: Use or threat of force or violence; or Commission or threat of a dangerous act; or Commission or threat of an act that interferes with or disrupts an electronic, communication, information, or mechanical system; and 2. When one or both of the following applies: The effect is to intimidate or coerce a government or the civilian population or any segment thereof, or to disrupt any segment of the economy; or It appears that the intent is to intimidate or coerce a government, or to further political, ideological, religious, social or economic objectives or to express (or express opposition to) a philosophy or ideology. Although ISO’s endorsements are commonly referred to as terrorism exclusions, they also contain language to define acts of war and to exclude war from coverage. While the endorsements’ definition and application of the war exclusion did not change the war risk exclusion already used for commercial property lines, its application of the war exclusion was greatly extended for commercial general liability lines. ISO officials explained that historically, the war exclusion was limited to contractual liability in commercial general liability insurance lines, but now it will be applied much more broadly, similar to its application in commercial property lines. A second key element of the ISO terrorism exclusion endorsements relates to the thresholds at which losses are excluded from coverage. The endorsements for both the commercial property and commercial general liability lines contain a $25 million loss threshold. Along with this threshold, the terrorism exclusion threshold for commercial general liability lines will also be met if an event causes death or serious injury to fifty or more people. Specifically, if a terrorism event causes aggregate damages of $25 million or less, insurance will cover insured property losses to policyholders. However, if aggregate damages exceed $25 million, insurers will not be liable for any resulting losses, not even the first $25 million. In some urban centers the value of many individual buildings, even those not considered to be trophy properties, exceed $25 million.

In the closing months of last year, insurers claimed that they could not afford to continue providing coverage for potential terrorism losses. Considerable debate has taken place on what the federal government can do to keep commercial insurance companies involved in providing terrorism insurance, even without the protection that they normally receive from reinsurance. Insurance companies are withdrawing from the market because they believe that neither the frequency nor the magnitude of future terrorist losses can be estimated. Insurance coverage for terroris is disappearing, particularly for large businesses and those perceived to be at some risk. This withdrawal is happening fastest among reinsurers. Because the insurers' withdrawal has been gradual, the extent of the potential economic consequences is still unclear. What is clear is that without terrorism insurance, terrorist attacks would dramatically increase direct losses to businesses, employees, and lenders. Furthermore, the government's ability to intervene after a future terrorist attack may be hampered by its lack of claims-processing and payments systems. Even without actual terrorist attacks, some properties and businesses have been unable to find terrorism coverage at any price. These problems are likely to increase as more insurance contracts come up for renewal during the coming year. The resulting economic drag could slow economic recovery and growth.

You are an expert at summarizing long articles. Proceed to summarize the following text: Located within the Department of Commerce, USPTO administers U.S. patent and trademark laws while ensuring the creation of valid, prompt, and proper intellectual property rights. According to the Strategic Plan, USPTO’s mission is to ensure that the intellectual property system contributes to a strong global economy, encourages investment in innovation, fosters entrepreneurial spirit, and enhances the quality of life. USPTO also advises the administration on all domestic and global aspects of intellectual property. USPTO management consults with a Patent Public Advisory Committee and a Trademark Public Advisory Committee. These committees are comprised of voting members from the private sector and non-voting members from the three unions represented at USPTO—the Patent Office Professional Association and two chapters of the National Treasury Employees Union. The committees not only review USPTO policies, goals, performance, budget, and user fees related to patents and trademarks, but also issue annual reports to the President, the Secretary of Commerce, and the House and Senate Committees on the Judiciary. Fees and volume of patent activity are different for small and large entities. Small entities receive a 50 percent discount on many patent fees. The majority of patent applicants are large entities filing applications for utility patents. USPTO has estimated that in recent years patent applications from large entities have comprised over 60 percent of all patent applications received; small entities have accounted for the remainder. In fiscal year 2001, utility patents represented over 90 percent of all patents granted that year. The number of patent applications filed nearly doubled during fiscal years 1990 through 2001, increasing from about 164,000 to about 326,000, and USPTO’s Corporate, Business, and Strategic Plans projected that the number of applications would increase to between 351,000 and 368,000 in fiscal year 2002. Moreover, each plan projects that the number of applications will increase in the future—10 percent annually under the Corporate and Business Plans and 5 percent annually for fiscal years 2003 and 2004 and 7 percent annually for fiscal years 2005 through 2007 under the Strategic Plan. The Corporate Plan projected that the number of applications would increase to about 539,000 in fiscal year 2006; the Business and Strategic Plans project that the number of applications filed will increase in fiscal year 2007 to about 593,000 and 454,000, respectively. The lower projection under the Strategic Plan reflects the reduced number of applications expected for fiscal years 2002 and 2003 due, in part, to a slowdown in the economy. For fiscal year 2002, the Business Plan assumed an application growth rate of about 12 percent and the Strategic Plan assumed a growth rate of 3 percent; for fiscal year 2003, the growth rate projected by the Business and Strategic Plans were 10 percent and 5 percent, respectively. The application growth rate is a key factor in projecting business indicators, such as pendency, staffing needs, and funding requirements. For example, if the number of applications decreases, the number of examiners needed to process those applications decreases. (See app. I, p. 20.) The number of patents granted increased by over 90 percent during fiscal years 1990 through 2001, increasing from about 90,000 to about 171,000, and USPTO’s three plans projected that the number would increase to a range of about 167,000 to 171,000 in fiscal year 2002. Furthermore, the three plans project that the number of patents granted will increase in the future. The Corporate Plan projected that the number of patents granted would increase to about 192,000 by fiscal year 2006, and the Business and Strategic Plans project that the number of patents granted will increase in fiscal year 2007 to about 314,000 and 374,000, respectively. (See app. I, p. 21.) USPTO’s inventory of unprocessed patent applications increased by nearly 250 percent from fiscal year 1990 to 2001, increasing from about 96,000 to about 332,000, and USPTO’s three plans projected that the inventory would increase to between 393,000 and 512,000 in fiscal year 2002. The Corporate and Business Plans also project increases in the future, while the Strategic Plan projects a decrease. The Corporate Plan projected that the application inventory would increase to almost 1.3 million by the end of fiscal year 2006, and the Business Plan projects that the inventory would increase to about 584,000 through fiscal year 2007. The Strategic Plan, which would speed up some of the proposed changes in the Business Plan and make other fundamental changes, projects that the inventory will decrease to about 144,000 through fiscal year 2007. The decrease projected in the Strategic Plan reflects several changes in assumptions, including fewer new patent applications. (See app. I, p. 22.) Patent pendency increased from 18.3 months to 24.7 months between fiscal years 1990 and 2001. Projections of patent pendency beyond fiscal year 2001 vary widely under USPTO’s three plans. USPTO’s three plans projected that pendency would increase to between 26.1 months and 26.7 months in fiscal year 2002. The Corporate Plan projected that pendency would be 38.6 months in fiscal year 2006, and the Business and Strategic Plans project it will be 25.5 months and 20.3 months, respectively, in fiscal year 2007. According to USPTO officials, pendency time in the Strategic Plan reflects a proposed fundamental redesign of the patent search and examination system. (See app. I, p. 23.) The number of patent examiners on board at the end of the fiscal year increased from 1,699 to 3,061, or about 80 percent, from fiscal year 1990 to 2001. During this period, USPTO annually hired an average of 380 new examiners and lost an average of 236 examiners through attrition. Further, USPTO’s Business and Strategic Plans projected that the number of examiners on board at the end of fiscal year 2002 would be 3,435 and 3,595, respectively. Moreover, both plans project increases in the number of examiners through fiscal year 2007—to 5,735 in the Business Plan and to 4,322 in the Strategic Plan. (See app. I, pp. 24-26.) Between fiscal years 1999 and 2001, fee collections increased from $887 million to $1.085 billion and funding requirements (USPTO’s appropriations) increased from $781 million to $1.039 billion. For fiscal year 2002, the Business and Strategic Plans projected fee collections of $1.373 billion (includes $27 million for employee pension and annuitant health benefits proposed by the President) and $1.198 billion, respectively, and both plans projected that funding requirements would be $1.128 billion. Further, fee collections and funding requirements are projected to increase in the future under both plans, but at different rates. Under the Business Plan, fee collections are projected to increase from $1.527 billion in fiscal year 2003 to $2.078 billion in fiscal year 2007, and funding requirements are projected to increase from $1.365 billion to $2.078 billion during the same time period. Under the Strategic Plan, fee collections are projected to increase from $1.527 billion in fiscal year 2003 to $1.823 billion in fiscal year 2007, and funding requirements are projected to increase from $1.365 billion to $1.823 billion during that period. (See app. I, pp. 27-28.) There are a number of differences between USPTO’s Business and Strategic Plans, as shown in the following examples. (See app. I, p. 29.) The patent pendency definition is different under each plan. Under the Business Plan, pendency is measured from the date an application is filed. However, under the Strategic Plan, pendency would be measured from the date an applicant pays the examination fee. According to USPTO officials, this definition is different than the definition under the Business Plan because of the proposed fundamental redesign of the patent search and examination system. Also, according to the Strategic Plan, this definition is the same measure—the examination duration period—used by the European Patent Office and the Japan Patent Office. This change in definition is partly responsible for the reduction in pendency under the Strategic Plan. Historically, applicants have paid a single fee that covered filing and examination; under the Strategic Plan there would be separate filing and examination fees. The applicant has two options for paying fees under the Strategic Plan. Under the first option, applicants may elect to pay the patent application fee and examination fee at the same time. Under the second option, applicants may elect to pay the application fee and defer examination and paying the examination fee for up to 18 months. According to USPTO, applicants that take advantage of the deferred examination do so for various reasons, such as to decide the merits of pursuing the patent or to avoid the early expenditure of funds. USPTO estimates that about 9 percent of all applicants will defer examination. The Strategic Plan redefines patent pendency as the examination duration period. As a result, under the first option the pendency measure is the same as under the Business Plan—it begins from the date the patent application is filed. However, under the second option pendency begins when the examination fee is paid. Table 1 shows USPTO’s projections of patent pendency under three scenarios using different assumptions. The first scenario shows the Business Plan’s pendency projections. The second scenario is based upon the Strategic Plan where an applicant pays the filing fee and examination fee at the same time, thus seeking immediate examination. The third scenario is based on the Strategic Plan where an applicant pays the filing fee and then defers examination. Regarding the third scenario, the Strategic Plan notes that to determine the average total pendency under the Strategic Plan (from the date an application is filed to issue of a patent or abandonment of the application), 9 months should be added to the plan’s calculation to reflect the estimated average examination deferral period. According to USPTO officials, fewer months should be added in the early years. Table 1 shows for the third scenario that when the deferral time is added, average pendency from filing until patents are granted or applications are abandoned would be longer under the Strategic Plan than under the Business Plan for those applicants who elect to defer examination of their applications. USPTO noted that the fiscal year 2008 difference between the 18 months in the second scenario and the 27 months in the third scenario is a measure of deferred examination. Patent examiners’ responsibility for the search function on most domestic applications would also be eliminated under the Strategic Plan. Instead, with the exception of a new class of applicant—the micro-entity— applicants would arrange for such searches by private organizations, foreign patent offices, or others; USPTO would continue to do searches for micro-entities. This change would allow examiners more time to focus on the examination function. USPTO assumes under the Strategic Plan that a portion of the patent examiners’ time will be refocused from non- examination to examination functions. USPTO officials told us that most of the refocused time would result from eliminating the search function. The detailed action plans supporting the Strategic Plan show that eliminating the search function would increase examiners’ productivity between 5 and 20 percent. Almost 2,100 more new patent examiners would be hired under the Business Plan than under the Strategic Plan—4,750 versus 2,688. This difference reflects revised assumptions about new hires and the number of examiners expected to leave. Under the Business Plan, USPTO expects to hire 950 examiners and assumes a 10 percent attrition rate each year during fiscal years 2003 through 2007. Under the Strategic Plan, USPTO expects to hire 750 examiners annually for fiscal years 2003 and 2004 and 396 examiners annually for fiscal years 2005 through 2007. USPTO assumes 11 percent and 8 percent attrition rates for fiscal years 2003 and 2004, respectively, and 9 percent attrition annually for fiscal years 2005 through 2007. Fewer examiners would be required under the Strategic Plan because fewer new applications are anticipated and examiners would no longer be required to do the search function for most patent applications. Patent fee restructuring would be implemented in fiscal year 2004 under the Business Plan, and by October 1, 2002, under the Strategic Plan. There would be a one-time surcharge of 19.3 percent on patents and 10.3 percent on trademarks in fiscal year 2003 under the Business Plan, but no surcharge under the Strategic Plan. USPTO officials told us that the restructured fees would need to be put in place earlier than proposed under the Business Plan to compensate for the elimination of the one-time surcharge and the expected decrease in patent applications, and to implement changes proposed to improve quality and reduce pendency. Fee collections and funding requirements projected for fiscal year 2003 in the Business Plan would be the same in the Strategic Plan—$1.527 billion in fee collections and $1.365 billion in funding requirements—but the specifics would change. For example, the Strategic Plan’s patent-funding requirements would increase by about $27 million and trademark-funding requirements would decrease by the same amount. Furthermore, projected funding requirements for fiscal years 2003 through 2007 would total about $539 million less under the Strategic Plan than under the Business Plan— $8.396 billion versus $8.935 billion—as a result of changing assumptions, such as fewer patent applications filed and fewer patent examiners needed. For fiscal years 2004 through 2007, the Business and Strategic Plans both predict that fee collections and funding requirements will equal each other. There would be some significant changes in the patent fee structure under legislation proposed on June 20, 2002. While the proposed filing fee under the Strategic Plan would be lower than the current filing fee, a new examination fee would be added and other fees would be higher. In addition, some new fees would be established for such things as surcharges authorized by the USPTO Director in certain instances. For example, a surcharge could be charged for any patent application whose specification and drawings exceed 50 sheets of paper. (See app. I, p. 30.) Generally, large entities would pay higher fees under the proposed legislation. The current fee structure provides that large entities pay a $740 patent filing fee that covers both the filing and examination of the patent application. While the proposed legislation would have large entities pay a $300 patent filing fee, it would also require applicants that request examination (assumed by USPTO to be 90 percent of the large entity applicants) to pay an additional $1,250 examination fee. Patent issue fees would also be higher under the proposed legislation. Consequently, a large entity that receives a utility patent would incur a fee increase of nearly $1,200, or about 59 percent, over current fees. Furthermore, the three fees to maintain the patent through its useful life would be higher. If a large entity maintains the patent through the payment of the three maintenance fees, the total fee increase resulting from the proposed legislation would be nearly $4,100, or about a 51 percent increase over current fees. (See app. I, p. 31.) Small entities also would pay increased fees under the proposed legislation, as shown in table 2. Instead of paying a $370 patent filing fee (50 percent of the $740 fee for large entities) that covers both the filing and examination of the patent application under the current fee structure, small entities would pay a $150 patent filing fee (50 percent of the new $300 fee) under the proposed legislation. However, small entities that request examination (assumed by USPTO to be 90 percent of the small entity applicants) also would have to pay the new $1,250 examination fee; with the exception of the new “micro-entity” category, small entities would not get a discount on the new examination fee. In addition, issue fees for small entities are also higher. As a result, a small entity that receives a utility patent would incur a fee increase of over $1,200, or about 121 percent, over current fees. Furthermore, because maintenance fees are higher, if a small entity maintains the patent through the payment of the three maintenance fees, the total fee increase resulting from the proposed legislation would be nearly $2,700, or about a 67 percent increase over current fees. We provided a copy of our draft report to USPTO for review and comment. USPTO responded that the factual information in our draft report provides a good picture of USPTO’s transition to its new Strategic Plan. USPTO added that the Strategic Plan is USPTO’s road map for creating, over the next 5 years, an agile and productive organization fully worthy of the unique leadership role the American intellectual property system plays in the global economy. In addition, USPTO provided technical clarifications and corrections to our draft report, which we incorporated as appropriate. USPTO’s comments are presented in appendix II. To provide information on past and future USPTO operations, including information on the number of patent applications filed, patents granted, inventory of patent applications, patent pendency, patent examiner staffing, and fee collections and funding requirements, we reviewed key USPTO documents, such as its April 2001 Corporate Plan, February 2002 Business Plan, and June 2002 Strategic Plan. We also reviewed various budget documents, performance and accountability reports, planning and other internal documents, and historical data provided by the agency. In addition, we interviewed USPTO senior management and other officials, as well as representatives of the Patent Public Advisory Committee and the Patent Office Professional Association. Recognizing that a detailed examination of the Strategic Plan would be premature until congressional action is taken on the fee legislation proposal and USPTO’s fiscal year 2003 budget request, we agreed to identify some of the differences between the Business and Strategic Plans. We compared selected aspects of those plans, including key assumptions and proposed operating changes. We also discussed with USPTO officials how USPTO develops projections of key business indicators, such as pendency and funding requirements. For example, we obtained information about USPTO’s Patent Production Model, which is a computer-based system that estimates staffing needs, production, pendency, and other key business indicators for managerial decisionmaking. To determine how the current patent-fee structure would change under the proposed fee legislation, we compared current fees with the June 20, 2002, fee legislation proposal. We obtained USPTO officials’ views on the accuracy of our analysis. In addition, we reviewed the results of published analyses of the fee proposal by others, including the American Intellectual Property Law Association and the Intellectual Property Owners Association. Although we did not independently verify the data provided by USPTO, to the extent feasible we corroborated it with other agency sources. We performed our work from April 2002 through July 2002 in accordance with generally accepted government auditing standards. As agreed with your offices, unless you publicly announce its contents earlier, we plan no further distribution of this report until 7 days after the date of this letter. At that time, we will send copies to appropriate House and Senate Committees; the Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office; the Chief Financial Officer and Chief Administrative Officer, USPTO; the Secretary of Commerce; and the Director, Office of Management and Budget. This letter will also be available on GAO’s home page at http://www.gao.gov. If you or your staffs have any questions concerning this report, please call me on (202) 512-6225. Key contributors to this report included John P. Hunt, Jr., Byron S. Galloway, and Don Pless. This appendix contains the information used to brief the staff of Representative Lamar Smith on July 12, 2002, and the staff of the Chairman of the Joint Economic Committee on July 25, 2002. U.S. Patent and Trademark Office: Information on Past and Future Operations July 25, 2002 U.S. Patent and Trademark Office (USPTO) Background (con’t.) Objectives, Scope, and Methodology (con’t.) Patent Applications Filed (Fiscal years 1990-2001) and Corporate, Business, and Strategic Plan Projections (Fiscal years 2002-2007) Patents Granted (Fiscal years 1990-2001) and Corporate, Business, and Strategic Plan Projections (Fiscal years 2002-2007) End-of-Year Patent Inventory (Fiscal years 1990-2001) and Corporate, Business, and Strategic Plan Projections (Fiscal years 2002-2007) Total Patent Pendency (Fiscal years 1990-2001) and Corporate, Business, and Strategic Plan Projections (Fiscal years 2002-2007) Employment of Patent Examiners (Fiscal years 1990-2001) and Business and Strategic Plan Projections (Fiscal years 2002-2007) Patent Examiners Hired (Fiscal years 1990-2001) and Business and Strategic Plan Projections (Fiscal years 2002-2007) Examiners Who Left (Fiscal years 1990-2001) and Business and Strategic Plan Projections (Fiscal years 2002-2007) Fee Collections and Funding Requirements (Fiscal years 1999-2001) and Business Plan Projections (Fiscal years 2002-2007) Fee Collections and Funding Requirements (Fiscal years 1999-2001) and Strategic Plan Projections (Fiscal years 2002-2007) compensate for the eliminated FY 2003 patent fee surcharge and the expected decrease in patent applications. New examination fee would be added; 50 percent small entity discount would not apply to examination fee. Issue fee would be higher. The combined filing, examination, and issue fees would be higher. All three maintenance fees would be higher. New fees would be created, such as a surcharge authorized by the USPTO Director in certain instances. A new “micro-entity” category would be created; with a discount on the examination fee to be prescribed by the USPTO Director. Utility patents include chemical, electrical, and mechanical applications. In fiscal year 2001, utility patents represented over 90 percent of all patents granted that year. How Patent Fee Structure Would Change Under Proposed Legislation (con’t.)

The U.S. Patent and Trademark Office (USPTO) has a staff of 6,426 and collected $1.1 billion in patent and trademark fees in fiscal year 2001. As the U.S. economy depends increasingly on new innovations, the need to patent or trademark quickly the intellectual property resulting from such innovations becomes more important. Expressing concerns about USPTO's plans for the future, Congress directed USPTO to develop a 5-year plan. In February 2001, USPTO issued its first 5-year plan, called the USPTO Business Plan. Because the Director of USPTO did not believe that the Business Plan went far enough, in June 2002, USPTO produced another 5-year plan, called the 21st Century Strategic Plan. GAO found that patent activity grew substantially from 1990 through 2001. The numbers of patent applications filed and patents granted nearly doubled; the inventory of patent applications nearly tripled; patent pendency increased from slightly over 18 months to nearly 25 months, and the number of patent examiners increased by about 80 percent. Furthermore, in fiscal year 2001, both fee collections and agency funding requirements exceeded $1 billion for the first time in the agency's history. Although both 5-year plans cover the same period, the assumptions and projected results of the Business Plan are different in several ways from the Strategic Plan. The administration's recent legislative proposal to restructure patent fees to implement the Strategic Plan would result in higher fees for the majority of patent applications--large entities--that receive utility patents and maintain such patents in to the future. Consequently, total fees for these applicants would increase by $4,100 or 51 percent. Also, total fees for most small entities would increase $2,700 or 67 percent over current fees.

You are an expert at summarizing long articles. Proceed to summarize the following text: The PPA set stricter standards for appraisals and appraiser qualifications, established a penalty on appraisers who prepared appraisals that improperly supported deductions on income taxes, and lowered the threshold for determining certain misstatements of value on certain tax returns. In terms of noncash charitable contributions, the PPA defined a “qualified appraisal” as one that was conducted in accordance with generally accepted standards by a “qualified appraiser.” A “qualified appraiser” is defined as an individual who has earned an appraisal designation from a recognized professional appraiser organization or has met the minimum education and experience requirements set forth in the IRS regulations, and who regularly performs appraisals for compensation. For individuals, noncash charitable contributions are reported on Form 1040, U.S. Individual Tax Return, Schedule A, Itemized Deductions, and contributions of $500 or more must be itemized on Form 8283, Noncash Charitable Contributions. With certain exceptions, taxpayers claiming noncash contribution deductions of items or groups of similar items exceeding $5,000 must obtain qualified appraisals for the donated property, and report those on Form 8283, Section B (see app. II for more detail). The provisions concerning qualified appraisals do not apply to estate or gift taxes. For those taxes IRS simply requires taxpayers to support property values with an appraisal, which could be a written appraisal by a professional appraiser, but does not have to be in every case. Estate taxes are reported on Form 706 and gift taxes on Form 709 (see app. II for more detail on how appraisals may appear on these forms). In general, the higher the appraised value of a noncash charitable contribution, the higher the deduction a taxpayer might claim. Conversely, the lower the appraisal for property reported on gifts and estate taxes returns, the less tax must be paid. IRS has long had the authority to impose a penalty on a taxpayer for valuation misstatements included on a return, but prior to the PPA, IRS did not have specific authority to impose a penalty on the appraiser who prepared the valuation. The penalty rate has two levels related to the proportion of the misstatement. The PPA changed the thresholds for the two levels and increased the penalty rate for larger misstatements. The act also added an appraiser penalty, which applies to any person who prepared a misstated appraisal and knew or reasonably should have known would be used to support an individual income tax return. In 2007, TTCA made the appraiser penalty applicable for appraisals improperly supporting estate and gift tax returns. The responsibility for identifying cases with appraisals and staffing examinations on appraisals largely rests with IRS’s Small Business and Self-Employed (SB/SE) Division, which handles complex individual returns and gift and estate returns, and its Large Business and International (LB&I) Division, which handles partnership returns with assets greater than $10 million. Examination of appraisals typically will be conducted with field examination techniques. Appraiser penalty cases are audited separately from the taxpayer examination cases in which IRS may have first noticed improper appraisals. We estimated that more than 90 percent of estate tax returns filed in 2009 included assets, deductions, or exclusions of more than $50,000 in categories that IRS officials told us were likely to require the use of an appraiser. In contrast, less than 20 percent of gift tax returns and less than 1 percent for individual returns with noncash charitable contributions were likely to need an appraiser. For estate tax returns, we estimated that the aggregate value of property needing appraisers was at least $75 billion in 2009. This was greater than for gift or individual tax returns (see table 1 and tables 2 through 7 in app. III). For returns filed in 2007 through 2009, we found that gift tax filers who were likely to have needed an appraiser were at least twice as likely to have been audited than gift tax filers who were not likely to have needed an appraiser. Conversely, for estate tax returns we found no statistically significant evidence that the likely use of an appraiser was associated with a higher probability of being audited. Audit rates for estate tax returns (which ranged from 8.1 percent for returns filed in 2007 to 10.1 percent for those filed in 2009) are typically significantly higher than those for gift tax and individual income tax returns. For individual income tax returns for tax years 2005 through 2008, we could also not detect any statistically significant differences in audit rates based on the likeliness that a Form 8283 filer required a qualified appraisal. For most years, we found no statistically significant differences between the audit rates for taxpayers who claimed at least $5,000 worth of noncash deductions from Section B of Form 8283 and IRS’s reported audit rates for all individual taxpayers, when compared in broad income groups. (For 2007 returns, we found that the audit rate for high-income Section B filers was at least 1 percent higher than the rate for high-income taxpayers in general). We estimated that the rate of individual taxpayer audits that specifically included noncash contributions as an issue was 0.5 percent or less for tax year 2008 but as high as 3.7 percent for tax year 2006. The total amount of upwards adjustments in tax liabilities associated with appraisals issues (and agreed to by taxpayers) was less than $37 million for each year from 2006 to 2008. For 2005 the amount was between $67 million and $91 million. For most of the years we reviewed, the sizes of our subsamples of audits that specifically identified noncash contributions as being an issue were too small to yield useful information concerning that particular issue’s no- change rate. However, in the case of returns filed for tax year 2007 we were able to estimate that the no-change rate for noncash contribution issues was between 72 percent and 97 percent with a 95 percent level of confidence (see app. II, table 12). IRS officials said the contributions that some individual taxpayers report on their returns are made through partnerships or Subchapter S corporations and that those contributions may be reviewed in audits of those entities rather than in audits of the individuals’ returns. We reviewed data for all 121 partnership and S corporation audits involving noncash contributions that were referred to the Engineering Program (Engineering), a group within LB&I that staffs appraisal experts available to examiners for consultation, for assistance in calendar year 2010. We found that in 31 of those cases, the value of the contribution was identified as an audit issue. Separately, IRS officials told us that from 2007 through February 2012, 500 individual tax returns were adjusted as a result of SB/SE audits of deductions relating to conservation easements claimed by these types of entities. The total amount of PPA penalties assessed in the six existing cases where appraiser penalties have been assessed was $159,713, with the penalty amounts ranging from several hundred dollars to tens of thousands of dollars. An IRS official said that the agency has not abated any of the penalties. IRS provided several reasons for the first PPA penalties not being levied until several years after enactment. First, given that the PPA penalties apply to appraisals accompanying returns filed after August 17, 2006, IRS officials said that they estimated that returns containing appraisals that could be subject to the penalty would not enter the audit stream for a few years. Therefore, IRS targeted 2009 to issue guidance and make computer system changes. IRS posted a notice about the legislation in 2006 and on August 18, 2009, issued an interim guidance memorandum as initial instructions for examiners on the application of the appraiser penalty. This guidance, which was developed by SB/SE and accepted by the other divisions of IRS, included procedures to make the penalty accessible by examiners and deliver the appropriate appraiser penalty assessment notices to appraisers. Second, IRS officials said that they had to create the computer infrastructure for examiners to apply and record penalties, draft and approve the form letters to be sent out to those assessed the penalty, and prepare the guidance for IRS examiners in the time between the PPA’s passage and the issuance of final guidance on the appraiser penalty. A third factor IRS cited was that its examiners typically conclude a case against a taxpayer before pursuing a case against the appraiser. Figure 1 shows the sequence of events from passage of the PPA to the establishment of formal guidance for examiners in the IRM. Application of the appraiser penalty may increase as examiners become more familiar with the process of initiating these investigations, according to IRS examination officials. They said that traditionally, examiners have used other penalties to address appraiser noncompliance. Prior to the PPA, IRS could assess penalties on appraisers for promoting abusive tax shelters and aiding and abetting tax noncompliance under other sections of the Internal Revenue Code. IRS officials said that appraisal issues have never been significant in penalty cases compared to other promoter and preparer violations—officials estimated that maybe 10 or 15 out of every 1,000 penalty cases involved appraisals. IRS’s case examination planning and guidance for SB/SE and LB&I field exams does not explicitly target appraisals, but current selection methods may lead to cases with appraisals indirectly. Examination planners in both SB/SE and LB&I use database tools, such as the Audit Information Management System and the Examination Returns Control System, to manage cases for examination, but these databases do not contain variables that would enable exam planning or high-level case selection and staffing based specifically on appraisals. Consequently, when choosing returns to audit, IRS does not know whether any particular return has a related appraisal. For similar reasons, gift and estate returns also are not targeted for specific appraisal issues. Similarly, IRS does not staff examinations based on appraisals. The examiners who lead these teams are generalists and do not necessarily have specific expertise relating to appraisal techniques. The presence of an appraisal as a potential audit issue does not affect how IRS assigns these generalists to specific cases. Individual noncash contributions, gift, and estate tax returns with appraisals all may be selected for examination indirectly because of characteristics that are correlated with appraisals. For example, SB/SE field audit priorities focus on high wealth individuals, who are more likely to make the kinds of large noncash contributions, give large gifts, or have large estates that would include items requiring appraisals. In tax year 2008 individuals with adjusted gross incomes of $200,000 or more accounted for over 75 percent of the noncash contributions of real estate, easements, art, and collectibles reported on Forms 8283, even though they represented less than 15 percent of individuals filing that form. Other SB/SE priorities that may indirectly involve appraisals include abusive transactions and special examination projects. Like SB/SE, LB&I does not select cases based on the inclusion of appraisals. LB&I devotes resources to priorities set in annual examination plans and then allocates the remaining available staff to other work. IRS has targeted noncash contributions for audits, which could include reviews of appraisals, but the targeting is not based on appraisals. IRS selects a portion of its examination inventory using a computerized scoring system called the Discriminant Index Function. Within this system, the presence of unusual, large, or questionable contributions is one of numerous factors that can increase the probability that a return will be selected for audit. IRS also has a matching program that compares Form 8283 with Form 8282, which includes the amounts donee organizations report to have received when they dispose of contributed assets. Mismatches between these returns can lead to an examination. In addition, one of IRS’s past special examination projects specifically targeted deductions relating to façade easements in SB/SE’s North Atlantic office, which could have involved reviews of appraisals on the easements’ values. The project, which ran from 2008 to 2010, covered 152 tax returns. As of April 2012, IRS said it has closed 60 cases with an average recommended adjustment per return of $252,067. Although IRS does not select returns for examination based on appraisals, IRS case-review guidance may lead examiners to detect appraisal issues once a return has been selected for review for other reasons. Different guidance applies to examiners reviewing individual, estate, and gift returns. The guidance focuses examiner attention on a number of issues involving appraisals and related issues, including checking that taxpayers obtained qualified appraisals, if required; verifying that the appraised values of noncash contributions exceeding $5,000 are listed in Form 8283, Section B;  ensuring that taxpayers attach qualified appraisals for certain assets, such as easements registered in historic districts;  auditing elements of noncash contributions that seem questionable, such as missing, incomplete or altered forms and documents, and contributions that seem excessively large compared to reported taxpayer income; reviewing any large, unusual or questionable items relating to noncash charitable contributions; and reviewing the appraisal supporting donations over a certain amount for completeness and issues such as questionable authenticity and appraiser judgment. IRS officials said that it was up to the judgment of the individual examiner to decide whether the potential additional tax to be gained from investigating appraisals in detail warrants the investment of audit resources. The agency does not require documentation of such judgments when the issue has not initially identified for examination. Our review of 80 examination files from tax year 2008 with $5,000 or more in noncash charitable contributions showed that Forms 8283 were incorrectly filled out in 17 cases but the examiner made no change. In 10 of those cases, the examiner did not leave a record explaining why no further action was taken; therefore, we could not determine whether the examiners made a conscious decision not to follow up on the incorrect Forms 8283. In the other seven cases where the Form 8283 was incorrect and the examiner left a record, the taxpayers supplied additional information during the audit that satisfied the examiners. This shows that taxpayers can be compliant with the appraisal rules even when they do not fill out Form 8283 correctly. We found no obvious incorrectly reported Forms 8283 in the other 63 cases. Our file review also suggests that, even in cases where examiners do change noncash contribution deductions, few of those changes are due to problems with appraisals. As discussed previously, for tax year 2007, examiners made no changes to such deductions in the majority of cases in which noncash contributions were identified as a potential problem to review. Our file review showed that in only a small percentage of the cases in which noncash contributions were changed was the change made due to a problem with an appraisal. These facts suggest that IRS is not finding widespread noncompliance with appraisals for noncash contributions and the potential revenue yield from auditing appraisals of lower-value items is likely to be small. At the same time, the number of taxpayers who are required to pay for appraisals of items with relatively low values (in real, inflation-adjusted terms) has likely increased because the $5,000 threshold has not been changed since Congress set it in 1984. The threshold would be worth more than $11,000 if adjusted to 2012 dollars. Once IRS selects estate and gift returns for examination, classifiers review the returns to identify issues to be audited closely. IRS guidance instructs classifiers to review returns in their entirety, including a review of any appraisals. IRS estate tax return examiners and managers said that estate tax returns can contain voluminous documentation and examiners do not have enough time to go through each appraisal and audit every possible valuation issue. In cases where valuations are an issue for either estate and gift taxes, examiners review the appraisals attached to the schedules selected for examination and make referrals to IRS appraisal experts in LB&I’s Engineering Department, as needed. If appraisals are not attached and should be, examiners contact taxpayers to request these. The value of some assets, such as publicly traded stocks, can be determined without complex methodologies, using public market quotations. Examiners also check appraised values using various tools depending on the type of asset. For example, examiners may use “blue books” or other resale guides for personal property, and may use various computer programs that have comparable-sales values for real estate. IRS employs appraisal experts in two areas, Engineering and Art Appraisal Services (AAS), which provide valuation assistance to examination teams in determining an appraisal’s legitimacy. Engineering, as previously mentioned, employs staff appraisers who assist with the examination of complex appraisal issues, and AAS, part of the Appeals Office (Appeals), provides assistance specifically for appraisals of art. Under current IRS guidance, examiners should refer cases with appraisals above certain thresholds to Engineering and AAS appraisers for assistance. Estate and gift tax examiners must at a minimum consult with Engineering for assistance in determining the accuracy of appraised values for examinations where the focus includes appraisal issues. IRS guidance also encourages examiners to request the assistance of Engineering and AAS experts for cases not requiring mandatory referral, if valuation assistance is appropriate. Our review of examination case files found that examiners made referrals in accordance with the guidance. In addition to their internal sources of appraisal expertise, IRS examination teams also may seek outside contracts with professional appraisal experts to assist in reviewing taxpayers’ property valuations. IRS entered into 23 contracts involving cases of noncash contributions, gift or estate taxes from fiscal years 2005 to 2011. The total amount awarded for the 23 contracts on noncash contributions, gift and estate taxes was $1.1 million, an average of $46,000 per contract. An IRS procurement official said that each contract may cover appraisal services for multiple properties. IRS officials said that it is more economical to hire outside appraisal experts who have expertise with certain types of assets, such as easements, than to have many in-house experts in highly specialized areas because the appraisal caseload in such areas would not support full-time staff. IRS policy requires examination teams to consider the availability and expertise of in-house appraisers prior to requesting the assistance of outside experts. In our previous work on human capital management, we listed factors for ensuring high-performance human capital management and ensuring high program quality. Standards from our past work that are relevant to our review of IRS’s appraiser qualifications include  having a process suitable to hire qualified staff to audit appraisals, including specifically requiring appraisal expertise as a qualification; formally training and educating its staff to keep up with job duties and individual developmental needs relevant to evaluating or auditing appraisals; and  ensuring that staff are performing quality work during their examinations of appraisals, including a quality review system that covers appraisal skills and management oversight that evaluates appraisal skills. Engineering fully followed GAO’s three standards for ensuring qualified staff; however, while AAS fully met the hiring standard, it did not meet the other two, creating risk that staff may not be performing quality work. Engineering: The job description for appraisers in Engineering specifically requires applicants to have valuation and appraisal skills as a qualification, meeting the hiring standard. For example, the description says appraisers must have a “mastery of appraisal principles and concepts needed to serve as a technical authority.” The hiring process then works through a combination of automated scoring and personal review suitable for hiring appraisers. Announced appraiser positions follow the Office of Personnel Management category for appraisers, series GS-1171. An automated scoring system called Career Connector assesses applicants’ qualifications. IRS then hires from among the qualified applicants. AAS: The qualifications and hiring process for appraisers for AAS is similar to the procedure used by the Engineering and thus, AAS meets the standard. Engineering: IRS maintains a formal training program for its Engineering appraisers that starts with new hires and continues with advanced, specialized training, including training on appraisal skills to meet the GAO training standard. The IRM specifies two appraisal organizations—the American Society of Appraisers and the Appraisal Institute—that may acceptable continuing education. LB&I has brought in trainers for some courses and maintains a budget for engineers to seek outside training, as well. Internal engineering training documents also state that engineers may develop a learning plan that includes 40 hours of training every year. AAS: Appeals requires 24 to 40 hours of continuing education per year for its employees, including its AAS staff, but it does not explicitly identify appraisal skills as a subject for training, preventing it from meeting the standard. Some AAS staff members have attended conferences on visual arts and the law and the American Society of Appraisers National Conference, which appear relevant to their work. However, in contrast to the standard of providing training relevant to specific job duties, the Appeals training guidance does not mention any relevant skills that appraisers must maintain, leaving the possibility that appraisers are not keeping up their skills and not evaluating art appraisals as well as they could. AAS staff have discussed a more specific training program for AAS new hires. Engineering: LB&I meets the GAO standard for monitoring performance quality with respect to its engineering group by subjecting its work to a quality review system and exercising management oversight of appraisal skills. LB&I uses an audit quality assurance system as part its LB&I Quality Measurement System. Having such a system enables IRS to improve procedures and issue development. In LB&I’s quality assurance system, engineers are measured on four technical standards. The four technical standards focus on the following subjects  planning;  inspecting and fact finding;  development, proposal, and resolution of issues; and  workpapers and reports. Each of the technical standards includes a list of specific criteria. The correct auditing of an appraisal is not specifically covered by the standards. However, to the extent that an examination involved an appraisal, an engineer’s work on the case would be covered under these four standards. For example, IRM guidance suggests procedures that an engineer should gather facts. Such a procedure would apply to gathering facts on an appraisal and would be checked during a quality review. To conduct the quality assurance reviews, LB&I randomly selects coordinated industry cases (CIC) and industry cases (IC). The results are reported in quarterly reports. In the first quarter of fiscal year 2011, five CICs covered engineers and three ICs covered engineers. None of the problems directly involved reviews of appraisal issues, but the assessments found problems relating to two of the technical standards on CICs and problems relating to three standards for ICs. On a more routine basis, team managers are required to review case performance, including technical aspects of an engineer’s work. AAS: Appeals operates a case-review program called the Appeals Quality Measurement System (AQMS); however, most of the cases that AAS works are not Appeals cases and are not covered by this system. Therefore, IRS does not meet the GAO quality review standard with respect to AAS. Given that AAS is involved in only a small percentage of the cases that are appealed, IRS’s Director of Tax Policy and Valuation said that she has been considering whether to supplement AQMS’s random sample with a periodic, targeted review of AAS cases. She said IRS’s goal is to start the reviews in fiscal year 2013. Aside from AQMS, IRS guidance encourages examination offices to provide feedback on AAS’s performance that “would be beneficial to the viability of this program.” The AAS manager also reviews all cases that AAS completes before they are issued. However, there is no group-wide summation or tracking of these reviews or assurance that AAS staff are performing well specifically in regard to their appraisal work, as stipulated by the standard. Without systematic evaluation, erosion of the quality of AAS’s work could occur unobserved. Appraisers play a large role in the amount of tax reported on estate returns, but have less pronounced effects on gift and individual tax returns. Although IRS does not specifically target tax returns that involve appraisals, the policies and procedures that IRS has in place to audit estate, gift, and individual income tax returns ensures some coverage of returns that do involve appraisals. For example, IRS already gives priority to higher-income individual returns in the examination selection process, and such returns are more likely to have appraisals supporting noncash contributions than the general population of returns. There are two areas where changes might lead to reduced taxpayer burden or improved agency performance relating to appraisals. First, the fact that the $5,000 threshold at which taxpayers are required to obtain qualified appraisals for noncash contributions has remained unchanged for more than 25 years means that some contributors today must hire appraisers to value property that would not have needed appraisals in the mid-1980s, when the threshold was adopted. The high no-change rate that we found through our data analysis and our file review indicates that IRS examiners find relatively little noncompliance relating to appraisals for noncash contributions. This low rate of detected noncompliance implies that very little revenue is gained by auditing appraisals of assets worth less than $10,000. Consequently, there seems to be little risk in adjusting the threshold for price inflation to better reflect the level Congress initially believed was appropriate to deter noncompliance. This adjustment would reduce the compliance burdens for contributors of such property and, if similar adjustments were made periodically in the future, would serve to maintain consistent treatment of taxpayers over time. Second, the lack of appraisal training requirements for AAS appraisers and the lack of a comprehensive quality control process for AAS cases put the quality of potentially high-value appraisal cases involving art at risk. To better ensure the quality of IRS’s examination of appraisal issues, the Commissioner of Internal Revenue should take the following two actions:  ensure that a more comprehensive quality review system for work performed by AAS staff is implemented and  develop more specific and documented appraisal training requirements for AAS staff, as LB&I has done for engineers. To reduce the compliance burden on taxpayers making noncash contributions, Congress should consider raising the threshold at which taxpayers are required to have qualified appraisals for a particular contribution. Raising the threshold and giving IRS the authority to adjust this value for inflation in the future would maintain the consistent treatment of taxpayers over time. We requested written comments from the Commissioner of Internal Revenue and received a letter from the IRS Deputy Commissioner for Services and Enforcement on June 1, 2012 (which is reprinted in app. IV). IRS agreed with our recommendations. First, it agreed that a more comprehensive quality review process is appropriate for AAS, adding that IRS’s goal is to supplement AQMS’s random sample with a periodic, targeted review of AAS cases starting in fiscal year 2013. Additionally, IRS agreed that more specific appraisal training should be provided, adding that it is finalizing a more specific training curriculum for AAS appraisers. IRS also provided technical comments, which we incorporated into our draft. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to interested congressional committees, the Secretary of the Treasury, the Commissioner of Internal Revenue, and other interested parties. In addition, the report also will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9110 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V. This appendix provides further details on the methodologies that we used to estimate (1) the extent to which appraisals are an issue for estate and gift tax returns and for returns of individuals making noncash charitable contributions and (2) the rates at which the Internal Revenue Service (IRS) audits returns with potential appraisal issues. It also explains how we identified cases for our file review and how we obtained data on IRS’s use of contractors. The purposes of this section are to document (1) how we have placed the various assets, exclusions, and deductions reported on Forms 706 into three groups based on the likeliness that a substantial appraisal was needed to value a particular item and (2) how we identified specific estate tax returns as being likely to have involved a substantial appraisal. Data for this analysis came from the Statistics of Income (SOI) estate tax samples for filing years 2007 through 2009 (the latest years available at the time of our analysis). After identifying these various subgroups of taxpayers, we used their taxpayer identification numbers to extract data from the Enforcement Revenue Information System (ERIS) regarding any examinations they underwent for the tax years included in our scope. We converted all dollar amounts into 2012 dollars by multiplying them by the ratio of the 2012 index value for the gross domestic product (GDP) price deflator over the index value for the applicable year of death. We identified “returns with over $50,000 in any asset, deduction, or exclusion category likely to involve an appraiser” as those cases with more than $50,000 (in absolute value) in any category from the list of property likely to involve an appraiser above. We identified “returns with no more than $50,000 in every asset, deduction, or exclusion category likely to involve an appraiser” as those cases with no more than $50,000 (in absolute value) in any category listed in either the first or third lists of property above. We identified taxable estates as those with positive values for net estate tax. We defined the “buffer” before an estate would become taxable as the amount by which total gross estate less exclusion would have to increase or total deductions would have to decrease (holding credits constant) before an estate would become taxable. In other words, if a taxpayer has a buffer of $100,000, it would take some combination of increases in asset valuations or decreases in the value of exclusions and deductions summing to more than $100,000 before any exam adjustments would result in a tax increase. We asked IRS to extract selected data from the ERIS database for the sample of estate taxpayers we identified from the SOI data. We counted any case that had a match in ERIS as having been audited. The methodology that we used for the gift tax is similar to the one that we used above for the estate tax. The principal differences are that, first, we use a lower dollar limit ($25,000 rather than $50,000) in some of our comparisons because the size of the average gift is significantly smaller than the size of the average estate, and, second, we do not distinguish between taxable and nontaxable gift tax returns. (Many gift tax returns are not taxable; however, the amounts reported on these returns can ultimately affect the amounts of tax paid on estate tax returns.) The data used for this analysis come from SOI’s sample of gift tax returns filed in 2007 through 2009, the latest available at the time of our analysis. The property and deduction categories recorded from these returns are slightly different from those recorded from the estate tax returns. We converted all dollar amounts into 2012 dollars by multiplying them by the ratio of the 2012 index value for the GDP price deflator over the index value for the applicable gift year. To estimate the extent to which appraisals are used to support noncash contributions, we first reviewed IRS requirements for recording appraisals on Form 8283, Noncash Charitable Contributions. Next, we used data from SOI’s annual studies of noncash contributions relating to the amounts and types of contributions that taxpayers reported on various parts of Form 8283 from tax years 2005 through 2008 (the latest years available at the time of our analysis) to (1) identify an upper bound for the number of taxpayers who potentially required qualified appraisals to support noncash contribution deductions claimed on Form 1040, Schedule A, Line 17, and (2) determine how many Form 8283 filers we could identify as either being likely to require a qualified appraisal or unlikely to require one. Filtering the SOI data involved the following steps. Qualified appraisals are not required for any donations reported in Section A of Form 8283; therefore, we excluded Form 8283 filers who did not report any contributions in Section B of the form. Furthermore, if a taxpayer reports a donation in Section B but does not carry any amount to Schedule A of the Form 1040, the taxpayer is not actually claiming any deduction for that donation. Consequently, we excluded all filers that did not have a positive value for the amount carried from Section B to Schedule A for any donation. Taxpayers should not need a qualified appraisal if either of the following two conditions is met: the total amount moved from Section B to Schedule A for all donations is less than or equal to $5,000, or the only type of donation reported in Section B is intellectual property. We removed all such cases. SOI assigns each donation reported in Form 8283 Section B to one of 19 different property-type categories. Donations in five of these categories (real estate except conservation easements, land, conservation easements, façade easements, and art and collectibles) need qualified appraisals unless they come from a business’s stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of its trade or business. We believe that this exception is not likely to apply to properties in the first four of these five categories. To identify donations of art and collectibles that potentially could have qualified for the exception, we did the following: 1. For those filers who made a donation in this category, we used data from SOI’s 1040 tax files to determine whether they had a Schedule C business in any of the following listed industry:  Art dealers     Beverage and tobacco product manufacturing (wineries are Independent artists Jewelry stores Jewelry, watch, etc., wholesalers included in this category)  Beer, wine, and liquor stores  Beer, wine and distilled spirits wholesalers 2. We assigned any of these filers that had at least one Schedule C in one of these industries a code that indicates that they potentially had an exception. Donations in two property categories, corporate stock and mutual funds, are excepted from needing qualified appraisals if they have readily available market quotations or are less than $10,000. This exception can also apply to securities, such as bonds, that are reported in the “other securities and investments” category. We had no way of reliably identifying which of the securities in these categories had readily available quotations, so we did not attempt to identify individual donations as being excepted or not. However, within the “securities and other investments” category, we did identify bond donations using the taxpayers’ descriptions of their donations on line 5(a) and assigned them a code indicating that they were potentially excepted, which distinguished them from other donations in that category that were not excepted. Donations in the categories that do not involve securities may qualify for the inventory exceptions, and vehicle donations can be excepted under additional special conditions. Aside from the “other and unknown” category, donations in the nonsecurities categories, taken individually, account for very small shares of the total value of noncash contribution deductions. The “other and unknown” category accounts for about 6 percent to about 9 percent of the total value of deductions, depending on the year. In some of these cases the type of property donated is truly unknown because the description simply indicates that the donation was made by a partnership owned by the taxpayer. The remaining donations are of such variety that it would be difficult to apply the approach that we have set out above for identifying donations that potentially qualified for the inventory exception. After we completed all of steps described above, we grouped Form 8283 filers into the following categories: 1. Filers who had a donation in at least one of the following property categories:  Real estate (except conservation easements)  Land  Conservation easements  Façade easements  Other securities and investments (excluding donations of bonds)  Art and collectibles (excluding donations identified as potentially qualifying for the inventory exception) 2. Filers who had donations only in one of the following property categories:  Corporate stock  Mutual funds  Bonds 3. All remaining filers with Section B donations that did not meet the criteria for the first two categories. Filers in the first category, on average, are more likely to have appraisals than those in the other two categories; filers in the second category, on average, are less likely to have appraisals than those in the other two categories. We converted all dollar amounts into 2012 dollars by multiplying them by the ratio of the 2012 index value for the GDP price deflator over the index value for the applicable tax year. We asked IRS to extract selected data from the Examination Operational Automation Database (EOAD) for the sample of taxpayers that SOI had identified as having made noncash contributions. We counted any case that had a match in EOAD as having been audited. We identified cases as having had noncash contributions raised as an audit issue based on the form and line codes plus the Standard Accounting Identification Number recorded in that database. Given the limitations of the issue coding in the database, we can report on adjustments relating to noncash contributions but not specifically relating to the appraisals of those contributions. We identified audits in which noncash contributions were an issue as having been no-change cases if the agreed adjustment amount for that issue was zero. We used the results of our data matching for tax year 2008 to identify the cases for which we requested examination files to review. We reviewed the cases using a data collection instrument at IRS’s New Carrollton, Maryland, office. We conducted this performance audit from October 2010 through June 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. IRS has established rules and procedures for taxpayers to follow when using appraisals to support noncash charitable contributions, estate, and gift tax claims. Within certain conditions, taxpayers must use qualified prepared appraisals to support noncash-contribution deductions on Form 1040, Schedule A. Taxpayers list the total value of noncash contributions on Schedule A, line 17. Taxpayers claiming noncash charitable contributions over $500 must submit Form 8283, Noncash Charitable Contributions, which has two sections. In Section A of the form, taxpayers report noncash contributions that do not require qualified appraisals. Such contributions include items, or groups of similar items, with a claimed deduction of $5,000 or less, and securities of any value with readily available market quotations. For contributions more than $5,000, taxpayers must have an appraisal done and fill out Section B of Form 8283. Exceptions to the $5,000 threshold include  nonpublicly traded stock of $10,000 or less;    vehicles if the deduction is limited to gross proceeds from sale; intellectual property; certain securities considered to have market quotations readily available; inventory and property donated by corporations that are “qualified contributions” for the care of the ill or infants; and stock in trade, inventory, or property held primarily for sale to customers. Figure 2 shows the section of Form 8283 where taxpayers provide descriptions and appraised values of donated property valued at more than $5,000. Taxpayers are required to attach the written appraisals to the return only for contributions of art valued at $20,000 or more, any deduction of more than $500,000, contributions of easements on buildings in historic districts, and deductions of more than $500 for clothing and household items not in good use condition. Charitable organizations that receive contributions listed in Section B of Form 8283 generally must report them to IRS on Form 8282. IRS requires that taxpayers support the claimed value of property in estate transfers with an appraisal, which could be a written appraisal by a professional appraiser, but does not have to be in every situation. The body of law covering qualified appraisals for noncash charitable contributions does not apply to estate or gift taxes. Taxpayers may owe taxes on the property of an estate transferred at death, if the gross value of the estate exceeds annually established exclusion levels. The exclusion levels for the estates of those who died in certain recent years were $1.5 million for 2004 to 2005, $2 million for 2006 to 2008, $3.5 million for 2009, and $5 million for 2010 to 2012. Following taxpayers’ deaths, appointed estate executors file estate returns on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return if the estate is worth more than the annual exclusion. Appointed executors must include explanation or documentation detailing how the value of estate property was determined. Written appraisals prepared by professional appraisers are one of the acceptable valuation methods, and appropriate documentation will vary depending on the type of asset. However, written appraisals are required to support the value of real property claimed in Schedule A-1, artwork or collectibles worth more than $3,000 individually or more than $10,000 collectively claimed in Schedule F, and conservation easement exclusions reported in Schedule U. Taxpayers may be subject to taxes on property transferred as gifts and must provide valuation support for the property’s claimed value. Gifts may be taxable if their value exceeds annually established exclusion values. The exclusion levels for gift transfers in recent years were $10,000 from 1998 to 2001, $11,000 from 2002 to 2005, $12,000 from 2006 to 2008, and $13,000 from 2009 to the present. Gift donors file gift returns on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if gifts exceed the exclusion value. Donors must list taxable gifts in Schedule A and include one of a number of acceptable valuation documents, among them a written appraisal prepared by a professional appraiser, or an explanation of how the value was determined. For calendar year 2007, IRS recorded 257,485 donors who transferred $45.2 billion in gifts. Less than 4 percent of all gift returns were taxable, accounting for $2.8 billion in gift taxes. Three types of assets—cash, stock, and real estate—accounted for 87 percent of all gifts. For noncash charitable contributions, the Pension Protection Act (PPA) of 2006 lowered the threshold for substantial valuation misstatements from 200 percent of the correct valuation to 150 percent. Substantial valuation misstatements subject the taxpayer to a penalty equal to 20 percent of the underpayment attributable to the misstatement. For estate and gift property, PPA increased the threshold for substantial valuation understatements from 50 percent to 65 percent. Gross valuation misstatements on any return are subject to an increased penalty equal to 40 percent of the portion of the underpayment attributable to the misstatement. For noncash charitable contributions, PPA lowered the threshold for gross valuation misstatement from 400 percent of the correct valuation to 200 percent. For estate or gift property, PPA raised the threshold for gross valuation understatements from 25 percent to 40 percent of the supported value. Tables 2 through 12 contain data on appraisal usage and IRS’s appraisal enforcement. In addition to the contact named above, James Wozny, Assistant Director; Anthony Bova; Michael Brostek; Sara Daleski; Eric Gorman; Suzanne Heimbach; Karen O’Conor; Melanie Papasian; Albert Sim; Sabrina Streagle; Karen Villafana; and William Woods made key contributions to this report.

Misstated appraisals used to support tax returns have long caused concern. In 2006, Congress adopted the Pension Protection Act, which changed the criterion for when appraisals are considered to be substantiallymisstated and created a penalty for improper appraiser practices and qualifications for appraisers with respect to noncash charitable deductions. The Tax Technical Corrections Act of 2007 extended the penalty for misstated appraisals to estate and gift taxes. Among its objectives, GAO was asked to (1) describe the extent to which individual, estate, and gift tax returns are likely to involve an appraiser and the extent to which IRS audits them; (2) describe how IRS selects returns likely to involve appraisals for compliance examinations, and assess whether the current appraisal threshold is useful; and (3) assess IRS procedures for ensuring that itsappraisal experts are qualified. To accomplish these objectives, GAO analyzed IRS data, reviewed IRS guidance, and interviewed appropriate IRS officials. Appraisers’ most prominent role relative to the three types of tax returns GAO studied is in the valuation of estates. In the most recent years for which GAO had data, appraisers were likely involved in the valuation of property worth from $75 billion to $167 billion reported on estate tax returns in 2009. In contrast, less than $17 billion worth of gifts in 2009 and less than $10 billion in noncash contributions in 2008 likely involved an appraiser. Gift tax returns that likely used appraisers had higher audit rates than gift returns that were unlikely to have appraisers. The use of appraisers was not associated with higher audit rates for estate tax returns and individual returns with noncash contributions. The Internal Revenue Service’s (IRS) procedures for selecting returns to audit do not specifically target noncash contributions or gift or estate tax returns supported by appraisals. Nevertheless, returns with appraisals do get included in the population of audited returns because certain types of returns on which IRS does focus, such as higher-income ones, are also the most likely ones to have noncash charitable contributions that require appraisals. The current appraisal threshold for certain contributions over $5,000 has existed since 1984. The absence of an inflation adjustment over the past 25 years means that many contributors who pay for appraisals would not have needed to do so when the current threshold was first introduced. IRS seldom takes issue with appraisals for noncash contributions. Consequently, there seems to be little risk in Congress raising the $5,000 dollar threshold. IRS appraisal experts in one division met standards for ensuring that they were qualified. However, art appraisal experts in another division are not subject to either a comprehensive quality review program or continuing education requirements specific to appraising art. The lack of comprehensive quality reviews and mission-specific continuing education requirements could make the art appraisers less effective than they otherwise would be. GAO recommends that IRS develop a comprehensive quality review program for Art Appraisal Services (AAS) and establish appraisal training requirements specifically for AAS staff. Congress also should consider raising the dollar threshold at which qualified appraisals are required for noncash contributions to reflect inflation. IRS agreed with our recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: Foreign students interested in studying in the United States must first be admitted to a school or university before applying for a visa at a U.S. embassy or consulate overseas. DSOs use SEVIS to issue Form I-20s to students, which enable them to apply for nonimmigrant student visas.The Department of State (State) issues nonimmigrant visas to eligible foreign students. The process for determining who will be issued or refused a visa, including F and M visas, contains various steps, including documentation reviews, in-person interviews, collection of applicants’ fingerprints, and cross-references against State’s name check database. F visas are for academic study at 2- and 4-year colleges and universities and other academic institutions. M visas are for nonacademic study at institutions such as vocational and technical schools. Nonimmigrants who wish to work temporarily in the United States typically need to obtain a visa that allows them to work in the United States; F and M visas allow for limited employment authorization and may not be used in place of visa classifications designated for temporary employees. F and M visa holders are not allowed to work in the United States after completing their program of study unless they receive employment authorization through OPT. A visa allows a foreign citizen to travel to a U.S. port of entry and request permission from an officer with DHS’s U.S. Customs and Border Protection (CBP) to enter the United States. However, a visa does not guarantee entry into the country. By interviewing individuals and examining the validity of their required documentation, CBP officers determine whether to admit individuals into the United States. Foreign nationals traveling on student visas are not generally issued specific dates until which they are authorized to remain in the United States, but instead are admitted for what is referred to as duration of status. This means that they may remain in the country so long as they maintain their student status (such as by enrolling full-time in an academic program or being approved for OPT after completing their program of study). USCIS adjudicates, among other things, change-of-status requests from other classes of nonimmigrants in the United States who wish to become F or M students. With regard to OPT, in particular, USCIS is responsible for adjudicating employment authorization requests from the foreign students who have obtained DSOs’ recommendations to participate in OPT. Within ICE, SEVP, in conjunction with DSOs, is responsible for overseeing foreign students approved for OPT and maintaining information on these students in SEVIS. Also within ICE, CTCEU is responsible for (1) investigating foreign students who fail to enroll in or maintain status at their schools, including those foreign students approved for OPT, and (2) conducting criminal investigations of certified schools that do not remain in compliance with regulatory requirements. For example, CTCEU pursues criminal investigations against school officials who have exploited the system by operating sham institutions, which are operated solely to admit foreign nationals into the country without participation in educational programs. CTCEU assigns school and foreign student fraud-related investigations to ICE field offices; the offices can also open their own fraud investigations. According to ICE regulations and policies, OPT is available to eligible foreign students (F and M visa holders) who are enrolled in a college, university, conservatory, seminary, or established vocational or other recognized nonacademic institution, in a program other than English language training. Employment under OPT must be in a job directly related to the foreign student’s major area of study, and foreign students who apply to participate in OPT must have completed at least 1 academic school year or, in the case of M visa holders, their entire course of study. Foreign students on an F visa can temporarily work in the country under one of three types of OPT. First, foreign students may work part-time while they are in school or full-time on school breaks (pre-completion OPT).after completing a program of study (12-month post-completion OPT). Second, foreign students may work full-time for up to 12 months Third, foreign students studying in areas of study related to science, technology, engineering, and mathematics (STEM) are eligible to work full-time for an additional 17 months (17-month STEM extension post- completion OPT). Table 1 shows the three types of OPT and their requirements. As shown in figure 1, foreign students initiate the OPT application process by requesting a recommendation for OPT from their DSOs. The DSO is to ensure that students are eligible for the requested type and length of OPT and that the students are aware of their responsibilities for maintaining status while on OPT. ICE regulations do not require that students have secured employment prior to applying for pre-completion OPT or 12-month post-completion OPT; therefore, an employer name is not required to be entered in SEVIS at the time of the application. Regarding the 17-month STEM extension post-completion OPT, students must have secured employment prior to applying for this extension and must provide the employer’s name to the DSO. Prior to recommending the extension, the DSO must confirm that a student’s degree is a bachelor’s, master’s, or doctoral degree that is in DHS’s STEM- Designated Degree Program list. The DSO makes the recommendation through SEVIS, which updates the student’s Form I-20 to reflect the recommendation. The DSO is to update the student’s SEVIS record with the student’s requested start and end dates of employment, as well as whether the employment will be part- or full-time. In the case of the 17- month post-completion STEM extension OPT, the DSO is to enter and update employer information. After receiving the Form I-20 that notates the DSO’s recommendation for OPT, the foreign student must file a Form I-765, Application for Employment Authorization, with USCIS within 30 days of the date the DSO enters the OPT recommendation into SEVIS and pay the required USCIS adjudicates all nonimmigrants’ applications for application fee.employment authorization by determining whether an applicant has submitted the required information and documentation, such as proof of the student’s financial support, and whether the applicant is eligible. Specifically, USCIS adjudicates the application for OPT employment authorization on the basis of the DSO’s recommendation and other eligibility considerations, such as whether the student can financially support himself or herself while on OPT, and for those students applying for the 17-month STEM post-completion extension, determining whether the employer is registered with E-Verify. Table 2 presents data on OPT- related employment authorization application receipts and related adjudication results (approvals, denials, and revocations) from fiscal years 2008 through 2013. During this period, the data show that USCIS approved 96 percent of the applications for OPT employment authorization. In fiscal year 2013, approximately 123,000 foreign students received approval from USCIS to seek temporary employment through OPT to complement their academic coursework. If USCIS approves the application, it issues the student an Employment Authorization Document, or Form I-766. Employment authorization for pre-completion OPT, 12-month post-completion OPT, and 17-month STEM extension post-completion OPT begins on the student’s requested date or the USCIS-approved date, whichever is later, and ends at the conclusion of the approved period of OPT. SEVP has not identified or assessed risks associated with OPT, such as potential fraud or noncompliance with ICE regulations. Senior SEVP officials told us they consider OPT to be a low-risk employment benefit for foreign students because, in part, they believe foreign students under OPT do not have an incentive to jeopardize their foreign student visa status and future legal status to stay and work in the United States. However, SEVP has not developed a process to determine the extent to which schools that recommend and foreign students approved for OPT may pose risks. Further, CTCEU officials and ICE field agents we interviewed at all seven ICE field offices in our review stated they believe OPT to be at risk for fraud and noncompliance based on their experience investigating these types of cases. Specifically, senior CTCEU officials stated that OPT is at risk for fraud and noncompliance, in part, because it enables eligible foreign students to work in the United States for extended periods of time without obtaining a temporary work visa. In addition, ICE field office agents we interviewed stated that foreign students approved for OPT present a risk for becoming overstays because they are allowed to work and remain in the United States for 12 to 31 months after graduation from school. Also, ICE agents and DSOs we interviewed stated that DSOs face greater challenges in monitoring foreign students in post-completion OPT because the students are no longer attending classes. Moreover, CTCEU officials stated that nonimmigrants are a vulnerable population that can be exploited by illegitimate companies or organizations that lure students to the United States with false promises of high-paying jobs and potential ways to stay in the country. For example, CTCEU officials stated that a recruiter or other third party may offer to help foreign students find OPT work for a fee or percentage of the foreign student’s salary once the student begins work under OPT. Additionally, SEVP’s compliance unit maintains a log of schools identified as potentially out of compliance with ICE regulations. As of September 2013, out of the 133 schools on the log, SEVP had identified 17 schools as potentially noncompliant with ICE regulations related to OPT. Further, CTCEU officials and ICE field agents we interviewed described various cases involving OPT that demonstrate their concerns with the management and oversight of OPT. For example, in a 2012 case, according to an ICE investigator, a school charged students for an OPT recommendation on the Form I-20 and for keeping students in status once they had entered the country, without requiring school attendance. In another case, in 2012, ICE investigators initiated an investigation after they received a complaint about a school’s noncompliance with OPT requirements, such as students not working in their area of study. In particular, ICE investigators found that the DSOs at the school would submit fraudulent Form I-20s to recommend students for OPT; however, the foreign students were not using OPT to work jobs related to their areas of study (e.g., a nursing student working in a pizza parlor), which is not allowed under ICE regulations. In a third case, in 2011, ICE field office investigators initiated an investigation of a school on the basis of information received from CBP that indicated that one of the school’s DSOs was allegedly providing documentation authorizing students to work in jobs not related to their major areas of study. Using information obtained through prior ICE field offices’ investigations of schools’ and students’ noncompliance with ICE regulations and policy requirements, CTCEU officials have identified potential risk indicators specifically associated with OPT and stated they have provided this information to SEVP. Specifically, CTCEU officials stated they provided position papers on multiple occasions from 2011 through 2013 to SEVP officials expressing concerns about risks in SEVP in general and OPT in particular, including recommendations to help mitigate these risks. For example, in a position paper dated April 2013, CTCEU officials recommended to SEVP that DSOs enter the date on which USCIS grants OPT employment authorization in SEVIS to allow ICE and USCIS officials to compare this date with the date of enrollment to identify potential risks of students seeking to commit immigration fraud. Also, in April 2013, CTCEU briefed SEVP’s compliance officials on SEVP- and OPT-related risk indicators. For example, CTCEU officials identified that a certain threshold, or percentage, of a school’s foreign student population approved for OPT may be a potential indicator of fraud involving OPT.According to our analysis of SEVIS data, as of August 2013, of the approximately 2,650 SEVP-certified schools with at least 1 foreign student approved for OPT, the percentage of each school’s registered foreign students approved for OPT met or exceeded the threshold identified by CTCEU at 193 schools. Of the 193 schools, 100 percent of registered foreign students were approved for OPT at 60 schools; most of these schools had 4 or fewer total foreign students, except for 1 school, where the data show that all 35 of the school’s foreign students were approved for OPT. The Deputy Director of SEVP agreed that the percentage of a school’s foreign student population approved for OPT could be an indicator of potential fraud. In November 2013, the Deputy Director of SEVP stated that, in response to the recommendation from our June 2012 report that ICE develop and implement a process to identify and assess risks in SEVP, SEVP has taken initial actions to identify potential risks across SEVP-certified schools by developing a risk scorecard by which to assess schools and preliminary risk indicators to classify SEVP-certified schools by risk category. While these are positive steps taken in response to our June 2012 recommendation, SEVP is in the early stages of developing this risk scorecard and the risk indicators, and these efforts are focused on identifying potential risks to SEVP overall. As part of these efforts, SEVP officials have not identified and assessed potential risks specific to OPT posed by schools and foreign students or determined the extent to which the office will include potential OPT risks as part of their efforts to assess risks SEVP-wide. Senior SEVP officials told us they have not identified and assessed risks specific to OPT because they have not considered OPT to be a high-risk employment benefit; however, SEVP has not developed or implemented a risk management process to determine potential risks in OPT. Furthermore, on the basis of information from ICE field office investigations, CTCEU officials have identified SEVP- and OPT-related risks, but, as of November 2013, senior SEVP officials told us they had not yet incorporated CTCEU’s input, including relevant information from ICE field offices, into their efforts to assess potential SEVP-wide risks because they preferred to develop and implement a process to identify and assess risks in SEVP on their own before coordinating with CTCEU. DHS’s 2010 Policy for Integrated Risk Management and 2011 Risk Management Fundamentals establish DHS’s policy and guidance on risk. They instruct DHS and its components to incorporate a risk management process to their planning and management activities that includes, among other things, identifying the risks associated with goals and objectives, analyzing and assessing the identified risks, and using risk information and analysis to inform decision making. Also, DHS’s Policy for Integrated Risk Management is based on the premise that entities responsible for homeland security can most effectively manage risks by working together, and emphasizes that DHS and its components are to effectively communicate with stakeholders, partners, and customers within and throughout the risk management process. Without identifying and assessing risks in OPT in coordination with CTCEU, SEVP is not well positioned to incorporate a risk management process into its management of OPT. Further, obtaining and assessing risk information from CTCEU and ICE field offices from prior noncompliance and fraud cases involving OPT throughout the development of its process to identify and assess risks in SEVP, to include OPT, could better position SEVP to manage any risks associated with OPT. ICE does not consistently collect information needed to oversee OPT requirements related to the type and timing of foreign students’ employment, as ICE regulations do not specifically require the collection of information on foreign students’ places and dates of employment in SEVIS. Such information could help ICE to better ensure that foreign students are maintaining their legal status in the United States and to identify and assess potential risks to OPT. As indicated in table 3, SEVIS data on foreign students approved for the three types of OPT show that 38 percent of student records (48,642 of 126,796) do not contain an employer name, as of August 2013. Specifically, according to our analysis, the employer’s name is not included in 65 percent and 48 percent of pre- and 12-month post- completion OPT students’ SEVIS records, respectively. Foreign students are not required to have secured a job before seeking pre- and 12-month post-completion OPT, and an employer name is not required of the student at the time of application. Because 17-month STEM extension students are required to have employment prior to application and have ongoing reporting requirements, employer information is more complete, with less than 1 percent of student records missing the employer name. In addition to noting the lack of employers’ names, our analysis of SEVIS data indicates that other information about employers that would be helpful to identify where foreign students are working, such as the physical address that can be used to differentiate between two employers with the same name, is not consistently collected and maintained in SEVIS. For example, of the 62 percent of student records that have the employer’s name populated, approximately 5 percent of those records (3,545 of 78,154) do not include other information on the employer, such as the employer’s address, state, city, and postal code. In addition, for all three types of OPT, ICE regulations and policy do not specifically require students to report to their DSOs when they begin or stop working, and do not require DSOs to enter those corresponding dates into SEVIS. Without information on employers or employment start and end dates, ICE’s ability to oversee requirements for OPT is limited. Job directly related to major area of study. ICE requires DSOs to ensure that a student is eligible prior to recommending OPT, and remains eligible for the duration of OPT, by being employed in a job directly related to his or her major area of study. ICE regulations and policy state that DSOs are responsible for reporting in SEVIS subsequent known changes in a student’s name and address, employer name and address, and known instances of a student’s failure to report to work. Specifically for students seeking the 17-month STEM extension of OPT, SEVP and USCIS require that DSOs enter the students’ employer information in SEVIS prior to recommending OPT, and SEVP requires regular confirmation of such students’ personal and employer information throughout the time of OPT. Although ICE regulations and policy require DSOs to ensure students’ eligibility and to report known changes in students’ employer information, they do not require that students report and DSOs provide students’ initial employer information (name and address, for example) in SEVIS for students pursuing pre- or 12-month post-completion OPT. According to SEVP officials, requiring this initial employer information for pre- and 12-month post-completion could place an additional burden or requirement on DSOs. Thus, SEVP officials stated that their office would prefer to make this type of change through regulation rather than policy. SEVP officials stated that, in general, changing regulatory language has been difficult and time consuming. However, previous regulatory changes that created the 17-month STEM extension, for example, have been implemented and added reporting requirements in SEVIS for employer information for foreign students approved for this extension.percent of all OPT students were approved for the STEM extension and, As of August 2013, approximately 20 according to our analysis of SEVIS data, almost 100 percent of SEVIS records for those students have the employment information as required by regulation for OPT students who have been approved for the STEM extension. ICE regulations and policy require that DSOs ensure that a foreign student is eligible for OPT and assume responsibility for maintaining the student’s SEVIS record for the entire period of authorized OPT. ICE regulations and policy also require all OPT employment to be in a job that is directly related to the foreign student’s area of study. However, ICE has not provided guidance to DSOs to help determine and document whether the student’s job is related to his or her area of study. Requirements for DSOs to collect information on how a job is related to an area of study and guidance on how DSOs should provide such information in SEVIS could help provide ICE with reasonable assurance that foreign students engaged in OPT are working in jobs directly related to their area of study, as required under OPT. In addition to fields for foreign students’ employer name and address, SEVIS has two fields for DSOs to add comments or remarks regarding students’ employment; however, ICE does not require DSOs to provide any information on how DSOs arrived at the determination that students’ jobs relate to their studies in these SEVIS fields. According to SEVP officials and the program’s DSO training materials, DSOs could use these two SEVIS fields to explain how a student’s employment relates to the student’s program of study. According to our analysis of the two fields available in SEVIS for DSOs to enter remarks or comments regarding students’ OPT employment, we found that 27 percent of foreign students’ records (34,454 of 126,796) did not have any information in either field, as shown in table 4. Although information is included in at least one of the employment comment or remark fields for the majority of student records, this information may not be relevant to whether students’ employment is related to their studies. SEVP has not developed or provided guidance for DSOs on how to determine whether a student’s job is related to his or her program of study and has provided limited guidance on how to report this information in SEVIS using the existing fields. Specifically, SEVP’s guidance on OPT recommends that students maintain evidence for how each job is related, including a job description, but is limited in that it does not direct students to report this information to DSOs or DSOs to enter this information into SEVIS. In addition, SEVP’s DSO training materials state that DSOs should use the remarks area in SEVIS to explain how the work relates to the students’ studies. However, the training materials are limited in that they do not detail both SEVIS fields that are available. In addition, the materials do not provide guidance on how DSOs should show that they took steps to help ensure that students’ jobs are related. Federal internal control standards state that federal agencies should, among other things, design and document internal control activities, such as guidance, to help ensure compliance with applicable laws and regulations. SEVP officials stated that determining whether a job is directly related to a program of study is not defined in the regulations and would be too difficult to define in policy because it is a subjective process. Therefore, ICE has not required DSOs to provide this information in SEVIS. Because ICE has not required information on how students’ jobs are related to their studies and SEVP has provided limited guidance on how to provide this information in SEVIS, ICE does not have information needed to oversee OPT even when employer information is included in SEVIS. For example, we examined those student records for which an employer name was included for certain industries in which CTCEU officials were concerned about the potential of students working in unrelated jobs. According to our analysis, we found cases in which the SEVIS record indicated that students may not be complying with ICE’s regulatory requirement.students with degrees in fields such as economics, liberal arts, and psychology were working in food service and the SEVIS record did not include information as to how the employment was related to their field of study. We also found 9 cases in which students with degrees in fields such as computer science, engineering, and international studies were working in retail without an explanation included in the SEVIS record. However, we also found a case in which the student’s SEVIS record indicated that the individual, who had a degree in music, was working for a restaurant, but the employment remark field described the student’s employment as being a member of the restaurant’s house band. Developing and distributing guidance to DSOs with options on how to determine whether a job is related to the foreign student’s area of study and requiring DSOs to provide information in SEVIS to show that they took steps to help ensure that the work is related could help provide ICE with the information it could use to oversee OPT requirements. Specifically, we found 35 cases in which Limits on unemployment. ICE has set forth limits on unemployment in its OPT-related regulations. Specifically, 12-month post-completion OPT students may not exceed 90 days of accrued unemployment during their authorized employment period, and 17-month STEM extension post- completion OPT students may not exceed 120 days of unemployment (which includes any unemployment accrued during the initial 12-month OPT period). These unemployment limits were added to the ICE regulations in April 2008 to clarify that, if a student accumulates too much unemployment while remaining in the country under the OPT employment benefit, the student has violated his or her status. Although ICE policy provides instruction on how a student and DSO may report and record dates of employment or unemployment, ICE regulations and policy do not specifically require foreign students to report to their DSOs when they begin working or DSOs to enter those corresponding dates in SEVIS. Furthermore, SEVP’s policy specifically states that DHS maintains responsibility for determining whether a student has violated his or her status by exceeding the permissible limit on authorized unemployment. Federal internal control standards state that federal agencies should, among other things, design and document internal control activities to help ensure compliance with applicable laws and regulations. The dates on which authorization for employment from USCIS begins and ends are included in students’ SEVIS records; however, ICE does not have a mechanism to capture the date on which a student who was granted authorization actually started working or data on periods when a student is unemployed. According to SEVP officials and 12 DSOs with whom we spoke, it can be difficult for a DSO to maintain contact with students approved for OPT, particularly if a student engaged in post-completion OPT is no longer attending classes at the school and works off-campus for up to more than 2 years in another city or state. However, ICE’s regulations state that when a DSO recommends a student for OPT, the school—which includes its DSOs—assumes the added responsibility for maintaining the SEVIS record of that student for the entire period of authorized OPT. SEVP officials also stated that ICE’s ability to oversee foreign students’ unemployment time using SEVIS may be limited because the system does not systematically capture information from DSOs that may be used to calculate the accumulation of unemployment time. However, SEVP officials stated that SEVIS could be used to identify foreign students on post-completion OPT who have not had an employer listed for more than 90 or 120 days. According to SEVP officials, this mechanism would allow SEVP to track the initial unemployment of a student seeking work after receiving OPT employment authorization. As a result of not having complete data on foreign students’ initial employment dates or any subsequent unemployment dates, SEVP officials stated that they have not fully enforced these regulatory limits on unemployment. Requiring students to report to DSOs, and DSOs to record in SEVIS, students’ initial date of employment and any periods of unemployment could better position ICE to be able to oversee program requirements. Foreign students approved for OPT, especially those approved for the two post-completion types of OPT, are allowed to remain in the United States after the completion of their studies to pursue employment yet remain on a student visa with the understanding that they are complying with OPT requirements. Without consistent information on where students are employed and when students begin employment, ICE is not positioned to oversee these requirements. ICE has not developed mechanisms to consistently monitor whether schools and DSOs recommend OPT for foreign students and whether USCIS authorizes employment for foreign students that is permitted under ICE regulations. ICE requires DSOs to ensure students are eligible for the requested type and time of OPT prior to recommending it. After receiving the DSOs’ recommendation, students apply for and may receive employment authorization with USCIS. Through this process, DSOs and USCIS are to provide information on foreign students’ type and period of OPT in SEVIS. However, ICE does not monitor whether DSOs and foreign students are complying with requirements that students (1) have been in their program of study for at least 1 academic year prior to receiving authorization and (2) complete their OPT within certain time frames established by the type of OPT. One full academic year requirement. As previously mentioned, ICE requires that OPT be authorized only for a student who has been lawfully enrolled on a full-time basis in a SEVP-certified college, university, conservatory, or seminary for 1 full academic year in order to ensure that those seeking OPT employment are primarily in the United States on student visas to pursue their education. However, ICE regulations and policy do not define and SEVP has not provided OPT-specific guidance to DSOs on what constitutes 1 full academic year for SEVP-certified schools. According to SEVP officials, ICE has not developed or provided specific guidance because the various types of programs have different academic schedules and any guidance may not apply universally to all schools. However, SEVP officials stated that they use definitions from the Department of Education when fielding DSOs’ questions on this issue. In November 2013, SEVP drafted and released for comment guidance regarding annual vacations that includes these Department of Education definitions of how much time typically constitutes 1 full academic year. However, this draft guidance does not directly apply to the regulatory requirement of completing 1 full academic year to be eligible for OPT. Because ICE’s OPT-related regulations and policy do not define 1 full academic year for the various types of programs and schedules for SEVP-certified schools, DSOs and USCIS may not be clear as to how the Department of Education’s definitions specifically apply to approving and authorizing employment for foreign students seeking OPT. Therefore, students may be engaging in OPT without having completed the required time in their programs. Our analysis of SEVIS records as of August 2013 indicates that DSOs marked 556 students’ records as not meeting the requirement of having completed 1 full academic year prior to engaging in OPT. Further, according to our analysis of time between the program start date to employment start date for students authorized for OPT, 1,446 additional students have not been enrolled in their program for at least 8 months (what we consider to be 1 academic year based on SEVP officials’ estimates) prior to beginning OPT. On the basis of our two analyses, over 2,000 foreign students approved for OPT may not have met the requirement of having completed 1 full academic year. According to SEVP officials, this requirement applies only once to a foreign student. For instance, if a student was previously in the United States on another visa in which he or she could attend school, the time spent in an educational program would count toward the 1 full academic year requirement. Also, according to SEVP officials, a student may have met the requirement thorough a combination of enrollment in a previous program and his or her current program of study. However, ICE regulations and policy do not specifically list this type of exemption. Furthermore, SEVP’s guidance to DSOs specifically states that there is no exemption to the requirement that a student have been enrolled for 1 full academic year. Furthermore, federal internal control standards state that federal agencies should design and document guidance that would help to ensure compliance with applicable laws and regulations. Developing and providing guidance to DSOs and USCIS on what constitutes 1 full academic year and how to apply this definition to recommending and authorizing OPT could help ICE better ensure that foreign students meet eligibility requirements for OPT. Time frames for post-completion OPT. ICE regulations state that foreign students may be authorized for 12 months of OPT employment, which must be completed within 14 months following the completion of Students engaged in the STEM extension are granted an their program. additional one-time 17-month period of OPT employment, for a total of 29 months of total approved employment. This STEM extension must be applied directly following the end of the initially approved 12-month post- completion OPT and be completed in 31 months following the completion of his or her program. Our analysis of SEVIS student record data as of August 2013 shows that 9 percent of student records have authorized post-completion OPT employment dates that exceed the regulatory limits of total approved OPT and 8 percent of student records will not complete their OPT employment by the regulatory limits of 14 or 31 months, as shown in table 5. Furthermore, our analysis shows 10 percent of students engaged in 17- month STEM extension OPT had work approvals that exceeded the 17 months allowed by ICE regulations and policy, and 10 percent of students would not complete their OPT within 31 months from the end of their program. According to SEVP officials, these extended periods of OPT may be explained by students’ using the cap-gap extension to extend employment authorization through the fiscal year while petitions filed on their behalf for a nonimmigrant employment visa are pending.officials stated that if a foreign student was approved for the cap-gap extension, the student’s SEVIS record should indicate such approval and the employment end date would be adjusted to include the extension. This approval, and subsequent extension, may cause the student’s SEVP employment authorization dates to potentially exceed the 12- or 17-month limits. However, our analysis of the SEVIS records shows that those students, included in table 5, who have periods of employment authorization exceeding regulatory and policy limits for OPT, did not have approval for the cap-gap extension. Although SEVIS shows a student’s current OPT approval, the system does not display students’ past OPT approvals (previous pre-completion, for example) for the purpose of determining if a student has exceeded total limits on accrued work authorization. According to SEVP and USCIS officials, both rely on DSOs to track a student’s total amount of OPT and to recommend the appropriate amount of OPT for students depending on previously accrued OPT so as not to exceed regulatory limits. According to USCIS officials, it may check previous employment authorization applications by searching in CLAIMS or the Central Index System for an individual’s name; however, it relies on DSOs to recommend the allowed Without developing and implementing a mechanism to amount of OPT.monitor available information collected in SEVIS to determine total amounts of approved OPT over the course of students’ duration of stay, ICE does not have reasonable assurance that DSOs are implementing and students are complying with the regulatory limits on accrued employment approval. For example, students who may have engaged in the full amount of allowed OPT may leave the country, reapply to another school at the same education level, enter the country under a new I-20 and SEVIS identification number, enroll in a program for 1 academic year, and apply for OPT with the new program. Foreign students approved for OPT are allowed to work in the United States while maintaining their student visa status in order to supplement their education with practical training with the understanding that these students, and the schools and DSOs that have responsibility for these students, are complying with certain OPT requirements. Federal internal control standards state that agencies should design controls, including policies and procedures, to ensure that ongoing monitoring occurs in the course of normal operations. Developing and implementing a mechanism to monitor available information collected in SEVIS about OPT that DSOs recommend and USCIS authorizes for foreign students could better position ICE to help ensure that foreign students do not exceed regulatory limits on the amount of time students are approved for work. OPT, which is an employment benefit, provides certain eligible foreign students with the opportunity to seek temporary work to gain practical experience in their major areas of study during and after completing an academic program. A foreign student in post-completion OPT, in particular, is not required to leave the United States following graduation and can remain in the United States for the entire post-completion OPT period. Effective oversight of schools that recommend and foreign students who are approved for OPT entails identifying and assessing any potential risks, including opportunities for criminal exploitation, and being in a position to mitigate them. ICE has taken initial actions to identify risks across SEVP-certified schools; however, ICE has not analyzed available information to identify and assess potential risks specific to OPT posed by schools and foreign students. Identifying and assessing OPT-specific risks based on various factors, including risk information from CTCEU, could better position ICE to determine actions to help prevent OPT- related noncompliance and fraud and to address such noncompliance and fraud when they occur. Moreover, ICE could take steps to improve its ability to help ensure that foreign students working under OPT are complying with OPT requirements and thereby maintaining their legal status in the United States. By consistently collecting information in SEVIS that indicates foreign students’ employers, how employment is related to these students’ studies, initial date of employment, and any dates of unemployment, ICE could better position itself to oversee the OPT requirements that foreign students are actively working in areas related to their studies and not exceeding limits on unemployment. Furthermore, by monitoring through analysis other OPT information, ICE could better ensure that schools and DSOs recommend OPT for foreign students and USCIS authorizes employment for foreign students that is permissible under ICE regulations. By collecting the appropriate information in SEVIS and monitoring such information for compliance, ICE may better position itself to determine whether foreign students approved for OPT are maintaining their legal student visa status while supplementing their education with employment directly related to their areas of study in the United States. Moreover, having more complete data in SEVIS on foreign students working under OPT could help strengthen ICE’s efforts to identify and assess potential risks to OPT. To strengthen ICE’s efforts to develop and implement a process to identify and assess risks in SEVP, we recommend that the Director of ICE direct SEVP, in coordination with CTCEU, to identify and assess potential risks in OPT, including obtaining and assessing relevant information from CTCEU and ICE field offices. To better ensure DSOs’ and students’ compliance with OPT requirements, and strengthen efforts to identify and assess potential risks in OPT, we recommend that the Director of ICE direct SEVP to take the following five actions: require that pre-completion and 12-month post-completion OPT students report to DSOs, and DSOs record in SEVIS, students’ employer information, including the employer’s name and address; develop and distribute guidance to DSOs on how to determine whether a job is related to a student’s area of study and require DSOs to provide information in SEVIS to show that they took steps, based on this guidance, to help ensure that the student’s work is related to the area of study; require that students report to DSOs, and DSOs record in SEVIS, students’ initial date of employment and any periods of unemployment; develop and provide guidance to DSOs and USCIS on how much time constitutes 1 full academic year for the purposes of recommending and authorizing OPT; and develop and implement a mechanism to monitor available information in SEVIS to determine if foreign students are accruing more OPT than allowed by ICE regulations. We provided a draft of this report to DHS and the Department of State for their review and comment. DHS provided written comments, which are reproduced in full in appendix II. DHS concurred with our six recommendations and described actions under way or planned to address them. For example, DHS indicated that, as part of ongoing efforts to develop an overall risk management program, SEVP will work with CTCEU in developing factors to identify risks for schools and students associated with OPT. Also, DHS noted that the functionality to track OPT employment information, including the employer’s name and address, dates of employment, and any periods of unemployment, have been incorporated into SEVIS and that the software that includes the required data fields is scheduled to be released in 2014. In addition, DHS indicated that SEVP will issue guidance to assist DSOs in collecting information on students’ employment for reporting in SEVIS and to clarify what periods of enrollment qualify as 1 full academic year. These and other actions noted in DHS’s written comments should help address the intent of our recommendations. DHS also provided technical comments, which were incorporated as appropriate. The Department of State did not have formal comments on our draft report. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until thirty days from the report date. At that time, we will send copies to the Secretaries of Homeland Security and State, and appropriate congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-8777 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in appendix III. This report examines the extent to which the Department of Homeland Security (DHS) has (1) identified and assessed risks associated with optional practical training (OPT), and (2) collected information and developed monitoring mechanisms to help ensure students comply with OPT requirements and maintain their legal status in the United States. To determine the extent to which DHS’s Immigration and Customs Enforcement (ICE) has identified and assessed risks in ICE’s Student and Exchange Visitor Program (SEVP) specifically related to OPT, we analyzed program documentation, analyzed data, and interviewed officials from DHS and its relevant components, including U.S. Citizenship and Immigration Services (USCIS) and ICE. In particular, we analyzed ICE and SEVP documentation, such as standard operating procedures, policy statements, and guidance for agency officials and designated school officials (DSO), to determine how ICE’s processes identify and assess risk related to OPT in SEVP. In addition, to evaluate the extent to which ICE has identified and assessed risks related to OPT, we collected and evaluated information on SEVP compliance and watch lists that contain schools that SEVP has identified as potentially noncompliant or fraudulent and previous cases of OPT-related fraud through obtaining and analyzing documents and interviewing investigators from ICE’s Counterterrorism and Compliance Enforcement Unit (CTCEU). Also, we analyzed documentation CTCEU officials provided regarding risks and vulnerabilities they have identified in OPT-related policies, procedures, and regulations during the course of their work. In addition, we analyzed ICE news bulletins from January 2008 to November 2013 to help determine the magnitude of previous cases of fraud and evaluated information provided by CTCEU on criminal investigations related to school or student noncompliance or fraud involving OPT. Moreover, we collected and analyzed Student and Exchange Visitor Information System (SEVIS) data on schools that had at least one foreign student approved for OPT, as of August 2013, to identify examples of schools that pose a potential risk for fraud or noncompliance involving OPT using a risk indicator identified by CTCEU. Also, we interviewed officials from CTCEU and investigators from 7 of ICE’s 26 Homeland Security Investigations (HSI) field offices. Specifically, we conducted telephone interviews with ICE field offices located in Atlanta, Georgia; Boston, Massachusetts; Los Angeles and San Francisco, California; Newark, New Jersey; and New York, New York. We also conducted a telephone interview with an official from the ICE resident agent in charge field office in Charleston, West Virginia, which is under the supervision of the ICE field office in Philadelphia, Pennsylvania. We selected these locations based on the following criteria: (1) CTCEU officials identified the ICE field office as having previous or ongoing experience with school fraud and (2) SEVP identified the ICE field office as currently investigating a school in SEVP’s compliance case log. As we did not select a probability sample of ICE field offices to interview, the results of these interviews cannot be projected to all of ICE’s 26 field offices. While the information we obtained from officials at these locations cannot be generalized, the interviews provided us with the perspectives of ICE officials responsible for conducting school and student fraud investigations, including their views on the management and oversight SEVP has established for schools and students involved in OPT and any challenges ICE field offices have faced in their investigations. We also evaluated the extent to which ICE’s practices were consistent with DHS’s 2010 Policy for Integrated Risk Management and 2011 Risk Management Fundamentals. To determine the extent to which ICE has collected information and developed monitoring mechanisms to help ensure students comply with OPT requirements and maintain their legal status in the United States, we also analyzed program documentation, analyzed data, and interviewed officials from DHS and its components. As part of our effort to evaluate these processes that SEVP uses to manage and oversee students approved for OPT, we reviewed applicable regulations, such as those governing nonimmigrant visa classes and schools recommending students engaging in OPT. policy and guidance documents specifically concerning management and oversight of OPT. We compared these policies with criteria established in regulations, as well as with criteria in Standards for Internal Control in the Federal Government. The regulations governing nonimmigrant classes and OPT are found in 8 C.F.R. pt. 214. existing documentation on the controls in the system and the policies for ensuring data reliability; (2) interviewing agency officials about the data’s sources, the system’s controls, and any quality assurance steps performed after data are entered into the system; and (3) testing the data for missing data, outliers, or obvious errors. We identified several limitations to the data resulting from ICE’s process by which schools’ DSOs are responsible for data entry and updates. SEVIS is used by schools to apply for and receive SEVP certification, as well as for DSOs to keep records of individual students who enter the United States on F and M visas. Although SEVP officials may make edits to a student’s SEVIS record in some cases, all data or information entries on students are the responsibility of DSOs. Therefore, data elements that are not required may be missing or invalidly entered. For example, entries for schools’ physical locations may not be valid U.S. postal addresses. Furthermore, some SEVIS records may be duplicated because of students changing from one type of OPT to another. However, we were able to address this issue with duplicates by removing the record that was less accurate and up to date. While we identified such limitations, we found the data to be sufficiently reliable for providing descriptive information on the population of SEVP-certified schools that have recommended OPT and of foreign students engaged in OPT. We also found the data to be sufficiently reliable for analyzing student records for compliance with certain regulatory and policy requirements. We focused our analysis on several SEVIS fields related to management and oversight of foreign students engaged in OPT: (1) employer name and location, (2) remarks and comments on employment, and (3) dates of program of study and authorized OPT employment. We also analyzed student records for which an employer name was included and belonged in industries such as food service and retail, industries in which CTCEU officials were concerned about the potential of students working in unrelated jobs. We analyzed a sample of 158 student records in which the employer name field indicated the student worked in select food service or retail industries. This is a select sample and is not representative of all records indicating a student is working in the food service or retail industries. We identified this sample by searching the SEVIS data of foreign students authorized to engage in OPT as of August 2013 for employers names with key words such as “restaurant,” “café,” “coffee,” “pizza,” and “burger,” as well as for select retailers. This search returned 207 student records, which we reviewed and subsequently made the determination to exclude 49 records based on the employer name including one of these search terms but belonging to a business outside of the food service or retail industries. For example, we excluded an employer that is a printing company with the word “café” in its name. From the sample of 158, we determined that 44 student records did not include additional employment information in the SEVIS employment comment or employment remark fields that explained how the job was related to the field of study and the records did not indicate a potentially related degree. In addition to document and data collection and analysis, we interviewed SEVP officials to evaluate the extent to which their program has implemented controls related to OPT. We met with senior officials from SEVP, including SEVP’s Deputy Director, and management and staff for the five of seven branches involved in managing OPT—School Certification, Policy, Analysis and Operations Center, Field Representative Program, and Systems Management. We met with officials from CTCEU to understand the criminal enforcement perspective of managing and overseeing OPT. We interviewed USCIS officials to determine the extent to which USCIS has implemented processes for ensuring eligibility of students applying for employment authorization under OPT. In addition, we analyzed USCIS’s Computer-Linked Application Information Management System 3 (CLAIMS) data on OPT adjudication results from fiscal years 2008 to 2013. To assess the reliability of the CLAIMS data on foreign student OPT adjudications, we interviewed agency officials responsible for managing the data about the data’s sources and the system’s controls. We found the data to be sufficiently reliable for providing descriptive information on the number of employment authorization applications and approvals for foreign students engaged in OPT. Furthermore, we interviewed 11 DSOs, and received a written response from 1 DSO, who are employed by schools in Washington, D.C., and surrounding areas on their roles and responsibilities related to foreign students seeking or authorized for OPT and on any challenges in the management and oversight of these foreign students. We selected these officials because, as of July 2013, they composed a group of representatives from SEVP-certified schools of various types and sizes in the Washington, D.C., region that meets regularly with SEVP to discuss matters such as SEVIS and SEVP policy and requirements. As we did not select a probability sample of DSOs to interview, the information we obtained from these school officials cannot be generalized. The interviews provided us with the perspectives of DSOs responsible for overseeing students engaged in OPT. Further, we interviewed officials from NAFSA: Association of International Educators to discuss the organization’s views on OPT, including the involvement of DSOs in OPT. We conducted this performance audit from February 2013 to February 2014, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Rebecca Gambler, (202) 512-8777 or [email protected]. In addition to the contact named above, Kathryn Bernet, Assistant Director; Jennifer Bryant; Frances Cook; Lorraine Ettaro; Cynthia Grant; Kirsten Lauber; Elizabeth Luke; Lara Miklozek; Linda Miller; and Juan Tapia-Videla made significant contributions to this work.

As of November 2013, about 100,000 of the approximately 1 million foreign students in the United States were approved to participate in OPT—an employment benefit that allows foreign students to obtain temporary work in their areas of study during and after completing an academic program. ICE is responsible for certifying schools; monitoring foreign students and schools, including their compliance with OPT requirements; and enforcing immigration laws for those that fail to comply. GAO was asked to review the management of OPT. This report examines the extent to which DHS has (1) identified and assessed risks associated with OPT, and (2) collected information and developed monitoring mechanisms to help ensure students comply with OPT requirements and maintain their legal status. GAO analyzed ICE regulations and policies and data on schools that recommend and foreign students approved for OPT, as of August 2013. GAO interviewed ICE and USCIS officials, including those from 7 of 26 ICE field offices selected based on factors such as OPT-related fraud investigations. Interview results cannot be generalized, but they provided insights about OPT risks. U.S. Immigration and Customs Enforcement (ICE), a component of the Department of Homeland Security (DHS), has not identified or assessed fraud or noncompliance risks posed by schools that recommend and foreign students approved for optional practical training (OPT), in accordance with DHS risk management guidance. ICE's Student and Exchange Visitor Program (SEVP) officials consider OPT to be a low-risk employment benefit for foreign students because, in part, they believe foreign students approved for OPT do not have an incentive to jeopardize their legal status in the United States. However, SEVP has not determined potential risks in OPT. Further, officials from the Counterterrorism and Criminal Exploitation Unit (CTCEU), ICE's investigative unit, and ICE field agents GAO interviewed have identified potential risks involving OPT based on prior and ongoing investigations. For example, ICE field agents identified cases where school officials recommended OPT for foreign students to work outside of their major areas of study, which is not allowed under ICE regulations. In response to a June 2012 GAO recommendation, ICE has taken initial actions to identify risks across SEVP-certified schools but has not identified and assessed OPT risks or determined the extent to which potential OPT risks will be part of its efforts to assess risks SEVP-wide. Further, SEVP has not coordinated with CTCEU, including obtaining and assessing information from CTCEU and ICE field offices regarding OPT risks, as part of its efforts. Identifying and assessing OPT risks, in coordination with CTCEU, could better position SEVP to manage risks in OPT. ICE has not consistently collected the information and developed the monitoring mechanisms needed to help ensure foreign students comply with OPT requirements, thereby maintaining their legal status in the United States. Foreign students can participate in OPT while attending classes and after graduation for up to 12 months; students studying in science, technology, engineering, or mathematics fields may be eligible for an additional 17 months (29 months total). However, ICE does not have complete information on which foreign students approved for OPT are actively working and whether employment is related to their studies, per ICE regulations. For example, GAO's analysis of ICE data on students engaged in all types of OPT indicates that 38 percent (48,642 of 126,796) of student records do not contain an employer's name. Furthermore, the data do not include the date on which students granted authorization began working. ICE does not require that students and school officials report this information. Without these data, ICE cannot determine whether students with employment authorization are working in jobs related to their studies and not exceeding regulatory limits on unemployment. Collecting and monitoring complete information on foreign students approved for OPT would better position ICE to determine whether these students are maintaining legal status in the United States. This is a public version of a For Official Use Only/Law Enforcement Sensitive report that GAO issued in January 2014. Information DHS deemed sensitive has been redacted. GAO recommends that ICE, among other things, identify and assess OPT-related risks and require additional employment information from students and schools. DHS concurred with the recommendations.

You are an expert at summarizing long articles. Proceed to summarize the following text: Historically, a principal concern in noncompetitive contracting situations has been how to ensure that the prices proposed by contractors are fair and reasonable. Recognizing this risk, the Congress enacted the Truth in Negotiations Act in 1962. The act represents the government’s key safeguard against inflated contract prices on noncompetitive contracts. The act requires contractors and subcontractors to provide the government with cost or pricing data supporting their proposed prices and to certify that the data are accurate, complete, and current. If the government later discovers that the contractor submitted data that were not accurate, complete, and current, the act allows the government to pursue remedies, such as a reduction in the contract price. Interest and penalties can also be assessed under certain conditions. These provisions are designed to give the government the information it needs to ensure fair and reasonable contract prices. The negotiation process with certified cost or pricing data can be lengthy, and the documentation requirements for both sides can be extensive. The process starts when the contractor provides estimated costs for subcontracts and materials along with a detailed breakdown of the work to be performed, including estimated manufacturing labor costs, engineering costs, tooling costs, and other direct costs for each segment of the work. As figure 1 shows, DOD contracting officers then review these data along with price analysts from the Defense Contract Management Agency and auditors from the Defense Contract Audit Agency. The government and the contractor then negotiate cost elements to settle on a price. Once this is done, the contractor certifies the data as accurate, complete, and current. DOD may conduct an audit after the contract’s award. When enacted in 1962, the Truth in Negotiations Act did not include an explanation of what constituted an “exceptional case” and it has never been amended to define that term. Up until 1995, the Federal Acquisition Regulation (the implementing regulation) largely mirrored the Truth in Negotiations Act. The waiver provision in the Federal Acquisition Regulation was amended in 1995 to allow contracting officers to waive data when sufficient information was available to determine a fair and reasonable price. However, the regulation still provided little guidance on the circumstances that would warrant a waiver in a particular case. The first sentence of the current provision states that the “head of the contracting activity . . . may, without power of delegation, waive the requirement for submission of cost or pricing data in exceptional cases.”The waiver provision also states that the head of the contracting activity “may consider waiving the requirement if the price can be determined to be fair and reasonable without submission of cost or pricing data.” Aside from stating that a waiver may be considered in this situation, the regulation provides no further guidance on the circumstances that would warrant a waiver. Finally, the regulation includes no other guidance to help agency officials weigh the potential risks and benefits of granting a waiver in a particular case, as opposed to obtaining certified data. The conferees agree that the term “exceptional circumstances” requires more than the belief that it may be possible to determine the contract price to be fair and reasonable without the submission of certified cost and pricing data. For example, a waiver may be appropriate in circumstances where it is possible to determine price reasonableness without cost or pricing data and the contracting officer determines that it would not be possible to enter into a contract with a particular contractor in the absence of a waiver. In response to these concerns, DOD was directed in 1998 to work with appropriate executive branch officials to clarify situations in which an exceptional case waiver may be granted. According to DOD, no actions have been taken to clarify when waivers should be granted. Using DOD’s contract database, we identified 20 waivers valued at more than $5 million each in fiscal year 2000. The total value of these waivers was about $4.4 billion. As table 1 shows, six buying organizations approved these waivers. Five of the contracts included waivers that covered multiple-year purchases. Six waivers that we identified involved large, complicated acquisitions, which combined represented about 94 percent of the dollar value of the waivers we reviewed. (See table 2.) We could not assess the extent to which waivers are being used at DOD because DOD’s contract database is unreliable. However, for the contract actions we examined, we were able to verify data by reviewing the actual contracts and supporting documents. Contract pricing or waiver documents for all of the cases we reviewed stated that sufficient information was available to determine the price to be fair and reasonable without the submission of cost or pricing data and did not cite other circumstances to justify the waivers. This justification complies with the Federal Acquisition Regulation. In three cases, our review found that other factors strongly influenced the decision to waive certified cost or pricing data. These involved purchases for crashworthy fuel systems and combat vehicle track as well as a foreign military sale of F-16 fighter aircraft to Greece. In the crashworthy fuel system purchase, the company’s business model requires the company to sell its products at catalog prices rather than use a traditional government approach based on certified cost or pricing data, which the company never provides. This unique supplier also developed all of its products and maintains a production base exclusively at the company’s expense. In the case of the purchase of combat vehicles track, the company’s commercial accounting system did not segregate unallowable costs from its overhead accounts, and the company did not want to run the risk of government claims and possible damage to its reputation because of the inadvertent failure to exclude such costs from government proposals. As a result, the company would not provide certified data. The Army and the company agreed to reduce general and administrative costs allocated to this buy by 25 percent to compensate for possible unallowable costs. Finally, in the F-16 sale, two approaches were considered. The first called for accepting the price offered by the contractor during a competition between different aircraft types. The second called for traditional negotiations based on the certification of cost or pricing data. The contractor objected to providing certified data, arguing that adequate price competition had occurred. As a compromise, the Air Force waived the certification requirement but obtained and analyzed pricing data from the contractor. Contracting officers responsible for the 20 waivers we reviewed used a variety of techniques and approaches—sometimes a combination of several—to determine whether prices were fair and reasonable. Many of the contracting officers conducted a price analysis. Under a price analysis, the contracting officer reviews the proposed price for the contract without a breakdown of supporting costs. In 11 cases, the contracting officers compared contractors’ proposed prices with prices that had been negotiated previously for the same systems with certified data. In some cases, if a significant amount of time had elapsed since the previous price had been established, the contracting officers adjusted the price to account for inflation and quantity changes. In four cases, contracting officers conducted more thorough analyses using the contractors’ cost data, but the contractors were not required to certify the data as accurate, complete, or current. Under a cost analysis, the contracting officer reviews a breakdown of supporting costs in terms of materials, labor, and various overhead accounts. Such a breakdown, for example, could list various prices for materials as well as anticipated hours and rates for labor. In five cases, a variety of other pricing techniques were employed, including the use of regression analyses, learning curves, and parametric estimates. Table 3 summarizes primary techniques employed on each of the 20 waivers we reviewed. The government was at a higher risk of inflated pricing in situations where there was a lot of uncertainty about the data used to support analyses and a lower risk in situations where there was less uncertainty. Factors that increased uncertainty included changes in the design of the weapon system since a previous purchase, changes in the processes or equipment used to produce the system, or even changes in the amount being ordered by the government. More indirect factors contributing to uncertainty include mergers and acquisitions, cost-cutting measures, or changes in relationships with subcontractors. All of these things can significantly affect the costs of a product. The practice of relying on previously certified data that are fairly old also increased risk—principally because it increased the potential for more uncertainty. In several cases we reviewed, the data relied on were 2 to 3 years old. At times, contracting officers took action to make up for the uncertainties associated with the time elapsed, such as adjusting the price to account for inflation. However, the contracting officers still could not be assured that all other conditions—such as production processes, business processes, subcontractor relationships— affecting the purchase remained the same. One case we identified, the Navy’s purchase of spare parts for Orion radar systems, was particularly risky—not only because the contracting officer relied on 7-year-old data, but the data had never been certified. We also identified factors and practices that helped to minimize risk. Of course, relying on data that were certified fairly recently for systems where conditions had not changed lowered the risk to the government. This occurred in several cases that we reviewed. In other cases, contracting officers employed pricing experts from the Defense Contract Management Agency and the Defense Contract Audit Agency to help them analyze costs and/or prices. Such officials lent substantial expertise and experience to the negotiation process by performing audits and reviews of the contractor’s purchasing systems, estimating systems, overhead rates, and operations in general. In some cases, government and contractor personnel worked collaboratively and effectively within integrated product teams to analyze costs and prices. In doing so, they shared and used the same data to come to a consensus on issues affecting contract price. This arrangement also served to minimize the development of adversarial relationships between the contractor and the government. Another factor that could lower risk is the contractor’s having sound estimating and purchasing systems—ones approved by government organizations. Such systems are integral to producing credible proposals. Nearly all of the contractors in the cases that we reviewed had such systems, and in a few cases, allowed government representatives direct access to the data within the systems. Specific examples highlighting risk factors are provided in the figure below. DOD’s guidance on the waiver process is not adequate. First, DOD does not have guidance that would help clarify for buying organizations what an “exceptional” case might actually entail. The Truth in Negotiations Act does not define exceptional cases and the regulatory guidance is limited. The current guidance states that the head of the contracting activity may consider waiving the requirement if the price can be determined to be fair and reasonable without the submission of cost or pricing data. But the guidance cites only one example of a situation where a waiver may be granted: “if cost or pricing data were furnished on previous production buys and the contracting officer determines such data are sufficient, when combined with updated information.” The trade-offs and complexities involved in making the decision to grant a waiver require more guidance. On the one hand, the certification process greatly lowers the risk of inflated pricing and provides the government with recourse in the event that items are found to be defectively priced. In fact, in fiscal year 2000, Defense Contract Audit Agency audits related to the Truth in Negotiations Act identified potential cost savings of $4.9 billion. On the other hand, the certification process can be costly to both the contractor and the government in terms of time, effort, and money. And there may be times—such as when there is an urgent need for the item or when the same item was purchased very recently using certified data—when the government may be willing to take a greater risk. By developing more detailed guidance, DOD could help buying organizations weigh these trade-offs and avoid using the waiver process as merely a shortcut to getting an item, even an expensive weapon system, quicker and easier. Second, DOD does not have guidance that would help buying organizations draw the line between what type of data and analyses would be acceptable or not and what kinds of outside assistance, such as DOD contracting and pricing experts, should be obtained. Our analysis showed that there was a wide spectrum in the quality of the data and analyses being used. On one end, there were situations where the analysis focused only on the bottom-line price and not the supporting costs and where the data being relied on were exceptionally old. On the other end, were situations where the negotiations were based on data that were very recently certified with little change in quantity. In addition, in some situations, other risk mitigating techniques were employed, such as involving contract and pricing experts. Clearly, it is in DOD’s interest to encourage contracting officers to reduce the risk of inflated pricing as much as possible by conducting more rigorous analyses and taking advantage of DOD’s pricing and contracting expertise. Third, we identified several issues, not covered within existing guidance, where there was some confusion on what the law and regulations allowed. For example, contracting officers’ views differed on whether the government can obtain a waiver that covers only a portion of costs associated with a procurement. In purchasing Apache helicopters, for example, the government, in fact, obtained a partial waiver covering subcontractor costs and recurring labor costs, estimated at $462.6 million of the total $2.3 billion contract. In contrast, in another case, the contracting officer told us that the regulations do not provide for partial waivers. Another question that could be clarified is whether waivers can be applied to planned, but unpriced, contract options in later years. Specifically, under contracts which have options that are not priced or under which the price can be redetermined, it is not clear whether a waiver obtained in the first year of the contract should apply to price negotiations that occur in subsequent years of the contract. This question came up with the Army’s purchase of combat vehicle track from Goodyear Tire and Rubber. In another related situation involving the Army’s purchase of Black Hawk helicopter engines from General Electric, the waiver ultimately covered planned purchases over 5 years under two separate contracting actions. For the majority of its sole-source purchases, DOD minimizes the risk of inflated pricing by requiring its contractors, under the Truth in Negotiations Act, to provide detailed cost or pricing data to support their proposed prices and certify that the data are accurate, complete, and current. But for several billion dollars in contracts, DOD is at a greater risk of inflated pricing because it is waiving the requirement. In some cases, contracting officers still make a considerable effort to reduce risks, such as performing detailed price or cost analyses, involving pricing and contracting experts, and relying on data that were recently certified. By developing guidance to encourage all contracting officers to take such steps and to help buying organizations weigh the decision to grant waivers, DOD could reduce its risk of inflated pricing even further. We recommend that the secretary of defense work with the Office of Federal Procurement Policy to develop guidance to be included in the Federal Acquisition Regulation to minimize the risk of inflated pricing when waivers for certified cost or pricing data are granted to its contractors and subcontractors. This guidance should (1) clarify situations in which an exceptional case waiver may be granted, (2) identify what type of data and analyses are recommended for arriving at a price when waivers are granted, and (3) identify what kinds of outside assistance should be obtained. We also recommend that the secretary develop guidance that clarifies whether the government can obtain a partial waiver and what should be done with contracts that have options that are not priced. We further recommend that the secretary survey buying organizations to assess whether additional specific issues not covered within existing guidance need to be clarified. In providing written comments on a draft of this report, DOD generally agreed with our findings and recommendations. Its only disagreement was with our recommendation to work with the Office of Federal Procurement Policy to incorporate new guidance in the Federal Acquisition Regulation. DOD specifically acknowledged that the age and usefulness of data and analysis should be a concern for contracting officers. In response to our recommendations, DOD intends to develop additional guidance to the contracting community regarding (1) the approval of a waiver of the requirement for cost or pricing data, (2) the types of analyses that should be conducted when waivers are granted, and (3) outside expertise that should be engaged in conducting these analyses. DOD plans to include guidance in a memorandum to the military departments and defense agencies and incorporate it into the next update of its Contract Pricing Reference Guides. DOD also agreed with the need to address partial waivers and waivers on unpriced options. In addition, DOD agreed to survey buying organizations to assess whether specific issues not covered within existing guidance need to be clarified. DOD disagreed with our recommendation to place the revised guidance in the Federal Acquisition Regulation because it believed that such a listing would detract from the application of the best professional judgment by contracting officers. We believe that DOD is taking constructive measures to reduce risks that come with the waiver process. In addition, we appreciate that providing additional guidance outside the Federal Acquisition Regulation will provide a more immediate benefit than amending the regulation. However, it is still appropriate for DOD to work with OFPP and the FAR Council to incorporate its guidance into the Federal Acquisition Regulation since the guidance would help clarify the regulation and since the regulation is the definitive source for contract management. We are sending copies of this report to the secretary of defense; the secretaries of the army, navy, and air force; the director, Office of Management and Budget; the administrator, Office of Federal Procurement Policy; and interested congressional committees. We will also make copies available to others on request. If you have any questions about this report or need additional information, please call me on (202) 512-4841. Key contributors to this report are listed in appendix IV. To meet our objectives, we reviewed 20 waivers valued at more than $5 million each in fiscal year 2000 at six buying organizations. In total, the waiver value of these 20 contracts amounted to about $4.4 billion. These 20 waivers involved an array of buying commands, weapon systems, major contractors, and purchasing circumstances. The DOD contract database was used as the basis to identify sole source, fixed-price weapon system contracts, with more than $5 million in expenditures (or contract actions) in fiscal year 2000. The DOD database includes a variety of contracting actions, such as a basic award of a contract as well as modification of a contract. Modifications could include an exercise of an option to a basic contract or funding of the contract for a specific year on a contract funded on an incremental basis. As a result, in some cases with multiyear buys, the pricing of the contract or modification selected for review occurred before fiscal year 2000. We selected six commands to visit during this review because these commands, based on DOD’s contract database, were the only locations that had individual waivers with more than $5 million in expenditures in fiscal year 2000. These six include the (1) Naval Air Systems Command, (2) Naval Sea Systems Command, (3) Naval Inventory Control Point, (4) Army Tank-Automotive and Armaments Command, (5) Army Aviation and Missile Command, and (6) Aeronautical Systems Center of the Air Force Materiel Command. Because of concerns regarding the reliability of computer-generated data, we also requested the commands to independently review their records to identify any additional waivers meeting these criteria. In total, through the use of the database and independent review process, we identified the 20 contracts with waivers amounting to about $4.4 billion. These six are large buying organizations and visiting these organizations, in our view, gives us visibility into the use of waivers for large contracts nationally in fiscal year 2000. We reviewed the techniques associated with the methods of pricing the contracts. This review included the data used by contracting officers to determine whether the prices were fair and reasonable. To accomplish this review, we reviewed contract files and held discussions with contracting officers at the DOD buying organizations. In addition, we also held discussions with representatives of most of the contractors to obtain information on the orders as well as DOD officials located at contractor plants. We conducted our review between March 2001 and April 2002 in accordance with generally accepted government auditing standards. Below is the waiver provision, which is at section 15.403-1 (c) (4) of the Federal Acquisition Regulation. The head of the contracting activity (HCA) may, without power of delegation, waive the requirement for submission of cost or pricing data in exceptional cases. The authorization for the waiver and the supporting rationale shall be in writing. The HCA may consider waiving the requirement if the price can be determined to be fair and reasonable without submission of cost or pricing data. For example, if cost or pricing data were furnished on previous production buys and the contracting officer determines such data are sufficient, when combined with updated information, a waiver may be granted. If the HCA has waived the requirement for submission of cost or pricing data, the contractor or higher-tier subcontractor to whom the waiver relates shall be considered as having been required to provide cost or pricing data. Consequently, award of any lower-tier subcontract expected to exceed the cost or pricing data threshold requires the submission of cost or pricing data unless— 1. An exception otherwise applies to the subcontract; or 2. The waiver specifically includes the subcontract and the rationale supporting the waiver for that subcontract. In addition to those named above, Erin Baker, Cristina Chaplain, Ken Graffam, Martin Lobo, Ralph Roffo, John Van Schaik, and Paul Williams made key contributions to this report.

Although most federal contracts are awarded through competition, the government also buys unique products and services, including sophisticated weapons systems, for which it cannot always rely on competition to get the best prices and values. Instead, it uses a single source for its procurements. In these cases, contractors and subcontractors provide the government with cost or pricing data supporting their proposed prices and certify that the data submitted are accurate, complete, and current, as required by the Truth in Negotiations Act. This ensures that the government has the data it needs to effectively negotiate with the contractor and avoid paying inflated prices. The government can waive the requirement for certified data in exceptional cases. In these instances, contracting officers use other techniques to arrive at fair and reasonable prices. Using the Department of Defense's (DOD) contract database, GAO found 20 waivers, each valued at more than $5 million, in fiscal year 2000. The total value of these waivers was $4.4 billion. In each case, the contract pricing or waiver documents stated that sufficient information was available to determine the price to be fair and reasonable without the submission of cost or pricing data. There was a wide variety in the quality of the data and analyses being used, from very old to very recent data. Despite the range of techniques employed to arrive at a price, DOD does not have guidance that would help buying organizations determine acceptable data and analyses and what kinds of outside assistance, such as contracting and pricing experts, should be obtained.

You are an expert at summarizing long articles. Proceed to summarize the following text: Within VA Central Office, VHA’s Primary Care Services Office develops policies related to the management of primary care—including the recording and reporting of primary care panel size data—and VHA’s Primary Care Operations Office is responsible for executing policies related to primary care delivery and monitoring primary care. VHA’s Office of Finance develops policies related to the recording and reporting of primary care encounter and expenditure data. Each of VA’s 21 networks is responsible for overseeing the facilities within their network, and this responsibility includes overseeing facilities’ management of primary care. (See fig. 1.) Based on a review of studies, VA established a baseline panel size of 1,200 patients at any given time for a full-time primary care physician provider. The Primary Care Services Office adjusts the baseline panel size for each facility based on a model VA officials said they developed in 2003 that uses data reported by facilities—including data on the number of FTE providers, support staff, and exam rooms—and projections on the average number of primary care visits. These projections are based on patient characteristics, such as the proportion of patients with chronic conditions. VA refers to the adjusted baseline for each facility as the “modeled panel size,” which in fiscal year 2014 ranged from 1,140 to 1,338 across VA’s facilities. VA generally updates the modeled panel size annually for each facility. VA’s handbook on primary care management requires that facilities record and report primary care data using the Primary Care Management Module (PCMM) software. These data include the number of patients, FTE providers, support staff, and exam rooms, and the reported and modeled panel size. Each facility maintains its own PCMM software and is required to update its panel size data on an ongoing basis in PCMM, which electronically reports facilities’ data to a separate national database maintained by the Veterans Support Service Center. This national database allows the Primary Care Operations Office and VA’s networks to review the data. An encounter is a professional contact between a patient and a provider who has the primary responsibility for diagnosing, evaluating, and treating the patient’s condition. In addition to individual office visits, there are other types of encounters, such as telephone visits and group visits. Each facility identifies and tracks all of its expenditures associated with primary care encounters. Facilities transmit their encounter and expenditure data using the Decision Support System, which is maintained by the Office of Finance. This office is responsible for collecting and maintaining financial information for VA’s cost accounting—which identifies and assesses the costs of programs at the national, network, and facility levels—and for budgetary purposes. We found that VA lacks reliable data on primary care panel sizes across its facilities because the data that facilities record and report to VA Central Office and networks are sometimes inaccurate. Because reliable reported panel sizes were not available for all facilities, we calculated actual panel sizes at six of seven selected facilities and compared them to each facility’s modeled panel size for fiscal year 2014. We found that actual panel sizes across the six facilities varied from 23 percent below to 11 percent above their respective modeled panel size. Moreover, we found that VA Central Office and networks do not have effective oversight processes for verifying and using facilities’ panel size data to monitor facilities’ management of primary care. We found that VA lacks reliable data on primary care panel sizes across its 150 facilities because the data that facilities record in the PCMM software and report to the Primary Care Operations Office and to networks are sometimes inaccurate. Federal internal control standards state that reliable information is needed to determine whether an agency is meeting its goals for accountability for effective and efficient use of resources. However, our review of the reported panel size data for all of VA’s facilities for fiscal year 2014 revealed missing values as well as values that appeared to be unreasonably high or low, which raised concerns about these data. Officials from the Primary Care Operations Office, whom we interviewed about the reliability of these data, agreed that inaccuracies exist in the way facilities report data elements in PCMM, such as the number of patients assigned to primary care panels and the number of FTE providers, support staff, and exam rooms. Primary Care Operations Office officials pointed out that because the data are self- reported, facilities can and sometimes do record the data inaccurately or in a manner that does not follow VA’s policy on panel management. For example, the officials stated that some facilities may not count support staff and exam rooms as outlined in VA’s policy. These officials also stated that PCMM has limitations that may affect the reliability of facilities’ reported panel size data. For example, officials explained that the software makes it difficult for facilities to ensure that inactive patients (i.e., those who have not seen their primary care provider within the preceding two years or have died) are removed from providers’ panels. We identified similar inaccuracies in our more in depth review of panel size data reported by the seven selected facilities. Specifically, at three facilities we found inaccuracies in the reported number of FTE primary care providers and the reported number of patients, which impacted the facilities’ reported or modeled panel sizes. For example, the number of FTE primary care providers reported by one of these facilities was too low because the facility incorrectly recorded each FTE provider as only 90 percent of a FTE. We did not identify inaccuracies in the data reported by the remaining four facilities. (See table 1.) Because some medical facilities’ reported panel size data are unreliable, VA Central Office and network officials cannot readily determine each facility’s average primary care panel size nor compare these panel sizes to each facility’s modeled panel size to help ensure that care is being delivered in a timely manner to a reasonable number of patients. Moreover, having unreliable data can misinform VA in other aspects as well. For example, because VA’s model is based on historical data reported by facilities, unreliable data may result in VA’s modeled panel size being too high or too low for certain facilities. Also, if facilities are using unreliable data to manage their primary care panels—for example, using the data to assign patients to primary care providers—the facilities may be misinformed about the available capacity on primary care providers’ panels—information that is key to determining facilities’ staffing and other resource needs. Primary Care Operations Office officials told us that they intend to address data reliability issues over time. Specifically, the Primary Care Operations Office is in the process of implementing new software, called web-PCMM, which officials believe will address some concerns about the reliability of the data because the software features controls to help ensure that facilities record and report the data accurately and consistently. For example, web-PCMM will automatically remove inactive patients from providers’ panels. In preparation for the implementation of web-PCMM, Primary Care Operations Office officials said they have been training network and facility staff on the features and capabilities of the new software and instructing facility staff to review and correct their panel size data to help improve data accuracy. It is not yet known the extent to which the new software will actually address the data reliability issues because facilities will continue to self-report data. The Primary Care Operations Office started piloting the new software at selected facilities in 2014 and had planned to implement it agency-wide after resolving software interoperability issues identified during the pilot. However, officials said that implementation is currently on hold because of a lack of funding, and the officials could not provide an updated timeframe for its system-wide implementation. According to these officials, VA has spent about $8.8 million through July 2015 on the development and implementation of web-PCMM and requires an additional $1.5 million to implement it agency-wide. Because reliable data on reported panel sizes were not available for all of VA’s facilities at the time of our review, we calculated actual panel sizes at six of the seven selected facilities using updated data from these facilities and correcting for the inaccuracies we found at two facilities. We compared the actual panel size to each facility’s modeled panel size for fiscal year 2014. Although Primary Care Operations Office officials recommend that facilities keep panel sizes 10 to 15 percent below modeled panel sizes to accommodate growth and provider attrition, we found that actual panel sizes ranged from 23 percent below to 11 percent above their respective modeled panel size. This wide variation may indicate that actual panel sizes at some facilities are too low—potentially leading to inefficiency and wasted resources—or too high—potentially leading to veterans experiencing delays in obtaining care, among other negative effects. It may also indicate that VA’s modeled panel sizes are determined incorrectly based on unreliable facility data or do not sufficiently account for patient acuity levels and demand for primary care services. Actual average panel sizes across the six facilities ranged from a low of 1,000 patients per provider to a high of 1,338 patients per provider. (See fig. 2.) At the three facilities where actual panel sizes were the highest of the six for which we calculated the actual panel sizes, officials cited three key factors that contributed to the higher panel sizes. Growing patient demand: Officials at all three facilities stated that the growing number of patients seeking primary care services at their facilities has required them to assign a larger number of patients to each provider. Officials at one of these facilities stated that not assigning new patients to a panel would result in a greater number of walk-in patients seeking emergency care and a loss of continuity of care. Staffing shortages: Officials at all three facilities described difficulty recruiting primary care providers, which resulted in a shortage of providers. At one of these facilities, about 40 percent of primary care provider positions were vacant at the time of our review. Officials at all three facilities attributed recruiting difficulties to the rural location of these facilities, lack of academic affiliation of the facilities, and the lower pay that VA offers primary care providers compared to nearby private sector medical facilities. In addition, at one of these facilities, officials stated that non-compete clauses limited the facility’s ability to hire providers currently working in the private sector who might otherwise seek employment with VA. Exam room shortages: Officials at two of the three facilities stated that a lack of available exam room space has limited their ability to hire additional primary care providers—and thereby reduce panel sizes. They stated that the process for acquiring additional space—whether through building additional space or leasing it—is cumbersome and requires extensive preplanning. For example, at one of these facilities, officials stated that expanding the facility’s existing exam room space or opening another CBOC to accommodate growing demand for primary care typically takes 5 to 6 years. The officials told us that while the Veterans Access, Choice, and Accountability Act of 2014 provided facilities with funds to acquire additional space, it did not simplify the process for acquiring space. Officials at two of the three facilities stated that the higher actual panel sizes have contributed to provider burnout and attrition. At one facility— where actual panel sizes were 11 percent above the modeled panel size—officials stated that the facility has been unable to hire enough providers to make up for attrition. The officials added that providers have expressed concerns to facility leadership that high panel sizes were impeding their ability to provide safe and effective patient care. All three facilities have taken measures to address higher actual panel sizes. For example, in order to ease staffing shortages the facilities have contracted with non-VA providers to provide care at VA facilities and have offered evening and weekend clinic hours to fully utilize available exam room space. However, while these measures have helped address capacity shortages at these facilities, they do not fully address the longstanding concerns resulting from higher panel sizes. In contrast, at the facility where actual panel size was the lowest of the six we reviewed—23 percent below its modeled panel size—officials said they have made a concerted effort to establish lower panel sizes while increasing the number of primary care providers. Officials stated that they had recently lowered providers’ panel sizes because they believed that the modeled panel size did not sufficiently account for factors affecting patients’ demand for primary care services, such as high acuity levels. These officials noted that they previously followed the modeled panel size but found that it was too high and resulted in primary care provider burnout and poor patient access to primary care providers. Since VA Central Office and network staff generally do not examine differences across medical facilities VA-wide, it is unclear whether the facility with lower panel sizes for providers was providing primary care services in an inefficient manner or whether VA’s modeled panel size for this facility was too high. VA Central Office and networks do not have effective oversight processes for verifying and using facilities’ panel size data to monitor facilities’ management of primary care. VA’s panel management policy requires facilities to ensure the reliability of their reported panel size data, but the policy does not assign oversight responsibility to VA Central Office or the networks for verifying the reliability of these data or for using the data for monitoring purposes. Federal internal control standards state that agencies should clearly define key areas of authority and responsibility, ensure that reliable information is available, and assess the quality of performance over time. However, officials from the Primary Care Operations Office told us that— except for a few isolated situations—they do not verify the panel size data recorded in PCMM to systematically identify unreliable data or to monitor panel sizes across all VA medical facilities. For example, these officials told us that in 2014, they conducted reviews of three facilities that were struggling with recording and reporting reliable data in PCMM to identify ways to improve the reliability of the facilities reported data. The officials said they have not validated facilities’ reported panel size data or used the data to monitor primary care because the office has a limited number of staff and mainly relies on the networks and facilities to ensure that the data are recorded and reported correctly and that monitoring is conducted. Across the seven networks that oversee the seven selected facilities for which we conducted a more in-depth analysis, we also identified variations in the extent to which the networks verified facilities’ panel size data and used the data to monitor and address panel sizes that were too high or too low. Specifically, Data verification: Officials from four of the seven networks told us that they took some steps to verify that facilities’ panel size data were reliable, such as reviewing the data for errors and large variations. For example, officials from one of these networks stated that if they identified large variability in the number of exam rooms—a relatively stable data element over time—it could indicate problems with data reliability, which the network officials would discuss with officials from the facility reporting the data. Officials from another network stated that they compared data reported by facilities to data previously reported by the facilities to identify large variations. Officials from the remaining three networks told us that they did not any take steps to verify that facilities’ reported panel size data were reliable. According to Primary Care Operations Office officials, VA networks can request access to facilities’ PCMM software, which would enable them to verify the data; however, the officials acknowledged that many of VA’s 21 networks are unaware of this capability. Use of data for monitoring primary care: Officials from six of the seven networks said they discussed reported panel size data during monthly calls with facility officials, at primary care committee meetings, or during facility site visits. However, officials from only four of these six networks stated that they took steps to address panel sizes that are too high or too low compared to a facility’s respective modeled panel size. For example, officials at one network told us that they helped a facility recruit additional primary care providers to address high panel sizes. In another network, officials said that they were helping a facility secure additional exam room space to address high panel sizes. Officials at a third network told us that they recently had to curtail monitoring activities to address facilities’ panel sizes due to staffing shortages. In contrast, officials from the one network that does not use panel size data to monitor facilities’ management of primary care told us that they rely on the facilities to manage their own primary care panels and do not believe that the network should take an active role in this process. As a result, officials from this network were unaware that a facility within their network had made a concerted effort to establish panel sizes that were well below its modeled panel size. Absent a robust oversight process that assigns responsibility, as appropriate, to VA Central Office and networks for verifying facilities’ panel size data and using the data to monitor facilities’ management of primary care—such as, examining wide variations from modeled panel sizes—VA lacks assurance that facilities’ data are reliable and that they are managing primary care panels in a manner that meets VA’s goals of providing efficient, timely, and quality care to veterans. Primary Care Operations Office officials stated that VA Central Office is in the process of revising its policy on primary care panel management and is developing additional guidance to require VA Central Office and VA networks to verify reported panel size data in addition to other monitoring responsibilities. However, as the revised policy and guidance are still under development, it is unknown when they will be implemented and whether they will fully address the issues we identified. Based on our review of fiscal year 2014 VA-wide primary care expenditure and encounter data, we found that expenditures per primary care encounter varied widely across VA facilities, from a low of $150 to a high of $396, after adjusting to account for geographic differences in labor costs. Expenditures per encounter at 97 of the 140 facilities we reviewed were within $51 or one standard deviation—a statistical measure of variance—of VA’s overall average of $242. According to officials from VHA’s Office of Finance, one standard deviation is typically used to identify potential outliers when examining encounter and expenditure data. For the remaining 43 facilities, our analysis found that expenditures per encounter at 20 facilities were at least one standard deviation above the average and at 23 facilities were at least one standard deviation below, which may indicate potential outliers that VA Central Office and the networks may need to examine further. (See fig. 3.) Among other things, this variation may indicate that primary care is being delivered efficiently at facilities with relatively low expenditures per encounter or inefficiently at facilities with relatively high expenditures per encounter. We also analyzed expenditures per unique primary care patient—that is, a patient with at least one primary care encounter in fiscal year 2014— and found similar variation across VA’s facilities. (See app. I.) We found that this variation remained when examining expenditures by encounter and per unique patient for facilities within the same complexity group. Of the seven selected facilities, one was among the least expensive facilities across all VA facilities and another was among the most expensive, in terms of expenditures per primary care encounter. An official from the facility that was among the least expensive of the seven we reviewed, with expenditures per encounter of $158, identified an increased use of secure messaging and telephone primary care as primary factors that contributed to a lower expenditure per encounter. Officials from the network that oversees the facility that was among the most expensive of the seven we reviewed, with expenditures per encounter of $330, identified the high cost of living in the area—which resulted in higher leasing and labor costs—as the primary factor that contributed to a higher than average cost per encounter. However, our analysis largely accounted for the higher cost of living in that expenditure data provided by VA were adjusted to account for geographic differences in labor costs, which made up 71 percent of this facility’s costs in fiscal year 2014. The officials also explained that part of the reason for the high expenditures per encounter was that the facility was not appropriately accounting for telephone-based primary care services it provided for the entire network. As a result, primary care encounters and expenditures for the selected facility included encounters and expenditures for telephone primary care services for other facilities within the network. According to network officials, steps are being taken to ensure that the facility is allocating these expenditures appropriately going forward. While VA Central Office and networks verify and use facilities’ encounter and expenditure data for financial purposes, VA’s policies governing primary care do not require VA Central Office and networks to use these data to monitor facilities’ management of primary care. Federal internal control standards state that agencies need both operational and financial data to determine whether they are meeting strategic goals and should use such data to assess the quality of performance over time. We found that the Office of Finance in VA Central Office independently verifies facilities’ encounter and expenditure data to help ensure their reliability and uses the data for cost accounting and budgetary purposes. Similarly, chief financial officers or their designees at six of the seven networks that oversee the facilities we reviewed routinely examine encounter and expenditure data to identify outliers for the purposes of ensuring data reliability and for cost accounting. However, the Primary Care Operations Office in VA Central Office does not use encounter and expenditure data, even though officials stated that examining such data would likely help them monitor facilities’ management of primary care. Furthermore, primary care officials at the seven networks we examined generally do not use these data to monitor facilities’ management of primary care. Some officials told us that they do not use encounter and expenditure data for monitoring primary care delivery because panel sizes are the most effective means of measuring efficiency within primary care. By not using encounter and expenditure data to monitor facilities’ management of primary care, VA may be missing opportunities to identify facilities—such as those that experience higher than average expenditures per encounter or significant changes in expenditures over time—that may warrant further examination and to strengthen the efficiency and effectiveness of the primary care program. Using panel size data in conjunction with encounter and expenditure data, would allow VA Central Office and networks to assess facilities’ capacity to provide primary care services and the efficiency of care delivery. The absence of reliable panel size data and oversight processes could significantly inhibit VA’s ability to ensure that facilities are providing veterans with timely, quality care and delivering that care efficiently. While VA planned to address some of the data reliability issues through new software to help VA facilities record data more accurately, development of this software is currently on hold, and VA could not provide any estimates of when the software would be implemented at its facilities. Even if this software is implemented, VA Central Office and networks will still be relying on self-reported data on primary care panel sizes from its facilities. By not having in place a process to verify the reliability of facilities’ panel size data or to monitor wide variations between facilities’ reported and modeled panel sizes, VA will likely continue to receive unreliable data and miss opportunities to assess the impact of panel sizes on veterans’ access to care. VA Central Office and the networks are also missing opportunities to use readily available encounter and expenditure data to potentially improve the efficiency of primary care service delivery. Consistent with federal internal control standards, using such data in conjunction with reliable panel size data could be a potent tool in “right- sizing” panel sizes to best serve veterans’ needs and deliver primary care efficiently. We recommend that the Secretary of the Department of Veterans Affairs, direct the Undersecretary for Health to take the following two actions to improve the reliability of VA’s primary care panel size data and improve VA Central Office and the networks’ oversight of facilities’ management of primary care: Incorporate in policy an oversight process for primary care panel management that assigns responsibility, as appropriate, to VA Central Office and networks for (1) verifying each facility’s reported panel size data currently in PCMM and in web-PCMM, if the software is rolled- out nationally, including such data as the number of primary care patients, providers, support staff, and exam rooms; and (2) monitoring facilities’ reported panel sizes in relation to the modeled panel size and assisting facilities in taking steps to address situations where reported panel sizes vary widely from modeled panel sizes. Review and document how to use encounter and expenditure data in conjunction with panel size data to strengthen monitoring of facilities’ management of primary care. VA provided written comments on a draft of this report, which we have reprinted in appendix II. In its comments, VA agreed with our conclusions, concurred with our two recommendations, and described the agency’s plans to implement our recommendations. VA also provided technical clarifications and comments on the draft report, including the recommendations contained in the draft report. We incorporated these comments, as appropriate. In particular, we modified our first recommendation in the draft report and now recommend that VA verify each facility’s panel size data in PCMM and, if the latter is available, in web-PCMM. We made this change to reflect the continued uncertainty over the implementation of the web-PCMM software. In addition, we modified our second recommendation in the draft report and no longer recommend VA incorporate into existing VA policy a requirement that the agency and its networks use encounter and expenditure data to strengthen the monitoring of facilities’ management of primary care. We made this change to reflect that VA officials were not prepared to incorporate such a requirement without first examining how to use these data for monitoring purposes. To address our first recommendation, VA stated that it plans to issue guidance by September 2016 clarifying VA Central Office’s and the networks’ oversight responsibilities with regard to primary care panel size data. This guidance will include a process—developed by the Offices of Primary Care Services and Primary Care Operations—for addressing medical facilities whose panel sizes differ significantly from similar facilities’ panels. In its response, however, VA did not provide information on how it plans to address unreliable panel size data facilities record and report in PCMM. We would encourage VA, in the guidance it plans to issue in 2016, to assign responsibility for verifying each facility's reported panel size data as we recommended. To address our second recommendation, VA stated that it will take steps to understand encounter and expenditure data and determine how best to utilize these data to improve patient care with a target completion date for presenting its findings and decisions by September 2018. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 14 days from the report date. At that time, we will send copies to the appropriate congressional committees and the Secretary of Veterans Affairs. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs are on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. We analyzed Department of Veterans Affairs (VA) fiscal year 2014 data on primary care expenditures and calculated expenditures per unique primary care patient. We found that expenditures per unique primary care patient varied widely across facilities in fiscal year 2014, ranging from $558 to $1,544 after adjusting to account for geographic differences in labor costs across facilities. We found that the expenditures per unique patient at 102 of the 140 facilities we reviewed were within $167 or one standard deviation—a statistical measure of variance—of VA’s overall average of $871. For the remaining facilities, expenditures per unique patient were at least one standard deviation above the average (19 facilities) or were at least one standard deviation below the average (19 facilities), which may indicate potential outliers that VA Central Office and the networks may need to examine further. (See fig. 4.) In addition to the contact named above, Rashmi Agarwal, Assistant Director; James Musselwhite, Assistant Director; Kathryn Black; Krister Friday; Cathleen Hamann; Aaron Holling; Emily Wilson; and Michael Zose made key contributions to this report. Department of Veterans Affairs: Expanded Access to Non-VA Care Through the Veterans Choice Program. GAO-15-229R. Washington, D.C.: Nov 19, 2014. VA Health Care: Actions Needed to Ensure Adequate and Qualified Nurse Staffing. GAO-15-61. Washington, D.C.: Oct 16, 2014. VA Health Care: Ongoing and Past Work Identified Access, Oversight, and Data Problems That Hinder Veterans’ Ability to Obtain Timely Outpatient Medical Care. GAO-14-679T. Washington, DC: Jun 9, 2014. VA Health Care: VA Lacks Accurate Information about Outpatient Medical Appointment Wait Times, Including Specialty Care Consults. GAO-14-620T. Washington, D.C.: May 15, 2014. VA Health Care: Ongoing and Past Work Identified Access Problems That May Delay Needed Medical Care for Veterans. GAO-14-509T. Washington, D.C.: Apr 9, 2014.

VA's 150 medical facilities manage primary care services provided to veterans. VA requires facilities to record and report data on primary care panel sizes to help facilities manage their workload and ensure that veterans receive timely and efficient care. VA also requires facilities to record and report data on primary care encounters and expenditures. GAO was asked to examine these data and VA's oversight of primary care. This report examines (1) VA's panel size data across facilities and how VA uses these data to oversee primary care, and (2) VA's encounter and expenditure data across facilities and how VA uses these data to oversee primary care. GAO analyzed fiscal year 2014 data on primary care panel size, encounters, and expenditures for all VA facilities. GAO also conducted a more in-depth, nongeneralizable analysis of data and interviewed officials from seven facilities, selected based on geographic diversity and differences in facility complexity. GAO also interviewed VA Central Office and network officials to examine their oversight of primary care, including the extent to which they verify the data and use it to monitor the management of primary care. GAO found that the Department of Veterans Affairs' (VA) data on primary care panel sizes—that is, the number of patients VA providers and support staff are assigned as part of their patient portfolio—are unreliable across VA's 150 medical facilities and cannot be used to monitor facilities' management of primary care. Specifically, as part of its review, GAO found missing values and other inaccuracies in VA's data. Officials from VA's Primary Care Operations Office confirmed that facilities sometimes record and self-report these data inaccurately or in a manner that does not follow VA's policy and noted that this could result in the data reliability concerns GAO identified. GAO obtained updated data from six of seven selected facilities, corrected these data for inaccuracies, and then calculated the actual panel sizes for the six facilities. GAO found that for these six facilities the actual panel size varied from 23 percent below to 11 percent above the modeled panel size, which is the number of patients for whom a provider and support staff can reasonably deliver primary care as projected by VA. Such wide variation raises questions about whether veterans are receiving access to timely care and the appropriateness of the size of provider workload at these facilities. Moreover, GAO found that while VA's primary care panel management policy requires facilities to ensure the reliability of their panel size data, it does not assign responsibility to VA Central Office or networks for verifying the reliability of facilities' data or require them to use the data for monitoring purposes. Federal internal control standards call for agencies to clearly define key areas of authority and responsibility, ensure that reliable information is available, and use this information to assess the quality of performance over time. Because VA's panel management policy is inconsistent with federal internal control standards, VA lacks assurance that its facilities' data are reliable and that the facilities are managing primary care panels in a manner that meets VA's goals of providing efficient, timely, and quality care to veterans. In contrast to VA's panel data, GAO found that primary care encounter and expenditure data reported by all VA medical facilities are reliable, although the data show wide variations across facilities. For example, in fiscal year 2014, expenditures per primary care encounter—that is, a professional contact between a patient and a primary care provider—ranged from a low of $150 to a high of $396 after adjusting to account for geographic differences in labor costs across facilities. Such wide variations may indicate that services are being delivered inefficiently at some facilities with relatively higher per encounter costs compared to other facilities. However, while VA verifies and uses these data for financial purposes, VA's policies governing primary care do not require the use of the data to monitor facilities' management of primary care. Federal internal control standards state that agencies need both operational and financial data to determine whether they are meeting strategic goals and should use such data to assess the quality of performance over time. Using panel size data in conjunction with encounter and expenditure data would allow VA to assess facilities' capacity to provide primary care services and the efficiency of their care delivery. By not using available encounter and expenditure data in this manner, VA is missing an opportunity to potentially improve the efficiency of primary care service delivery. GAO recommends that VA verify facilities' panel size data, monitor and address panel sizes that are too high or too low, and review and document how to use encounter and expenditure data to help monitor facilities' management of primary care. VA agreed with GAO's recommendations and described its plans to implement them.

You are an expert at summarizing long articles. Proceed to summarize the following text: TRICARE has three options for its eligible beneficiaries: TRICARE Prime, a program in which beneficiaries enroll and receive care in a managed network similar to a health maintenance organization; TRICARE Extra, a program in which beneficiaries receive care from a network of preferred providers; and TRICARE Standard, a fee-for-service program that requires no network use. The programs vary according to the amount beneficiaries must contribute toward the cost of their care and according to the choices beneficiaries have in selecting providers. In TRICARE Prime, the program in which active duty personnel generally must participate, the beneficiaries must select a primary care manager (PCM) who either provides care or authorizes referrals to specialists. Most beneficiaries who enroll in TRICARE Prime select their PCMs from MTFs, while other enrollees select their PCMs from the civilian provider network. Regardless of their status—military or civilian—PCMs may refer Prime beneficiaries to providers in either MTFs or TRICARE’s civilian provider network. Both TRICARE Extra and TRICARE Standard require copayments, but beneficiaries do not enroll with or have their care managed by PCMs. Beneficiaries choosing TRICARE Extra use the same civilian provider network available to those in TRICARE Prime, and beneficiaries choosing TRICARE Standard are not required to use providers in any network. TRICARE Extra and Standard beneficiaries may receive care at an MTF when space is available. The Office of the Assistant Secretary of Defense for Health Affairs (Health Affairs) establishes TRICARE policy and has overall responsibility for the program. TMA, under Health Affairs, is responsible for awarding and monitoring the TRICARE contracts. DOD has delegated oversight of the civilian provider network to regional TRICARE lead agents. The lead agent for each region coordinates the services provided by MTFs and civilian network providers. The lead agents respond to direction from Health Affairs, but report directly to their respective Surgeons General. In overseeing the network, lead agents have staff assigned to MTFs to provide the local interaction with contractor representatives and respond to beneficiary complaints as needed and report back to the lead agent. Currently, DOD employs four civilian health care companies or contractors that are responsible for developing and maintaining the civilian provider network that complements the care delivered by MTFs. The contractors recruit civilian providers into a network of PCMs and specialists who provide care to beneficiaries enrolled in TRICARE Prime. Contractors are required to establish and maintain the network of civilian providers in the following locations: all catchment areas, base realignment and closure sites, other contract-specified areas, and noncatchment areas where a contractor deems it cost effective. These locations are called prime service areas. In the remaining areas, a network is not required. (See fig. 1.) This network of civilian providers also serves as the network of preferred providers for beneficiaries who use TRICARE Extra. In 2002, contractors reported that the civilian provider network included about 37,000 PCMs and 134,000 specialists. The contractors are also responsible for ensuring adequate access to health care, referring and authorizing beneficiaries for health care, educating providers and beneficiaries about TRICARE benefits, ensuring that providers are credentialed, and processing claims. In their network agreements with civilian providers, contractors establish reimbursement rates and certain requirements for submitting claims. Reimbursement rates cannot be greater than Medicare rates unless DOD authorizes a higher rate. DOD’s four contractors manage the delivery of care to beneficiaries in 11 TRICARE regions. DOD is currently analyzing proposals to award new civilian health care contracts, and when they are awarded in 2003, DOD will reorganize the 11 regions into 3—North, South, and West—with a single contract for each region. Contractors will be responsible for developing a new civilian provider network that will become operational in April 2004. Under these new contracts DOD will continue to emphasize maximizing the role of MTFs in providing care. See appendix II for maps depicting the current and future regions. DOD has standards intended to ensure that its civilian provider network enhances and supports the capabilities of the MTFs in providing care to millions of TRICARE Prime beneficiaries. DOD requires that contractors have a sufficient number and mix of providers, both primary care and specialists, to satisfy the needs of beneficiaries enrolled in the Prime option. Specifically, it is the responsibility of the contractors to ensure that each prime service area in the network has at least one full-time equivalent PCM for every 2,000 TRICARE Prime enrollees and one full-time equivalent provider (both PCMs and specialists) for every 1,200 TRICARE Prime enrollees. In addition, DOD has access-to-care standards that are designed to ensure that Prime beneficiaries receive timely care from providers. Under these standards appointment wait times shall not exceed 24 hours for urgent care, 1 week for routine care, or 4 weeks for well-patient and specialty care; office wait times shall not exceed 30 minutes for nonemergency care; and travel times shall not exceed 30 minutes for routine care and 1 hour for specialty care. Lead agents are responsible for ensuring that the civilian provider network meets these standards so that all TRICARE Prime beneficiaries in their region have adequate access to health care. To do so, lead agents told us they use network adequacy reports that contractors provide each quarter as the primary tool to oversee the network. According to DOD’s operations manual, these reports are to contain information on the status of the network, such as the number and type of specialists; data on adherence to the access standards; a list of civilian and military primary care managers; and the number of their enrollees. The reports may also contain information on steps contractors have taken to address any network inadequacies. However, because the reporting requirements do not specify a standard process for collecting information on network adequacy, contractors vary in how they obtain this information. For example, lead agents told us that one contractor conducts visits of providers’ offices to review appointment wait times, while another contractor uses an automated appointment tracking system to collect this information. Lead agents told us they also rely on beneficiary complaints to oversee the adequacy of the civilian provider network. Beneficiaries may complain directly to DOD, the contractor, lead agent, or MTF. DOD officials said that when they receive a beneficiary complaint, they direct the complaint to either the contractor, lead agent, or MTF, depending on the subject of the complaint. In addition to these tools, lead agents periodically monitor contractor compliance by reviewing performance related to specific contract requirements, including requirements related to network adequacy. Lead agents also told us they periodically schedule reviews of special issues related to network adequacy, such as conducting telephone surveys of providers to determine whether they are accepting TRICARE Prime patients. In addition, lead agents stated they meet regularly with MTF and contractor representatives to discuss network adequacy. If lead agents determine that the network is inadequate, the lead agents or TMA may issue enforcement actions to encourage contractors to address deficiencies in their region. However, lead agents told us that few enforcement actions have been issued. During our review, three enforcement actions related to network adequacy were open for the five regions we visited. Lead agents said they prefer to address deficiencies informally rather than take formal actions, particularly in areas where they do not believe the contractor can correct the deficiency because of local market conditions. For example, rather than taking a formal enforcement action, one lead agent worked with the contractor to arrange for a specialist from one area to travel to another area periodically. DOD’s ability to effectively oversee the TRICARE civilian provider network is hindered by (1) flaws in its required provider-to-beneficiary ratios, (2) incomplete reporting on beneficiaries’ access to providers, and (3) the absence of a systematic assessment of complaints. Although DOD has required the network to meet established ratios of providers to beneficiaries, the ratios may underestimate the number of providers needed in an area. Similarly, although DOD has certain requirements governing Prime beneficiary access to available providers, the information reported to DOD on this access is often incomplete—making it difficult to assess compliance with the requirements. Finally, when beneficiaries complain about availability or access in the network, these complaints can be directed to different DOD entities, with no guarantee that the complaints will be compiled and analyzed in the aggregate to identify possible trends or patterns and correct network problems. However, DOD has existing surveys and automated reporting systems that, while not designed specifically for monitoring the civilian provider network, could provide valuable information and potentially improve DOD’s ability to oversee the civilian provider network. The provider-to-beneficiary ratios contractors report to DOD for a prime service area do not always accurately reflect the potential health care workload for that area or the provider capability to deliver the care. In some cases, the provider-to-beneficiary ratios underestimate the number of providers, particularly specialists, needed in an area. This underestimation occurs because in calculating the ratios, some contractors do not include the total number of Prime enrollees within the area. Instead, in some areas contractors base their ratio calculations on the total number of beneficiaries enrolled with civilian PCMs and do not count beneficiaries enrolled with PCMs in MTFs. The ratio is most likely to result in an underestimation of the need for providers in areas in which the MTF is a clinic or small hospital with a limited availability of specialists. For example, the Air Force clinic at Grand Forks, N. Dak. has few specialists on staff and must rely on the civilian provider network for a large proportion of specialist care. In fiscal year 2002, 90 percent of its specialist appointments were referred to the network. In contrast, a large MTF, such as Wright Patterson Medical Center in Dayton, Ohio, has many specialist providers on staff and referred only 2 percent of its specialty appointments to the civilian provider network during fiscal year 2002. Incorporating MTF provider capability and the total number of Prime enrollees into the network assessment would give DOD a more complete and accurate assessment of the adequacy of the network for a geographical area. Moreover, in reporting whether the network meets the established ratios, contractors do not make the same assumptions about the level of participation on the part of civilian network providers. Contractors generally assume that between 10 to 20 percent of their providers’ practices are dedicated to TRICARE Prime beneficiaries. Therefore, if a contractor assumes 20 percent of all providers’ practices are dedicated to TRICARE Prime rather than 10 percent, the contractor will need half as many providers in the network in order to meet the prescribed ratio standard. These assumptions may or may not be accurate, and the assumptions have a significant effect on the number of providers required in the network. In the network adequacy reports we reviewed, the contractors did not always report all the information required by DOD to assess compliance with the access standards. Specifically, for the network adequacy reports we reviewed from 5 of the 11 TRICARE regions, we found that contractors reported less than half of the required information on access standards for appointment wait, office wait, and travel times. Some contractors reported more information than others, but none reported all the required access information. Contractors said they had difficulties in capturing and reporting information to demonstrate compliance with the access standards. They stated that it was not practical or feasible to document every appointment and office wait time because some beneficiaries make their own appointments directly and provider offices are spread throughout the geographic area. Most of the DOD lead agents we interviewed told us that because information on access standards is not fully reported, they monitor compliance with the access standards by reviewing beneficiary complaints. Lead agents and contractors said such complaints may include a beneficiary’s inability to get an appointment, having to drive long distances for care, or a provider not accepting new TRICARE Prime patients. Because beneficiary complaints are received through numerous venues, often handled informally on a case-by-case basis, and not centrally evaluated, it is difficult for DOD to assess the extent of any systemic access problems. Separately, TMA has a database of complaints that includes some complaints about access to care. TMA has received these complaints either directly, through DOD’s beneficiary survey, or from letters sent by beneficiaries to their congressional representatives. However, the usefulness of the database is limited because it does not capture complaints sent to MTFs, lead agents, or contractors. While contractor and lead agent officials told us they have received few complaints about network access problems, this small number of complaints could indicate either an overall satisfaction with care or a general lack of knowledge about how or to whom to complain. Additionally, a small number of complaints, particularly when spread among many sources, limits DOD’s ability to identify any specific trends of systemic problems related to network adequacy within TRICARE. The next generation of contracts, called TNEX, may result in a more structured approach to collecting complaint information when implemented in 2004. Under TNEX, the civilian provider network must be accredited in each region by a nationally recognized accrediting organization, such as the National Committee for Quality Assurance (NCQA) or the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). These organizations typically require procedures for addressing beneficiary complaints. For example, NCQA guidance requires procedures for registering, responding to, and investigating complaints. It also requires documentation of actions taken to address complaints. JCAHO guidance has similar requirements. Such procedures could provide DOD with a basic structure that in turn could lead to a more systematic means of collecting and evaluating complaint data at the prime service area and regional levels. DOD has some tools that, while not designed specifically for monitoring the civilian provider network, could be useful for oversight. For example, the Health Care Survey of DOD Beneficiaries (HCSDB) could be used as a source of information for overseeing civilian provider network adequacy at the national level. This quarterly survey contains specific questions on all beneficiaries’ experiences related to access to care. For example, our analysis of the 2000 HCSDB data for all Prime beneficiaries receiving care from civilian providers indicates that over one-third of these beneficiaries waited more than DOD’s standard of 1 day for access to a provider for an illness or an injury. However, the survey’s sample design does not generally allow for assessing the adequacy of the civilian provider network in most prime service areas and the survey’s response rate of 35 percent further limits its usefulness. In addition to DOD’s beneficiary survey, contractors conduct surveys of providers that could assist in DOD’s oversight of the civilian provider network. These surveys are intended to assess providers’ satisfaction with contractors’ performance and other TRICARE requirements. However, these surveys have very low response rates, ranging from 4 to 19 percent, and in some cases they reflect unrepresentative samples of providers. For example, one contractor surveyed only those providers who participated in a contractor-sponsored seminar. Also, we found considerable variation among the survey instruments, with some assessing provider satisfaction more thoroughly than others. Despite these weaknesses, if improved, the surveys could reveal concerns providers may have about participating in the TRICARE network. This in turn could help DOD address these concerns and mitigate problems that might affect the adequacy of the network. In addition to these existing surveys, DOD is piloting two initiatives for collecting information on meeting access standards that could help in the oversight of network adequacy. The first, the Enterprise Wide Referral and Authorization System (EWRAS), which is currently being tested in the Washington D.C. area, captures information on specialty care appointments in MTFs and information on some specialty care appointments in the civilian provider network. DOD officials said they expect EWRAS to be fully implemented in Spring 2004. The second initiative, the Access to Care (ATC) Project, gathers information on appointments and specialty referrals at or originating from MTFs. Specifically, it captures data on whether beneficiaries had a referral, declined an appointment that was available, cancelled an appointment, or left without being seen. It also records the average number of days between when the appointment was made and when the beneficiary was seen, as well as clinic cancellations and future appointments. This information can help indicate the extent to which MTFs are meeting the appointment wait-time access standards. Although the ATC Project is currently being piloted at four MTFs, a similar system, if modified to accommodate the requirements of the contractors for the civilian provider network, could provide valuable information on appointment wait time standards—information that is necessary for overseeing the adequacy of the network. DOD and its contractors have reported three factors that may contribute to potential civilian provider network inadequacy: lack of providers in certain geographic locations, low reimbursement rates, and administrative requirements. First, DOD and contractors have reported regional shortages for certain types of specialists in rural areas. For example, they reported shortages for endocrinologists in the Upper Peninsula of Michigan, dermatologists in New Mexico, and neurologists and allergists in Mountain Home, Idaho. Additionally, in these instances, TRICARE officials and contractors have reported difficulties in recruiting providers into the TRICARE Prime network because in some areas providers, notably specialists, will not join managed care programs. For example, contractor network data indicate that there have been long-standing specialist shortages in TRICARE in areas such as Alaska or eastern New Mexico, where the lead agent stated that the providers in those locations have repeatedly refused to join any managed care network. There are certain geographic locations in which DOD has confirmed shortages of providers and has raised TRICARE’s reimbursement rates as a means of remedying such shortages. Although by statute DOD generally cannot pay TRICARE network providers more than they would be paid under the Medicare fee schedule, DOD may make payments of up to 115 percent of the Medicare fee to ensure the availability of an adequate number of qualified healthcare providers. In 2000, DOD increased reimbursement rates in rural Alaska in an attempt to entice more providers to join the network. Similarly, in 2002, DOD increased reimbursement rates for the rest of Alaska, and in 2003, DOD increased the rates for selected specialists in Idaho to address documented network shortcomings. These three instances are the only times DOD has used its authority to pay above the Medicare rate in order to address local area provider shortages, and the increases have had mixed success. In 2001, for instance, we found that the 2000 rate increase in rural Alaska had not increased provider participation. On the other hand, DOD officials told us that with the 2002 increase in Alaska and the 2003 increase in Idaho, contractors were experiencing some success in recruiting providers in those areas. According to DOD officials, for example, six neurosurgeons in Boise, Idaho agreed to join the network, eliminating the neurosurgeon shortfall in that prime service area. In Alaska, DOD officials reported that since the reimbursement rate increased, providers for radiology, thoracic surgery, pediatrics, and other specialties have stated they will participate in TRICARE. The general levels of TRICARE’s reimbursement rates are another factor that DOD and contractor officials told us may contribute to civilian provider network inadequacy. Specifically, according to contractor officials, civilian network providers have expressed concerns about the decline in Medicare fees in 2002 and the potential for further reductions, which they have said will affect their participation in the network. In addition, there have been reported instances in which groups of providers have banded together and refused to accept TRICARE Prime patients due to their concerns with low reimbursement rates. One contractor identified low reimbursement rates as the most frequent cause of provider dissatisfaction. In addition to provider complaints, beneficiary advocacy groups, such as the Military Officers Association of America (MOAA), have cited instances of providers refusing care to beneficiaries because of low reimbursement rates. However, while TRICARE’s reimbursement rates may have created dissatisfaction among providers, it is not clear how much this has affected civilian provider network adequacy except in limited geographic locations, because the information contractors provide to DOD is not sufficient to measure network adequacy. Additionally, there are indications that reimbursement rates have little influence on providers’ decisions to leave the TRICARE network. Data from one contractor indicated that out of the 2,156 providers who left the network between June 2001 and May 2002, 900 providers cited reasons for leaving and only 10 percent of these cited reimbursement rates as a reason for leaving the network. Contractors report that providers have also expressed dissatisfaction with some TRICARE administrative requirements, such as credentialing and preauthorizations and referrals—but the effect of these requirements on civilian provider network adequacy is also unclear. For example, many providers have complained about TRICARE’s credentialing requirements. In TRICARE, a provider must get recredentialed every 2 years, compared to every 3 years for the private sector. Providers have said that this places cumbersome administrative requirements on them. Another widely reported concern about TRICARE administrative requirements relates to preauthorization and referral requirements. Civilian PCM providers are required to get preauthorizations from MTFs before referring patients for care. While preauthorization is a standard managed care practice, providers complain that obtaining preauthorization adversely affects the quality of care provided to beneficiaries because it takes too much time. In addition, civilian PCMs have expressed concern that they cannot refer beneficiaries to the specialist of their choice because of MTFs’ “right of first refusal” that gives an MTF discretion to care for the beneficiary or refer the care to a civilian provider. Nevertheless, there are not direct data confirming that administrative burdens translate into widespread civilian provider network inadequacies. Further, when reviewing one contractor’s survey of providers who left the network, we found that only 1 percent of providers responding cited administrative burdens as a factor. DOD’s new contracts for providing civilian health care, called TNEX, may address some network concerns raised by providers and beneficiaries, but may create other areas of concern. Because the new contracts had not yet been finalized as of June 2003, the specific mechanisms DOD and the contractors will use to ensure network adequacy are not known. Under TNEX, DOD plans to retain the requirement that the civilian provider network complement the clinical services provided by MTFs; the access standards for appointment and office wait times, as well as travel-time standards; and the periodic reporting on the adequacy of the network. However, the requirement to use provider-to-beneficiary ratios to measure network adequacy will be eliminated, although such ratios may be used during the network accreditation process. Further, TNEX contains a provision intended to encourage contractors to develop an adequate civilian provider network. This provision states that at least 96 percent of contractor referrals shall be to a MTF or network provider with an appointment available within the access standards. Failure to achieve the 96 percent standard will affect contractors financially. TNEX may reduce the administrative burden related to provider credentialing and patient referrals. Currently, civilian network providers must follow TRICARE-specific requirements for credentialing. In contrast, TNEX will allow network providers to be credentialed through a nationally recognized accrediting organization. DOD officials stated this approach is more in line with industry practices. Patient referral procedures will also change under TNEX. Referral requirements will be reduced, but the MTFs will still retain the right of first refusal. On the other hand, TNEX may be creating a new administrative concern for contractors and providers by requiring that all network claims submitted by civilian providers be filed electronically. In fiscal year 2002, only 25 percent of processed claims were submitted electronically. Contractors stated that such a requirement could discourage providers from joining or staying in the network because providers may not be willing to modify their systems to submit electronic claims for a small volume of TRICARE beneficiaries. DOD states that electronic filing will reduce claims-processing costs. DOD spends over $5 billion a year for health care delivered by the network of civilian providers to complement care provided in the MTFs; however, DOD has exercised limited oversight of the adequacy of the civilian provider network. The information DOD relies on to assess the network does not always accurately reflect the actual numbers of beneficiaries or availability of providers. Further, the contractors do not report comprehensive data on the network’s compliance with DOD’s access standards, which are key benchmarks in assessing network adequacy. This information will be important as DOD oversees the transition to the new health care delivery contracts. Incorporating data on the numbers and types of providers in the MTFs and the total number of beneficiaries enrolled in TRICARE Prime would give DOD a more accurate and comprehensive report of the potential workload the civilian provider network faces in a prime service area and the adequacy of the number of PCMs and specialists to deliver that care. Similarly, more thorough reporting on beneficiaries’ access to care within the standard time frames and development of a more systematic means of collecting and evaluating complaint data would help DOD’s oversight of the ability of the civilian provider network to deliver timely care to beneficiaries. Further, with improvements in response rates and provider representation, the civilian provider satisfaction surveys could also be useful in identifying actions DOD and the contractors could take to address provider concerns and ensure network stability. To improve DOD’s oversight of the civilian provider network, we recommend that the Secretary of Defense direct the Assistant Secretary of Defense for Health Affairs to ensure that MTF capabilities and all enrolled Prime beneficiaries in prime service areas are accounted for when assessing and documenting the adequacy of the civilian provider network; ensure that the information reported on the required access standards is explore ways to ensure that beneficiary complaints are systematically evaluated and used to oversee the civilian provider network; and explore options for improving the civilian provider surveys so that the results of the surveys could be useful to DOD and the contractors in identifying civilian provider concerns and developing actions that might mitigate concerns and help ensure the adequacy of the civilian provider network. DOD provided written comments on a draft of this report. (See app. III.) DOD concurred with the report’s recommendations. In its written comments, DOD stressed that strong oversight of the civilian provider network is necessary and should be continuously monitored for improvements. DOD said that the implementation of TNEX will address many of the points raised in our report. DOD said TNEX will enhance the reporting of information about network adequacy as well as provide powerful financial incentives for contractors to optimize the direct care system, maximize the extent of civilian provider networks, and achieve the highest level of beneficiary satisfaction. However, since the TNEX contracts have not been finalized as of July 2003, it is too early to assess whether the contracts will result in improved oversight. In its written comments DOD also said that the report title might mislead some into concluding that we found the TRICARE network to be inadequate. As we noted in the draft report, we did not assess the adequacy of the civilian provider network but focused our work on DOD’s oversight of the network. We believe the title of the report reflects that focus. DOD also provided technical comments, which we incorporated into the report as appropriate. We are sending copies of this report to the Secretary of Defense, appropriate congressional committees, and other interested parties. Copies will also be made available to others upon request. In addition, the report is available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have questions about this report, please contact me at (202) 512-7101. Other contacts and staff acknowledgments are listed in appendix IV. To describe and evaluate DOD’s oversight of the adequacy of the civilian provider network, we reviewed and analyzed the information in the quarterly network adequacy reports submitted by each contractor. We identified the requirements for the content of these adequacy reports based upon the general requirements in the TRICARE Operations Manual and the additional requirements in contractors’ Best and Final Offers. We reviewed the contents of five of the contractors’ quarterly network adequacy reports, submitted between June 2002 and October 2002, and compared them to the applicable reporting requirements. Each report was evaluated for compliance regarding the provider-to-beneficiary ratios and the access-to-care standards. Because DOD has delegated the oversight of the network to the regional lead agents, we discussed civilian provider network oversight with officials in 5 of the 11 TRICARE regions—Northeast, Mid-Atlantic, Heartland, Central, and Northwest. To discuss network management, we interviewed officials from the four contractors—HealthNet, Humana, Sierra, and TriWest—that are responsible for developing and maintaining the provider network that augments care provided by DOD’s MTFs. Because concerns regarding network adequacy may also be identified at the local level, we met with lead agent and contractor officials at MTFs in each of the regions we visited. Finally, we interviewed officials at TMA in Falls Church, Va., the office that is responsible for ensuring that DOD health policy is implemented, and officials at TMA-West in Aurora, Colo., the office that carries out contracting functions, including monitoring the civilian contracts and writing the request for proposals for the future contracts. As part of our assessment of DOD’s oversight, we also reviewed surveys of beneficiaries and providers, as well as DOD data collection initiatives as potential tools for overseeing DOD’s civilian provider network, but did not validate the data in the surveys or collection initiatives. Using annual data from the 2000 HCSDB, we analyzed beneficiaries’ responses to access-to- care questions for those who were enrolled in Prime and received most of their health care in the civilian provider network. We examined the results of access-to-care questions based on whether or not these beneficiaries were seen within the TRICARE access-to-care standards. Because we included only Prime beneficiaries who received care in the civilian provider network, our analysis of access to care does not reflect the entire survey sample. To examine the provider surveys as potential oversight tools, we obtained and reviewed each contractor’s 2001 provider survey and assessed the survey’s response rate, sample selection, and the instrument itself. We also discussed DOD initiatives underway and being tested with cognizant officials to assess their potential as oversight tools. To describe factors that may contribute to network inadequacy, we interviewed and obtained documentation from DOD and contractor officials regarding current network inadequacies, including their location, duration, and the type of specialty needed. We also obtained provider termination reports from three of the four contractors, which described providers’ reasons for leaving the network. To further explore DOD’s response to civilian provider concerns regarding rates, we interviewed DOD officials on the use of their authority to raise reimbursement rates. We also interviewed officials from the American Medical Association, The Military Coalition, the MOAA, the National Association for Uniformed Services, and the National Veteran’s Alliance to supplement data on the possible causes of network inadequacy. Finally, we reviewed DOD’s request for proposals for the future contracts and interviewed DOD and contractor officials to describe how the new contracts might affect network adequacy. We conducted our work from June 2002 through July 2003 in accordance with generally accepted government auditing standards. The shaded areas in figure 2 represent the 11 current TRICARE geographic regions. The shaded areas in figure 3 represent the 3 planned TRICARE geographic regions under the TNEX contracts expected to be awarded in 2003. In addition to those named above, contributors to this report were Louise Duhamel, Marc Feuerberg, Krister Friday, Gay Hee Lee, John Oh, and Marie Stetser.

Testifying before Congress in 2002, military beneficiary groups described problems accessing care from TRICARE's civilian medical providers. Providers also testified on their dissatisfaction with the TRICARE program, specifying low reimbursement rates and administrative burdens. The Bob Stump National Defense Authorization Act of 2003 required GAO to review the oversight of the TRICARE network of civilian providers. Specifically, GAO describes how the Department of Defense (DOD) oversees the adequacy of the civilian provider network, evaluates DOD's oversight of the civilian provider network, and describes the factors that have been reported to contribute to network inadequacy. GAO analyzed TRICARE Prime--the managed care component of TRICARE. To describe and evaluate DOD's oversight, GAO reviewed and analyzed information from reports on network adequacy and interviewed DOD and contractor officials in 5 of 11 TRICARE regions. For the 8.7 million TRICARE beneficiaries, DOD relies on the civilian provider network to supplement health care delivered by its military treatment facilities. To ensure the adequacy of the civilian provider network, DOD has standards for the number and mix of providers, both primary care and specialists, necessary to satisfy TRICARE Prime beneficiaries' needs. In addition, DOD has standards for appointment wait, office wait, and travel times to ensure that TRICARE Prime beneficiaries have timely access to care. DOD has delegated oversight of the civilian provider network to the local level through regional TRICARE lead agents. DOD's ability to effectively oversee the TRICARE civilian provider network is hindered in several ways. First, the measurement used to determine if there is a sufficient number and mix of providers in a geographic area does not always account for the total number of beneficiaries who may seek care or the availability of providers. This may result in an underestimation of the number of providers needed in an area. Second, incomplete contractor reporting on access to care makes it difficult for DOD to assess compliance with these standards. Finally, DOD does not systematically collect and analyze beneficiary complaints, which might assist in identifying inadequacies in the civilian provider network. However, DOD has tools, such as surveys of network providers and automated reporting systems which, while not designed specifically for monitoring the civilian provider network, could, if modified, improve DOD's ability to oversee the network. DOD and its contractors have reported that a lack of providers in certain geographic locations, low reimbursement rates, and administrative requirements contribute to potential civilian provider network inadequacy. DOD and contractors have reported long-standing provider shortages in some geographic areas. In areas where DOD determines that access to care is severely impaired, DOD has the authority to increase reimbursement rates. Since 2002, DOD has used its reimbursement authority to increase rates in Alaska and Idaho in an attempt to entice more providers to join the network. DOD officials told us that the contractors have achieved some success in recruiting additional providers by using this authority. Additionally, civilian providers have expressed concerns that TRICARE's reimbursement rates are generally too low and administrative requirements too cumbersome. However, while reimbursement rates and administrative requirements may have created provider dissatisfaction, it is not clear how much this has affected civilian provider network adequacy except in limited geographic locations, because the information contractors provide to DOD is not sufficient to measure network adequacy.

You are an expert at summarizing long articles. Proceed to summarize the following text: The District of Columbia Family Court Act of 2001 (P.L. 107-114) was enacted on January 8, 2002. The act stated that, not later than 90 days after the date of the enactment, the chief judge of the Superior Court shall submit to the president and Congress a transition plan for the Family Court of the Superior Court, and shall include in the plan the following: The chief judge’s determination of the role and function of the presiding judge of the Family Court. The chief judge’s determination of the number of judges needed to serve on the Family Court. The chief judge’s determination of the number of magistrate judges of the Family Court needed for appointment under Section 11-1732, District of Columbia Code. The chief judge’s determination of the appropriate functions of such magistrate judges, together with the compensation of and other personnel matters pertaining to such magistrate judges. A plan for case flow, case management, and staffing needs (including the needs of both judicial and nonjudicial personnel) for the Family Court, including a description of how the Superior Court will handle the one family/one judge requirement pursuant to Section 11-1104(a) for all cases and proceedings assigned to the Family Court. A plan for space, equipment, and other physical needs and requirements during the transition, as determined in consultation with the administrator of General Services. An analysis of the number of magistrate judges needed under the expedited appointment procedures established under Section 6(d) in reducing the number of pending actions and proceedings within the jurisdiction of the Family Court. A proposal for the disposition or transfer to the Family Court of child abuse and neglect actions pending as of the date of enactment of the act (which were initiated in the Family Division but remain pending before judges serving in other divisions of the Superior Court as of such date) in a manner consistent with applicable federal and District of Columbia law and best practices, including best practices developed by the American Bar Association and the National Council of Juvenile and Family Court Judges. An estimate of the number of cases for which the deadline for disposition or transfer to the Family Court cannot be met and the reasons why such deadline cannot be met. The chief judge’s determination of the number of individuals serving as judges of the Superior Court who meet the qualifications for judges of the Family Court and are willing and able to serve on the Family Court. If the chief judge determines that the number of individuals described in the act is less than 15, the plan is to include a request that the Judicial Nomination Commission recruit and the president nominate additional individuals to serve on the Superior Court who meet the qualifications for judges of the Family Court, as may be required to enable the chief judge to make the required number of assignments. The Family Court Act states that the number of judges serving on the Family Court of the Superior Court cannot exceed 15. These judges must meet certain qualifications, such as having training or expertise in family law, certifying to the chief judge of the Superior Court that he or she intends to serve the full term of service and that he or she will participate in the ongoing training programs conducted for judges of the Family Court. The act also allows the court to hire and use magistrate judges to hear family court cases. Magistrate judges must also meet certain qualifications, such as holding U.S. citizenship, being an active member of the D.C. Bar, and having not fewer than 3 years of training or experience in the practice of family law as a lawyer or judicial officer. The act further states that the chief judge shall appoint individuals to serve as magistrate judges not later than 60 days after the date of enactment of the act. The magistrate judges hired under this expedited appointment process are to assist in implementing the transition plan, and in particular, assist with the transition or disposal of child abuse and neglect proceedings not currently assigned to judges in the Family Court. The Superior Court submitted its transition plan on April 5, 2002. The plan consists of three volumes. Volume I contains information on how the court will address case management issues, including organizational and human capital requirements. Volume II contains information on the development of IJIS and its planned applications. Volume III addresses the physical space the court needs to house and operate the Family Court. Courts interact with various organizations and operate in the context of many different programmatic requirements. In the District of Columbia, the Family Court frequently interacts with the child welfare agency—the Child and Family Services Agency (CFSA)—a key organization responsible for helping children obtain permanent homes. CFSA must comply with federal laws and other requirements, including the Adoption and Safe Families Act (ASFA), which placed new responsibilities on child welfare agencies nationwide. ASFA introduced new time periods for moving children who have been removed from their homes to permanent home arrangements and penalties for noncompliance. For example, the act requires states to hold a permanency planning hearing not later than 12 months after the child is considered to have entered foster care. Permanent placements include the child’s return home and the child’s adoption. Other organizations that the Family Court interacts with include the Office of Corporation Counsel (OCC) and the Metropolitan Police Department. The Family Court transition plan provides information on most, but not all, of the elements required by the Family Court Act; however, some aspects of case management, training, and performance evaluation are unclear. For example, the plan describes the Family Court’s method for transferring child abuse and neglect cases to the Family Court, its one family/one judge case management principle, and the number and roles of judges and magistrate judges. However, the plan does not (1) include a request for judicial nomination, (2) indicate the number of nonjudicial staff needed for the Family Court, (3) indicate if the 12 judges who volunteered for the Family Court meet all of the qualifications outlined in the act, and (4) state how the number of magistrate judges to hire under the expedited process was determined. In addition, although not specifically required by the act, the plan does not describe the content of its training programs and does not include a full range of measures by which the court can evaluate its progress in ensuring better outcomes for children. The transition plan establishes criteria for transferring cases to the Family Court and states that the Family Court intends to have all child abuse and neglect cases pending before judges serving in other divisions of the Superior Court closed or transferred into the Family Court by June 2003. According to the plan, the court has asked each Superior Court judge to review his or her caseload to identify those cases that meet the criteria established by the court for the first phase of case transfer back to the Family Court for attention by magistrate judges hired under the expedited process provided in the act. Cases identified for transfer include those in which (1) the child is 18 years of age and older, the case is being monitored primarily for the delivery of services, and no recent allegations of abuse or neglect exist; and (2) the child is committed to the child welfare agency and is placed with a relative in a kinship care program. Cases that the court believes may not be candidates for transfer by June 2002 include those the judge believes transferring the case would delay permanency. The court expects that older cases will first be reviewed for possible closure and expects to transfer the entire abuse and neglect caseloads of several judges serving in other divisions of the Superior Court to the Family Court. Using the established criteria to review cases, the court estimates that 1,500 cases could be candidates for immediate transfer. The act also requires the court to estimate the number of cases that cannot be transferred into the Family Court in the timeframes specified. The plan provides no estimate because the court’s proposed transfer process assumes all cases will be closed or transferred, based on the outlined criteria. However, the plan states that the full transfer of all cases is partially contingent on hiring three new judges. The transition plan identifies the way in which the Family Court will implement the one family/one judge approach and improve its case management practices; however, some aspects of case management, training, and performance evaluation are unclear. The plan indicates that the Family Court will implement the one family/one judge approach by assigning all cases involving the same family to one judicial team— comprised of a Family Court judge and a magistrate judge. This assignment will begin with the initial hearing by the magistrate judge on the team and continue throughout the life of the case. Juvenile and family court experts indicated that this team approach is realistic and a good model of judicial collaboration. One expert said that such an approach provides for continuity if either team member is absent. Another expert added that, given the volume of cases that must be heard, the team approach can ease the burden on judicial resources by permitting the magistrate judge to make recommendations and decisions, thereby allowing the Family Court judge time to schedule and hear trials and other proceedings more quickly. Court experts also praised the proposed staggered terms for judicial officials—newly-hired judges, magistrate judges, and judges who are already serving on the Superior Court will be appointed to the Family Court for varying numbers of years—which can provide continuity while recognizing the need to rotate among divisions in the Superior Court. The plan also describes other elements of the Family Court’s case management process, such as how related cases will be assigned and a description of how many judges will hear which types of cases. For example, the plan states that, in determining how to assign cases, preference will generally be given to the judge or magistrate judge who has the most familiarity with the family. In addition, the plan states that (1) all Family Court judges will handle post-disposition child abuse and neglect cases; (2) 10 judges will handle abuse and neglect cases from initiation to closure as part of a judicial team; (3) 1 judge will handle abuse and neglect cases from initiation to closure independently (not as part of a team); and (4) certain numbers of judges will handle other types of cases, such as domestic relations cases, mental health trials, and complex family court cases. However, because the transition plan focuses primarily on child abuse and neglect cases, this information does not clearly explain how the total workload associated with the approximately 24,000 cases under the court’s jurisdiction will be handled. One court expert we consulted commented on the transition plan’s almost exclusive focus on child welfare cases, making it unclear, the expert concluded, how other cases not involving child abuse and neglect will be handled. In addition to describing case assignments, the plan identifies actions the court plans to take to centralize intake. According to the plan, a centralized office will encompass all filing and intake functions that various clerks’ offices—such as juvenile, domestic relations, paternity and support, and mental health—in the Family Court currently carry out. As part of centralized intake, case coordinators will identify any related cases that may exist in the Family Court. To do this, the coordinator will ensure that a new “Intake/Cross Reference Form” will be completed by various parties to a case and also check the computer databases serving the Family Court. As a second step, the court plans to use alternative dispute resolution to resolve cases more quickly and expand initial hearings to address many of the issues that the court previously handled later in the life of the case. As a third step, the plan states that the Family Court will provide all affected parties speedy notice of court proceedings and implement strict policies for the handling of cases—such as those for granting continuances—although it does not indicate who is responsible for developing the policies or the status of their development. The plan states that the court will conduct evaluations to assess whether components of the Family Court were implemented as planned and whether modifications are necessary; the court could consider using additional measures to focus on outcomes for children. One court expert said that the court’s development of a mission statement and accompanying goals and objectives frames the basis for developing performance standards. The expert also said that the goals and standards are consistent with those of other family courts that strive to prevent further deterioration of a family’s situation and to focus decision-making on the needs of those individuals served by the court. However, evaluation measures listed in the plan are oriented more toward the court’s processes, such as whether hearings are held on time, than on outcomes. According to a court expert, measures must also account for outcomes the court achieves for children. Measures could include the number of finalized adoptions that did not disrupt, reunifications that do not fail, children who remain safe and are not abused again while under court jurisdiction or in foster care, and the proportion of children who successfully achieve permanency. In addition, the court will need to determine how it will gather the data necessary to measure each team’s progress in ensuring such outcomes or in meeting the requirements of ASFA, and the court has not yet established a baseline from which to judge its performance. In our May 2002 report, we recommended that the Superior Court consider identifying performance measures to track progress toward positive outcomes for the children and families the Family Court serves. The transition plan states that the court has determined that 15 judges are needed to carry out the duties of the court and that 12 judges have volunteered to serve on the court, but does not address recruitment and the nomination of the three additional judges. Court experts stated that the court’s analysis to identify the appropriate number of judges is based on best practices identified by highly credible national organizations and is, therefore, pragmatic and realistic. However, the plan only provides calculations for how it determined that the court needed 22 judges and magistrate judges to handle child abuse and neglect cases. The transition plan does not include a methodology for how it determined that the court needed a total of 32 judges and magistrate judges for its total caseload of child abuse and neglect cases, as well as other family cases, such as divorce and child support, nor does it explain how anticipated increases in cases will be handled. In addition, the plan does not include a request that the Judicial Nomination Commission recruit and the president nominate the additional three individuals to serve on the Superior Court, as required by the Family Court Act. At a recent hearing on the court’s implementation of the Family Court Act, the chief judge of the Superior Court said that the court plans to submit its request in the fall of 2002. The Superior Court does not provide in the plan its determination of the number of nonjudicial staff needed. The court acknowledges that while it budgeted for a certain number of nonjudicial personnel based on current operating practices, determining the number of different types of personnel needed to operate the Family Court effectively is pending completion of a staffing study. In our May 2002 report, we recommended that the Superior Court supplement its transition plan by providing information on the number of nonjudicial personnel needed when the staffing study is complete. Furthermore, the plan does not address the qualifications of the 12 judges who volunteered for the court. Although the plan states that these judges have agreed to serve full terms of service, according to the act, the chief judge of the Superior Court may not assign an individual to serve on the Family Court unless the individual also has training or expertise in family law and certifies that he or she will participate in the ongoing training programs conducted for judges of the Family Court. In our May 2002 report, we recommended that the Superior Court supplement its transition plan by providing information on the qualifications of the 12 judges identified in the transition plan to serve on the Family Court. The act also requires judges who had been serving in the Superior Court’s Family Division at the time of its enactment to serve for a term of not fewer than 3 years, and that the 3-year term shall be reduced by the length of time already served in the Family Division. Since the transition plan does not identify which of the 12 volunteers had already been serving in the Family Division prior to the act and the length of time they had already served, the minimum remaining term length for each volunteer cannot be determined from the plan. In commenting on our May 2002 report, the Superior Court said it would provide information on each judge’s length of tenure in its first annual report to the Congress. The transition plan describes the duties of judges assigned to the Family Court, as required by the act. Specifically, the plan describes the roles of the designated presiding judge, the deputy presiding judge, and the magistrate judges. The plan states that the presiding and deputy presiding judges will handle the administrative functions of the Family Court, ensure the implementation of the alternative dispute resolution projects, oversee grant-funded projects, and serve as back-up judges to all Family Court judges. These judges will also have a post-disposition abuse and neglect caseload of more than 80 cases and will continue to consult and coordinate with other organizations (such as the child welfare agency), primarily by serving on 19 committees. One court expert has observed that the list of committees to which the judges are assigned seems overwhelming and said that strong leadership by the judges could result in consolidation of some of the committees’ efforts. The plan also describes the duties of the magistrate judges, but does not provide all the information required by the act. Magistrate judges will be responsible for initial hearings in new child abuse and neglect cases and the resolution of cases assigned to them by the Family Court judge to whose team they are assigned. They will also be assigned initial hearings in juvenile cases, noncomplex abuse and neglect trials, and the subsequent review and permanency hearings, as well as a variety of other matters related to domestic violence, paternity and support, mental competency, and other domestic relations cases. As noted previously, one court expert said that the proposed use of the magistrate judges would ease the burden on judicial resources by permitting these magistrate judges to make recommendations and decisions. However, although specifically required by the act, the transition plan does not state how the court determined the number of magistrate judges to be hired under the expedited process. In addition, while the act outlines the qualifications of magistrate judges, it does not specifically require a discussion of qualifications of the newly hired magistrate judges in the transition plan. As a result, no information was provided, and whether these magistrate judges meet the qualifications outlined in the act is unknown. In our May 2002 report, we recommended that the Superior Court supplement its transition plan by providing information on the analysis it used to identify the number of magistrate judges needed under the expedited appointment procedures. In commenting on that report, the Superior Court said that it considered the following in determining how many magistrate judges should be hired under the expedited process: optimal caseload size, available courtroom and office space, and safety and permanency of children. In addition, the court determined, based on its criteria, that 1,500 child abuse and neglect cases could be safely transferred to the Family Court during the initial transfer period and that a caseload of 300 cases each was appropriate for these judicial officers. As a result, the court appointed five magistrate judges on April 8, 2002. A discussion of how the court will provide initial and ongoing training for its judicial and nonjudicial staff is also not required by the act, although the court does include relevant information about training. For example, the plan states that the Family Court will develop and implement a quarterly training program for Family Court judges, magistrate judges, and staff covering a variety of topics and that it will promote and encourage participation in cross-training. In addition, the plan states new judges and magistrate judges will participate in a 2 to 3 week intensive training program, although it does not provide details on the content of such training for the five magistrate judges hired under the expedited process, even though they were scheduled to begin working at the court on April 8, 2002. One court expert said that a standard curriculum for all court-related staff and judicial officers should be developed and that judges should have manuals available outlining procedures for all categories of cases. In commenting on our May 2002 report, the Superior Court said that the court has long had such manuals for judges serving in each division of the court. In our report on human capital, we said that an explicit link between the organization’s training offerings and curricula and the competencies identified by the organization for mission accomplishment is essential. Organization leaders can show their commitment to strategic human capital management by investing in professional development and mentoring programs that can also assist in meeting specific performance needs. These programs can include opportunities for a combination of formal and on-the-job training, individual development plans, and periodic formal assessments. Likewise, organizations should make fact-based determinations of the impact of its training and development programs to provide feedback for continuous improvement and ensure that these programs improve performance and help achieve organizational results. In commenting on our May 2002 report, the Superior Court said that— although not included in the plan—it has an extensive training curriculum that will be fine-tuned prior to future training sessions. While the court’s transition plan specifies initiatives to coordinate court activities with social services, the Family Court and District social service agencies face challenges in coordinating their respective activities and services in the longer term, such as the time it will take to obtain interagency commitments to provide resources and to coordinate their use. Today, we can offer some preliminary observations of efforts to coordinate family court activities with social services—our ongoing examination of these efforts and related challenges will culminate in a more detailed assessment of factors that facilitate and hinder planned coordination later this year. Collectively, the Family Court Act and court practices recommended by various national associations provide a framework for planning, establishing, and sustaining court activities that are coordinated with related social services. Specifically, the act requires the mayor, in consultation with the chief judge of the Superior Court, to make staff of District offices that provide social services and other related services to individuals and families served by the Family Court available on-site at the Family Court to coordinate the provision of services. These offices include CFSA, District of Columbia Public Schools, the Housing Authority, OCC, the Metropolitan Police Department, and the Department of Health. The act also requires the heads of each specified office to provide the mayor with such information, assistance, and services as the mayor may require. In addition, the mayor must appoint a liaison between the Family Court and the District government for purposes of coordinating the delivery of services provided by the District government with the activities of the Family Court. National associations, such as the National Center for State Courts, the National Council of Juvenile and Family Court Judges, and the Council for Court Excellence, have also recommended court practices to enhance service coordination and thereby aid in the timely resolution of cases. Key elements that can help establish and maintain coordinated services include: Case management—decisions by judicial officers, nonjudicial officers, legal representatives, and officials from other agencies that link children and families to needed services. According to the National Center for State Courts, for example, effective case-level service coordination requires the involvement of individuals familiar with both the legal and service areas. Service coordinators can be court or social service agency employees and can be composed of individuals or teams. Operational integration—organizational commitments and integrated operations that routinely link court and social service priorities, resources, and decisions. For example, in the interest of integrating court and agency operations, the National Center for State Courts reported that various jurisdictions have established a formal or informal policy committee to discuss issues of relevance to all entities involved in providing services to children and families served by the court. In addition, courts can play a key role in providing centralized access to a network of social services. In some cases, this role includes establishing courthouse resource centers to carry out service referrals or mandates immediately. The Family Court has begun several initiatives to integrate its activities with the social services provided by other District agencies. At the case management level, the court states in its transition plan that it intends to focus increased attention on family matters to ensure that cases are resolved expeditiously and in the best interests of children and families. The family court will use case coordinators, child protection mediators, attorney advisors, and other legal representatives to support the functioning of the judicial team. In addition, the court has asked OCC to assign attorneys to particular judicial teams and anticipates guardians ad litem, parents’ attorneys, and social workers being assigned to particular teams as well. For example, the court said in its April 24, 2002, testimony before the Subcommittee on D.C. Appropriations, Senate Committee on Appropriations, that it has offered CFSA the opportunity to identify clusters of social workers that could be assigned to the teams. To help achieve operational coordination, the court established interagency committees—the Family Court Implementation Committee and the Child Welfare Leadership Team—that include representatives from CFSA and other agencies. According to court officials, these committees constitute the court’s major vehicle for collaborating with other agencies. In addition, the presiding and deputy presiding judges of the Family Court will meet monthly with heads of CFSA, District of Columbia Department of Mental Health, OCC, Public Defender Services, District of Columbia Public Schools, and the Family Division Trial Lawyers Association in an effort to resolve any interagency problems and to coordinate services that affect the child welfare cases filed in Family Court. Other Family Court initiatives to achieve coordinated services include the Family Service Center, which will be comprised of the following agencies under the direction of the mayor: District of Columbia Public Schools, District of Columbia Housing Authority, CFSA, OCC, Metropolitan Police Department, and the Department of Health. In achieving coordinated services in the longer term, the court faces several challenges. For example, the court’s transition plan states that until certain key agencies, such as CFSA and OCC, are sufficiently staffed and reorganized to complement the changes taking place in the Family Court, substantial improvements in the experiences of children and families served by the court will remain a challenge. Moreover, to the extent that improvements in the agencies and the court do not happen simultaneously, or improvements in one do not keep pace with the others, the court has concluded that the collective ability to collaborate will become compromised. The court also said in its April 24, 2002, testimony that it takes time to obtain interagency commitments to coordinate the use of staff resources. Finally, the availability of the Family Service Center as a forum to coordinate services depends on the timely completion of complex and interdependent space and facilities plans discussed in more detail below. Two factors are critical to fully transitioning to the Family Court in a timely and effective manner: obtaining and renovating appropriate space for all new Family Court personnel and developing and installing a new automated information system, currently planned as part of the D.C. Courts IJIS system. The court acknowledges that its implementation plans may be slowed if appropriate space cannot be obtained in a timely manner. For example, the plan addresses how the abuse and neglect cases currently being heard by judges in other divisions of the Superior Court will be transferred to the Family Court, but states that the complete transfer of cases hinges on the court’s ability to hire, train, and provide appropriate space for additional judges and magistrate judges. In addition, the Family Court’s current reliance on nonintegrated automated information systems that do not fully support planned court operations, such as the one family/one judge approach to case management, constrains its transition to a Family Court. The transition plan states that the interim space plan carries a number of project risks. These include a very aggressive implementation schedule and a design that makes each part of the plan interdependent with other parts of the plan. The transition plan further states that the desired results cannot be reached if each plan increment does not take place in a timely fashion. For example, obtaining and renovating the almost 30,000 occupiable square feet of new court space needed requires a complex series of interrelated steps—from moving current tenants in some buildings to temporary space, to renovating the John Marshall level of the H. Carl Moultrie Courthouse by July 2003. The Family Court of the Superior Court is currently housed in the H. Carl Moultrie Courthouse, and interim plans call for expanding and renovating additional space in this courthouse to accommodate the additional judges, magistrate judges, and staff who will help implement the D.C. Family Court Act. The court estimates that accommodating these judges, magistrate judges, and staff requires an additional 29,700 occupiable square feet, plus an undetermined amount for security and other amenities. Obtaining this space will require nonrelated D.C. Courts entities to vacate space to allow renovations, as well as require tenants in other buildings to move to house the staff who have been displaced. The plan calls for renovations under tight deadlines and all required space may not be available, as currently planned, to support the additional judges the Family Court needs to perform its work in accordance with the act, making it uncertain as to when the court can fully complete its transition. For example, D.C. Courts recommends that a portion of the John Marshall level of the H. Carl Moultrie Courthouse, currently occupied by civil court functions, be vacated and redesigned for the new courtrooms and court-related support facilities. Although some space is available on the fourth floor of the courthouse for the four magistrate judges to be hired by December 2002, renovations to the John Marshall level are tentatively scheduled for completion in July 2003—2 months after the court anticipates having three additional Family Court judges on board. The Family Service Center will also be housed on this level. Another D.C. Courts building—Building B—would be partially vacated by non-court tenants and altered for use by displaced civil courts functions and other units temporarily displaced in future renovations. Renovations to Building B are scheduled to be complete by August 2002. Space for 30 additional Family Court-related staff, approximately 3,300 occupiable square feet, would be created in the H. Carl Moultrie Courthouse in an as yet undetermined location. Moreover, the Family Court’s plan for acquiring additional space does not include alternatives that the court will pursue if its current plans for renovating space encounter delays or problems that could prevent it from using targeted space. The Family Court act calls for an integrated information technology system to support the goals it outlines, but a number of factors significantly increase the risks associated with this effort, as we reported in February 2002. For example, The D.C. Courts had not yet implemented the disciplined processes necessary to reduce the risks associated with acquiring and managing IJIS to acceptable levels. A disciplined software development and acquisition effort maximizes the likelihood of achieving the intended results (performance) on schedule using available resources (costs). The requirements contained in a draft Request for Proposal (RFP) lacked the necessary specificity to ensure that any defects in these requirements had been reduced to acceptable levels and that the system would meet its users’ needs. Studies have shown that problems associated with requirements definition are key factors in software projects that do not meet their cost, schedule, and performance goals. The requirements contained in the draft RFP did not directly relate to industry standards. As a result, inadequate information was available for prospective vendors and others to readily map systems built upon these standards to the needs of the D.C. Courts. Prior to issuing our February 2002 report, we discussed our findings with D.C. Courts officials, who generally concurred with our findings. The officials said that the D.C. Courts would not go forward with the project until the necessary actions had been taken to reduce the risks associated with developing the new information system. In our report, we made several recommendations designed to reduce the risks. In April 2002, we met with D.C. Courts officials to discuss the actions taken on our recommendations and found that significant actions have been initiated that, if properly implemented, will help reduce the risks associated with this effort. For example, D.C. Courts is beginning the work to provide the needed specificity for its system requirements. This includes soliciting requirements from the users and ensuring that the requirements are properly sourced (e.g., traced back to their origin). According to D.C. Courts officials, this work has identified significant deficiencies in the original requirements that we discussed in our February 2002 report. These deficiencies relate to new tasks D.C. Courts must undertake. For example, the Family Court Act requires D.C. Courts to interface IJIS with several other District government computer systems. These tasks were not within the scope of the original requirements that we reported on in our February 2002 report. issuing a Request for Information to obtain additional information on commercial products that should be considered by the D.C. Courts during its acquisitions. This helps the requirements management process by identifying requirements that are not supported by commercial products so that the D.C. Courts can reevaluate whether it needs to (1) keep the requirement or revise it to be in greater conformance with industry practices or (2) undertake a development effort to achieve the needed capability. developing a systems engineering life-cycle process for managing the D.C. Courts information technology efforts. This will help define the processes and events that should be performed from the time that a system is conceived until the system is no longer needed. Examples of processes used include requirements development, testing, and implementation. developing policies and procedures that will help ensure that the D.C. Courts’ information technology investments are consistent with the requirements of the Clinger-Cohen Act of 1996 (P.L. 104-106). developing the processes that will enable the D.C. Courts to achieve a level 2 rating—this means basic project management processes are established to track performance, cost, and schedule—on the Software Engineering Institute’s Capability Maturity Model. In addition, D.C. Courts officials told us that they are developing a program modification plan that will allow the use of existing (legacy) systems while the IJIS project proceeds. Although they recognize that maintaining two systems concurrently is expensive and causes additional resource needs, such as additional staff and training for them, these officials believe that they are needed to mitigate the risk associated with any delays in system implementation. Although these are positive steps forward, D.C. Courts still faces many challenges in its efforts to develop an IJIS system that will meet its needs and fulfill the goals established by the act. Examples of these include: Ensuring that the Systems Interfacing with IJIS Do Not Become the Weak Link The Family Court Act calls for effectively interfacing information technology systems operated by the District government with IJIS. According to D.C. Courts officials, at least 14 District systems will need to interface with IJIS. However, several of our reviews have noted problems in the District’s ability to develop, acquire, and implement new systems.The District’s difficulties in effectively managing its information technology investments could lead to adverse impacts on the IJIS system. For example, the interface systems may not be able to provide the quality of data necessary to fully utilize IJIS’s capabilities or provide the necessary data to support IJIS’s needs. The D.C. Courts will need to ensure that adequate controls and processes have been implemented to mitigate the potential impacts associated with these risks. Effectively Implementing the Disciplined Processes Necessary to Reduce the Risks Associated with IJIS The key to having a disciplined effort is to have disciplined processes in multiple areas. This is a complex task and will require the D.C. Courts to maintain its management commitment to implementing the necessary processes. In our February 2002 report, we highlighted several processes, such as requirements management, risk management, and testing that appeared critical to the IJIS effort. Ensuring that the Requirements Used to Acquire IJIS Contain the Necessary Specificity to Reduce Requirement-Related Defects to Acceptable Levels Although D.C. Courts officials have said that they are adopting a requirements management process that will address the concerns expressed in our February 2002 report, maintaining such a process will require management commitment and discipline. Ensuring that Users Receive Adequate Training As with any new system, adequately training the users is critical to its success. As we reported in April 2001, one problem that hindered the implementation of the District’s financial management system was its difficulty in adequately training the users of the system. In commenting on our May 2002 report, the Superior Court said that $800,000 has been budgeted for staff training during the 3 years of implementation. According to D.C. Courts officials, the Family Court Act establishes ambitious timeframes to convert to a family court. Although schedules are important, it is critical that the D.C. Courts follow an event-driven acquisition and development program rather than adopting a schedule- driven approach. Organizations that are schedule-driven tend to reduce or inadequately complete activities such as business process reengineering and requirements analysis. These tasks are frequently not considered “important” since many people view “getting the application in the hands of the user” as one of the more productive activities. However, the results of this approach are very predictable. Projects that do not perform planning and requirements functions well typically have to redo that work later. However, the costs associated with delaying the critical planning and requirements activities is anywhere from 10 to 100 times the cost of doing it correctly in the first place. With respect to requirements, court experts report that effective technological support is critical to effective family court case management. One expert said that, at a minimum, the system should include the (1) identification of parties and their relationships; (2) tracking of case processing events through on-line inquiry; (3) generation of orders, forms, summons, and notices; and (4) production of statistical reports. The State Justice Institute’s report on how courts are coordinating family cases states that automated information systems, programmed to inform a court system of a family’s prior cases, are a vital ingredient of case coordination efforts. The National Council of Juvenile and Family Court Judges echoes these findings by stating that effective management systems (1) have standard procedures for collecting data; (2) collect data about individual cases, aggregate caseload by judge, and the systemwide caseload; (3) assign an individual the responsibility of monitoring case processing; and (4) are user friendly. While anticipating technological enhancements through IJIS, Superior Court officials said that the current information systems do not have the functionality required to implement the Family Court’s one family/one judge case management principle. In providing technical clarifications on a draft of this report, the Superior Court reiterated a statement that the presiding judge of the Family Court made at the April 24, 2002, hearing. The presiding judge said that the Family Court is currently implementing the one family/one judge principle, but that existing court technology is cumbersome to use to identify family and other household members. Nonetheless, staff are utilizing the different databases, forms, intake interviews, questions from the bench, and other nontechnological means of identifying related cases within the Family Court. Basically, even though some important issues are not discussed, the Superior Court’s transition plan represents a good effort at outlining the steps it will take to implement a Family Court. While the court has taken important steps to achieve efficient and effective operations, it still must address several statutory requirements included in the Family Court Act to achieve full compliance with the act. In addition, opportunities exist for the court to adopt other beneficial practices to help ensure it improves the timeliness of decisions in accordance with ASFA, that judges and magistrate judges are fully trained, and that case information is readily available to aid judges and magistrate judges in their decision making. Acknowledging the complex series of events that must occur in a timely way to achieve optimal implementation of the family court, the court recognizes that its plan for obtaining and renovating needed physical space warrants close attention to reduce the risk of project delays. In addition, the court has initiated important steps that begin to address many of the shortcomings we identified in our February 2002 report on its proposed information system. The effect of these actions will not be known for some time. The court’s actions reflect its recognition that developing an automated information system for the Family Court will play a pivotal role in the court’s ability to implement its improved case management framework. In commenting on our May 2002 report, the court generally agreed with our findings and concurred with our recommendations. Our final report on the mayor’s plan to coordinate social services, integrate automated information systems, and develop a spending plan to support these initiatives may discuss some additional actions the mayor and court might take to further enhance their ability to achieve intended service coordination and systems integration. By following through on the steps it has begun to take and by evaluating its performance over time, the court may improve its implementation of the Family Court Act and provide a sound basis for assessing the extent to which it achieves desired outcomes for children. Madam Chairman, this concludes my prepared statement. I will be happy to respond to any questions that you or other members of the subcommittee may have. For further contacts regarding this testimony, please call Cornelia M. Ashby at (202) 512-8403. Individuals making key contributions to this testimony included Diana Pietrowiak, Mark Ward, Nila Garces-Osorio, Steven J. Berke, Patrick DiBattista, William Doherty, John C. Martin, Susan Ragland, and Norma Samuel.

The District of Columbia Superior Court has made progress in planning the transition of its Family Division to a Family Court, but some challenges remain. The Superior Court's transition plan addresses most, but not all, of the required elements outlined in the District of Columbia Family Court Act of 2001. Significantly, the completion of the transition hinges on timely completion of a complex series of interdependent plans intended to obtain and renovate physical space to house the court and its functions. All required space may not be available, as currently planned, to support the additional judges the Family Court needs to perform its work in accordance with the act, making it uncertain as to when the court can fully complete its transition. Although not required as part of its transition plan efforts, the Superior Court has begun to coordinate its activities with social services agencies in the District. However, the court and agencies face challenges in achieving coordinated services in the longer term. Finally, the development and application of the District of Columbia Courts' Integrated Justice Information System will be critical for the Family Court to be able to operate effectively, evaluate its performance, and meet its judicial goals in the context of the changes mandated by the Family Court Act.

You are an expert at summarizing long articles. Proceed to summarize the following text: Herbal dietary supplements are traditionally used to alleviate certain medical conditions, such as anxiety, digestive problems, and depression, and to improve general quality of life. However, for many traditional uses, there is not clear scientific evidence to show that they prevent or treat underlying diseases or conditions. Further, some herbal dietary supplements may interact in a potentially harmful manner with some prescription drugs. For example, according to NIH, St. John’s wort can negatively affect the efficacy of antidepressants, HIV treatments, cancer drugs, and anticoagulants, though this is not always noted on product labels. The possibility of adverse drug interactions is one of the reasons that FDA recommends that consumers check with their health practitioners before beginning any supplement regimen. The elderly are particularly at risk from these interactions since recent studies have found that approximately 85 percent of the elderly take at least one prescription drug over the course of a year and 58 percent take three or more. Many herbal supplements have not been exhaustively tested for hazardous interactions with prescription drugs, other supplements, or foods. Under DSHEA, dietary supplements are broadly presumed safe, and FDA does not have the authority to require them to be approved for safety and efficacy before they enter the market, as it does for drugs. However, a dietary supplement manufacturer or distributor of a supplement with a “new dietary ingredient”—an ingredient that was not marketed in the United States before October 15, 1994—may be required to notify FDA at least 75 days before marketing the product, depending on the history of use of the ingredient. Also, all domestic and foreign companies that manufacture, package, label, or hold dietary supplements must follow FDA’s current good manufacturing practice regulations, which outline procedures for ensuring the quality of supplements intended for sale. Under DSHEA, a firm, not FDA, is responsible for determining that any representation or claims made about the dietary supplements it manufactures or distributes are substantiated by adequate evidence to show that they are not false or misleading. Except in the case of a new dietary ingredient, where premarket review for safety data and other information is required by law, a firm does not have to provide FDA with the evidence it relies on to substantiate effectiveness before or after it markets its products. For the most part, FDA relies on postmarket surveillance efforts—such as monitoring adverse event reports it receives from companies, health care practitioners, and individuals; reviewing consumer complaints; and conducting facility inspections—to identify potential safety concerns related to dietary supplements. Once a safety concern is identified, FDA must demonstrate that the dietary supplement presents a significant or unreasonable risk, or is otherwise adulterated, before it can be removed from the market. A product sold as a dietary supplement cannot suggest on its label or in labeling that it treats, prevents, or cures a specific disease or condition without specific approval from FDA. Under FDA regulations, a manufacturer may submit a health claim petition in order to use a claim on its product labeling that characterizes a relationship between the product and risk of a disease, and FDA may authorize it provided the claims meet certain criteria and are authorized by FDA regulations (e.g., diets high in calcium may reduce the risk of osteoporosis). However, manufacturers may make “qualified health claims” when there is emerging evidence for a relationship between a dietary supplement and reduced risk of a disease or condition, subject to FDA’s enforcement discretion. The claim must include specific qualifying language to indicate that the supporting evidence is limited. Dietary supplement labeling may include other claims describing how a dietary ingredient is intended to affect the normal structure or function of the body (e.g. fiber maintains bowel regularity). The manufacturer is responsible for ensuring the accuracy and truthfulness of such claims, but must submit a claim to FDA for review no later than 30 days after marketing it. Because FDA does not confirm the claim—a lack of objection allows the manufacturer to use it—the following disclaimer must be included: “This statement has not been evaluated by the FDA. This product is not intended to diagnose, treat, cure, or prevent any disease.” The manufacturer does not need to provide FDA with documentation, and FDA does not test to determine if the claim is true. In addition, these claims generally may not state that a product is intended to diagnose, mitigate, treat, cure, or prevent a disease or the adverse effects associated with a therapy for a disease, either by naming or describing a specific disease. A claim also cannot suggest an effect on an abnormal condition associated with a natural state or process, such as aging. Context is a consideration; a product’s name and labeling cannot imply such an effect by use of pictures or scientific or lay terminology. Finally, a product cannot claim to be a substitute for a product that is a therapy for a disease, or claim to augment a therapy or drug. To make any of these claims, a manufacturer must submit and receive authorization of a health claim petition. The Federal Trade Commission (FTC) regulates advertising for dietary supplements and other products sold to consumers. FTC receives thousands of consumer complaints each year related to dietary supplements and herbal remedies. FTC has, in the past, taken action against supplement sellers and manufacturers whose advertising was deemed to pose harm to the general public. FDA works with FTC in this area, but FTC’s work is directed by different laws. Consuming high levels of the contaminants for which we tested the 40 products can lead to severe health consequences, such as increased risk of cancer, as noted in table 1. The negative health effects described are, unless otherwise noted, for the acute toxicity in the human body. However, the exact effects of these contaminants on an individual are based on an individual’s specific characteristics. For instance, since lead can build up in the human body, the effect of consuming a potentially dangerous level of lead by a 55-year-old man depends on the amount of lead that man has consumed during his lifetime, among other factors. FDA has not issued any regulations addressing safe or unsafe levels of contaminants in dietary supplements, but both FDA and EPA have set certain advisory levels for contaminants in other foods. The human body’s absorption of many contaminants is governed by intake method, so advisory levels for other foods (e.g., drinking water) cannot be strictly applied to dietary supplements. In addition, EPA sets limits on how much pesticide residue can remain on food and feed products. These pesticide residue limits are known as tolerances and are enforced by FDA. If no residue tolerance has been set for a particular pesticide, any product containing that pesticide residue is considered adulterated and its sale is prohibited by law. See table 2 for a summary of the regulations issued by FDA or EPA regarding some of the contaminants we tested for. Our investigation found examples of deceptive or questionable marketing and sales practices for dietary supplements popular among the elderly (see table 3). The most egregious practices included suspect marketing claims that a dietary supplement prevented or cured extremely serious diseases, such as cancer and cardiovascular disease. Other dietary supplements were claimed to mitigate age-related medical conditions, such as Alzheimer’s disease and diverticular disorder. We also found some claims that followed FDA’s labeling regulations and guidelines, but could still be considered deceptive or questionable and provide consumers with inaccurate information. In addition, while conducting in-person and telephone conversations with dietary supplements sellers, our investigators, posing as elderly consumers, were given potentially harmful medical advice by sales staff, including that they could take supplements in lieu of prescription medication. In making these claims, sellers put the health of consumers at risk. A link to selected audio clips from these calls is available at: http://www.gao.gov/products/GAO-10-662T. Below are details on several cases in which herbal supplement marketing practices were deceptive or questionable and sometimes posed health risks to consumers. All cases of deceptive or questionable marketing and inappropriate medical advice have been referred to FDA and FTC for appropriate action. Case 2: In online materials, this garlic supplement included claims that it would (1) prevent and cure cardiovascular disease, (2) prevent and cure tumors and cancer, (3) prevent obesity, and (4) reduce glycemia to prevent diabetes. According to NIH, all these claims are unproven, and garlic is not recommended for treating these conditions. In fact, for several of these conditions, garlic may interact adversely with common FDA-approved drug treatments. Nowhere in this product’s marketing materials does the seller suggest that consumers should consult their health care providers prior to taking its supplement. While NIH recognizes that garlic may have some anticancer properties, the agency notes that additional clinical trials are needed to conclude whether these properties are strong enough to prevent or treat cancer. Further, studies have shown that garlic may alter the levels of some cancer drugs in the human body, lessening their effectiveness. For diabetes, there are no studies that confirm that garlic lowers blood sugar or increases the release of insulin in humans. In fact, NIH recommends caution when combining garlic with medications that lower blood sugar, and further suggests that patients taking insulin or oral drugs for diabetes be monitored closely by qualified health care professionals. Case 3: According to its labeling, this ginseng supplement—which costs $500 for a 90-day supply—cures diseases, effectively prevents diabetes and cardiovascular disease, and prevents cancer or halts its progression. These claims are unproven—no studies confirm that ginseng can prevent or cure any disease. In fact, NIH recommends that breast and uterine cancer patients avoid ginseng. In addition, ginseng may adversely interact with cancer drugs. The product labeling claims do not differentiate between type 1 and type 2 diabetes. According to NIH, ginseng’s effect on patients with type 1 diabetes is not well studied. While ginseng may lower blood sugar levels in patients with type 2 diabetes, the long-term effects of such a treatment program are unclear, and it is not known what doses are safe or effective. NIH specifically recommends that consumers with type 2 diabetes use proven therapies instead of this supplement. Case 7: While our investigators posed as consumers purchasing dietary supplements, sales staff provided them with an informational booklet regarding an enzyme that claims to “ us against dementia and Alzheimer’s, exhibiting a truly miraculous capacity to optimize mental performance and fight off cognitive decline.” In fact, FDA reviewed the scientific evidence for the active ingredient of this supplement and found that it was not adequate to make such a claim. Because the agency considered such a health claim potentially misleading, FDA provided for the use of a qualified health claim that contains a disclaimer that must accompany the health claim in all labeling in which these claims appear. While the booklet we received does state the FDA disclaimer on the first page, the manufacturer follows it with a rejoinder: “The very cautious language of these claims, which FDA mandates can only be stated word for word, is at best a grudging concession to the extensive clinical research done with . Considering this agency’s legendary toughness against dietary supplements, FDA’s willingness to go this far with the suggests that the FDA must be sure it is safe to take and also that the FDA is unable to deny can improve human brain function.” Case 8: One of our fictitious consumers visited a supplement specialty store looking for a product that would help with high blood pressure. The sales representative recommended a garlic supplement and stated that the product could be taken in lieu of prescribed blood pressure medication. According to NIH, while this herb may lower blood pressure by a small amount, the scientific evidence is unclear. NIH does not recommend this supplement as a treatment for high blood pressure and warns patients to use caution while taking this product with other drugs or supplements that can lower blood pressure. Further, it is not recommended that a consumer start or stop a course of treatment without consulting with his or her health care provider. Even if a sales representative is licensed to dispense medical advice, he or she still does not know the consumer’s patient history, including other drug programs, allergies, and medical conditions, making it potentially dangerous for the sales representative to provide medical advice. Case 9: At a supplement specialty store, one of our investigators posed as an elderly consumer who was having difficulty remembering things. A sales representative recommended one of the store’s ginkgo biloba supplements. The consumer told the representative that he takes aspirin everyday and asked if it was safe to take aspirin and ginkgo biloba together. The sales representative told him that it is completely safe to take the two together. However, according to FDA, if aspirin is taken with the recommended product, it can increase the potential for internal bleeding. We spoke to FDA and FTC regarding these 10 claims, and they agreed that the statements made in product labeling for cases 1 through 6 are largely improper, as the labeling suggests that each product has an effect on a specific disease. For case 7, FDA stated that while the specific claims discussed here are allowable, depending on the context in which they were made, FDA might consider the totality of marketing materials to be improper. FDA also agreed that the claims made to our undercover investigators in cases 8 and 10 were questionable or likely constituted improper disease claims, but that to take action, additional information as to the prevalence and context of the claims would be necessary. For case 9, FDA noted that, since the statement made by sales staff was safe usage information, not a claim about the product’s effects, it would not violate FDA regulations, unless the agency could develop other evidence to show that the claim was false or misleading or constituted an implied disease claim. In addition, FDA and NIH both noted that by definition, no dietary supplement can treat, prevent, or cure any disease. We found trace amounts of at least one potentially hazardous contaminant in 37 of the 40 herbal dietary supplement products we tested, though none of the contaminants were found in amounts considered to pose an acute toxicity hazard to humans. Specifically, all 37 supplements tested positive for trace amounts of lead. Thirty-two also contained mercury, 28 contained cadmium, 21 contained arsenic, and 18 contained residues from at least one pesticide. See appendixes III and IV for the complete results of these tests. The levels of contaminants found do not exceed any FDA or EPA regulations governing dietary supplements or their raw ingredients, and FDA and EPA officials did not express concern regarding any immediate negative health consequences from consuming these 40 supplements. However, because EPA has not set pesticide tolerance limits for the main ingredients of the herbal dietary supplements we tested, the pesticide contaminants exceed FDA advisory levels. FDA agreed that 16 of the 40 supplements we tested would be considered in violation of U.S. pesticide tolerances if FDA, using prescribed testing procedures, confirmed our results. We note that 4 of the residues detected are from pesticides that currently have no registered use in the United States. According to FDA, scientific research has not been done on the long-term health effects from consumption of such low levels of many of these specific contaminants, as current technology cannot detect these trace contaminants when they are diluted in human bloodstreams. We have referred these products to FDA for its review. After reviewing test results with EPA and FDA officials, we also spoke with several of the manufacturers of supplements that had trace amounts of contaminants. The manufacturers we spoke with stated that they ensure that their products are tested for contamination, and that these tests have shown that their products do not contain contaminants in excess of regulatory standards. Manufacturers also stated that they comply with all FDA regulations and follow good manufacturing practices as defined by the agency. While the manufacturers we spoke with were concerned about finding any contaminants in their supplements, they noted that the levels identified were too low to raise any issues during their own internal product testing processes. Mr. Chairman, this concludes my statement. I would be pleased to answer any questions that you or other members of the committee may have at this time. For further information about this testimony, please contact Gregory D. Kutz at (202) 512-6722 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Individuals who made major contributions to this testimony were Jonathan Meyer and Andrew O’Connell, Assistant Directors; John Ahern; Dennis Fauber; Robert Graves; Cristian Ion; Elizabeth Isom; Leslie Kirsch; Barbara Lewis; Flavio Martinez; James Murphy; Ramon Rodriguez; Tim Walker; and John Wilbur. To determine whether sellers of herbal dietary supplements are using deceptive or questionable marketing practices to encourage the use of these products, we investigated a nonrepresentative selection of 22 storefront and mail-order retailers selling herbal dietary supplements. We identified these retailers by searching online using search terms likely to be used by actual consumers and by observing newspaper advertisements. Posing as elderly customers, we asked sales staff at each company a series of questions regarding the potential health benefits of herbal dietary supplements as well as potential interactions with other common over-the- counter and prescription drugs. While our work focused on herbal dietary supplements, we also evaluated claims made regarding nonherbal supplement products during undercover storefront visits and telephone calls. We also reviewed written marketing language used on approximately 30 retail Web sites. We evaluated the accuracy of product marketing claims against health benefit evaluations published through the National Institutes of Health and Food and Drug Administration (FDA). To determine whether selected herbal dietary supplements were contaminated with harmful substances, we purchased 40 unique single- ingredient herbal supplement products from 40 different manufacturers and submitted them to an accredited laboratory for analysis. We selected the types of herbs to purchase based on recent surveys about the supplements usage of the elderly, defined for this report as individuals over the age of 65. These surveys identified the most commonly used herbs among the elderly as chamomile, echinacea, garlic, ginkgo biloba, ginseng, peppermint, saw palmetto, and St. John’s wort. We purchased these 40 unique products from a combination of retail chain storefronts and online or mail-order retailers. For each online retailer, we selected products based primarily on relative popularity according to the site’s list of top sellers. At each retail chain storefront, because of limited selection, we selected only items that would be expected to be sold at all chain locations. All 40 products were submitted to an accredited laboratory where they were screened for the presence of lead, arsenic, mercury, cadmium, and residues from organichlorine and organophosphorous pesticides. These contaminants were selected based on prevalence and the likelihood of negative health consequences due to consumption. The recommended daily intake levels of these contaminants and the likely negative health consequences because of consumption were determined based on a review of relevant health standards and discussions with FDA and Environmental Protection Agency experts. For each herbal dietary supplement product, we submitted one unopened, manufacturer-sealed bottle to the laboratory for analysis. To identify levels of arsenic, cadmium, lead, and mercury, products were analyzed using inductively coupled plasma mass spectrometry according to method AOAC 993.14. Detection limits for these contaminants were .075 milligrams/kilogram, .010 milligrams/kilogram, .005 milligrams/kilogram, and .050 nanograms/gram, respectively. To identify levels of pesticide residues, products were analyzed using a variety of residue-specific methods, including those methods published in the FDA Pesticide Analytical Manual. We did not independently validate the results received with another lab or through any other mechanism. See appendix II for a complete list of analytes and their related detection levels. Detection limit (ppm) Detection limit (ppm) Dacthal (DCPA) Diazinon (O Analog) Endosulfan I (alpha-endosulfan) Detection limit (ppm) Detection limit (ppm) Endosulfan II (beta-Endosulfan) Malathion OA (Malaoxon) Detection limit (ppm) Detection limit (ppm) Quintozene (PCNB) S 421 (Octachlordipropylether) Detection limit (ppm) Detection limit (ppm) Parts per million is a measure equivalent to milligrams per kilogram or milligrams per liter. Chlorpyrifos (Dursban) St. John’s wort gamma-HCH (Lindane) Chlorpyrifos (Dursban) Hexachlorobenzene (HCB) Dacthal (DCPA) This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Recent studies have shown that use of herbal dietary supplements--chamomile, echinacea, garlic, ginkgo biloba, and ginseng--by the elderly within the United States has increased substantially. Sellers, such as retail stores, Web sites, and distributors, often claim these supplements help improve memory, circulation, and other bodily functions. GAO was asked to determine (1) whether sellers of herbal dietary supplements are using deceptive or questionable marketing practices and (2) whether selected herbal dietary supplements are contaminated with harmful substances. To conduct this investigation, GAO investigated a nonrepresentative selection of 22 storefront and mail-order retailers of herbal dietary supplements. Posing as elderly consumers, GAO investigators asked sales staff (by phone and in person) at each retailer a series of questions regarding herbal dietary supplements. GAO also reviewed written marketing language used on approximately 30 retail Web sites. Claims were evaluated against recognized scientific research published by the National Institutes of Health (NIH) and the Food and Drug Administration (FDA). GAO also had an accredited lab test 40 unique popular single-ingredient herbal dietary supplements for the presence of lead, arsenic, mercury, cadmium, organichlorine pesticides, and organophosphorous pesticides. Certain dietary supplements commonly used by the elderly were deceptively or questionably marketed. FDA statutes and regulations do not permit sellers to make claims that their products can treat, prevent, or cure specific diseases. However, in several cases, written sales materials for products sold through online retailers claimed that herbal dietary supplements could treat, prevent, or cure conditions such as diabetes, cancer, or cardiovascular disease. When GAO shared these claims with FDA and the Federal Trade Commission (FTC), both agreed that the claims were improper and likely in violation of statutes and regulations. In addition, while posing as elderly customers, GAO investigators were often told by sales staff that a given supplement would prevent or cure conditions such as high cholesterol or Alzheimer's disease. To hear clips of undercover calls, see http://www.gao.gov/products/GAO-10-662T . Perhaps more dangerously, GAO investigators were given potentially harmful medical advice. For example, a seller stated it was not a problem to take ginkgo biloba with aspirin to improve memory; however, FDA warns that combining aspirin and ginkgo biloba can increase a person's risk of bleeding. In another case, a seller stated that an herbal dietary supplement could be taken instead of a medication prescribed by a doctor. GAO referred these sellers to FDA and FTC for appropriate action. GAO also found trace amounts of at least one potentially hazardous contaminant in 37 of the 40 herbal dietary supplement products tested, though none in amounts considered to pose an acute toxicity hazard. All 37 supplements tested positive for trace amounts of lead; of those, 32 also contained mercury, 28 cadmium, 21 arsenic, and 18 residues from at least one pesticide. The levels of heavy metals found do not exceed any FDA or Environmental Protection Agency (EPA) regulations governing dietary supplements or their raw ingredients, and FDA and EPA officials did not express concern regarding any immediate negative health consequences from consuming these 40 supplements. While the manufacturers GAO spoke with were concerned about finding any contaminants in their supplements, they noted that the levels identified were too low to raise any issues internal product testing.

You are an expert at summarizing long articles. Proceed to summarize the following text: VA provides medical services to various veteran populations—including an aging veteran population and a growing number of younger veterans returning from the military operations in Afghanistan and Iraq. VA operates approximately 170 VAMCs, 130 nursing homes, and 1,000 outpatient sites of care. In general, veterans must enroll in VA health care to receive VA’s medical benefits package—a set of services that includes a full range of hospital and outpatient services, prescription drugs, and long-term care services provided in veterans’ own homes and in other locations in the community. The majority of veterans enrolled in the VA health care system receive care in VAMCs and community-based outpatient clinics, but VA may authorize care through community providers to meet the needs of the veterans it serves. For example, VA may provide care through its Care in the Community (CIC) program, such as when a VA facility is unable to provide certain specialty care services, like cardiology or orthopedics. CIC services must generally be authorized by a VAMC provider prior to a veteran receiving care. In addition to the CIC program, VA may also provide care to veterans through the Veterans Choice Program, which was established through the Veterans Access, Choice, and Accountability Act of 2014 (Choice Act), enacted on August 7, 2014. Implemented in fiscal year 2015, the program generally provides veterans with access to care by non-VA providers when a VA facility cannot provide an appointment within 30 days or when veterans reside more than 40 miles from the nearest VA facility. The Veterans Choice Program is primarily administered using contractors, who, among other things, are responsible for establishing nationwide provider networks and scheduling appointments for veterans. The Choice Act created a separate account known as the Veterans Choice Fund, which cannot be used to pay for VA obligations incurred for any other program, such as CIC, without legislative action. The Choice Act appropriated $10 billion to be deposited in the Veterans Choice Fund. Amounts deposited in the Veterans Choice Fund are available until expended and are available for activities authorized under the Veterans Choice Program. However, the Veterans Choice Program activities are only authorized through fiscal year 2017 or until the funds in the Veterans Choice Fund are exhausted, whichever occurs first. As part of the President’s request for funding to provide medical services to veterans, VA develops an annual budget estimate detailing the amount of services it expects to provide as well as the estimated cost of providing those services. VA uses the Enrollee Health Care Projection Model (EHCPM) to develop most of the agency’s estimates of the budgetary needs to meet the expected demand for VA medical services. Like many other agencies, VA begins to develop these estimates approximately 18 months before the start of the fiscal year for which funds are provided. Different from many agencies, VA’s Veterans Health Administration receives advance appropriations for health care in addition to annual appropriations. VA’s EHCPM makes these projections 3 or 4 years into the future for budget purposes based on data from the most recent fiscal year. In 2012, for example, VA used actual fiscal year 2011 data to develop the budget estimate for fiscal year 2014 and the advance appropriation estimate for fiscal year 2015. Similarly, in 2013, VA used actual fiscal year 2012 data to update the budget estimate for fiscal year 2015 and develop the advance appropriation estimate for fiscal year 2016. Given this process, VA’s budget estimates are prepared in the context of uncertainties about the future—not only about program needs, but also about future economic conditions, presidential policies, and congressional actions that may affect the funding needs in the year for which the estimate is made—which is similar to budgeting practices of other federal agencies. Further, VA’s budget estimates are typically revised during the budget formulation process to incorporate legislative and department priorities as well as in response to successively higher level of reviews in VA and OMB. Each year, Congress provides funding for VA health care primarily through the following appropriation accounts: Medical Services, which funds, among other things, health care services provided to eligible veterans and beneficiaries in VA’s medical centers, outpatient clinic facilities, contract hospitals, state homes, and outpatient programs on a fee basis. The CIC program is funded through this appropriation account. Medical Support and Compliance, which funds, among other things, the administration of the medical, hospital, nursing home, domiciliary, construction, supply, and research activities authorized under VA’s health care system. Medical Facilities, which funds, among other things, the operation and maintenance of the Veterans Health Administration’s capital infrastructure, such as costs associated with nonrecurring maintenance, utilities, facility repair, laundry services, and groundskeeping. Our preliminary work suggests that the higher-than-expected obligations identified by VA in April 2015 for VA’s CIC program accounted for $2.34 billion (or 85 percent) of VA’s projected funding gap of $2.75 billion in fiscal year 2015. These higher-than-expected obligations for the CIC program were driven by an increase in utilization of VA medical services across VA, reflecting, in part, VA’s efforts to improve access to care after public disclosure of long wait times at VAMCs. VA officials expected that the Veterans Choice Program would absorb much of the increased demand from veterans for health care services delivered by non-VA providers. However, veterans’ utilization of Veterans Choice Program services was much lower than expected in fiscal year 2015. VA had estimated that obligations for the Veterans Choice Program in fiscal year 2015 would be $3.2 billion, but actual obligations totaled only $413 million. Instead, VA provided a greater amount of services through the CIC program, resulting in total obligations of $10.1 billion, which VA officials stated were much higher than expected for that program in fiscal year 2015. According to VA officials, the lower-than-expected utilization of the Veterans Choice Program in fiscal year 2015 was due, in part, to administrative weaknesses, such as provider networks that had not been fully established, that slowed enrollment in the program and that VAMC staff lacked guidance on when to refer veterans to the program. The unexpected increase in CIC obligations in fiscal year 2015 exposed weaknesses in VA’s ability to estimate costs for CIC services and track associated obligations. While VA officials first became concerned that CIC obligations might be significantly higher than projected in January 2015, they did not determine that VA faced a projected funding gap until April 2015—6 months into the fiscal year. They made this determination after they compared authorizations in the Fee Basis Claims System (FBCS)—VA’s system for recording CIC authorizations and estimating costs for this care—with obligations in the Financial Management System (FMS)—the centralized financial management system VA uses to track all of its obligations, including those for medical services. In its 2015 Agency Financial Report (AFR), VA’s independent public auditor identified the following issues as contributing to a material weakness in estimating costs for CIC services and tracking CIC obligations: VAMCs individually estimate costs for each CIC authorization and record these estimates in FBCS. This approach leads to inconsistencies, because each VAMC may use different methodologies to estimate the costs they record. Having more accurate cost estimates for CIC authorizations is important to help ensure that VA is aware of the amount of money it must obligate for CIC services. VAMCs do not consistently adjust estimated costs associated with authorizations for CIC services in a timely manner to ensure greater accuracy, and they do not perform a “look-back” analysis of historical obligations to validate the reasonableness of estimated costs. Furthermore, centralized, consolidated, and consistent monitoring of CIC authorizations is not performed. FBCS is not fully integrated with VA’s systems for recording and tracking the department’s obligations. Notably, the estimated costs of CIC authorizations recorded in FBCS are not automatically transmitted to VA’s Integrated Funds Distribution, Control Point Activity, Accounting, and Procurement (IFCAP) system, a procurement and accounting system used to send budgetary information, such as obligations, to FMS. According to VA officials, because FBCS and IFCAP are not integrated, at the beginning of each month, VAMC staff must record in IFCAP estimated obligations for outpatient CIC services, and they use historical obligations for this purpose. Depending on the VAMC, these estimated obligations may be entered as a single lump sum covering all outpatient care or as separate estimated obligations for each category of outpatient care, such as radiology. Regardless of how they are recorded, the estimated obligations recorded in IFCAP are often inconsistent with the estimated costs of CIC authorizations recorded in FBCS. In fiscal year 2015, the estimated obligations that VAMCs recorded in IFCAP were significantly lower than the estimated costs of outpatient CIC authorizations recorded in FBCS. VA officials told us that they did not determine a projected funding gap until April 2015, because they did not complete their analysis of comparing estimated obligations with estimated costs until then. In addition, the Chief Business Office (CBO) within the Veterans Health Administration, which is responsible for developing administrative processes, policy, regulations, and directives associated with the CIC program, had not developed and implemented standardized and comprehensive policies for VAMCs, regional networks, and the office itself to follow when estimating costs for CIC authorizations and for monitoring authorizations and associated obligations. This contributed to the material weaknesses the independent public auditor identified in the AFR. The AFR and VA officials we interviewed stated that because CIC was consolidated under CBO in fiscal year 2015 pursuant to the Choice Act, CBO did not have adequate time to implement efficient and effective procedures for monitoring CIC obligations. To address the fiscal year 2015 projected funding gap, on July 31, 2015, VA obtained temporary authority to use up to $3.3 billion in Veterans Choice Program funds for obligations incurred for medical services from non-VA providers, whether authorized under the Veterans Choice Program or CIC, starting May 1, 2015 and ending October 1, 2015. Based on our preliminary work, Table 1 shows the sequence of events that led to VA’s request for and approval of additional budget authority for fiscal year 2015. Our preliminary work also suggests that unexpected obligations for new hepatitis C drugs accounted for $0.41 billion of VA’s projected funding gap of $2.75 billion in fiscal year 2015. Although VA estimated that obligations in this category would be $0.7 billion that year, actual obligations totaled about $1.2 billion. VA officials told us that VA did not anticipate in its budget the obligations for new hepatitis C drugs —which help cure the disease—because the drugs were not approved by the Food and Drug Administration until fiscal year 2014, after VA had already developed its budget estimate for fiscal year 2015. The new drugs costs between $25,000 and $124,000 per treatment regimen, and according to VA officials demand for the treatment was high. Officials told us that about 30,000 veterans received these drugs in fiscal year 2015. In October 2014, VA reprogrammed $0.7 billion within its medical services appropriation account to cover projected obligations for the new hepatitis C drugs, after VA became aware of the drugs’ approval. However, in January 2015, VA officials recognized that obligations for the new hepatitis C drugs would be significantly higher by year end than they expected. VA officials told us that they assessed next steps and then limited access to the drugs to those veterans with the most severe cases of hepatitis C. In June 2015, VA requested statutory authority to transfer funds dedicated to the Veterans Choice Program to VA’s medical services appropriation account to cover the projected funding gap. Our preliminary work indicates that VA has developed new processes to prevent funding gaps for fiscal year 2016 and future years by improving its ability to track obligations for CIC services and hepatitis C drugs. In August 2015, VA issued a standard operating procedure to all VAMCs for recording estimated costs for inpatient and outpatient CIC in FBCS. The procedure, among other things, stipulates that VAMCs are to base estimated costs on historical cost data provided by VA. In addition, VA developed a software patch—released in December 2015 to all VAMCs—that automatically generates estimated costs for CIC authorizations, thereby eliminating the need for VAMC staff to individually estimate costs and record them in FBCS. According to VA officials, these changes should result in more accurate estimated costs for CIC authorizations. However, VA officials told us that accurately estimating the cost of CIC authorizations is challenging because of several unknown factors, such as the number of times a veteran may seek treatment for a recurring condition. In November 2015, VA allocated funds for CIC and hepatitis C drugs to each VAMC. In addition, VA officials told us that to identify VAMCs that may be at risk for exhausting their funds before the end of the fiscal year, VA began tracking VAMCs’ obligations for CIC and hepatitis C drugs through monthly reports. Officials from the Office of Finance within the Veterans Health Administration told us that once a VAMC had obligated its CIC and hepatitis C drug funds, it would have to request additional funds from VA. VA would, in turn, evaluate the validity of a VAMC’s request and determine whether additional funds may be made available. This practice could limit veterans’ access to CIC services or hepatitis C drugs in some locations. Officials told us that these steps are intended to reduce the risk of VAMCs obligating more funds than VA’s budgetary resources allow. In November 2015, VA also issued a policy requiring VAMCs to identify and report on potentially inaccurate estimated costs for CIC authorizations recorded in FBCS and any discrepancies between estimated costs for CIC authorizations recorded in FBCS and the amount of estimated obligations recorded in FMS. According to VA officials, these discrepancies may signal a risk of VA under obligating funds for CIC, leaving VA potentially unable to pay for authorized care. VA’s policy also requires VAMCs to address concerns identified by VAMCs in these reports—such as adjusting unreasonably low estimated costs for CIC authorizations and unreasonably low estimated obligations, to make the estimates more accurate. Under VA’s new policy, network directors are required to certify monthly that the reports have been reviewed and concerns addressed. VA officials told us that these new processes are necessary to help prevent future funding gaps because of the deficiencies in VA’s systems for tracking obligations, which we have described previously. Officials also told us that VA is exploring options for replacing IFCAP and FMS, which officials describe as antiquated systems based on outdated technology, and the department has developed a rough timeline and estimate of budgetary needs to make these changes. Officials told us that the timeline and cost estimate would be refined once concrete plans for replacing IFCAP and FMS are developed. Officials told us that replacing IFCAP and FMS is challenging due to the scope of the project and the requirement that the replacement system interface with various VA legacy systems, such as the Veterans Health Information Systems and Technology Architecture, VA’s system containing veterans’ electronic health records. However, as we have previously reported, VA has made previous attempts to update IFCAP and FMS that were unsuccessful. In October 2009, we attributed these failures to the lack of a reliable implementation schedule and cost estimates, among other factors, and made several recommendations aimed at improving program management. Our preliminary work indicates that VA updated its EHCPM to include data from the first 6 months of fiscal year 2015, reflecting increased health care utilization in that year, which VA officials told us will inform VA’s budget estimate for fiscal year 2017 and advance appropriations request for fiscal year 2018. Without this change, VA would have used actual data from fiscal year 2014 to make its budget estimate and inform the President’s budget request for fiscal years 2017 and 2018. However, as we have previously reported, while the EHCPM projection informs most of VA’s budget estimate, the amount of the estimate is determined by several factors, including the President’s priorities. Historically, the final budget estimate for VA has consistently been lower than the amount projected for modeled services. VA officials told us that they expect any difference between the fiscal year 2017 budget estimate and the amount projected by VA’s model to be made up by greater utilization of the Veterans Choice Program. However, VA’s authority to use Veterans Choice Program funds is only available through fiscal year 2017 or until the funds are exhausted, whichever occurs first. VA has also taken steps to help increase utilization of the Veterans Choice Program. VA issued policy memoranda to VAMCs in May and October 2015, requiring them to refer veterans to the program if timely care cannot be delivered by a VAMC, rather than authorizing care through the CIC program. With statutory authority, VA has also loosened restrictions on veterans’ use of the Veterans Choice Program, eliminating the requirement that veterans must be enrolled in the VA health care system by August 2014 in order to receive care through the program. While data from November 2015 indicate that utilization of care under the Veterans Choice Program has increased, VA officials expressed concerns that utilization would not reach the levels projected for fiscal year 2016 because of continuing weaknesses in implementing the program. For example, in November 2015, VA’s Office of Compliance and Business Integrity identified extensive noncompliance among VAMCs with VA’s policies for implementing the Veterans Choice Program and recommended training for VAMC staff responsible for implementing the program. The office also recommended that VA establish internal controls to ensure compliance with VA’s policies. As of January 2016, VA had not completed a plan for establishing these internal controls. Like other health care payers, VA faces uncertainties estimating the cost of emerging health care treatments—such as costly drugs to treat chronic diseases affecting veterans. VA, like other federal agencies, prepares its budget estimate 18 months in advance of the start of the fiscal year for which funds are provided. At the time VA develops its budget estimate, it may not have enough information to estimate the likely costs for health care services or these treatments with reasonable accuracy. However, by establishing appropriate internal controls, VA can help reduce the risks associated with the weaknesses in its budgetary projections and monitoring. Chairman Miller, Ranking Member Brown, and Members of the Committee, this concludes my statement for the record. If you or your staff members have any questions concerning this statement, please contact Randall B. Williamson, Director, Health Care, at 202-512-7114 or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this statement include Rashmi Agarwal, Assistant Director; Luke Baron; Krister Friday; Jacquelyn Hamilton; and Michael Zose. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

VA projected a funding gap in its fiscal year 2015 medical services appropriation account and obtained temporary authority to use up to $3.3 billion in Veterans Choice Program funding to close this gap. GAO was asked to examine VA's fiscal year 2015 projected funding gap and changes VA has made to help prevent potential funding gaps in future years. This statement is based on GAO's ongoing work and provides preliminary observations on (1) the activities or programs that accounted for VA's fiscal year 2015 projected funding gap in its medical services appropriation account and (2) changes VA has made to prevent potential funding gaps in future years. GAO reviewed data VA provided on its obligations and related documents to determine what activities accounted for the projected funding gap in its fiscal year 2015 medical services appropriation account, as well as the factors that contributed to the projected funding gap. GAO interviewed VA and Office of Management and Budget officials to identify the steps taken to address the projected funding gap. GAO also examined changes VA made to better track obligations and project future budgetary needs. GAO shared the information provided in this statement with VA and incorporated its comments as appropriate. GAO's ongoing work indicates that two areas accounted for the Department of Veterans Affairs' (VA) fiscal year 2015 projected funding gap of $2.75 billion. Specifically, Higher-than-expected obligations for VA's longstanding care in the community (CIC) program—which allows veterans to obtain care from providers outside of VA facilities—accounted for $2.34 billion or 85 percent of VA's projected funding gap. VA officials expected that the new Veterans Choice Program—which was implemented in fiscal year 2015 and also allows veterans to access care from non-VA providers under certain conditions—would absorb veterans' increased demand for care after public disclosure of long wait times. However, administrative weaknesses slowed enrollment into this new program. The unexpected increase in CIC obligations also exposed VA's weaknesses in estimating costs for CIC services and tracking associated obligations. VA officials did not determine that VA faced a projected funding gap until April 2015—6 months into the fiscal year, after they compared estimated authorizations with estimated obligations for CIC. Unanticipated obligations for hepatitis C drugs accounted for the remaining portion—$408 million—of VA's projected funding gap. VA did not anticipate in its budget the obligations for these costly, new drugs, which can help cure the disease, because the drugs did not gain approval from the Food and Drug Administration until fiscal year 2014—after VA had already developed its budget estimate for fiscal year 2015. VA officials told GAO that in fiscal year 2015 about 30,000 veterans received these drugs, which cost between $25,000 and $124,000 per treatment regimen. GAO's ongoing work indicates that VA has taken steps to better track obligations and project future healthcare utilization, but systems deficiencies and budgetary uncertainties remain. Specifically, GAO's preliminary results indicate that VA has taken the following steps: VA issued a standard operating procedure to help VA medical centers (VAMC) more accurately estimate the costs associated with authorizations for CIC. VA directed VAMCs to compare their estimated costs for CIC authorizations with estimated obligations for CIC on a monthly basis. VA allocated funds to each VAMC for CIC and hepatitis C drugs and began tracking VAMCs' obligations with monthly reports. Officials told GAO that once a VAMC has obligated its funds, it would have to request additional funds. VA would determine whether additional funds may be made available. These processes are necessary because continued deficiencies in VA's financial systems present challenges in tracking of obligations. VA updated the model it uses to inform most of its budget estimates for medical services. It now includes more recent data that reflect increased healthcare utilization among veterans in fiscal year 2015. However, VA officials noted uncertainties remain about the forecasted utilization of the Veterans Choice Program and emerging health care treatments, which could affect the accuracy of the health care budget estimates.